part Chapter © 2009 The McGraw-Hill Companies, Inc. All rights reserved. 1 McGraw-Hill Business in Global Markets 1 Chapter 3

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 2 McGraw-Hill 1.Define global business. 2.Understand the importance of global trade. 3.Discuss the roles of comparative and absolute advantage in global trade. 4.Discuss the two indicators for measuring global trade. 5.Describe different types of trade protections and trade agreements. 6.Discuss the different strategies for reaching global markets. 7.Explain the forces affecting the global trade market. Learning Objectives

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 3 McGraw-Hill Global business Cultural changes Global Trade US vs. Global Market Thomas Friedman – “The World is Flat” Exporting and Importing Why Trade Globally? Reasons to trade Free trade Understanding Globalization

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 4 McGraw-Hill Global trade David Ricardo’s comparative advantage theory Absolute advantage –Difficult to sustain Comparative Advantage and Absolute Advantage

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 5 McGraw-Hill Balance of Payments and Trade Deficits Two key factors –Balance of trade Trade surplus/deficit –Balance of payments Unfair trade Practices Dumping Gray Market Measuring Trade

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 6 McGraw-Hill Trade protectionism Two kinds of tariff –Protective –Revenue Import quota Embargo Non-tariff barriers –Keiretsu Trade Protection and Agreements

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 7 McGraw-Hill Trade Protection and Agreements The General Agreement on Tariffs and Trade and the WTO General Agreement on Tariffs and Trade (GATT) World Trade Organization (WTO) Common Markets European Union (EU) Mercosur

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 8 McGraw-Hill Trade Protection and Agreements Organization of the Petroleum Exporting Countries (OPEC) 12 member organization’s mission: –Coordinate & unify policies –Ensure price stability –Provide efficient & regular supply

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 9 McGraw-Hill North American Free Trade Agreement (NAFTA) Objectives –Eliminate trade barriers –Promote conditions of fair competition –Increase investment opportunities –Provide protection & enforcement –Establish framework Success and difficulties Trade Protection and Agreements

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 10 McGraw-Hill Strategies for Reaching Global Markets

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 11 McGraw-Hill Licensing Additional revenues Extended timeframe Firm may lose secrets Exporting Export Assistance Centers (EACs) Export Trading Companies Franchising Franchise Agreement (Franchisor & Franchisee) Product adaptation Strategies for Reaching Global Markets

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 12 McGraw-Hill Strategies for Reaching Global Markets Contract Manufacturing Outsourcing Experiment in new markets and/or meet unexpected increase in orders Major disadvantage: Laws are different International Joint Ventures and Strategic Alliance Benefits –Shared technology, marketing, risk, market entry Greenfield investment Strategic alliance

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 13 McGraw-Hill Strategies for Reaching Global Markets Foreign Direct Investment Foreign subsidiary Expropriation Multinational corporation

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 14 McGraw-Hill Forces Affecting Trade in Global Markets Socio-cultural Forces –Culture –Ethnocentricity Religion –Most important of socio-cultural forces Human resource management –Employee training on culture Communication –Global marketing –“Think global, act local.”

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 15 McGraw-Hill Forces Affecting Trade in Global Markets Economic and Financial Forces Exchange rate Bartering Counter-trading

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 16 McGraw-Hill Forces Affecting Trade in Global Markets Legal and Regulatory Forces No central law in global markets Physical and Environmental Forces Technological constraint The Future of Global Trade Advanced communication Unprecedented growth