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Doing Business in

Global Markets

Chapter Three

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

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*The Dynamic Global Market

• Importing -- Buying products from another country.

• Exporting -- Selling products to another country.

IMPORTING and EXPORTING

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*Why Trade With Other Nations?

• 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.

TRADING with OTHER NATIONSLG1

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*The Theories of Comparative and Absolute Advantage

• 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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COMPARATIVE and ABSOLUTE ADVANTAGE

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*Measuring Global Trade

• Balance of Trade -- The total value of a nation’s exports compared to its imports measured over time.

• Trade Surplus -- When the value of a country’s exports is more than that of its imports.

• Trade Deficit -- When the value of a country’s exports is less than that of its imports.

HOW to

MEASURE

GLOBAL

TRADE

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*Measuring Global Trade

• 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.

BALANCE of PAYMENTS

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*Measuring Global Trade

• 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.

UNFAIR TRADE PRACTICES LG2

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*Strategies for Reaching Global Markets

Least Amount of commitment, control, risk and profit potential Most

Licensing Exporting FranchisingContract

Manufacturing

International joint ventures and strategic

alliances

Foreign direct

investment

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KEY STRATEGIES for REACHING GLOBAL MARKETS

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*Licensing

LICENSING

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*Franchising

• Franchising -- A contractual agreement whereby someone with a good idea for a business sells others the rights to use the name and sell a product/service in a given area.

• Franchisors need to be careful to adapt their product to the countries they serve.

• Pizza Hut and Dominos learned that pizza topping preferences differ all around the world.

FRANCHISING

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*Franchising

Source: World Features Syndicate.

• Sweet Potato• Honeydew Melon• Corn Crumb Soft Rice Cake• Green Apple• Kiwi Fruit• Mango• Pineapple• Strawberry

TIME to MAKE the DONUTS…Dunkin’ Donuts Flavors in Taiwan

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*Franchising

Source: McDonalds, www.mcdonalds.com, September 2010.

• 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.

THAT’S at MCDONALD’S?

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*International Joint Ventures and Strategic Alliance

JOINT VENTURES

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*International Joint Ventures and Strategic Alliance

STRATEGIC ALLIANCES

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*Foreign Direct Investment

• Foreign Direct Investment (FDI) -- The buying of permanent property and businesses in foreign nations.

FOREIGN DIRECT INVESTMENTLG3

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*Forces Affecting Trading in Global Markets

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*Socio-cultural Forces

CULTURAL DIFFERENCES

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*Socio-culturalForces

• Braniff Airlines’ slogan "Fly in leather” translated in Spanish as "Fly naked.”

• Gerber used their U.S. label – a cute baby – on African products. They found out that labels on African products picture what’s inside the package.

• In Italy, Schweppes Tonic Water was mistaken as Schweppes Toilet Water.

LOST in TRANSLATIONAdvertisements Gone Wrong

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*Socio-culturalForces

READY to TRAVEL ABROAD?Know Your Cultural Differences

• In Turkey, it’s rude to cross your arms while facing someone.

• In many Middle Eastern countries, you shouldn’t eat or shake hands with the left hand because it is considered unclean.

• In India, you should never pat anyone’s head. It’s where their soul is kept.

• In Brazil, your meeting may not start on time because punctuality isn’t important to the culture.

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*Economic and Financial Forces

EXCHANGE RATES

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*Economic and Financial Forces

DEVALUATION and COUNTERTRADING

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*Legal and Regulatory Forces

LEGAL CONCERNS OVERSEASLG4

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*Physical and Environmental Forces

ENVIRONMENTAL FORCES

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*Trade Protectionism

TRADE PROTECTIONISM

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*Trade Protectionism

TARIFFS

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*Trade ProtectionismIMPORT QUOTAS and EMBARGOS

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*The Future of Global Trade

FUTURE of GLOBAL TRADE

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*The Challenge of Offshore Outsourcing

OUTSOURCING

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