Chapter Chapter TwoTwo

Competing in Competing in Global Global

MarketsMarkets

Growing World Population

5.36.0 6.5

8.5

10.8

0

2

4

6

8

10

12

1990 1998 2010 2030 2060

In In BillionsBillions

Source: Source: Population Reference Bureau

U. S. Trade in Goods & Services ($ Billions)

0

500

1000

1500

2000

2500

1975 1980 1985 1990 1995 1998

ImportsExports

Source: St. Louis Business Monthly, Oct. 1999

Company % of EarningsFrom Outside U.S.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

AIG

Coca-Cola

Gillette

Intel

Microsoft

Pfizer

Source: Source: Investment AdvisorInvestment Advisor, August 2000, August 2000

Why Trade With Other Nations?

ReasonsNo nation can produce all its

needsMutually beneficial exchangeNatural Resources or

Technology-

Theories of Advantage

AbsolutAbsolutee

Diamond Diamond ProductionProduction

South South AfricaAfrica

The Rest of The Rest of the Worldthe World

= Virtual = Virtual MonopolyMonopoly

Theories of Advantage

Output per Output per Unit of Unit of InputInput

ComparativComparativeeU. S.U. S.

ChinaChina

SoftwarSoftwaree

U. S.U. S.

ChinaChina

ClothinClothingg

Specialize & Trade

SoftwareSoftware

ClothingClothing

Checklist for Exporters

• Analyze your capabilities

• Define export potential of product

• Identify best foreign markets for product

• Use available government assistance

• Study entry strategies/export procedures

Developing Countries Need

• 1.2 billion people lack clean drinking water

• 2 billion people lack electricity

• 3 billion people lack adequate sanitation

InfrastructureInfrastructure

Source: Business Week, May 3, 1999

China’s Telecom Growth

020406080

100120140160180200

1996 1997 1998 1999 2000

Internet HostsBusiness LinesResidential Lines

Users in Users in millionsmillions

Source: Source: WiredWired, September 2000., September 2000.

Import Goods- Money Goes Out of Country

Export Goods- Money Comes Into the Country

Trade Deficits/Surpluses- Balance of Trade(1999)

U. S. Exports to Japan Food/Beverages Raw Materials Chemicals & Pharmaceuticals

$58.6 Billion

Balance of Trade 1999 (cont’d)

Japan Exports to U.S. Computers &

Telecommunications Cars/Trucks Consumer Products Semi-Finished Goods

$113.9 B

1999 Balance of Trade

$113.9 B$113.9 B

Goods Goods FromFrom JapanJapan

$58.6 B$58.6 B

Goods Goods ToTo Japan Japan

Dollars Dollars toto JapanJapan

Yen Yen toto U.S. U.S. $55.3 $55.3 BB

U.S. Balance of U.S. Balance of Payments = UnfavorablePayments = Unfavorable

Forces Affecting Trading in Global Markets

Sociocultural Society effects the business Some businesses are against society

and culture which can lead to conflict. Economic/Currency Shifts

Currencies and economic condition highly effects the business.

Legal/Regulatory Budget, Custom Laws, Income Tax

Laws.

Forces Affecting Trading in Global Markets

Protectionism Security is the main concern of foreign

investment and global trade. Companies don’t prefer to invest in the

areas where security risk is high.Global E-Commerce

E-Commerce usage has changed the concept of trade.

E-Commerce has eliminated the borders for business.

Cultural Differences in Global Markets

Language Language is

important factor and countries.

Religion The religion

differences can effect the business in many ways.

Cultural Differences in Global Markets

Values & Attitudes People give value to

which thing Price Conscious and

Quality Conscious

Cultural Differences in Global Markets

Individualism / Collectivism

IndividualismPeople give priority to

their own interest, more concern with own career ( USA, CANADA, UK)

CollectivismTop priority to group and

society, greater concern about organization (Japan, Hong Kong, Mexico and Greece etc.)

Cultural Differences in Global Markets

Power Distance

High Power distance

Boss makes decision, group member readily comply (France, Spain, Japan, Mexico)

Lower Power distance

Accept direction when convinced (Israel, Ireland, USA, Germany)

Cultural Differences in Global Markets

Uncertainty Avoidance

Lower uncertainty AvoidancePeople accept unknown and tolerate risk. Not afraid to face unknown(USA, Canada Austria)

High Uncertainty avoidance. Society contain majority of people who want predictable and certain futures (Japan, Italy, Israel, Argentine)

Cultural Differences in Global Markets

Long Term- Short Term Orientation

Long Term : Have long time perspective, do not demand quick return on investments (Pacific Rim Countries)

Short Term : Demand immediate result (USA, Canada)

Cultural Differences in Global Markets

Urgent Time-Casual Time

How much importance given to time

Urgent time :

People perceive time as an scare asset and tend to be impatient (USA imposes dead lines)

Casual time :

People view time as an ultimate and unending resources and tend to be patient (Asians, Middle East)

Sources of Foreign Direct Investments In the U.S.

Other4%

Japan5%

Canada11%

Asia13%

Latin America17%

Britain18%

Europe32%

Source: U.S. Commerce Dept.

Key Dimensions Of Differences In Cultural Values

Urgent Time / Casual Time

How much importance given to time

Urgent time : People perceive time as an

scare asset and tend to be impatient (USA imposes dead lines)

Casual time : People view time as an ultimate

and unending resources and tend to be patient (Asians, Middle East)