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    Competing in World Markets

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    monel_24671
    The document provides an overview of competing in world markets. It discusses reasons why nations trade, including boosting economic growth and expanding markets. It also covers concepts like absolute and comparative advantage. International trade is measured using terms like balance of trade and balance of payments. Barriers to trade include tariffs, quotas, and cultural differences between countries. Organizations like the WTO and IMF work to reduce trade barriers and promote global commerce. Firms can enter foreign markets through various strategies from exporting to direct investment in other countries.

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    Competing in World Markets

    Uploaded by

    monel_24671
    32 views28 pages
    The document provides an overview of competing in world markets. It discusses reasons why nations trade, including boosting economic growth and expanding markets. It also covers concepts like absolute and comparative advantage. International trade is measured using terms like balance of trade and balance of payments. Barriers to trade include tariffs, quotas, and cultural differences between countries. Organizations like the WTO and IMF work to reduce trade barriers and promote global commerce. Firms can enter foreign markets through various strategies from exporting to direct investment in other countries.

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    Contemporary Busness

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    ch04

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    The document provides an overview of competing in world markets. It discusses reasons why nations trade, including boosting economic growth and expanding markets. It also covers concepts like absolute and comparative advantage. International trade is measured using terms like balance of trade and balance of payments. Barriers to trade include tariffs, quotas, and cultural differences between countries. Organizations like the WTO and IMF work to reduce trade barriers and promote global commerce. Firms can enter foreign markets through various strategies from exporting to direct investment in other countries.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    32 views28 pages

    Competing in World Markets

    Uploaded by

    monel_24671
    The document provides an overview of competing in world markets. It discusses reasons why nations trade, including boosting economic growth and expanding markets. It also covers concepts like absolute and comparative advantage. International trade is measured using terms like balance of trade and balance of payments. Barriers to trade include tariffs, quotas, and cultural differences between countries. Organizations like the WTO and IMF work to reduce trade barriers and promote global commerce. Firms can enter foreign markets through various strategies from exporting to direct investment in other countries.

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    Chapter

    4
    Competing in World Markets

    Learning Goals
    1

    Explain the importance of international business and the primary reasons nations trade and discuss the concepts of absolute and comparative advantage in international trade. Describe how nations measure international trade and the significance of 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.

    Why Nations Trade


    Boosts economic growth Expands markets More efficient production systems Less reliance on the 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.

    International Sources of Factors of Production


    Decisions to operate abroad depend upon availability, price, and quality of: Labor Natural resources Capital Entrepreneurship

    Companies doing business overseas must make strategic decisions.

    Additional Environmental Factors to which Companies are Exposed


    New social and cultural factors Economic and political environments Legal restrictions

    Companies can expand their markets, seek growth opportunities in other nations, make their production and distribution systems more efficient, and reduce their dependence on the economies of their home nations.

    Size of the International Marketplace


    As 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%

    Current GDP data

    Population Size and Prosperity


    Though developing nations generally have lower per capita income, many have strong GDP growth rates and their huge populations can be lucrative markets.

    Top 10 Trading Partners with U.S.

    Absolute and Comparative Advantage


    Absolute advantage: Country can maintain a monopoly or produce at a lower cost than any competitor.
    Example: Chinas 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: Indias combination of a highly educated workforce and low wage scale in software development.

    Measuring Trade Between Nations


    Balance of trade: Difference between a nations 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

    Major U.S. Exports and Imports


    U.S. demand for imported goods is partly a reflection of the nations prosperity and diversity. U.S. imports more goods than it exports but exports more services than it imports.

    Exchange Rates
    Currency 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.

    Barriers to International Trade

    Social and Cultural Differences


    Language: 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.

    Economic Differences
    Infrastructure: 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.

    Political and Legal Differences


    Political Climate
    Stability is a key consideration.

    Legal Environment
    U.S. law International regulations Countrys 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.

    Government Corruption
    Transparency International produces an annual corruption index for businesspeople and the general public.

    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. Exchange controls through central banks or government agencies regulate the buying and selling of currency to shape foreign exchange in accordance with national policy.

    Reducing Barriers to Trade


    The world is moving toward more free trade. There are many communities and groups that monitor and promote trade International 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.

    Organizations Promoting 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 153 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

    International Economic Communities


    North American Free Trade Agreement (NAFTA)
    Worlds largest free-trade zone: United States, Canada, Mexico. U.S. and Canada are each others 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.

    Going Global
    Determining which foreign market(s) to enter Analyzing the expenditures required to enter a new market Deciding the best way to organize the overseas operations Good starting point for research: CIA World Factbook

    International Trade Research

    Levels of Involvement
    Risk 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.

    Countertrade and Franchising


    Countertrade international transactions that do not involve currency payments but use bartering. Franchising a contractual agreement in which a local entity gains rights to sell the franchisors product in the foreign market. A foreign licensing agreement allows a firm to produce or sell its product. Subcontracting involves hiring local firms to distribute, produce, or sell goods and services.

    Offshoring and 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

    Multinational Corporations
    Multinational corporation (MNC) - An organization with significant foreign operations and marketing activities outside its home country.

    Developing a Strategy for International Business


    Global Business (Standardization) Strategies
    Firm sells same product in essentially the same manner throughout the world. Works well for products with nearly universal appeal.

    Multidomestic (Adaptation) Strategies


    Firm develops products and marketing strategies that appeal to customs, tastes, and buying habits of particular national markets.

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