1. Chapter 3 Doing Business in a Global Market
Did You Know?

2. World Trade Importing Exporting
Buying products from entities in other countries
Exporting
Selling products to entities in other countries
Trick question: Do we import or export Nissan vehicles?

3. WORLD POPULATION by CONTINENT*
WORLD POPULATION by CONTINENT
The Dynamic Global Market *
LG1
See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
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4. Theory of Free Trade
Nations trade with each other without political or economic barriers, such as:
Embargos
Tariffs
Quotas
Punitive standards
Anti-dumping and other legislation
Great because of new customers, more competition
Bad comes with lower wages and standards.
Dumping can occur:
A competitor charges below production costs or below what it charges in its own country to attract customers.

5. National Advantage Comparative advantage Absolute advantage
Some nations can produce things more efficiently or effectively than others; that is, they give up less to produce.
Nations should produce the things that they can produce while sacrificing less than other nations.
Absolute advantage
Happens when a nation produces something more efficiently or effectively than anyone else.
Can happen because of natural resources.
Doesn’t mean, though, that the nation should produce that product to the detriment of others.

6. *
WHERE ARE THEY FROM? Countries of Origin for World’s Most Powerful Brands
The Dynamic Global Market *
LG1
U.S. – 51 brands
Germany – 9 brands
Japan – 8 brands
France – 8 brands
U.K. – 6 brands
Switzerland – 5 brands
See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
Where Are They From?
A large percentage of the world’s most powerful brands originate from the U.S.
Ask students: What creates a powerful brand? What brands are the most powerful?
Why do the majority of powerful brands trace their origin to the U.S.? (Since the United States has the largest economy in the world brands tend to originate there due to consumer demand.)
Some Top Brands:
USA – Coca-Cola, IBM, Microsoft, Disney, McDonald’s and Apple
Germany – Mercedes-Benz, BMW, Siemans and Adidas
Japan – Toyota, Honda, Sony, Canon and Nintendo
France – Louis Vuitton, L’Oreal, AXA and Chanel
U.K. – Burberry, Reuters, BP and HSBC
Switzerland – Nescafe, Rolex, UBS, Nestle and Cartier
Source: World Features Syndicate and Interbrand.com.
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7. *
CAN YOU SPARE a DIME? Home Countries for Some of the World’s Billionaires
The Dynamic Global Market *
LG1
U.S. – 359 billionaires
Germany – 54 billionaires
Russia – 32 billionaires
China – 28 billionaires
India – 24 billionaires
U.K. – 25 billionaires
Canada – 20 billionaires
See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
Can You Spare a DIME?
The United States has the most billionaires in the world.
Ask students: Why does the United States have more billionaires than any other country in the world? (There are many reasons why this is true. We have a larger population than some of the other countries on the slide, so it would stand to reason that we would have more billionaires than those countries. However, some of the countries listed have a larger population than the United States, namely India and China. In the United States there is less regulation on businesses and wages/salaries are much higher.)
Source: Forbes, March 30, 2009.
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8. Balance of Trade and Payments
Exports - imports
Many feel that a trade deficit is unfavorable and shows national production weakness
Balance of payments
Money flowing in-money flowing out
The U.S. has found itself in a trade deficit, but a favorable balance of payments.

9. HOW FREE TRADE BENEFITS the WORLD*
HOW FREE TRADE BENEFITS the WORLD
Why Trade With Other Nations? *
LG1
Global trade has led the world in a new direction:
Literacy rates worldwide have increased from 56% in 1950 to 84% in 2006.
Life expectancy in less developed areas rose from 40.9 years in 1950 to 70.1 years in 2006.
See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
How Free Trade Benefits the World
Often it is difficult for students to see how world trade has improved the living conditions of millions of the world’s poorest individuals.
This slide shows some of the improvement in literacy rates and life expectancy since These improvements in the standard of living can be somewhat attributed to free trade.
From The Economist January 26, 2008 print edition: twenty-five years ago two-thirds of the population or 600 million people were living in extreme poverty (on less than $1 a day). Now, the number living on $1 a day is below 180 million and yet the world’s population has increased.
To start a discussion ask the students: Why has China been able to improve the living conditions of so many of its citizens in the last twenty-five years? (More liberal economic policies have led to greater economic growth and an increase in the standard of living for individuals)
Source: The Progressive Policy Institute, World Health Organization .
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10. Review Questions Does the U.S. import more goods or export more goods?
Why might this actually be O.K.?
What does it mean for one nation to have a comparative advantage?
If one nation can produce a product more efficiently than other nations, must it put all of its efforts into that product? Why?
What is dumping? Why does it happen?

11. WHO DOES the U.S. OWE? Countries that Own the Most U.S. Debt*
WHO DOES the U.S. OWE? Countries that Own the Most U.S. Debt
Getting Involved in Global Trade *
LG2
See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
Who Does the U.S. Owe
1. As the world’s largest debtor nation the United States relies on other countries purchasing debt as an investment.
2. OPEC Nations include: Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, U.A.E., Venezuela.
3. Ask students: What are the ramification of U.S. indebtedness on its population? (Answers to this question will vary but may include: lost sovereignty, weakening of the U.S. dollar and a loss of purchasing power as import prices rise, inflation and an increase in taxes.)
Source: U.S. Dept. of Treasury, January 31, 2009.
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12. KEY STRATEGIES for REACHING GLOBAL MARKETS*
KEY STRATEGIES for REACHING GLOBAL MARKETS
Strategies for Reaching Global Markets *
LG3
International joint ventures and strategic alliances
Contract
Manufacturing
Foreign direct investment
Licensing
Exporting
Franchising
See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
When senior management elects to expand internationally, they have a wide range of options available to them. Such options range from licensing with the least risk all the way to foreign direct investment with the most risk. A few examples to be shared during this portion of the lecture include: Coca-Cola’s use of licensing, McDonald’s use of franchising, Nike’s use of contract manufacturing, Volkswagen’s joint venture in China and Toyota’s foreign direct investment in the United States.
Least
Amount of commitment, control, risk and profit potential
Most
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13. Market Entry Strategies
Licensing
Allowing a foreign firm to manufacture your product or use your trademarks
They pay you a royalty
Franchising
a business sells others the rights to use the name and sell a product/service in a given area.
Domino’s Pizza
Exporting
Selling a product, sometimes through an intermediary, in a foreign market

14. TIME to MAKE the DONUTS… Dunkin’ Donuts Flavors in Taiwan*
TIME to MAKE the DONUTS… Dunkin’ Donuts Flavors in Taiwan
Franchising *
LG3
Sweet Potato
Honeydew Melon
Corn Crumb Soft Rice Cake
Green Apple
Kiwi Fruit
Mango
Pineapple
Strawberry
See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
What’s on Your Donuts
Students should enjoy this slide. It shows the cultural influence with donuts preferences.
Ask the students: What type of donuts do they enjoy? Would they prefer sweet potato, or green apple, or mango on their donuts?
Ask the students: What modifications do companies need to make when they go to different countries like the ones shown in this slide? (Students should point out the need to understand and research the market and cultural/customer preferences and then offer what the customers want.)
Source: World Features Syndicate.
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15. Market Entry Strategies
Contract manufacturing
A foreign company produces private-label goods to which a domestic company then attaches its own brand name or trademark.
Strategic alliances
Long-term, mutually beneficial partnerships
Joint ventures
New company created by partners
Joint Venture:
A partnership in which two or more companies join to undertake a major project.
By definition, two companies form a new company for that project.

16. * * THAT’S at MCDONALD’S?
Franchising *
LG3
Malaysia: Bubur Ayam McD – Chicken strips in porridge with onions, ginger, and shallots.
Egypt: Mcarabia – Grilled chicken with tehina sauces, lettuce, tomato and onion on Arabic bread.
Japan: Teritama – Teriyaki burger topped with an egg.
Germany: Want a beer with your burger? You can order one in the German stores.
Israel: Operates using Kosher kitchens.
See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
McDonald’s Items Worldwide
Per the company’s website. McDonald’s is a leader in franchising and the company operates in 118 different countries.
This slide gives students an insight into some of the changes McDonald’s has made to its menu when operating in the world market.
Ask students why the leading provider of American style fast-food adopted different menu items? (Like all successful companies, McDonald’s has adapted its menu to meet the different needs of its customers worldwide.)
Source: McDonalds, March 2009.
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17. Review Questions
How is contract manufacturing different from licensing?
Which one would be called “outsourcing?”
How can strategic alliances be used to ease entry into a foreign market? What could be gained?
How can exporting be made simple?

18. Foreign Direct Investment
Setting up shop in a foreign country
The buying of permanent property and businesses in foreign nations.
Offices
Manufacturing
Taxes paid to that country
Expropriation (seizure of assets)
Also called a greenfield venture
Highest level of risk due to investment

19. Forces Impacting Multinational Firms
Multinational Corporation -- A company that manufactures and markets products in many different countries and has multinational stock ownership and management.
Ethnocentrism
Protectionism
Cultural differences
So many economies dependent on each other
Exchange rates
Differences in politics and laws from country to country

20. EXCHANGE RATES *
Economic and Financial Forces *
LG4
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.
See Learning Goal 4: Evaluate the forces that affect trading in global markets.
The floating exchange rate system creates transaction risk. If the U.S. dollar is trading for more foreign currency it is said to be getting stronger. When the U.S. dollar is trading for less foreign currency it is said to be getting weaker. Since the breakdown of the Bretton Woods agreement in 1971, the value of the U.S. currency has generally trended downward versus major world currencies.
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21. * * TARIFFS Tariffs -- Taxes on imports. Two kinds of tariffs:
Trade Protectionism *
LG5
Tariffs -- Taxes on imports.
Two kinds of tariffs:
Protective – Raise the retail price of imports so domestic goods are competitively priced.
Revenue – Raise money for governments.
See Learning Goal 5: Debate the advantages and disadvantages of trade protectionism.
While a tariff may end up raising revenue for the government it ultimately costs consumers more money in the long run. Due to tariff rates on the importation of sugar consumers in the United States end up paying close to 50 percent more for sugar than the rest of the world.
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22. IMPORT QUOTAS and EMBARGOS*
IMPORT QUOTAS and EMBARGOS
Trade Protectionism *
LG5
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. embargo against Cuba.
See Learning Goal 5: Debate the advantages and disadvantages of trade protectionism.
The United States also maintains an embargo against Iran and North Korea.
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23. Who’s In Charge of This? In short? No one.
However, the World Trade Organization was formed in 1995 to mediate national trade disputes based on some common principles of fairness.
Some countries form common markets or trade alliances to improve their positions in the global market (EU, NAFTA, Mercosur, ASEAN).

24. Review Questions
What is the most risky, most expensive, most strategically intense form of entry into a foreign market called? Another name?
Give one example of how a cultural difference could adversely affect a business deal.
How can exchange rates erase a company’s profit margin overnight?

25. Review Questions
Why does it make sense to trade heavily within one’s own trade alliance?
Why would we want to expand NAFTA to include South and Central America?

26. Is Outsourcing an Issue We Should Be Afraid Of?
Not if you believe in the power of the market to stabilize itself.
The U.S. has lost jobs to other countries; HOWEVER
Those jobs have been made up in other sectors
We continue to innovate to make better jobs for our citizens than those that we are losing.
Outsourcing has lowered our companies’ cost structures.
If you believe that survival of the fittest is an appropriate philosophy for a society, then outsourcing is not something to be afraid of.

27. NAFTA or SHAFTA? (Legal Briefcase)*
NAFTA or SHAFTA? (Legal Briefcase) *
The U.S. trade deficit with Mexico has increased.
There are positives though:
Trade with Canada and Mexico has nearly tripled since 1994.
Though manufacturing jobs are down, output has increased 54% in the U.S.
Though NAFTA has not delivered on all promises, it isn’t the major cause of our nation’s current economic state.
See Learning Goal 5: Debate the advantages and disadvantages of trade protectionism.
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