Post on 30-Mar-2015
Adeyl Khan, Faculty, BBA, NSU
Chapter 4Competing in Global Markets
Products I used today!
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People’s Car
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Adeyl Khan, Faculty, BBA, NSU
Why Nations Trade
Boosts economic growth Import: Required resources Export: Expands markets, Growth
More efficient production systemsLess reliance on economies of home nations
Exports: Domestically produced goods and services sold in markets in other countries.
Imports: Foreign-made products and services purchased by domestic consumers.
Bangladeshi Organizations
Trading Internationally
Adeyl Khan, Faculty, BBA, NSU
International Sources of Factors of ProductionDecisions to operate abroad depend upon
availability, price, and quality of: Labor Natural resources Capital Entrepreneurship
Companies can spread risk throughout nations
Adeyl Khan, Faculty, BBA, NSU
Size of the InternationalMarketplaceAs developing nations expand into the
global marketplace, opportunities grow
Many developing countries have posted high growth rates of annual GDP United States 4.4% China 11.1% India 9.4%
Adeyl Khan, Faculty, BBA, NSU
Though developing nations generally have lower per capita income, many have strong GDP growth rates and their huge populations
can be lucrative markets.
Population Size and Prosperity
Adeyl Khan, Faculty, BBA, NSU
Top Ten Trading Partners With the United States
Adeyl Khan, Faculty, BBA, NSU
Absolute and Comparative AdvantageAbsolute advantage: Country can maintain
a monopoly or produce at a lower cost than any competitor. Example: China’s domination of silk
production for centuries.Comparative advantage: Country can
supply a product more efficiently and at lower cost than it can supply other goods, compared with other countries. Example: India’s combination of a highly
educated workforce and low wage scale.
Adeyl Khan, Faculty, BBA, NSU
Measuring Trade Between NationsBalance of trade
Difference between a nation’s imports and exports.
Balance of payments Overall flow of money into or out of a
country. Balance of payments surplus = more money
into country than out Balance of payments deficit = more money
out of country than in
Adeyl Khan, Faculty, BBA, NSU
• U.S. demand for imported goods is partly a reflection of the nation’s prosperity and diversity.
• U.S. imports more goods than it exports, but exports more services than it imports.
Major US Exports and Imports
Adeyl Khan, Faculty, BBA, NSU
AssignmentG-C4
Due 6th June
Left side: Prepare a graph similar to Figure 4.1 (Top Ten Trading Partners With Bangladesh)
Right Side: Prepare a table similar to Table 4.2 of the textbook in the context of Bangladesh(Major BD Exports and Imports)
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Adeyl Khan, Faculty, BBA, NSU
Exchange RatesCurrency Rates are influenced by:
Domestic economic and political conditions Central bank intervention Balance-of-payments position Speculation over future currency values
Values fluctuate, or “float,” depending on supply and demand.
National governments can deliberately influence exchange rates.
Business transactions are usually conducted in currency of the region where they happen.
Rates can quickly create or wipe out competitive advantage.
Adeyl Khan, Faculty, BBA, NSU
Barriers to International Trade
Green-tea flavored
Hershey Kisses
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Social and Cultural DifferencesLanguage: Potential problems include
mistranslation, inappropriate messaging, lack of understanding of local customs and differences in taste.
Values and Religious Attitudes: Differing values about business efficiency, employment levels, importance of regional differences, and religious practices, holidays, and values about issues such as interest-bearing loans.
Adeyl Khan, Faculty, BBA, NSU
Economic DifferencesInfrastructure: Basic systems of
communication, transportation, energy facilities, and financial systems.
Currency Conversion and Shifts: Fluctuating values can make pricing in local currencies difficult and affect decisions about market desirability and investment opportunities.
Adeyl Khan, Faculty, BBA, NSU
Political and Legal Differences• Political Climate
– Stability is a key consideration.
• Legal Environment – U.S. law
– International regulations
– Country’s law
– Climate of corruption. Foreign Corrupt Practices Act forbids U.S. companies from bribing foreign officials, candidates, or government representatives.
• International Regulations – Treaties between U.S. and other nations.
– Tariffs are taxes charged on imported goods.
– Enforcement problems, as with piracy
Adeyl Khan, Faculty, BBA, NSU
Government Corruption
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Types of Trade Restrictions Tariffs - taxes, surcharges, or duties on foreign
products. – Tariffs generate income for the government.
– Protective tariffs raise prices of imported goods to level the playing field for domestic competitors.
Nontariff Barriers - also called administrative trade barriers– Quotas limit the amount of a product that can be imported
over a specified time period.
– Dumping is the act of selling a product abroad at a very low price.
– An embargo imposes a total ban on importing a specified product or all
– Exchange controls through central banks or government agencies regulate the buying and selling of currency to shape foreign exchange in accordance with national policy.
Adeyl Khan, Faculty, BBA, NSU
Reducing Barriers to International Trade
The world is moving toward more free trade.There are many communities and groups that monitor and promote tradeInternational Economic Communities reduce trade barriers and promote regional economic cooperation.
Free-trade area: Members trade freely among selves without tariffs or trade restrictions. Customs union: Establishes a uniform tariff structure for members’ trade with nonmembers. Common market: Members bring all trade rules into agreement.
Adeyl Khan, Faculty, BBA, NSU
Organizations Promoting Intl Trade
General Agreement on Tariffs and Trade (GATT) Most industrialized nations found organization in 1947 to reduce tariffs and relax quotas
The World Trade Organization succeeded GATT Representatives from 151 countries Reduce tariffs and promote trade
World Bank Funds projects to build and expand infrastructure in developing countries
International Monetary Fund (IMF) Operates as lender to troubled nations in an effort to promote trade
Adeyl Khan, Faculty, BBA, NSU
North American Free Trade Agreement (NAFTA)
• World’s largest free-trade zone: United States, Canada, Mexico.• U.S. and Canada are each other’s biggest trading partners.
Central America-Dominican Republic Free Trade Agreement (CAFTA)
• Free-trade zone among United States, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua.
• $33 billion traded annually between U.S. and these countries.
European Union
• Best-known example of a common market.• Goals include promoting economic and social progress, introducing
European citizenship as complement to national citizenship, and giving EU a significant role in international affairs.
International Economic Communities
Adeyl Khan, Faculty, BBA, NSU22
South Asian Free Trade Area (SAFTA)The Agreement on South Asian Free Trade
Area (SAFTA) is an agreement reached on January 6, 2004 at the 12th SAARC summit in Islamabad, Pakistan
The Agreement on SAARC Preferential Trading Arrangement (SAPTA)[2] was signed on 11 April 1993 and entered into force on 7 December 1995, with the desire of the Member States of SAARC (India, Pakistan, Nepal, Sri Lanka, Bangladesh, Bhutan and the Maldives) to promote and sustain mutual trade and economic cooperation within the SAARC region through the exchange of concessions.
Adeyl Khan, Faculty, BBA, NSU
What foreign market(s) will the company enter?
Analysis of local demand, availability of resources
Existing and potential competition, tariff rates, currency stability, investment barriers
What expenditures are required to enter a new market?
What is the best way to organize overseas operations?
Good starting point for research: CIA’s World Factbook
Going Global
Adeyl Khan, Faculty, BBA, NSU24
Adeyl Khan, Faculty, BBA, NSU
International Trade Research
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Levels of InvolvementRisk increases with the
level of involvement Many companies
employ multiple strategies
Exporting and Importing are entry-level strategies Importing is the
process of bringing in goods produced abroad
Exporting is the act of selling your goods overseas.
Adeyl Khan, Faculty, BBA, NSU
Countertrade & Franchising
Countertrade – international transactions that do not involve currency payments but use bartering.Franchising – a contractual agreement where a local entity gains rights to sell the franchisor’s product in the foreign market.A foreign licensing agreement allows a firm to produce or sell its productSubcontracting involves hiring local firms to distribute, produce or sell goods and services.
Adeyl Khan, Faculty, BBA, NSU
Offshoring & Direct Investment
The relocation of business processes to a lower-cost overseas location is offshoring Not initiating business but gaining cost savings Extremely controversial
The ultimate level of global involvement is direct investment Directly operating production and marketing in foreign country. Acquisition Joint Ventures Overseas Division
Adeyl Khan, Faculty, BBA, NSU
Multinational corporation (MNC) An organization with significant foreign operations and marketing activities outside its home country.
Multinational Corporations
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Global Business Strategies
• Firm sells same product in essentially the same manner throughout the world.
• Works well for products with nearly universal appeal.
Multidomestic Business Strategies
• Firm develops products and marketing strategies that appeal to customs, tastes, and buying habits of particular national markets.
• Example: Spinach, egg, and tomato soup on the menu in KFC’s menu in China.
Developing a Strategy for Intl. Business
Adeyl Khan, Faculty, BBA, NSU
AssignmentIOA- Chapter 2,4, 5 (Revised)
Duration- 11th June to 17th June
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Adeyl Khan, Faculty, BBA, NSU
Explain international business and why nations trade.
Discuss types of advantage in international trade.
Describe measurements of international trade and exchange rates.
Identify the major barriers that confront global businesses.
Explain how international trade organizations and economic communities reduce barriers to international trade.
Compare the different levels of involvement used by businesses when entering global markets.
Distinguish between a global business strategy and a multidomestic business strategy.
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Learning Goals