Business 100 Introduction to Business Dr. Kathy Broneck

Review Economics

Preview Global Markets Trading Import/Export Strategies Forces that affect trade E-commerce Free market vs. protectionism

Growing World Population In Billions Source: Source: Population Reference Bureau

Global Market Terms Goods Tangible products Services Intangible products Importing Goods and services from other countries into your country Exporting Goods and services from your country into other countries

Why Trade With Other Nations?  No nation can produce all its needs  Mutually beneficial exchange  Natural Resources or Technology- Produce or Buy?

Leading Goods Exporters/Importers (2001) CountryExportsImports United States 731 1,180 Germany Japan France United Kingdom World Total6,155 6,441 In Billion $ Source: World Trade Organization

Leading Services Exporters/Importers (2001) CountryExports Imports United States Germany Japan France United Kingdom World Total1,460 1,445 In Billion $ Source: World Trade Organization

U.S. Trading Partners RegionExportsImports Asia 26.5% 36.3% West. Europe North America Latin America Middle East Africa C./E. Europe/ Baltic States/CIS Total 100% 100% Source: World Trade Organization, 2001

Comparative and Absolute Advantage Comparative Advantage Theory Sell products that are effectively and efficiently produced Buy products that cannot be effectively and efficiently produced Absolute Advantage Advantage of a country Monopoly Produce it more effectively

CountryStrengths United States Technology, R & D Spending Finland Univ. Enrollment, Efficient Legal System, Business Ethics Taiwan Cell-phone Ownership, Tech. Innovation, Local Firms Competitiveness Singapore Savings Rate, Math/Science Education, Political Trust Sweden H.S. Enrollment, Press Freedom, Phone Access Global Competitiveness

Measuring Trade Balance of Trade Imports : Exports Trade Deficit Imports > Exports Balance of Payments $ from Exports - $ from Imports + = favorable - = unfavorable

U. S. Trade in Goods & Services ($ Billions) Source: St. Louis Business Monthly, Oct & World Trade Organization Balance of Trade

Sources of U.S. Oil Imports In Millions of Barrels Source: USA Today

US Trade Experience Debtor Nation A nation that is owed less foreign currency obligations than it owes other nations Dumping Selling in a foreign country at lower prices than in own country

Foreign Direct Investments In U.S. Source: U.S. Commerce Dept.

Strategies for Global Markets  Licensing  Exporting  Franchising  Contract Manufacturing/ Outsourcing  Joint Ventures  Strategic Alliances  Subsidiaries-MNCs (Multi-National Companies)  Foreign Direct Investment

World’s Largest MNCs Revenue ($Billions) 1) Wal-Mart Stores 217 2) Exxon Mobil 213 3) General Motors 175 4) BP 174 5) Ford Motor 162 6) Daimler Chrysler 136 7) Royal Dutch/Shell Group 135 8) General Electric 125 9) Toyota Motor ) Mitsubishi112

Forces Affecting Trading in Global Markets Socio-cultural Economic & Financial Legal & Regulatory Physical & Environmental Trade Protectionism Global E-Commerce-Future

Days of Annual Vacation Source: AAA World

Cultural Differences in Global Markets  Language  Religion  Values & Attitudes  Aesthetics  Materialism

Did You Know?  In Turkey it’s rude to cross your arms while you are facing someone.  In the Arab world the left hand is considered unclean; don’t eat with it!  In India never pat someone’s head, it’s the seat of the soul.  The Chinese associate gifts such as straw sandals, clocks and handkerchiefs with funerals.

Most Valuable Global Business Languages Source: Accountemps Poll

Economic & Financial Forces  No Worldwide Currency  Currency Fluctuations  Floating Exchange Rates  Bartering/Countertrading

Developing Countries Need Infrastructure 1.2 billion people lack clean drinking water 2 billion people lack electricity 2 billion people lack electricity 3 billion people lack adequate sanitation

Legal & Regulatory Forces Inconsistent Laws & Regulations Foreign Corrupt Practices Act of 1978 No “dubious” payments to foreign officials to secure business Local Business Contact Required Sponsorship of local companies

Free Trade Trading goods and services without political or economical trade barriers Different countries have different trade agreements NAFTA European Union …upcoming slide

Protectionism Mercantilism Nation sells more goods to other nations creating a favorable balance of trade Tariffs Protective Raise Retain Price More Competitive Revenue Raise money for government Fledgling Businesses

Protectionism Import Quota Limiting Numbers of a Product Embargo Complete ban on product Nontariff Barriers-Keiretsu (care-yet-sue) Corporate alliences with government (Japan)

Trade Agreements General Agreement on Tariffs & Trade (GATT) (1948) International forum Negotiate mutual reductions in trade restrictions Uruguay Round of GATT (1986) Lower Tariffs Extend Rules Agriculture, services, patent protection

Trade Agreements World Trade Organization (WTO) (1995) Replaced GATT Mediates trade disputes between nations Common Markets European Union (EU) 15 nations; 12 under the Euro Mercosur Brazil, Argentina, Paraguay, Uruguay (Chile & Bolivia) North American Free Trade Agreement (1994) Canada, Mexico, US

Future Global Trade o People’s Republic of China- Permanent Normal Trade Relations/Rights o Russia & Others o Internet o Technology- Obstacles/Problems