Global Analysis Chapter 4

Nature of International Trade What are some items you have seen that were made or manufactured in some other country? Marketplace existence The need for trade International trade The exchange of G’s & S’s among nations Imports Purchased from other countries Exports Sold to other countries Controlled by the governments involved

Interdependence of Nations Write down 1 commodity that you believe we generally purchase as an import. Top Imports Why have imports? Unique resources and capabilities Absolute advantage Occurs when a country has natural resources or talents that allow it to produce an item at the lowest cost possible China – produces 80% of all silk = absolute advantage Comparative advantage The value that a nation gains by selling what it produces most efficiently Well suited for their country – low skilled labor???

Benefits of International Trade Consumers Producers Workers Nations Competition that the foreign companies offer – encourages high-quality and low prices Producers can expand by conducting operations in other countries – 1/3 of profit of US businesses Can lead to higher employment rates home and abroad Toyota = over 50million jobs in US Nations benefit due to increased foreign investment = increased standard of living and options

Government Involvement of International Trade All nations control and monitor their trade United States Monitors imports through the customs division of the U.S. Treasury Department Imports subject to search and review Exports (and international traveling) must meet customs requirements

Government Involvement of International Trade Balance of Trade The difference in value between exports and imports of a nation (AKA Net exports) Positive Balance of Trade = Surplus Negative Balance of Trade = Deficit US = largest exporter AND large trade deficit Consequences Reduction in GDP Debt Increased unemployment To survive, US relies on foreign investors to buy US Securities

Government Involvement of International Trade: Trade Barriers Free trade is favored; however, barriers are placed to limit trade Tariff Quota Embargo AKA duty A tax on imports Used to produce revenue Minimal in US Protective tariff Generally high Purpose: to increase price of imports for domestic competition Limits quantity or value of a product that may be imported Purpose: to control quantity imported for domestic competition Also can be used strategically to improve relations (limit exports) Total ban on specific goods coming in or out US embargoed Chilean grapes in 1989 (1 wk) Political differences US lifted its 30 year embargo with Vietnam in 1994 Protectionism Restriction of imports in order to protect domestic industries Subsidies Gov’t funds to industries to compete Most noted: agriculture Excess to export at low cost

Governments make agreements with each other to establish guidelines Government Involvement of International Trade: Trade Agreements and Alliances Governments make agreements with each other to establish guidelines World Trade Organization (WTO) North American Free Trade Agreement (NAFTA) European Union (EU) Coalition of nations that makes rules governing international trade WTO was created to police the agreements by GATT (General Agreement on Tariffs and Trade) Supporters believe globalization and expansion of trade increased wealth Maintained and expanded through a borderless economy Minimizing trade wars Critics are concerned with democracy, labor rights, environment An international trade agreement among the US, Canada, and Mexico Main goal: get rid of all trade barriers and investment restrictions among the three by 2009 Canada and Mexico were top purchasers of US exports in 2010 (32.2%) Canada and Mexico were 2nd & 3rd top importers to US in 2010 (26.5%) Created to establish free trade among member nations, single currency (Euro), and a central bank Everything that the EU does is founded on treaties, voluntarily and democratically agreed by all member countries.

Review Explain the nature of international trade What are the two key reasons why embargoes are imposed? What is the common goal or purpose of the WTO, NAFTA, and the EU trade agreements International trade is the exchange of G’s & S’s between nations Two reasons are health reasons, as in contaminated products, and political or diplomatic reasons The common goal of all three agreements is to establish trade guidelines and set up trading alliances

Global Environmental Scan Environmental scan involves looking at the outside influences that may have an impact on an organization. (PEST) How would you use those factors to evaluate a country’s marketing opportunities and threats? PEST – Political, economic, socio-cultural, and technological

PEST Political Factors Government stability Trade regulations and laws Changes in the government=reluctant investors Madagascar Trade regulations and laws Reduced tariffs, laws to protect intellectual property, increase in percentage of business ownership allowed by foreign investors China Madagascar – Political influence article that have changed the country, investments, etc. China – 2007 production using lead in the paint on the toys that were making kids sick

PEST Economic Factors Infrastructure Labor Force Employee Benefits Telephone service, roads, energy plants, telecommunication Bad for some companies, good for others? Labor Force Quality and cost of labor: education and skills, customary wages, employment laws Employee Benefits Most countries require companies to provide/pay Assuming a bad infrastructure – bad = inability to expand, operate efficiently, etc. Good= companies who create infrastructure can blossom (construction workers, road pavers, etc.)

PEST Economic Factors Taxes Standard of Living Foreign Exchange Rate On property and profit (reduced for a specified time?) Standard of Living Income to sustain the company (products) Foreign Exchange Rate Changes daily NY is offering 10 years of tax free operations if you open a business in NYS (given some stipulations) Standard of living: you cannot sell bottled water for $1.50 in Madagascar when their daily wage is $2. Foreign Exchange: depending if importing or exporting, exchange rates can be beneficial

Socio-cultural Factors PEST Socio-cultural Factors Cross cultural analysis Language and symbols Differences in language and customs, symbols China: 4=Death, sets of 6 or 8 instead Holidays and Religious Observances India= Cow is sacred – McDonald’s Social and Business Etiquette Gift giving expectations vs. illegal **McDonald’s has chicken, fish, and vegetarian options in India to accommodate their cultural beliefs **It is expected that lavish gifts will be given in the Far East; however, it is illegal to give gifts in the US as it is deemed a bribe

Technological Factors PEST Technological Factors Most basic (voltage) to high tech Country Profiles – World Factbook Baidu vs. Google World Factbook – communications – look through, choose, and see differences between countries Baidu is the primary search engine in China. It is quite sensored and China had blocked Google for some time. Google agreed to have some restrictions to enter the market in China; however, banned has since been lifted. Baidu currently has more than 50% of the market share

Global Marketing Strategies In planning and making decisions about the marketing mix, global marketers need to consider all the factors analyzed for the environmental scan (PEST) Globalization Selling the same product and using the same promotion methods in all countries Small portion can get away with this = global brand recognition (Coke, MS) Adaptation Customization Adaptation: Alterations to accommodate the culture Customization: a brand new product, promotion, etc for the country/culture

Chapter 5 Supply and Demand

Demand and Supply P = Price Qd = Quantity Demanded Qs= Quantity Supplied Where is the equilibrium point? Equilibrium occurs at $65 where Qd and Qs are equal at 3400 units.

Price and Quantity on Y and X axis Price is on Y axis in $15 increments Quantity is on x axis in 1000 unit increments

Equilibrium: Supply and Demand Graphed Qd and Qs plotted given different price levels. The higher the price, the more producers are willing to supply and the less the consumers are willing to buy The lower the price, the more consumers are willing to buy and the less producers are willing to supply. Given more supply in the market = overage (a price above equilibrium) Given more demand in the market = shortage (a price below equilibrium)

Demand and Supply Full curve is considered Demand and/or Supply. Each point is considered the quantity demanded or quantity supplied at that particular price.

Non-Price Determinants Demand Supply Number of buyers Tastes and Preferences Income Complementary Substitutes Future Expectations Number of Suppliers Input prices Future Expectations Technology Taxes and Subsidies Weather conditions (as appropriate) Price will never change the demand or supply curve The determinants of demand or supply will alter their respective curves

Decrease in Demand

Increase in Demand

Increase in Supply

Decrease in Supply

What curves and what changes would the following cause? Increase in number of competitors in an area Increase in number of buyers of hotdogs in the hotdog roll market Advertising increase in a competitors good (semi-equal substitute) Freezing conditions in the south affecting orange crops Income rises affecting the market for luxury cars Increase of the cost of wood affecting the market for building sheds Subsidy provided for wheat affecting the bread market Price of oil goes down affecting the market for gasoline Increase in supply curve Increase in demand for hotdog rolls Decrease in demand Decrease in supply Increase in demand for luxury cars Decrease in supply for sheds Increase in supply in the bread market Increase in demand for gasoline, decrease in supply for supply (could be the same price, but different quantity depending on the amount of change of each) I did not state expected price. 