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1-1McGraw-Hill/IrwinUnderstanding Business, 8e © 2008 The McGraw-Hill Companies, Inc., All Rights

Reserved.

Nickels McHugh McHughNickels McHugh McHugh

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3

CH

AP

TE

R*

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Competing Competing in Global in Global MarketsMarkets

Competing Competing in Global in Global MarketsMarkets

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The Dynamic Global MarketThe Dynamic Global Market

World Population by continent:World Population by continent:

** The U.S. is the largest importing nation in the World!** The U.S. is the largest importing nation in the World!

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Growing World PopulationGrowing World Population

10.8

8.5

6.56.05.3

0

2

4

6

8

10

12

1990 1998 2010 2030 2060

In In BillionsBillions

Source: Source: Population Reference Bureau

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Why Trade WithWhy Trade With Other Nations?Other Nations?

• No nation can produce all No nation can produce all its needsits needs

• Mutually beneficial Mutually beneficial exchangeexchange

• Natural Resources or Natural Resources or Technology- Produce or Technology- Produce or Buy?Buy?

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Theories of AdvantageTheories of Advantage

Output per Output per Unit of Unit of InputInput

ComparativComparativee

U. S.U. S.

ChinaChina

SoftwarSoftwaree

U. S.U. S.

ChinaChina

ClothinClothingg

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Theories of AdvantageTheories of Advantage

AbsolutAbsolutee

Output Output per Unit of per Unit of

InputInput

Diamond Diamond ProductionProduction

South South AfricaAfrica

The Rest of The Rest of the World the World

== VirtualVirtual MonopolyMonopoly

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CountryCountry StrengthsStrengthsUnited StatesUnited States Technology,Technology,

R & D SpendingR & D Spending

FinlandFinlandUniv. Enrollment, Efficient Legal Univ. Enrollment, Efficient Legal

System, Business EthicsSystem, Business Ethics

TaiwanTaiwanCell-phone Ownership, Cell-phone Ownership,

Tech. Innovation,Tech. Innovation,

Local Firms CompetitivenessLocal Firms Competitiveness

SingaporeSingapore Savings Rate, Math/Science Savings Rate, Math/Science Education, Political TrustEducation, Political Trust

SwedenSweden H.S. Enrollment, Press Freedom, H.S. Enrollment, Press Freedom, Phone AccessPhone Access

Global CompetitivenessGlobal Competitiveness

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Global TradeGlobal Trade

• Goods & ServicesGoods & Services• ImportingImporting

• Exporting Exporting

• Measuring TradeMeasuring Trade• Balance of Trade/PaymentsBalance of Trade/Payments

• Trade DeficitTrade Deficit

• DumpingDumping

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U. S. Trade inU. S. Trade in Goods & Services (Billions)Goods & Services (Billions)

0

200

400

600

800

1000

1200

1400

1600

1975 1980 1985 1990 1995 2000 2002 2005

Exports

Imports

Source: St. Louis Business Monthly, Oct. 1999 & World Trade Organization & Wikipedia

Balance of Balance of TradeTrade

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Leading GoodsLeading Goods Exporters/ImportersExporters/Importers

CountryCountry ExportsExportsImportsImportsUnited StatesUnited States 928928 1,476 1,476GermanyGermany 10161016 717 717JapanJapan 539539 402 402FranceFrance 443443 420 420United KingdomUnited Kingdom 374374 439 439World TotalWorld Total 9,0999,099 8,823 8,823

In Billions $In Billions $

Source: Wikipedia, 2005

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Strategies forStrategies for Reaching Global MarketsReaching Global Markets

• LicensingLicensing

• ExportingExporting

• FranchisingFranchising

• Contract Contract ManufacturingManufacturing

• Joint VenturesJoint Ventures

• Joint Ventures & Joint Ventures & Strategic AlliancesStrategic Alliances

• Foreign Direct Foreign Direct InvestmentInvestment

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Country PresenceCountry Presence of Well-Known Companiesof Well-Known Companies

0 50 100 150 200 250

FedEx

UPS

Whirlpool

McDonald's

Starbucks

7-Eleven

Krispy Kreme

Source: World Features SyndicateSource: World Features Syndicate

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Starbucks’ ExpansionStarbucks’ Expansion

71%

29%

International U.S.

World LocationsWorld Locations

Source: Starbucks.com May 2006

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Most Spoken LanguagesMost Spoken Languages

13%13%

8%

7%

22%37%

MandarinChinese

Spanish

English

Hindi

Portuguese

Other

Source: 2005 CIA World Factbook

Most Spoken Languages in the U.S.

Most Spoken Languages in the World

4%3%

11%

81%

1%English

Spanish

Other Indo-European

Asian andPacific Island

Other

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Foreign DirectForeign Direct Investments in the U.S.Investments in the U.S.

0

200000

400000

600000

800000

1000000

1200000

Europe LatinAmerica

Asia Canada

Source: Bureau of Economic Analysis, 2004

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World’s Largest MNCsWorld’s Largest MNCs

Revenue ($Billions)Revenue ($Billions)1)1) Wal-Mart Stores Wal-Mart Stores  2172172)2) Exxon Mobil Exxon Mobil  2132133)3) General Motors General Motors  1751754)4) BP BP  1741745)5) Ford Motor Ford Motor  1621626)6) Daimler Chrysler Daimler Chrysler  1361367)7) Royal Dutch/Shell Royal Dutch/Shell 1351358)8) General Electric General Electric  1251259)9) Toyota Motor Toyota Motor  12112110)10)MitsubishiMitsubishi 112112Source: Business Week; Morgan Stanley Capital International; and S&P Compustat

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What’s On Your PizzaWhat’s On Your Pizza

• Costa Rica - CoconutCosta Rica - Coconut

• France - Bacon, onion and fresh creamFrance - Bacon, onion and fresh cream

• India - Pickled ginger, minced mutton and tofuIndia - Pickled ginger, minced mutton and tofu

• Australia - Shrimp and pineappleAustralia - Shrimp and pineapple

• Pakistan - CurryPakistan - Curry

• Brazil - Green peasBrazil - Green peas

• Japan - Squid and mayo jagaJapan - Squid and mayo jaga

Source: World Features Syndicate

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Forces Affecting TradingForces Affecting Trading in Global Marketsin Global Markets

• Socio-culturalSocio-cultural

• Economic & FinancialEconomic & Financial

• Legal & RegulatoryLegal & Regulatory

• Physical & EnvironmentalPhysical & Environmental

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Cultural Differences Cultural Differences in Global Marketsin Global Markets

• LanguageLanguage

• ReligionReligion

• Values & Values & AttitudesAttitudes

• Personal Personal CommunicationCommunication

• Social Social StructureStructure

• AestheticsAesthetics

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Did You Know?Did You Know?• In Turkey it’s In Turkey it’s ruderude to cross your arms to cross your arms

while you are facing someone.while you are facing someone.

• In the Arab world the left hand is In the Arab world the left hand is considered unclean; considered unclean; don’t eat with it!don’t eat with it!

• In India never pat someone’s head, In India never pat someone’s head, it’s the it’s the seat of the soul.seat of the soul.

• The Chinese associate gifts such as The Chinese associate gifts such as straw sandals, clocks and straw sandals, clocks and handkerchiefs with handkerchiefs with funerals.funerals.

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Economic & Financial ForcesEconomic & Financial Forces

• No Worldwide CurrencyNo Worldwide Currency

• Currency FluctuationsCurrency Fluctuations

• Floating Exchange RatesFloating Exchange Rates

• Bartering/CountertradingBartering/Countertrading

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U.S. Oil ImportsU.S. Oil Imports

Source: Gibson Consulting 2005

18%

15%

10%12%12%

33%

Canada

Mexico

Venezuela

Nigeria

Saudi Arabia

Other

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Nations That Have NotNations That Have Not Converted to the Metric System Converted to the Metric System

United States

Liberia

Myanmar

(Burma)

Source: 2005 Yourunits.com

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Legal & Regulatory Legal & Regulatory ForcesForces

1.1. Inconsistent Laws & Inconsistent Laws & RegulationsRegulations

2.2. Foreign Corrupt Foreign Corrupt Practices Act of 1978Practices Act of 1978

3.3. Local Business Contact Local Business Contact RequiredRequired

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Developing CountriesDeveloping Countries Need InfrastructureNeed Infrastructure

• 1.2 billion people lack clean 1.2 billion people lack clean drinking waterdrinking water

• 3 billion people lack adequate 3 billion people lack adequate sanitationsanitation

• 2 billion people 2 billion people lack electricitylack electricity

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ProtectionismProtectionism

• MercantilismMercantilism

• TariffsTariffs• ProtectiveProtective

• RevenueRevenue

• Import QuotaImport Quota

• EmbargoEmbargo

• Nontariff Barriers-KeiretsuNontariff Barriers-Keiretsu

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Trade AgreementsTrade Agreements

• General Agreement on Tariffs & Trade (1948)General Agreement on Tariffs & Trade (1948)

• Uruguay Round of GATT (1986)Uruguay Round of GATT (1986)

• World Trade Organization (1995)World Trade Organization (1995)

• Common MarketsCommon Markets• European Union (EU)European Union (EU)

• MercosurMercosur

• North American Free Trade Agreement (1994)North American Free Trade Agreement (1994)

• Central America Free Trade Agreement Central America Free Trade Agreement (2005)(2005)

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Future Global TradeFuture Global Trade

• People’s Republic of China- People’s Republic of China- Permanent Normal Trade Permanent Normal Trade Relations/RightsRelations/Rights

• Russia & OthersRussia & Others

• InternetInternet

•Technology- Obstacles/ProblemsTechnology- Obstacles/Problems

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Pro’s & Con’s of Pro’s & Con’s of Offshore OutsourcingOffshore Outsourcing

Pro’sPro’s

• More focus on areas More focus on areas where they can excel and where they can excel and growgrow

• Outsourced work creates Outsourced work creates efficiencies, resulting in efficiencies, resulting in hiring more workershiring more workers

• Fuels global market Fuels global market growthgrowth

Con’sCon’s

• Jobs lost/wages fallJobs lost/wages fall

• Reduces product qualityReduces product quality

• Communication Communication becomes much more becomes much more difficultdifficult