McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 3-1 Chapter 33 Competing in Global Markets 3-1

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 3-2 Growing World Population In Billions Source: Source: Population Reference Bureau

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 3-3 Company % of Earnings From Outside U.S. Source: Investment Advisor, August 2000

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 3-4 Why Trade With Other Nations?  No nation can produce all its needs  Mutually beneficial exchange  Natural Resources or Technology- Produce or Buy?

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 3-5 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 Baltic States/CIS Total 100% 100% Source: World Trade Organization, 2001

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 3-6 Theories of Advantage Output per Unit of Input Comparative U. S. China Software China Clothing

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 3-7 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

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 3-8 Theories of Advantage Absolute Output per Unit of Input Diamond Production South Africa The Rest of the World = Virtual Monopoly = Virtual Monopoly

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 3-9 Global Trade Goods & Services  Importing  Exporting Measuring Trade  Balance of Trade/Payments  Trade Deficit

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved McDonald’s International Menu PhilippinesMcSpaghetti GermanyMcBeer SwitzerlandVegi Mac MalaysiaSugar Cane Juice NetherlandsCappuccino Donuts GreeceShrimp, Veggie Burgers, & Spring Rolls (sold during Lent)

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved U. S. Trade in Goods & Services ($ Billions) Source: St. Louis Business Monthly, Oct & World Trade Organization Balance of Trade

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved U.S. Trade Experience Balance of Payments Debtor Nation Foreign Direct Investment Dumping

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Sources of Foreign Direct Investments In the U.S. Source: U.S. Commerce Dept.

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Strategies for Reaching Global Markets  Licensing  Exporting  Franchising  Contract Manufacturing  Joint Ventures  Strategic Alliances  Subsidiaries-MNCs  Foreign Direct Investment

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Forces Affecting Trading in Global Markets Socio-cultural Socio-cultural Economic & Financial Economic & Financial Legal & Regulatory Legal & Regulatory Physical & Environmental Physical & Environmental Trade Protectionism Trade Protectionism Global E-Commerce-Future Global E-Commerce-Future

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Cultural Differences in Global Markets  Language  Religion  Values & Attitudes  Aesthetics  Materialism

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved 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.

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved What’s the 2 nd Most Valuable Global Business Language? Source: Accountemps Poll

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Economic & Financial Forces  No Worldwide Currency  Currency Fluctuations  Floating Exchange Rates  Bartering/Countertrading

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Developing Countries Need Infrastructure 1.2 billion people lack clean drinking water 1.2 billion people lack clean drinking water 3 billion people lack adequate sanitation 3 billion people lack adequate sanitation 2 billion people lack electricity 2 billion people lack electricity

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Legal & Regulatory Forces 1.Inconsistent Laws & Regulations 2.Foreign Corrupt Practices Act of Local Business Contact Required

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Protectionism MercantilismTariffsProtectiveRevenue Import Quota Embargo Nontariff Barriers-Keiretsu

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Trade Agreements General Agreement on Tariffs & Trade (1948)General Agreement on Tariffs & Trade (1948) Uruguay Round of GATT (1986)Uruguay Round of GATT (1986) Lower TariffsLower Tariffs Extend RulesExtend Rules World Trade Organization (1995)World Trade Organization (1995) Common MarketsCommon Markets European Union (EU)European Union (EU) MercosurMercosur North American Free Trade Agreement (1994)North American Free Trade Agreement (1994)

McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Future Global Trade o People’s Republic of China- Permanent Normal Trade Relations/Rights o Russia & Others o Internet o Technology- Obstacles/Problems