Chapter 3x

Report
Did You Know?

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?
*
The Dynamic
Global Market
LG1
*
3-3

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.

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.
*
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
Source: World Features Syndicate and Interbrand.com.
3-6
*
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
Source: Forbes, www.forbes.com, March 30, 2009.
3-7

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.
*
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.
Source: The Progressive Policy Institute, World Health Organization .
3-9
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?
*
Getting Involved
in Global Trade
LG2
*
Source: U.S. Dept. of Treasury, www.treas.gov, January 31, 2009.
3-11
*
Strategies for
Reaching Global
Markets
LG3
Licensing
Least
Exporting
Franchising
Contract
Manufacturing
International
joint ventures
and strategic
alliances
Amount of commitment, control, risk and profit potential
*
Foreign
direct
investment
Most
3-12

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
*
Franchising
LG3
•
•
•
•
•
•
•
•
*
Sweet Potato
Honeydew Melon
Corn Crumb Soft Rice Cake
Green Apple
Kiwi Fruit
Mango
Pineapple
Strawberry
Source: World Features Syndicate.
3-14

Contract manufacturing

Strategic alliances
◦ A foreign company produces private-label goods to which a
domestic company then attaches its own brand name or
trademark.
◦ 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.
*
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.
Source: McDonalds, www.mcdonalds.com, March 2009.
3-16
1.
How is contract manufacturing different
from licensing?
1. Which one would be called “outsourcing?”
2.
3.
How can strategic alliances be used to ease
entry into a foreign market? What could be
gained?
How can exporting be made simple?


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
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
*
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.
3-20
*
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.
3-21
*
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.
3-22



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).



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?


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?

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.
*
*
• 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.
3-27

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