1. Competing In The Global Market
Bus& 101 Chapter 03
Competing In The Global Market

2. Goals Global Markets Importing, Exporting and Global Business Terms
Free Trade
Comparative Advantage
Absolute Advantage
Strategies to Reach Global Markets
What Forces affect trading in Global Markets
Advantages and Disadvantages of Trade Protectionism
Offshore Outsourcing

3. World Population By Continent
The U.S. is the largest importing nation in the World!

4. Growing World Population
In Billions
Also available on a Transparency Acetate
See Learning Goal 1: Discuss the growing importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
Growing World Population
This slide illustrates the tremendous growth of world population.
From the year 2010, to 2030, population is expected to increase by 2 billion people, or a 31% increase. By year 2060, growth is expected to increase by 66%.
World population estimates and projections are based on an analysis of 227 countries or areas with a population of 5,000 or more. (Source: World Population Profile.)
Ask the students what combination of solutions business must engage in to reduce hunger and prevent starvation? (Mention controls on population growth in developing countries; discuss technology improvements and the ability to produce significant quantities of food using biotech processes.)
Source: Population Reference Bureau

5. Globe 300 million people in USA 6.7 Billion people in world
194 countries

6. Import/Export Importing Exporting Buying products from another country
The U.S. is the largest importing nation in the world
Exporting
Selling products to another country
Germany 1st, USA 2nd, China 3rd (textbook)

7. Leading Goods Exporters
dicators/displaystory.cfm?story_id=

8. Why Trade With Other Nations?
No nation can produce all that they needs
Some nations can produce things more cheaply than others
Some countries have natural resources that other countries do not
Oil is only found in some countries

9. Why Trade With Other Nations?
In the USA cabinet makers and wooden airplane and boomerang makers get all their birch plywood from Finland and the Baltics
Why? Because Finland and the Baltics have a natural source of birch plywood that the USA does not.
The cost that the USA would pay if it made the wood in the USA is more than if it is made in Finland and shipped to the USA

10. What Products does the USA Export?
Machines
Autos
Aircrafts
Medical equipment
Apples and Beef to Mexico
Boomerangs to Europe and Japan

11. Why Is Global Trade Beneficial?
Global trade enables a nation to produce what it is most capable of producing and to buy what it needs from others in a mutually beneficial exchange relationship. This happens through a process called Free Trade
Free Trade
The movement of goods and services among nations without political or economic barriers

12. Free Trade Comparative Advantage Theory (David Ricardo 19th c)
Theory that states that a country should sell to other counties those products that it produces most effectively and efficiently, and buy from other countries those products that it cannot produce as effectively or efficiently
USA and India
India can run call centers and accounting/bookkeeping tasks more efficiently than USA
USA can create software more effectively & efficiently than many other countries

13. Free Trade Absolute Advantage
The advantage that exists when a country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries
South Africa used to have an absolute advantage with diamonds

14. Output per Unit of Input
Theories of Advantage
Comparative
U. S.
China
See Learning Goal 1: Discuss the growing importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
See text pages: 60-62
China
U. S.
Output per Unit of Input
Software
Clothing

15. Output per Unit of Input
Theories of Advantage
Absolute
= Virtual Monopoly
South Africa
See Learning Goal 1: Discuss the growing importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
See text pages: 60-62
Output per Unit of Input
The Rest of the World
Diamond Production

16. Small Business & Free Trade
Do small businesses import and export?

17. Global Competitiveness
Country
Strengths
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
Also available on a Transparency Acetate
See Learning Goal 1: Discuss the growing importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
Global Competitiveness
1. This slide distinguishes countries’ strengths compared to others.
2. Interesting notes:
Finland – Finnish 15 year olds have the highest standard of reading literacy in the world. (Source: Virtual Finland.)
Taiwan – Information technology represents a $50 billion foreign exchange earner. The largest in the world behind the U.S. and Japan.
Singapore – The U.S. – Singapore Free Trade Agreement represents America’s first agreement with an Asian country. Benefits to the U.S. include cheaper imports, less tax, and improved market access.

19. U. S. Trade in Goods & Services (Billions)
Balance of Trade
Also available on a Transparency Acetate
See Learning Goal 2: Explain the importance of importing and exporting, and understanding key terms used in global business
U.S. Trade in Goods & Services ($Billions)
This slide shows the significant increase of imports compared to exports by the U.S. since 1975.
Some interesting facts:
In 1975, Exports were slightly higher than imports.
The nation’s international deficit (Difference between exports and imports) of goods and services for June 2003 was (-39.5 billion, we imported 39.5 billion more than we exported.)
As of 2005, the trade deficit for the United States was $548 billion.
Ask the students if it’s more desirable to have more imports or exports relative to each other? (Historically, most economists would prefer a slight imbalance of exports versus imports.)
Source: St. Louis Business Monthly, Oct & World Trade Organization & Wikipedia

20. Balance Of Trade Balance of Trade = Total Exports – Total Imports
Trade Deficit
Balance of Trade is negative = Total Exports – Total Imports
100 – 200 = -100
Trade Surplus
Balance of Trade is positive = Total Exports – Total Imports
200 – 100 = 100
It is advantageous if a country has more flowing out of the country than in (we are selling more)

21. Balance Of Payments
The difference between money coming into a country (from exports) and money leaving the country (for imports) Plus money from other factors such as tourism, foreign aid, military expenditures, and foreign investment

22. Balance Of Payments (Money Flow)
Balance of Payments = Total Exports – Total Imports +/- (tourism + foreign aid + military expenditures + foreign investment + other)
It is advantageous if a country has more money flowing into the country than out (we are probably selling more)

23. Dumping
Selling products in a foreign country at lower prices than those charged in the producing country
China was accused of dumping apple concentrate (apple juice) on USA market at an unreasonably low price
Japan was accused of dumping steel in USA

24. Strategies To Reach Global Markets
Licensing
Exporting
Franchising
Contract Manufacturing
Joint Ventures
Joint Ventures & Strategic Alliances
Foreign Direct Investment
Multinational Corporations

25. Strategies To Reach Global Markets

26. Licensing And Franchising
A global strategy in which a firm (the licensor) allows a foreign company (the licensee) to produce its product or use trademark in exchange for a fee (a royalty)
Disney
Advantage: Create new revenue with few setup costs
Disadvantage: Transfer of knowledge
Franchising
Arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell a product or service to others in a given territory in a specified manner
Shell, Dunkin Donuts, McDonalds
These two things are similar

27. Contract Manufacturing (Outsourcing)
A foreign country’s production of private-label goods to which a domestic company then attaches its brand name or trade mark
Nike and Mattel

28. International Joint Ventures & Strategic Alliances
A partnership in which two or more companies join to undertake a major project. 2 create new company.
Examples: Nummi,
Strategic Alliances
A long-term partnership between two or more companies established to help each company build competitive market advantage. 2 remain independent companies.
Unlike Joint Adventures in that they typically do not share: costs, risks, managements, profits
Examples: Microsoft & Facebook (2007), Verizon Wireless & Google
Advantages: Two minds are often better than one; Entry into new markets that not otherwise allow entry
Disadvantages: Your secrets (business advantage) may be shared

29. Foreign Direct Investment
The buying of permanent property and businesses in foreign nations
Usually, the legal environment of both countries must be observed
Examples: Toyota, Honda, Mercedes
Foreign Subsidiary
A Parent company in one country buys a company in another country
Advantage: control over proprietary information
Disadvantage: within another county

30. Multinational Corporation
An organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management
Nestle

31. World’s Largest MNCs

32. Forces Affecting Trading In Global Markets
Socialcultural Forces
Economic Forces
Financial Forces
Legal & Regulatory Forces
Physical and Environmental Forces

33. Socialcultural Forces
Culture
The values, beliefs, rules and institutions held by a specific group of people
Culture can include: social structure, religion, manners and customs, values & attitudes, language…
In order to do business in another country you must understand the culture
American businesspeople are notoriously bad at understanding other cultures (ethnocentric)
Japanese companies like Toyota are good at adapting to USA culture

34. Language Coors Brewing slogan KFC slogan
“Turn It Loose” was translated into Spanish that read:
“Suffer From Diarrhea”
KFC slogan
“finger-lickin’ good” was translated into Japanese that read
“Bite Your Fingers Off”

35. 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.
Also available on a Transparency Acetate
See Learning Goal 4: Evaluate the forces that affect trading in global markets.
Did you Know?
1. Some very fascinating cultural and social differences exist in other nations.
2. Discuss the following interesting points:
a. A smile in Japan can mean that a person is uncomfortable or sad.
b. When traveling to Sweden, make appointments two weeks in advance.
c. Lack of punctuality is a fact of life in Brazil. Become accustomed to waiting.
3. Review the following helpful hints when dealing globally:
a. Be culturally savvy. Learn about the culture, language, and dress code.
b. Recognize the importance of dealing with cultural differences and consequences of taking no action.
c. Manage and learn to appreciate various cultures.
d. Build a database of information about each country where you have business relationships.

36. Economic Forces
Economic facts like high unemployment, low or high income levels, or recessions affect what kind of opportunities there are for businesses

37. There is no worldwide currency
Financial Forces
There is no worldwide currency
USA uses dollars, Japan uses yen, China uses the Yuan
Exchange rate
The value of one nation’s currency relative to the currencies of others

38. Exchange Rates

39. Exchange Rates
A high value of the dollar means that a dollar would be traded for more foreign currency than before
Example:
$1 is traded for ¥6 (Chinese Yuan), and then it goes up: $1 is traded for ¥6.5.
The $1 could buy more in China
The dollar has a higher value and so it can buy more from China
Foreign goods become cheaper when the dollar is high
China can buy less from us

40. Exchange Rates
A low value of the dollar means that a dollar would be traded for less foreign currency than before
$1 is traded for ¥6 (Chinese Yuan), and then it goes down: $1 is traded for ¥5.5.
The $1 could buy less in China
The dollar has a lower value and so it can buy less from China
Foreign goods become more expensive when the dollar is low
China could buy more from us

41. Exchange Rates From USA’s point of view, a high value of the dollar
More Imports
Fewer Exports
From USA’s point of view, a low value of the dollar
More Exports
Fewer Imports

42. Floating Exchange Rate
Most Exchange Rates are set by supply and demand (Float)
This can be a great risk for business because as currencies go up and down, revenues and expenses will go up and down
Devaluation
Lowering the value of a nation’s currency relative to other currencies
Counties sometimes do this to make their products cheaper for other countries to buy

43. Fluxuations in Foreign Exchange Rates
Can cause businesses expenses to go up or down
Can cause businesses revenues to go up or down
Business use currency derivatives to hedge against exchange rate movements

44. Countertrading
A complex form of bartering in which several countries may be involved, each trading goods for goods or services for services. Accounts for about 20% of global exchanges.

45. Legal & Regulatory Forces
No central system of law exists
Conducting business in many counties with inconsistent laws is difficult and adds to the expense and risk of doing business globally
American companies are not allowed to give briberies (Foreign Corrupt Practices Act of 1978) even though some counties require it (Competitive Disadvantage for American companies)

46. Physical And Environmental Forces
Some countries do not have
Efficient transportation systems
Legal systems
Infrastructure
Internet
E-commerce?
European appliances
This can make doing business nearly impossible

47. Trade Protectionism
The use of government regulations to limit the import of goods and services
Tariff
Import Quota
Embargo

48. Trade Protectionism Tariff Import Quota Embargo
A Tax imposed on imports to keep jobs at home and help businesses survive
Revenue Tariff
Designed to raise money for government
Protective Tariff
Designed to raise price of foreign products (help domestic producers)
Examples in 2000s in USA: Steele, Textiles and Sugar industries
Import Quota
Limit import quantity
Embargo
Complete ban on import or export

49. Trade Protectionism Advocates Opponents
Help business to survive and grow
Help infant businesses to grow
Keep jobs at home
Opponents
Free trade is inhibited
Long-term growth and productivity are reduced

50. Common Market
A regional group of countries that have a common external tariff, no internal tariffs, and a coordination of laws to facilitate exchange
Also called a trading bloc
Example: European Union, NAFTA

51. Organizations That Try To Reduce Barriers To Free Trade
GATT (General Agreement on Tariffs and Trade)
A 1948 agreement that established an international form for negotiating mutual reductions in trade restrictions
WTO (World Trade Organization)
Replaced GATT
Helps to mediate trade disputes

52. NAFTA (North American Free Trade Agreement)
Free-trade agreement between Mexico, Canada and the USA
Goals
Eliminate trade barriers to help facilitate cross-border movement of goods/services
Promote fair competition
Increase investment opportunities
Increase protection of intellectual property rights (patents, etc.)
Improve working conditions

53. Opponents Advocates NAFTA Loss of USA jobs Capital leaves USA
Exploit workers in Mexico
Pollute Mexico
Advocates
Open new markets
Resources more efficiently allocated
Trade has dramatically increase between the 3 countries
Largest trade bloc in terms of GDP – helps to compete with European Union

54. NAFTA: http://useconomy.about.com/od/tradepolicy/tp/NAFTA_Facts.htm
Pro
Con
Increased Trade
Boosted U.S. Farm Exports
Created Trade Surplus in Services
Reduced Oil and Grocery Prices
Stepped Up Foreign Direct Investment
U.S. Jobs Were Lost
U.S. Wages Were Suppressed
Mexico's Farmers Were Put Out of Business
Maquiladora Workers Were Exploited
Mexico's Environment Deteriorated

55. NAFTA Facts From Textbook Other fact sources Try Goggling this:
USA exports increased from $135 billion to $250 billion
Trade volume amongst all three has gone from $289 billion to $930 billion
US Department of Labor estimates that 500,000 USA jobs have been lost
Annual per capita income in Mexico is about $9,000 and in the USA it is about $36,000
Some argue that working conditions have become more unsafe in Mexico
Other fact sources
acts.htm
Try Goggling this:
current facts about NAFTA

56. Future Of Global Trade The world is more connected:
The Internet has allowed the follow of information to be just a mouse click away
Offshore Outsourcing 

58. Pro’s & Con’s of Offshore Outsourcing
More focus on areas where they can excel and grow
Outsourced work creates efficiencies, resulting in hiring more workers
Fuels global market growth
Con’s
Jobs lost/wages fall
Reduces product quality
Communication becomes much more difficult
See Learning Goal 6: Discuss the changing landscape of the global market and the issue of offshore outsourcing.
See text pages:81-82

59. Global Markets, Comparative Advantage And Absolute Advantage
Comparative Advantage means that countries should produce what they can produce most efficiently and buy from others what they cannot produce most efficiently. If countries can do this everyone is better off.

60. Global Markets, Comparative Advantage And Absolute Advantage
Why trade with other countries?
Countries have what other countries need, or want what other countries have
Natural resources and technological skills are not distributed evenly around the world
Markets have become more global to try and realize the benefits promised by free trade and competitive advantage

61. Importing, Exporting And Global Business Terms
Free Trade
Balance of Trade
Balance of Payments
Exporting
Importing

62. Strategies To Reach Global Markets
Licensing
Exporting
Franchising
Contract Manufacturing
Joint Ventures
Joint Ventures & Strategic Alliances
Foreign Direct Investment
Multinational Corporations

63. What Forces Affect Trading In Global Markets
Socio-cultural
Economic & Financial
Legal & Regulatory
Physical & Environmental

64. Advantages And Disadvantages Of Trade Protectionism
Advocates
Help business to survive and grow
Help infant businesses to grow
Keep jobs at home
Opponents
Free trade is inhibited
Long-term growth and productivity are reduced

65. The Global Markets And Offshore Outsourcing
The trend is towards:
More business on-line
More offshore Outsourcing

66. Thee Cs
Character
Competence
Commitment

67. Li Yifei, President Of MTV Networks China, Is A Strong Example Of A Global Business Person
Speaks different languages
Understands cultural differences between countries
Understands economic differences between countries

68. Economic Growth Depends On
Open markets
But are markets really open?
What about the farming payments from the USA government that distort prices and prevent cheaper imports?
Global trade
What about the faulty and dangerous products from China?
Lead paint on toys
Poison in baby food
But what if we grew most of our own food in our state instead of importing so much food?

69. This Textbook And Most Economists Assume That Economic Growth Is A Positive And Without It People Will Be Less Well Off
Is this always true?
What about self-sustaining tribes in South America that don’t grow or shrink?
What about increased pollution in China that has accompanied fast economic growth?