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Importing◦ Buying products from entities in other countries
Exporting◦ Selling products to entities in other countries
◦ Trick question: Do we import or export Nissan vehicles?
World Trade
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*The Dynamic Global Market
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WORLD POPULATION by CONTINENT
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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.
Theory of Free Trade
Comparative 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.
National Advantage
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Source: World Features Syndicate and Interbrand.com.
• U.S. – 51 brands
• Germany – 9 brands
• Japan – 8 brands
• France – 8 brands
• U.K. – 6 brands
• Switzerland – 5 brands
The Dynamic Global MarketWHERE ARE THEY FROM?
Countries of Origin for World’s Most Powerful Brands LG1
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Source: Forbes, www.forbes.com, March 30, 2009.
• U.S. – 359 billionaires
• Germany – 54 billionaires
• Russia – 32 billionaires
• China – 28 billionaires
• India – 24 billionaires
• U.K. – 25 billionaires
• Canada – 20 billionaires
The Dynamic Global MarketCAN YOU SPARE a DIME?
Home Countries for Some of the World’s BillionairesLG1
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Balance of trade◦ 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.
Balance of Trade and Payments
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Source: The Progressive Policy Institute, World Health Organization .
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.
HOW FREE TRADE BENEFITS the WORLD LG1
Why Trade With Other Nations?
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1. Does the U.S. import more goods or export more goods?
A. Why might this actually be O.K.?
2. What does it mean for one nation to have a comparative advantage?
B. If one nation can produce a product more efficiently than other nations, must it put all of its efforts into that product? Why?
3. What is dumping? Why does it happen?
Review Questions
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Source: U.S. Dept. of Treasury, www.treas.gov, January 31, 2009.
Getting Involved in Global Trade
WHO DOES the U.S. OWE?Countries that Own the Most U.S. Debt
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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◦ 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
Market Entry Strategies
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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 LG3
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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.
Market Entry Strategies
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*Franchising
Source: McDonalds, www.mcdonalds.com, March 2009.
• 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?LG3
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1. How is contract manufacturing different from licensing?
1. Which one would be called “outsourcing?”
2. How can strategic alliances be used to ease entry into a foreign market? What could be gained?
3. How can exporting be made simple?
Review Questions
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
Foreign Direct Investment
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
Forces Impacting Multinational Firms
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*Economic and Financial Forces
• 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.
EXCHANGE RATESLG4
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*Trade Protectionism
• 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.
TARIFFSLG5
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*Trade Protectionism
• 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.
IMPORT QUOTAS and EMBARGOS LG5
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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).
Who’s In Charge of This?
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?
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?
Review Questions
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.
Is Outsourcing an Issue We Should Be Afraid Of?
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• 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.
NAFTA or SHAFTA?(Legal Briefcase)
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