2 Nature of International Trade What are some items you have seen that were made or manufactured in some other country?Marketplace existenceThe need for tradeInternational tradeThe exchange of G’s & S’s among nationsImportsPurchased from other countriesExportsSold to other countriesControlled by the governments involved
3 Interdependence of Nations Write down 1 commodity that you believe we generally purchase as an import.Top ImportsWhy have imports?Unique resources and capabilitiesAbsolute advantageOccurs when a country has natural resources or talents that allow it to produce an item at the lowest cost possibleChina – produces 80% of all silk = absolute advantageComparative advantageThe value that a nation gains by selling what it produces most efficientlyWell suited for their country – low skilled labor???
4 Benefits of International Trade ConsumersProducersWorkersNationsCompetition that the foreign companies offer – encourages high-quality and low pricesProducers can expand by conducting operations in other countries – 1/3 of profit of US businessesCan lead to higher employment rates home and abroadToyota = over 50million jobs in USNations benefit due to increased foreign investment = increased standard of living and options
5 Government Involvement of International Trade All nations control and monitor their tradeUnited StatesMonitors imports through the customs division of the U.S. Treasury DepartmentImports subject to search and reviewExports (and international traveling) must meet customs requirements
6 Government Involvement of International Trade Balance of TradeThe difference in value between exports and imports of a nation (AKA Net exports)Positive Balance of Trade = SurplusNegative Balance of Trade = DeficitUS = largest exporter AND large trade deficitConsequencesReduction in GDPDebtIncreased unemploymentTo survive, US relies on foreign investors to buy US Securities
7 Government Involvement of International Trade: Trade Barriers Free trade is favored; however, barriers are placed to limit tradeTariffQuotaEmbargoAKA dutyA tax on importsUsed to produce revenueMinimal in USProtective tariffGenerally highPurpose: to increase price of imports for domestic competitionLimits quantity or value of a product that may be importedPurpose: to control quantity imported for domestic competitionAlso can be used strategically to improve relations (limit exports)Total ban on specific goods coming in or outUS embargoed Chilean grapes in 1989 (1 wk)Political differencesUS lifted its 30 year embargo with Vietnam in 1994ProtectionismRestriction of imports in order to protect domestic industriesSubsidiesGov’t funds to industries to competeMost noted: agricultureExcess to export at low cost
8 Governments make agreements with each other to establish guidelines Government Involvement of International Trade: Trade Agreements and AlliancesGovernments make agreements with each other to establish guidelinesWorld Trade Organization (WTO)North American Free Trade Agreement (NAFTA)European Union (EU)Coalition of nations that makes rules governing international tradeWTO was created to police the agreements by GATT (General Agreement on Tariffs and Trade)Supporters believe globalization and expansion of trade increased wealthMaintained and expanded through a borderless economyMinimizing trade warsCritics are concerned with democracy, labor rights, environmentAn international trade agreement among the US, Canada, and MexicoMain goal: get rid of all trade barriers and investment restrictions among the three by 2009Canada and Mexico were top purchasers of US exports in 2010 (32.2%)Canada and Mexico were 2nd & 3rd top importers to US in 2010 (26.5%)Created to establish free trade among member nations, single currency (Euro), and a central bankEverything that the EU does is founded on treaties, voluntarily and democratically agreed by all member countries.
9 Review Explain the nature of international trade What are the two key reasons why embargoes are imposed?What is the common goal or purpose of the WTO, NAFTA, and the EU trade agreementsInternational trade is the exchange of G’s & S’s between nationsTwo reasons are health reasons, as in contaminated products, and political or diplomatic reasonsThe common goal of all three agreements is to establish trade guidelines and set up trading alliances
10 Global Environmental Scan Environmental scan involves looking at the outside influences that may have an impact on an organization.(PEST)How would you use those factors to evaluate a country’s marketing opportunities and threats?PEST – Political, economic, socio-cultural, and technological
11 PEST Political Factors Government stability Trade regulations and laws Changes in the government=reluctant investorsMadagascarTrade regulations and lawsReduced tariffs, laws to protect intellectual property, increase in percentage of business ownership allowed by foreign investorsChinaMadagascar – Political influence article that have changed the country, investments, etc.China – 2007 production using lead in the paint on the toys that were making kids sick
12 PEST Economic Factors Infrastructure Labor Force Employee Benefits Telephone service, roads, energy plants, telecommunicationBad for some companies, good for others?Labor ForceQuality and cost of labor: education and skills, customary wages, employment lawsEmployee BenefitsMost countries require companies to provide/payAssuming a bad infrastructure – bad = inability to expand, operate efficiently, etc. Good= companies who create infrastructure can blossom (construction workers, road pavers, etc.)
13 PEST Economic Factors Taxes Standard of Living Foreign Exchange Rate On property and profit (reduced for a specified time?)Standard of LivingIncome to sustain the company (products)Foreign Exchange RateChanges dailyNY is offering 10 years of tax free operations if you open a business in NYS (given some stipulations)Standard of living: you cannot sell bottled water for $1.50 in Madagascar when their daily wage is $2.Foreign Exchange: depending if importing or exporting, exchange rates can be beneficial
14 Socio-cultural Factors PESTSocio-cultural FactorsCross cultural analysisLanguage and symbolsDifferences in language and customs, symbolsChina: 4=Death, sets of 6 or 8 insteadHolidays and Religious ObservancesIndia= Cow is sacred – McDonald’sSocial and Business EtiquetteGift giving expectations vs. illegal**McDonald’s has chicken, fish, and vegetarian options in India to accommodate their cultural beliefs**It is expected that lavish gifts will be given in the Far East; however, it is illegal to give gifts in the US as it is deemed a bribe
15 Technological Factors PESTTechnological FactorsMost basic (voltage) to high techCountry Profiles – World FactbookBaidu vs. GoogleWorld Factbook – communications – look through, choose, and see differences between countriesBaidu is the primary search engine in China. It is quite sensored and China had blocked Google for some time. Google agreed to have some restrictions to enter the market in China; however, banned has since been lifted. Baidu currently has more than 50% of the market share
16 Global Marketing Strategies In planning and making decisions about the marketing mix, global marketers need to consider all the factors analyzed for the environmental scan (PEST)GlobalizationSelling the same product and using the same promotion methods in all countriesSmall portion can get away with this = global brand recognition (Coke, MS)AdaptationCustomizationAdaptation: Alterations to accommodate the cultureCustomization: a brand new product, promotion, etc for the country/culture
18 Demand and Supply P = Price Qd = Quantity Demanded Qs= Quantity SuppliedWhere is the equilibrium point?Equilibrium occurs at $65 where Qd and Qs are equal at 3400 units.
19 Price and Quantity on Y and X axis Price is on Y axis in $15 incrementsQuantity is on x axis in 1000 unit increments
20 Equilibrium: Supply and Demand Graphed Qd and Qs plotted given different price levels.The higher the price, the more producers are willing to supply and the less the consumers are willing to buyThe lower the price, the more consumers are willing to buy and the less producers are willing to supply.Given more supply in the market = overage (a price above equilibrium)Given more demand in the market = shortage (a price below equilibrium)
21 Demand and SupplyFull curve is considered Demand and/or Supply. Each point is considered the quantity demanded or quantity supplied at that particular price.
22 Non-Price Determinants DemandSupplyNumber of buyersTastes and PreferencesIncomeComplementarySubstitutesFuture ExpectationsNumber of SuppliersInput pricesFuture ExpectationsTechnologyTaxes and SubsidiesWeather conditions (as appropriate)Price will never change the demand or supply curveThe determinants of demand or supply will alter their respective curves
27 What curves and what changes would the following cause? Increase in number of competitors in an areaIncrease in number of buyers of hotdogs in the hotdog roll marketAdvertising increase in a competitors good (semi-equal substitute)Freezing conditions in the south affecting orange cropsIncome rises affecting the market for luxury carsIncrease of the cost of wood affecting the market for building shedsSubsidy provided for wheat affecting the bread marketPrice of oil goes down affecting the market for gasolineIncrease in supply curveIncrease in demand for hotdog rollsDecrease in demandDecrease in supplyIncrease in demand for luxury carsDecrease in supply for shedsIncrease in supply in the bread marketIncrease in demand for gasoline, decrease in supply for supply (could be the same price, but different quantity depending on the amount of change of each) I did not state expected price.