1. Doing Business In Global Markets
Chapter 03
Doing Business In Global Markets
McGraw-Hill/Irwin
Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.

2. LEARNING GOALS
Chapter Three
Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
Explain the importance of importing and exporting, and understand key terms used in global business.
Illustrate the strategies used in reaching global markets and explain the role of multinational corporations.
Evaluate the forces that affect trading in global markets.
Debate the advantages and disadvantages of trade protectionism.
Discuss the changing landscape of the global market and the issue of offshore outsourcing.
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3. BUSINESS in the GLOBAL MARKET
The Dynamic Global Market
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Over 90% of companies doing business globally believe it is important for employees to have international experience.
U.S. organizations (like UPS, MLB, the NFL and the NBA) are also expanding abroad.
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4. IMPORTING and EXPORTING
The Dynamic Global Market
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Importing -- Buying products from another country.
Exporting -- Selling products to another country.
The U.S. is the largest importing and the third largest exporting nation in the world.
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5. TRADING with OTHER NATIONS
Why Trade With Other Nations?
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Countries with abundant natural resources (like Venezuela or Russia) need technological resources from other countries (like Japan).
Global trade allows countries to produce what they make best and buy what they need from others.
Free Trade -- The movement of goods and services among nations without political or economic barriers.
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6. HOW FREE TRADE BENEFITS the WORLD
Why Trade With Other Nations?
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Global trade has led the world in a new direction:
Literacy rates worldwide have increased from 56% in 1950 to 89% in 2011.
Life expectancy in less developed areas rose from 40.9 years in 1950 to 69 years in 2011.
Source: The World Bank, June 2011.
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7. COMPARATIVE and ABSOLUTE ADVANTAGE
The Theories of Comparative and Absolute Advantage
COMPARATIVE and ABSOLUTE ADVANTAGE
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Comparative Advantage -- A country should sell the products it produces most efficiently and buy from other countries the products it cannot produce as efficiently.
Absolute Advantage -- A country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries.
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8. GOING GLOBAL with a SMALL BUSINESS
Getting Involved in Global Trade
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Small businesses may be the key in global job growth.
Only 1% of U.S. small businesses export, yet they account for 30% of total U.S. exports.
President Obama wants small businesses to help double exports by
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9. WHOM DOES the U.S. OWE? Countries that Own the Most U.S. Debt
Getting Involved in Global Trade
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Source: HuffPost Business, March 2, 2011.
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10. GETTING INVOLVED in IMPORTING
Importing Goods and Services
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Students attending schools abroad tend to notice products that they’re used to are unavailable in their new country.
By working with producers in their native country, some become importers while still in school.
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11. GETTING INVOLVED in EXPORTING
Exporting Goods and Services
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Exporting provides a great boost to the U.S. economy.
It’s estimated every $1 billion in U.S. exports generate over 7,000 U.S. jobs.
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12. HOW to MEASURE GLOBAL TRADE
Measuring Global Trade
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Balance of Trade -- The total value of a nation’s exports compared to its imports measured over a particular period.
Trade Surplus (Favorable) -- When the value of a country’s exports is more than that of its imports.
Trade Deficit (Unfavorable) -- When the value of a country’s exports is less than that of its imports.
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13. BALANCE of PAYMENTS
Measuring Global Trade
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Balance of Payments -- The difference between money coming into a country (from exports) and money leaving the country (from imports) plus other money flows.
The goal is to have more money flowing into a country than out – a favorable balance.
An unfavorable balance is when more money flows out of a country.
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14. UNFAIR TRADE PRACTICES
Measuring Global Trade
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Dumping -- Selling products in a foreign country at lower prices than those charged in the producing country.
Dumping is prohibited.
China, Brazil and Russia have been penalized for dumping steel in the U.S.
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15. KEY STRATEGIES for REACHING GLOBAL MARKETS
LG3
International joint ventures and strategic alliances
Contract
Manufacturing
Foreign direct investment
Licensing
Exporting
Franchising
Least
Amount of commitment, control, risk and profit potential
Most
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16. EXPORT ASSISTANCE CENTERS and EXPORT TRADING CENTERS
Exporting
LG3
EACs provide hands-on exporting assistance and trade-finance support for small and medium- sized businesses that wish to directly export goods and services.
ETCs help companies engage in indirect exporting by:
Matching buyers and sellers.
Dealing with foreign customs offices, documentation, and conversions.
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17. MULTINATIONAL CORPORATIONS
Foreign Direct Investment
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Multinational Corporation -- A company that manufactures and markets products in many different countries and has multinational stock ownership and management.
Not all large global businesses are multinational.
Only firms that have manufacturing capacity or some other physical presence in different nations can truly be multinational.
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18. SOVEREIGN WEALTH FUNDS
Foreign Direct Investment
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Sovereign Wealth Funds (SWFs) -- Investment funds controlled by governments holding large stakes in foreign companies.
The size of the funds and the fact that they are government-owned make some fear they might be used for:
Geopolitical objectives.
Gaining control of strategic natural resources.
Obtaining sensitive technologies.
Undermining the management of the companies in which they invest.
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19. FORCES AFFECTING GLOBAL TRADE
Forces Affecting Trading in Global Markets
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Sociocultural
Economic and Financial
Legal and Regulatory
Physical and Environmental
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20. CULTURAL DIFFERENCES
Socio-cultural Forces
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To be involved in global trade, you must be aware of the cultural differences among nations including:
Social Structures
Religion
Manners
Values
Language
Personal Communication
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21. EXCHANGE RATES
Economic and Financial Forces
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Exchange Rate -- The value of one nation’s currency relative to the currencies of other countries.
High value of the dollar – Dollar is trading for more foreign currency; foreign goods are less expensive.
Low value of the dollar – Dollar is trading for less foreign currency; foreign goods are more expensive.
Currencies float in value depending on the supply and demand for them in the global market.
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22. DEVALUATION and COUNTERTRADING
Economic and Financial Forces
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Devaluation -- Lowers the value of a nation’s currency relative to others.
Countertrading -- Complex form of bartering in which several countries each trade goods or services for other goods or services.
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23. LEGAL CONCERNS OVERSEAS
Legal and Regulatory Forces
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There’s no global system of laws.
Laws may be inconsistent.
U.S. businesses must follow U.S. laws while conducting global business.
The Organization for Economic Cooperation and Development (OECD) and Transparency International fight to end corruption and bribery in foreign markets and have had limited success.
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24. ENVIRONMENTAL FORCES
Physical and Environmental Forces
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Developing countries have transportation and storage systems that make international distribution difficult or impossible.
Often, technological capabilities are far from those in the U.S. which make for a tough business environment.
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25. TRADE PROTECTIONISM
Trade Protectionism
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Trade Protectionism -- The use of government regulations to limit the import of goods and services.
Advocates of protectionism believe it allows domestic producers to survive, grow and produce jobs. .
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26. TARIFFS
Trade Protectionism
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Tariffs -- Taxes on imports, making imported goods more expensive.
Two kinds of tariffs:
Protective – Raise the retail price of imports so domestic goods are competitively priced.
Revenue – Raise money for governments.
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27. IMPORT QUOTAS and EMBARGOS
Trade Protectionism
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Import Quota -- Limits the number of products in certain categories a nation can import.
Embargo -- A complete ban on the import or export of a certain product or the stopping of all trade with a particular country.
Political disagreements can lead to embargos, like the U.S. embargos against Cuba, Iran and North Korea.
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28. WORLD TRADE ORGANIZATION
The World Trade Organization
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General Agreement on Tariffs and Trade (GATT) --
A global forum for reducing trade restrictions on goods, services, ideas and cultural problems.
World Trade Organization (WTO) -- Headquartered in Geneva, the WTO is an independent entity of 153 member nations whose purpose is to oversee cross-border trade issues and global business practices.
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29. COMMON MARKETS
Common Markets
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Common Market -- A regional group of countries with a common external tariff, no internal tariffs and coordinated laws to facilitate exchange among members.
The European Union (EU), Mercosur, the ASEAN and the COMESA are common markets.
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30. EU MEMBERS
Common Markets
LG5
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31. NAFTA
The North American and Central American Free Trade Agreements
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North American Free Trade Agreement -- Ratified in 1994, created a free-trade area among the United States, Canada and Mexico.
Central American Free Trade Agreement -- Passed in 2005, created a free-trade zone with Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua
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32. NEW FREE TRADE AGREEMENTS
The North American and Central American Free Trade Agreements
NEW FREE TRADE AGREEMENTS
LG5
Today, free trade agreements are being negotiated with South Korea, Colombia and Panama.
The U.S. is considering an agreement with a nine-nation free trade bloc called the Trans- Pacific Partnership.
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33. FUTURE of GLOBAL TRADE
The Future of Global Trade
LG6
With over 1.3 billion people, China has transformed the world economic map. Many multinationals invest heavily in China.
India has seen huge growth in information technology, pharmaceuticals and biotechnology.
Russia is a large oil producing country with many multinationals interested in developing there.
Brazil is expected to be one of the wealthier economies by 2030.
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34. Photo Courtesy of: Vitor Lima
OUTSOURCING
The Challenge
of Offshore Outsourcing
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Outsourcing -- Process by which a firm contracts with other companies to do some or all of its functions.
U.S. firms have outsourced payroll functions, accounting and manufacturing for years.
With the growth of global markets, companies have been shifting to offshore outsourcing – outsourcing with other countries.
Photo Courtesy of: Vitor Lima
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35. PLAN for YOUR GLOBAL CAREER
Globalization
and Your Future
LG6
Study foreign languages.
Learn about foreign cultures.
Take global business courses.
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