Global Markets Introduction

Introduction International Trade Growth International Trade Milestones Largest Exporting & Importing Countries International Trade Drivers International Trade Theories The International Business Environment

International Trade Growth 2008 Growth in International Trade and Share of Selected Countries (in current U.S.$ billions) Source: World Trade Organization 1953 1963 1973 1983 1993 2003 2007 Europe 39.4% 47.8% 50.9% 43.5% 45.4% 45.9% 42.4% United States 18.8% 14.9% 12.3% 11.2% 12.6% 9.8% 8.5% Japan 1.5% 3.5% 6.4% 8.0% 9.9% 5.2% China 1.2% 1.3% 1.0% 2.5% 5.9% 8.9% Rest of the World 39.1% 32.5% 29.4% 36.1% 29.6% 32.0% 35% World Total 84 157 579 1,838 3,677 7,375 13,619

International Trade Milestones Bretton Woods Conference 1944 1945 International Monetary Fund 1st General Agreement on Tariffs and Trade 1948 1957 Treaty of Rome World Trade Organization 1995 1999/ 2002 Creation of the Euro

Largest Exporting Countries (2008) Rank Exporting Country Value Share 1 Germany 1,326.4 9.5% 2 China 1,217.8 8.7% 3 United States 1,162.5 8.3% 4 Japan 712.8 5.1% 5 France 553.4 4.0% 6 The Netherlands 551.3 7 Italy 491.5 3.5% 8 United Kingdom 437.8 3.1% 9 Belgium 430.8 10 Canada 419.0 3.0% 11 South Korea 371.5 2.7% 12 Russia 355.2 2.5% 13 Hong Kong 349.4 14 Singapore 299.3 2.1% 15 Mexico 272.0 2.0% Top fifteen exporters 8,950.7 64.1% Rest of the World 4,999.3 35.9% Total 13,950.0 100% Source: World Trade Organization

Largest Importing Countries (2008) Rank Importing Country Value Share 1 United States 2,020.4 14.2% 2 Germany 1,058.6 7.4% 3 China 956.0 6.7% 4 Japan 621.1 4.4% 5 United Kingdom 619.6 6 France 615.2 4.3% 7 Italy 504.5 3.5% 8 The Netherlands 491.6 9 Belgium 413.2 2.9% 10 Canada 389.6 2.7% 11 Spain 372.6 2.6% 12 Hong Kong 370.1 13 South Korea 356.8 2.5% 14 Mexico 296.3 2.1% 15 Singapore 263.2 1.8% Top fifteen importers 9,348.8 65.6% Rest of the World 4,895.2 34.4% Total 14,244.0 100% Source: World Trade Organization

International Trade Drivers Spread costs over larger number of units and find low- cost suppliers Cost Driver Follow competitor to new foreign market or expand market share Competitive Driver Increased uniformity of consumer tastes and preferences Market Driver Increased access to information and easy access to new customers over the internet Technology Driver

International Trade Theories When a nation can produce a certain good more efficiently than other countries, it will trade for other products Adam Smith – Absolute Advantage Theory Nations will trade as long as they can produce some goods relatively more efficiently David Ricardo – Comparative Advantage Theory A country will enjoy a comparative advantage if it is naturally endowed with many factors of economic production Heckscher-Ohlin Factor Endowment Theory During its life cycle, a product will be manufactured in different countries Raymond Vernon – International Product Life Cycle It is critical to have similar firms concentrated in one geographic area Michael Porter – Cluster Theory

Smith – Absolute Advantage The absolute advantage theory states that when a nation can produce a certain type of good more efficiently than other countries, it will trade with countries that produce other goods more efficiently. Liters of Wine Units of Machinery France 20,000 2 Germany 15,000 3 In this case, we assume both countries are using the same amount of labor in the same time frame. France has an absolute advantage in producing wine and Germany has an absolute advantage in producing machinery. As a result, France will specialize in making wine and Germany in making machinery. They will then trade with each other.

Ricardo – Comparative Advantage The comparative advantage theory states that nations will trade with one another as long as they can produce certain goods relatively more efficiently than one another. Tons of Wheat Units of Machinery UK 25 5 Brazil 21 3 The UK has an absolute advantage in both machinery and wheat. However, in the UK, the relative price of 1 unit of machinery is 5 tons of wheat, and in Brazil, it is 7 tons of wheat. The nations will trade: If the UK sells 1 unit of machinery to Brazil for 6 units of wheat, both the UK and Brazil are better off. The UK has a comparative advantage in producing machinery, Brazil in growing wheat.

Heckscher-Ohlin Factor Endowment The factor endowment theory holds that a country will enjoy a comparative advantage over other countries if it is naturally endowed with a greater abundance of one of the factors of economic production. Factors of Economic Production 1. Land 2. Labor 3. Capital 4. Entrepreneurship Country Abundance Advantage Argentina Grazing Land Beef India Educated Labor Call centers USA Economic system where entrepreneurship is rewarded Innovation & development of intellectual property

International Product Life Cycle The International Product Life Cycle theory explains that, over its life, a product will be manufactured in different types of countries, in stages, generating trade between these countries. Stage 1 Product is created in developed country, using new technology and serving a market need. Stage 2 As sales grow, competitors start to make similar products in other developed countries, responding to local needs. Stage 3 Manufacturing of product has become routine and costs need to be reduced, and production moves to developing countries.

International Product Life Cycle

Porter – Cluster Theory The cluster theory argues that competitive clusters form when companies in the same industry, as well as their suppliers, concentrate in one geographic area. When this happens, the companies “feed” on each other’s know-how, pushing them to innovate faster. They become so efficient and innovative that they become world-class suppliers.

Cluster Theory Cluster Examples: Silicon Valley, California, U.S. – Information technology Sassuolo, Italy – Ceramic tiles Limoges, France – Porcelain Genève, Switzerland – Watches Yiwu, China – Socks & hosiery Elkhart, Indiana, U.S. – Recreational Vehicles

International Business Environment Marketing Cultures Finance Economics Travel Language Study Foreign Contacts

International Business Environment To be successful in international trade management, not only is it important to have an understanding of trade management, but it is also fundamental to understand the international environment. This can be achieved by learning a foreign language, taking classes in international economics, international finance, inter-cultural communication, and international marketing, but also by traveling frequently, meeting foreign nationals, and making an effort to understand what is happening in foreign countries.