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I n t e r n a t i o n a l M a r k e t i n g
The DynamicEnvironment
of InternationalTrade
Chapter 2
1 4 t h E d i t i o n
P h i l i p R. C a t e o r a
M a r y C. G i l l y
J o h n L . G r a h a m
McGraw-Hill/IrwinInternational Marketing 14/e Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
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What Should You Learn?
The basis for the reestablishment of world tradefollowing World War II
The importance of balance-of-payment figures to
a countrys economy The effects of protectionism on world trade
The seven types of trade barriers
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What Should You Learn?
The provisions of the Omnibus Trade andCompetitiveness Act
The importance of GATT and the World Trade
Organization The emergence of the International Monetary
Fund and the World Bank Group
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Global PerspectiveTrade BarriersAn International Marketers Minefield
Countries take advantage of U.S. open marketswhile putting barriers in the way of U.S. exports
Tariff and nontariff barriers to trade are major
issues confronting international marketers To realize the benefits of the social, political, and
economic changes, free trade must prevailthroughout the global marketplace
WTO (World Trade Organization)
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The 20th to the 21stCentury
First Half of the Twentieth Century
Depression
WW I and WW II
Marshall Plan Move toward international cooperation among
trading nations
General Agreement on Tariffs an Trade, (GATT)
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Last half of the 20thcentury marred bycompeting approaches to economicdevelopment
Socialist Marxist
Democratic capitalist
Rapid growth of war-torn economies andpreviously underdeveloped countries
Large-scale economic cooperation andassistance
Rising standards of living
The 20th to the 21st Century
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World Tradeand U.S. Multinationals
New global marketing opportunities
1950sU.S. companies began to export andmake significant investments in overseas
marketing and production facilities 1960sU.S. multinational corporations (MNCs)
faced major challenges on two fronts
Resistance to direct investment
Increasing competition in export markets
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American MNCs confronted by a resurgence ofcompetition from all over the world
NIC (Newly Industrialized Countries)
SOE (State-Owned Enterprises)
The balance of merchandise trade U.S. trade deficit
U.S. dilemma of how to encourage trading partnersto reciprocate with open access to their markets
without provoking increased protectionism WTO (World Trade Organization)
NAFTA
AFTA (American Free Trade Area)
APEC (Asia-Pacific Economic Cooperation Conference)
World Tradeand U.S. Multinationals
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Worlds 100 Largest IndustrialCorporations (Annual Revenues)
Exhibit 2.2
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Beyond the First Decadeof the 21stCentury
U.S. economy has slowed dramatically
World growth (except China) also slowed
The Organization for Economic Cooperation and Development
(OECD) estimates 3% average annual growth for next 25 years
Developing countries will grow faster
From an annual rate of 4% in the past quarter to a rate of 6% forthe next 25 years
Share of world output will range from one-sixth to one-third
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Beyond the First Decadeof the 21stCentury
Level of intensity of competition will change ascompanies focus on gaining entry or maintainingtheir position
Emerging markets
Regional trade areas
Established markets in Europe, Japan, and the U.S.
Smaller companies also seeking new markets
Novel approaches Technological expertise
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Balance of Payments
Balance of payments
the system of accountsthat records a nations international financetransactions
Transactions recorded annually Must always be in balance
A record of condition, not determinant of
condition
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Balance of Payments
A balance of payments statement includes threeaccounts
Current account
Capital account
Reserves account
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U.S. Current Accountby Major Components, 2007 ($ billions)
Exhibit 2.3
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U.S. Current Account Balance(% of GDP)
Exhibit 2.4
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What Would One U.S. Dollar Buy?
Exhibit 2.5
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Protectionism
Tariffs, quotas, and nontariff barriers aredesigned to protect markets from intrusions byforeign countries
Nations utilize barriers to restrain entry ofunwanted goods
Legal
Exchange
Psychological Private market
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Protection Logic and Illogic
Arguments concerning protectionism on trade
Protection of infant industry
Protection of the home market
Need to keep money at home
Encouragement of capital accumulation
Maintenance of the standard of living and real wages
Conservation of natural resources
Industrialization of a low-wage nation
Maintenance of employment and reduction of unemployment National defense
Increase of business size
Retaliation and bargaining
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Trade Barriers
Tariffs
Quotas
Voluntary Export Restraints (VER)
Boycotts and embargoes
Monetary barriers Blocked currency Differential exchange
Government approval Standards
Antidumping penalties
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Types of Nontariff Barriers
Exhibit 2.6
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The Omnibus Tradeand Competitiveness Act
Designed to deal with trade deficits, protectionism,and overall fairness of our trading partners
Covers three critical areas in improving U.S. trade
Market access Export expansion Import relief
Four ongoing activities to support the growth ofinternational trade
GATT The associated World Trade Organization (WTO) International Monetary Fund (IMF) The World Bank Group
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General Agreementon Tariffs and Trade
Paved way for first effective worldwide tariff agreement
Basic elements of the GATT
Trade shall be conducted on a nondiscriminatory basis
Protection shall be afforded domestic industries through customs tariffs, notthrough such commercial measures as import quotas
Consultation shall be the primary method used to solve global tradeproblems
Eliminating international trade barriersUruguay
Round The General Agreement on Trade in Services (GATS)
Trade-Related Investment Measures (TRIMs)
Trade-Related aspects of Intellectual Property Rights (TRIPs)
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World Trade Organization
WTO is an institutionnot an agreement
Sets many rules governing trade between its 148 members
Provides a panel exports to hear and rule on trade disputes betweenmembers
Issues binding decisions
All member countries will have equal representation
Member countries have open their markets and to be bound by the rulesof the multilateral trading system
U.S. ratification concerns
Possible loss of sovereignty over its trade laws to WTO Lack of veto power
Role U.S. would assume when a conflict arises over an individualstates laws that might be challenged by a WTO member
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Skirting the Spirit of GATT and WTO
Loopholes
Reducing tariffs while at the same time increasing number andscope of technical standards and inspection requirements
Imposing antidumping duties Negotiating bilateral trade agreements
May lead to multinational concessions
Not necessarily consistent with WTO goals and aspirations
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The International Monetary Fund
Created to assist nations in becoming andremaining economically viable
Objectives of the IMF
Stabilization of foreign exchange rates Establishment of freely convertible currencies to facilitate the
expansion and balanced growth of international trade
Special Drawing Rights (SDRs)
Paper gold
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The World Bank Group
Institution created to reduce poverty and improvestandard of living
By promoting sustainable growth and investment in people
The World Bank has five institutions whichperform the following services:
Lending money to the governments of developing countries
Providing assistance to governments for developmental projects
to the poorest developing countries Lending directly to the private sector
Providing investors with guarantees against noncommercial risk
Promoting increased flows of international investment
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Protests against Global Institutions
The basic complaint against the WTO, IMF andothers is the amalgam of unintendedconsequences of globalizing
Environmental concerns
Worker exploitation and domestic job losses
Cultural extinction
Higher oil prices
Diminished sovereignty of nations
Terrorism in London (2005)
Antisweatshop campaigns
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Summary
The benefits from absolute or comparativeadvantage clearly can accrue to any nation
Increased pressure for protectionism from every
region of the globe The consumer seldom benefits from such
protection
Free international markets help underdevelopedcountries become self-sufficient
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Summary
Freer trade will always be partially threatened byvarious governmental and market barriers thatexist or are created for the protection of localbusinesses
The future of open global markets lies with thecontrolled and equitable reduction of tradebarriers
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