E XPLORING G LOBAL B USINESS C HAPTER -03 1 Dr. Gehan Shanmuganathan, (DBA)
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Transcript of E XPLORING G LOBAL B USINESS C HAPTER -03 1 Dr. Gehan Shanmuganathan, (DBA)
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EXPLORING GLOBAL BUSINESSCHAPTER-03
Dr. Gehan Shanmuganathan, (DBA)
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SAMSUNG ELECTRONICS SHINES IN THE GLOBAL SPOTLIGHT
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SAMSUNG ELECTRONICS SHINES IN THE GLOBAL SPOTLIGHT
Samsung started as a small firm specializing in exporting food
products to China
Later ventured into insurance
In 1970 produced black and white televisions
Today, Samsung is an international corporation offering cameras,
computers, cellphones, disk drivers, and semiconductors
Currently competes with global giants such as Apple, Hewlett-
Packard, Intel, and Motorola
Samsung uses innovation through research and development
centers in the US, Europe, India, and China and partnership with
international companies in terms of sourcing and manufacturing
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LEARNING OBJECTIVES
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LEARNING OBJECTIVES
Explain the economic basis for international business
Discuss the restrictions nations place on international trade, the
objectives of these restrictions, and their results
Outline the extent of international business and world economic
outlook for trade
Discuss international trade agreements and international
economic organizations working to foster trade
Define the methods by which a firm can organize for and enter
into international markets
Discuss the various sources of export assistance
Identify the institutions that help firms and nations finance
international business
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INTERNATIONAL TRADE
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INTERNATIONAL TRADE
When Coca Cola sells parts of its chain to other
countries, Pier 1 imports goods from around
the world into the US
Trade is an important source of good jobs for
our workers and a source of higher growth for
our economy
Trade is an engine of economic growth
Trade has helped millions of people to lift their
lives from poverty to prosperity
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INTERNATIONAL BUSINESS DEFINED
International business encompasses all
business activities that involves
exchanges across national boundaries-
Pride, William M., Hughes, Robert J. and
Kapoor, Jack R. (2012) Business.
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ADVANTAGES IN INTERNATIONAL TRADE
Some countries are better equipped with
national resources compared to other
countries. They trade the production surplus
in an exchange of what they need. These
national resources are based on,
Specialization
Natural resources
Labor
Technological advances
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BASIS FOR INTERNATIONAL BUSINESS
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THE BASIS FOR INTERNATIONAL BUSINESS
Absolute advantage- ability to produce a specific
product more efficiently than any other nation.
Comparative advantage - ability to produce a
specific product more efficiently than any other
product.
Business survival through international
opportunities
Globalization and global presence
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ABSOLUTE ADVANTAGE
The ability to produce a specific product
more efficiently than any other nation
Examples
Saudi Arabia- petroleum products
South Africa- diamonds
Australia – wool
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COMPARATIVE ADVANTAGE
The ability to produce a specific product
more efficiently than any other product
Examples are,
Research and development- USA
High-technology industries – South Korea
Identifying new markets - India
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EXPORTING AND IMPORTING
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EXPORTING AND IMPORTING
Exporting is selling and shipping raw
materials or products to other nations
Importing is purchasing raw materials or
products of other nations and brining them
into one’s own country
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TOP 10 EXPORTS STATES IN THE US- 2005 IN $ BILLIONS
Texas
California
New York
Washington
Michigan
Illinois
Ohio
Florida
Pennsylvania
Massachusetts
$0.0 $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 $140.0
$128.8
$116.8
$50.5
$38.0
$37.6
$36.0
$35.0
$33.4
$22.3
$22.0
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INTERNATIONAL TRADE CONCEPTS
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SOME INTERNATIONAL TRADE CONCEPTS
Balance of Trade-The balance of trade indicates the
difference between nation’s imports and exports
values over a period of time (nation’s export value
minus imports value)
Trade Deficit- The trade deficit is a negative
balance of trade (I > E) (discuss when E>I)
Balance of Payment- Balance of Payment is the
total flow of money into a country (exports) minus
total flow of money out of that country (imports)
over a period of time (National Debt)
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BALANCE OF TRADE
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TRADE DEFICIT
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BALANCE OF PAYMENT
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RESTRICTIONS TO INTERNATIONAL BUSINESS
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TYPES OF TRADE RESTRICTIONS
Tariff Barriers
Non-Tariff Barriers
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TARIFF BARRIERS
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TARIFF BARRIERS
Tariffs- The most commonly imposed custom
duty (import duty)
Two types of tariffs – Protective Tariffs (fresh
tomato from Mexico)and Revenue Tariffs
(Scotch Whiskey)
Both increase the cost price of the product
Dumping - exportation of large quantities of a
product at a lower price than that of the same
product in that home market (impose of
antidumping duties to control)
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NON-TARIFF BARRIERS
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NON-TARIFF BARRIERS A non-tariff barrier is non-tax measure imposed by the
government to favor domestic over foreign suppliers.
This creates obstacles to marketing of foreign goods in a
country and increase costs for exporters
Import quota- imposing a import limit on a particular
product in given period of time
Embargos- a complete halt to trading with a particular
nation used mostly as a political weapon
Foreign exchange control- This is the limitation on the
foreign currency that can be purchased or sold
Currency devaluation- The decrease of nation’s own
currency in relation to the currency of other nations
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REASONS FOR TRADE RESTRICTIONS
To equalize a nation’s balance of payment
To protect new or weak industries- e.g- imposing
quotas on foreign textile in the US
To protect national security- e.g- exporting
strategic defense related products to unfriendly
nations
To protect the health of citizens- e.g- farm
products contaminated with insecticides
To retaliate for another nation’s trade restrictions
To protect domestic employments
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REASONS AGAINST TRADE RESTRICTIONS
Higher prices for consumers
Restrictions of consumers choice
Misallocation of international resources by trying
to protect already weak industries (protection of
weak industries is a waste of national resources)
Loss of jobs if the majority works in exports
oriented industries
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WORLD ECONOMIC OUTLOOK FOR TRADE
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WORLD ECONOMIC OUTLOOK
In the United States, international trade now accounts for
over one-fourth of Gross Domestic Products (GDP)
Growth in advanced economies slowed, while emerging
economies continued to grow. The BRIC countries
United States economy in an economic depression
Canada and Western Europe are projected to slow the
growth
Mexico and Latin America are stagnant
Japan indicates a slow growth
Asia is making a tremendous growth currently
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UNITED STATES CONTINUE IN INTERNATIONAL TRADE
US exports to Central and Eastern Europe
and Russia will increase
US will increase investments in these
countries creating demand for capital goods
and technology
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EXPORTS AND THE US ECONOMY
Globalization has opened opportunities for
US economy for international trading despite
economic recessions in 2001 and 2008
Canada and Mexico are best partners for US
exports, while China and Canada for imports
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US EXPORTS AND IMPORTS 2009
Rank/Trading Partner Exports ($ billion) Rank/Trading Partner Imports ($ billion)
Canada 204.7 China 296.4
Mexico 129 Canada 224.9
China 69.6 Mexico 176.5
Japan 51.2 Japan 95.9
United Kingdom 45.7 Germany 71.3
Germany 43.3 United Kingdom 47.5
Netherlands 32.3 South Korea 39.2
South Korea 28.6 France 34
France 26.5 Taiwan 28.4
Brazil 26.2 Venezuela 28.1
TOTAL 657.1 1042.2
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INTERNATIONAL TRADE AGREEMENTS
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THE GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT)
An international organization of 153 nations
dedicated to reducing or eliminating tariffs
and other barriers to world trade
These 153 nations accounted for more than
97% of world’s merchandise trade
GATT headquartered in Geneva, Switzerland
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GATT NEGOTIATION ROUNDS
The Kennedy Round (1964-1967) to reduce
US tariffs by 50%
The Tokyo Round (1973-1979) to reduce
participating member country tariff by 35%
The Uruguay Round (1986-1993) and also
created World Trade Organization (WTO)
in order to guide GATT
The Doha Round (2001)
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INTERNATIONAL ECONOMIC ORGANIZATIONS WORKING TO FOSTER TRADE
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INTERNATIONAL ECONOMIC ORGANIZATIONS
Economic Community- an organization of
nations formed to promote the free
movement of resources and products among
its members and to create common
economic policies
European Union an example
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INTERNATIONAL ECONOMIC ORGANIZATIONS
European Union
North American Free Trade Agreement (NAFTA)
The Central American Free Trade
Organization(CAFTA)
The Association of Southeast Asian Nation (ASEAN)
The Pacific Rim
Commonwealth of Independent States (CIS)
The Organization of Petroleum Exporting Countries
(OPEC)
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INTERNATIONAL BUSINESS ENTRY STRATEGIES
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INTERNATIONAL BUSINESS ENTRY STRATEGIES
Licensing- A contractual agreement in which one
firm permits another to produce and market its
products and use its brand name in return for royalty
or other compensation. E.g- McDonald, KFC
Exporting- organization manufactures in the home
country to export to other countries. E.g- ExxonMobil
Joint venture- a partnership between two entities
for a business operation in a country (guest
country). E.g- Samsung Research in US
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INTERNATIONAL BUSINESS ENTRY STRATEGIES
Totally owned facility- with total ownership of the
business
Strategic Alliance- partnership formed to create
competitive advantage on a worldwide business
Trading company- These companies provide a link
between the international buyer and the seller
Counter Trade- International barter transactions
Multinational Firms- A firm that operates on a
worldwide scale without ties to any specific nation or
region
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FINANCING INTERNATIONAL BUSINESS
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FINANCING INTERNATIONAL BUSINESS
The Export-Import Bank of the United States
Multilateral Development Banks
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QUESTIONS……..
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WEEKLY ASSIGNMENT-03
What effects might the devaluation of the
nation’s currency have on its export oriented
business firms, its consumers, and the debts
it owes to other nations? Discuss.