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Doing Business in

Global Markets

Chapter Three

Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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*The Dynamic Global Market

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WORLD POPULATION by CONTINENT

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*The Dynamic Global Market

• Importing -- Buying products from another country.

• Exporting -- Selling products to another country.

• The U.S. is the largest importing and the second largest exporting nation in the world.

IMPORTING and EXPORTINGLG1

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*Why Trade With Other Nations?

• Countries with abundant natural resources (like Venezuela or Russia) need technological resources from other countries (like Japan).

• Global trade allows countries to produce what they make best and buy what they need from others.

• Free Trade -- The movement of goods and services among nations without political or economic barriers.

TRADING with OTHER NATIONSLG1

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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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*The Theories of Comparative and Absolute Advantage

• Comparative Advantage -- A country should sell the products it produces most efficiently and buy from other countries the products it cannot produce as efficiently.

• Absolute Advantage -- A country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries.

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COMPARATIVE and ABSOLUTE ADVANTAGE

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*Getting Involved in Global Trade

• Small businesses may be the key in global job growth.

• They make up almost half of the private sector.

• Only 30% of small businesses export.

• By 2018, it’s expected half of small businesses will export.

GOING GLOBAL with a SMALL BUSINESS

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Source: Investor’s Business Daily, www.investors.com, June 30, 2008.

Getting Involved in Global TradeWHERE DO THEY INVEST?

Leading Destinations for Foreign InvestorsLG2

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Source: U.S. Dept. of Treasury, www.treas.gov, January 31, 2009.

Getting Involved in Global TradeWHO DOES the U.S. OWE?

Countries that Own the Most U.S. DebtLG2

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*Exporting Goods and Services

• Exporting provides a great boost to the U.S. economy.

• It’s estimated every $1 billion in U.S. exports generate over 20,000 U.S. jobs.

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GETTING INVOLVED in EXPORTING

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HOW DO WE MEASURE GLOBAL TRADE

• I. BALANCE OF TRADE

• II. BALANCE OF PAYMENTS

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*Measuring Global Trade

• Balance of Trade -- The total value of a nation’s exports compared to its imports measured over time.

• Trade Surplus -- When the value of a country’s exports is more than that of its imports.

• Trade Deficit -- When the value of a country’s exports is less than that of its imports.

HOW to

MEASURE

GLOBAL

TRADE

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*Measuring Global Trade

• Balance of Payments -- The difference between money coming into a country (from exports) and money leaving the country (from imports) plus other money flows.

• The goal is to have more money flowing into a country than out – a favorable balance.

• An unfavorable balance is when more money flows out of a country.

BALANCE of PAYMENTSLG2

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*Measuring Global Trade

• Dumping -- Selling products in a foreign country at lower prices than those charged in the producing country.

• Dumping is prohibited.

• China, Brazil and Russia have been penalized for dumping steel in the U.S.

UNFAIR TRADE PRACTICES LG2

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*Strategies for Reaching Global Markets

Least Amount of commitment, control, risk and profit potential Most

Licensing Exporting Franchising Contract 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

LICENSING

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*Exporting

• EACs provide hands-on exporting assistance and trade-finance support for small and medium-sized businesses that wish to directly export goods and services.

• ETCs help companies engage in indirect exporting by:- Matching buyers and sellers.- Dealing with foreign customs offices,

documentation, and conversions.

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EXPORT ASSISTANCE CENTERS and EXPORT TRADING CENTERS

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*Franchising

• Franchising -- A contractual agreement whereby someone with a good idea for a business sells others the rights to use the name and sell a product/service in a given area.

• Franchisors need to be careful to adapt their product to the countries they serve.

• Pizza Hut and Dominos learned that pizza topping preferences differ all around the world.

FRANCHISING

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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

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• McDonald’s has more than 31,000 restaurants in over 118 countries.

• Maintains varying menus around the world due to the different preferences of its customers.

• Responds to challenges by funding research and adding healthier options.

The SUN NEVER SETS on MICKEY D’S

(Reaching Beyond Our Borders)

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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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*Contract Manufacturing

CONTRACT MANUFACTURINGLG3

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*International Joint Ventures and Strategic Alliance

JOINT VENTURESLG3

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*International Joint Ventures and Strategic Alliance

STRATEGIC ALLIANCESLG3

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*Foreign Direct InvestmentFOREIGN DIRECT INVESTMENT

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*Foreign Direct Investment

• Multinational Corporation -- A company that manufactures and markets products in many different countries and has multinational stock ownership and management.

• Not all large global businesses are multinational.• Only firms that have manufacturing capacity or

some other physical presence in different nations can truly be multinational.

MULTINATIONAL CORPORATIONSLG3

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*Foreign Direct Investment

SOVEREIGN WEALTH FUNDSLG3

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*Forces Affecting Trading in Global Markets

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*Socio-cultural Forces

CULTURAL DIFFERENCESLG4

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*Economic and Financial Forces

EXCHANGE RATESLG4

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*Economic and Financial Forces

DEVALUATION and COUNTERTRADING

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*Legal and Regulatory Forces

LEGAL CONCERNS OVERSEASLG4

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*Physical and Environmental Forces

ENVIRONMENTAL FORCESLG4

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*Trade Protectionism

TRADE PROTECTIONISMLG5

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*Trade Protectionism

TARIFFSLG5

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*Trade ProtectionismIMPORT QUOTAS and EMBARGOS

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*The World Trade OrganizationWORLD TRADE ORGANIZATION

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*Common Markets

COMMON MARKETSLG5

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*The North American and Central American Free Trade Agreements

NAFTALG5

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*The North American and Central American Free Trade Agreements

CAFTALG5

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*The Future of Global Trade

FUTURE of GLOBAL TRADELG6

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*The Challenge of Offshore Outsourcing

OUTSOURCINGLG6

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Source: Investor’s Business Daily, www.ibd.com, December 1, 2008.

The Challenge of Offshore Outsourcing

ELECTRONICS MANUFACTURING AROUND the WORLD LG6

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