Intl Trade 2

INTERNATIONAL INTERNATIONAL TRADETRADE

OPENING THE OPENING THE MARKET: MARKET:

THE GLOBAL THE GLOBAL GROCERGROCER

What is GLOBALIZATIONWhat is GLOBALIZATION

REFERS to the shift toward REFERS to the shift toward a more integrated and a more integrated and interdependent world interdependent world economy.economy.

It has several different It has several different facets, including the facets, including the globalization of markets globalization of markets & production.& production.

GLOBALIZATIONGLOBALIZATION

We are moving away We are moving away from a world in which:from a world in which:

National economies were National economies were contained entities,contained entities,

Isolated from each other Isolated from each other by barriers in cross-by barriers in cross-border trade and border trade and investments, either byinvestments, either by

GLOBALIZATIONGLOBALIZATIONdistance, time, distance, time,

zones/languageszones/languagesBy differences in By differences in

government regulations, government regulations, culture and business culture and business system,system,

And we are moving towards And we are moving towards a world in which barriers to a world in which barriers to cross-border trade and cross-border trade and investments are tumbling.investments are tumbling.

GLOBALIZATIONGLOBALIZATIONPerceived distance is Perceived distance is

shrinkingshrinking

due to advances in telecom, due to advances in telecom, transportation technologytransportation technology

Material culture is starting Material culture is starting to look similar the world to look similar the world overover

And national economies are And national economies are merging into interdependent merging into interdependent global economic system.global economic system.

GLOBALIZATIONGLOBALIZATIONExample:Example:

A Filipino might drive to A Filipino might drive to work in a car designed in work in a car designed in Sweden that was Sweden that was assembled in Thailand by assembled in Thailand by Ford from components in Ford from components in U.S. and Japan that were U.S. and Japan that were fabricated from China fabricated from China steel and Malaysian steel and Malaysian rubber.rubber.


This is the world we lived This is the world we lived in. It is a world where the in. It is a world where the volume of goods, services volume of goods, services and investment crossing and investment crossing national borders national borders expanded faster than expanded faster than world output every year world output every year during the last 2 decade during the last 2 decade of the 20of the 20thth century. century.


A world where more than A world where more than $1.2 billion in foreign $1.2 billion in foreign exchange transactions are exchange transactions are made daily. made daily.

It is a world where symbols It is a world where symbols of materials & popular of materials & popular culture are increasingly culture are increasingly global: COKE, SONY, global: COKE, SONY, NOKIA, MTV shows, etc.NOKIA, MTV shows, etc.


It is a world which It is a world which international institutions international institutions such as WTO & such as WTO & gatherings of leaders gatherings of leaders from world’s most from world’s most powerful economies have powerful economies have called for even lower called for even lower barriers to cross-border barriers to cross-border investments. investments.

U.S.A. In PerspectiveU.S.A. In PerspectiveUSA has 4.7 percent of USA has 4.7 percent of

world’s population.world’s population.It produces 31.2 % of It produces 31.2 % of

global GDP.global GDP.Accounts 40.6% of global Accounts 40.6% of global

research and research and development investmentdevelopment investment

Has 36.3 % of global Has 36.3 % of global defense expenditures.defense expenditures.

What is Globalization of What is Globalization of MarketsMarkets

Refers to the merging of Refers to the merging of historically distinct and historically distinct and separate national markets separate national markets into one huge global into one huge global marketplace.marketplace.

Falling barriers to cross-Falling barriers to cross-border trade have made it border trade have made it easier to sell easier to sell internationally.internationally.


A company does not have to be A company does not have to be the size of multinational the size of multinational giants to facilitate and giants to facilitate and benefit from the globalization benefit from the globalization of markets.of markets.

The Philippines has more than The Philippines has more than a thousand small businesses a thousand small businesses with fewer than 100 with fewer than 100 employees registered foreign employees registered foreign sales.sales.


Examples:Examples:

Cinderella Aparrell, Cinderella Aparrell, RP’s foodstuffs, like RP’s foodstuffs, like Barrio Fiestas food Barrio Fiestas food ingredients in sachet, ingredients in sachet, Jollibees hamburger Jollibees hamburger chain, Goldilocks, etc.chain, Goldilocks, etc.

What is Globalization of What is Globalization of ProductionProduction

Refers to the sourcing of Refers to the sourcing of goods and services from goods and services from locations around the locations around the globe to take advantage globe to take advantage of national differences in of national differences in the cost and quality of the cost and quality of factors of production factors of production (such as labor, energy, (such as labor, energy, land, capital).land, capital).


By dong this, companies By dong this, companies hope to lower their hope to lower their overall cost structure overall cost structure and/or improve the and/or improve the quality of functionality of quality of functionality of their product offering - their product offering - thereby allowing them to thereby allowing them to compete more effectively.compete more effectively.


Example:Example:

Consider Boeing’s latest Consider Boeing’s latest commercial jet. 8 commercial jet. 8 Japanese suppliers makes Japanese suppliers makes the doors for nose the doors for nose landing gear, 3 supplies landing gear, 3 supplies in Italy makes and in Italy makes and manufacture wing flaps manufacture wing flaps and so on.and so on.

EMERGENCE OF GLOBAL EMERGENCE OF GLOBAL INSTITUTIONSINSTITUTIONSDuring the past 50 years, a number of During the past 50 years, a number of

important global institutions have been important global institutions have been created created

1)1) Help perform globalization,Help perform globalization,

2)2) Increase proportion of business activityIncrease proportion of business activity

3)3) Transcends national borders & Transcends national borders & institutionsinstitutions

4)4) Manage, regulate and police global Manage, regulate and police global marketplace, and marketplace, and

5)5) Promote the establishment of Promote the establishment of multinational treaties to govern the multinational treaties to govern the global business system.global business system.

EMERGENCE OF GLOBAL EMERGENCE OF GLOBAL INSTITUTIONSINSTITUTIONS

1)1)General Agreement on Tariffs General Agreement on Tariffs and Trade (GATT) – its successor and Trade (GATT) – its successor World Trade Organization (WTO)World Trade Organization (WTO)

2)2)International Monetary Fund International Monetary Fund (IMF)(IMF)

3)3)World BankWorld Bank

4)4)United NationsUnited Nations


WTO – is primarily responsible WTO – is primarily responsible for policing the world trading for policing the world trading system and make sure nation-system and make sure nation-states adhered to the rules laid states adhered to the rules laid down in trade treaties signed down in trade treaties signed by WO members.by WO members.

As of 1s Jan. 2002 there are 144 As of 1s Jan. 2002 there are 144 nations members of WTO nations members of WTO (including significant trading (including significant trading nations, which gives the WTO nations, which gives the WTO enormous scope and influence)enormous scope and influence)


Functions of WTOFunctions of WTO

a) Facilitate the establishment a) Facilitate the establishment of additional multinational of additional multinational agreements between WTO agreements between WTO membersmembers

b) WTO promotes the lowering b) WTO promotes the lowering of barriers to cross-border of barriers to cross-border trade and investment.trade and investment.


2) International Monetary Fund 2) International Monetary Fund (IMF) & World Bank(IMF) & World Bank

a)a)Were created in 1944 by 44 Were created in 1944 by 44 nations – Bretton Woods, New nations – Bretton Woods, New Hampshire – U.S.A.Hampshire – U.S.A.

b)b)Task to maintain order in the Task to maintain order in the international monetary systeminternational monetary system

c)c)Promote economic Promote economic developmentdevelopment


World BankWorld Bank

b) Is often seen as the b) Is often seen as the lender of last resort to lender of last resort to nation-states whose nation-states whose economies are in turmoil economies are in turmoil and currencies are losing and currencies are losing value against those of value against those of other nations.other nations.


WORLD BANKWORLD BANK

a) Focus on making low interest a) Focus on making low interest rate loans to cash-strapped rate loans to cash-strapped governments in poor nations governments in poor nations that wish to undertake that wish to undertake significant infrastructure significant infrastructure investment (such as building investment (such as building dams or road systems).dams or road systems).


I M FI M F

b) IMF Loans comes with string b) IMF Loans comes with string attached, in rturn for loansattached, in rturn for loans

- it requires nation/states to - it requires nation/states to adopt specific policies aimed adopt specific policies aimed at returning their troubled at returning their troubled economies to stability and economies to stability and growth.growth.


UNITED NATIONSUNITED NATIONS

a)a)Established in Oct. 24, 1945 by Established in Oct. 24, 1945 by 51 countries committed to 51 countries committed to preserving peace through preserving peace through international cooperation and international cooperation and collective security.collective security.

b)b)When states become members When states become members o the U.N. they agree to accept o the U.N. they agree to accept the obligations of the UN the obligations of the UN Charter. Charter.

GLOBAL INSTITUTIONSGLOBAL INSTITUTIONSPURPOSE OF U. N.PURPOSE OF U. N.

1)1)Maintain international peace Maintain international peace and securityand security

2)2)Develop friendly relations Develop friendly relations among nationsamong nations

3)3)Cooperate in solving Cooperate in solving international problemsinternational problems

4)4)Promote respect for human Promote respect for human rights (and to be center for rights (and to be center for harmonizing the actions of harmonizing the actions of nations.nations.

DRIVERS OF DRIVERS OF GLOBALIZATIONGLOBALIZATION

2 Factors underline the trend 2 Factors underline the trend toward greater globalization:toward greater globalization:

1)1)Decline in barriers to the free flow Decline in barriers to the free flow of goods, services and capitalof goods, services and capital

2)2)Technological change, particularly Technological change, particularly the dramatic developments in the dramatic developments in recent years in communication, recent years in communication, information process and information process and transporting technologies.transporting technologies.

MOORE’s LAWMOORE’s LAW

The power of microprocessor The power of microprocessor technology doubles and its technology doubles and its costs of production fall in half costs of production fall in half every 18 months.every 18 months.

As this happens costs of global As this happens costs of global communications are going communications are going down which lowers the cost of down which lowers the cost of coordinating & controlling a coordinating & controlling a global organization.global organization.

Changing Demographics of Changing Demographics of Global EconomyGlobal Economy

Because of globalization there Because of globalization there were dramatic change in were dramatic change in demographics of global demographics of global economy over the past 30 years.economy over the past 30 years.

There are 4 demographic style There are 4 demographic style facts of global economy that facts of global economy that occued:occued:

FIRST FIRST – US dominance in the world – US dominance in the world economy and world trade economy and world trade picturepicture

Changing Demographics of Changing Demographics of Global EconomyGlobal Economy

22NDND – U.S. dominance in world – U.S. dominance in world foreign direct Investmentforeign direct Investment

33RDRD - was the dominance of large - was the dominance of large multi-national US firms on multi-national US firms on international business sceneinternational business scene

44thth – roughly half the globe – the – roughly half the globe – the centrally planned economies of centrally planned economies of Communist world – was off limits Communist world – was off limits to Western international to Western international businesses.businesses.

Changing Pattern of Changing Pattern of World Output and TradeWorld Output and Trade

COUNTRYShare of World Output,

1963

Share of World Output, 2000

Share of World EXPORT, 2001

U.S.A. 40.30% 20.00% 11.90%

Japan 5.5 14.2 6.6

Germany 9.7 7.3 9.2

France 6.3 5.2 5.2

U.K. 6.5 4.1 4.4

Italy 3.4 4.1 3.9

Canada 3 2 4.3

China NA 3.2 4.3

South Korea NA 1.4 2.4

Changing World Output Changing World Output and World Trade Pictureand World Trade Picture

Early 1960’s, US was still by far the Early 1960’s, US was still by far the world’s dominant industrial power. world’s dominant industrial power. It accounted for 40.3% of world It accounted for 40.3% of world output.output.

2000 – US accounted for 27% of world 2000 – US accounted for 27% of world outputoutput

U.S was not the only developed nation U.S was not the only developed nation to see its relative standing slip – the to see its relative standing slip – the same occur to Germany, France and same occur to Germany, France and U.K. U.K. (Note all nations was the first (Note all nations was the first to Industrializedto Industrialized))

DEFINITIONS:DEFINITIONS:

International Trade – occurs when a International Trade – occurs when a firm exports goods or service to firm exports goods or service to consumers in another country.consumers in another country.

Foreign Direct Investment - occurs Foreign Direct Investment - occurs when a firm invest resources in when a firm invest resources in business activities outside its business activities outside its home count.home count.

Stock of Foreign Direct Investments Stock of Foreign Direct Investments – refers to the total cumulative – refers to the total cumulative value of foreign investments.value of foreign investments.

DEFINITIONS:DEFINITIONS:

Multinational enterprise – is any Multinational enterprise – is any business that has productive business that has productive activities in 2 or more countries.activities in 2 or more countries.

International Business – is any firm International Business – is any firm that engages in international that engages in international trade or investmenttrade or investment

ASSIGNMENT - Define & ASSIGNMENT - Define & List their main functionsList their main functions

1.1. Foreign Direct investmentForeign Direct investment

2.2. GATTGATT

3.3. Internaitonal B usinessInternaitonal B usiness

4.4. IMFIMF

5.5. International TradeInternational Trade

6.6. Moore’s LawMoore’s Law

7.7. Multinational EnterprisesMultinational Enterprises

8.8. United NationsUnited Nations

9.9. World BankWorld Bank

10.10. Stock of foreign InvestmentStock of foreign Investment

Documents

Intl Trade 2