Business without Borders
Chapter 3: THE WORLD MARKETPLACE
With technology and telecommunications
booming, and trade barriers falling, the economic
boundaries between nations have begun to blur.
AN UNPRECEDENTED OPPORTUNITY
WORLDWIDE ECONOMIC GROWTH
Nation Population Per Capita GDP (U.S.
Dollars)
GDP Growth Rates
China 1,330,044,605 $6,100 +9.8%
India 1,147,995,898 $2,900 +7.3%
United States 303,824,646 $48,000 +1.4%
Indonesia 237,512,355 $3,900 +5.9%
Brazil 196,342,592 $10,300 +5.2%
KEY REASONS FOR INTERNATIONAL TRADE
Access to Factors of Production
Reduced Economic Risk
Innovation
Competitive Advantage
GLOBAL TRADE: TAKING MEASURE
Balance of Trade Trade Deficit Trade Surplus
Balance of Payments Balance of Payments Deficit Balance of Payments Surplus
Exchange Rates Countertrade
Total value of imports > Total value of exports
Total value of imports < Total value of exports
$$ flowing in > $$ flowing out
$$ flowing in < $$ flowing out
United States Balance of Trade
The balance of trade is the difference between the monetary value of exports and imports in an economy over a certain period of time. A positive balance of trade is known as a trade surplus and consists of exporting more than is imported; a negative balance of trade is known as a trade deficit or, informally, a trade gap.
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
2009 -37.0 -26.6 -28.9 -29.1 -26.4 -27.5 -31.9 -30.7 -238.0
2008 -61.5 -61.7 -59.4 -62.1 -60.5 -60.2 -64.9 -60.9 -60.1 -59.4 -43.2 -41.9 -695.9
2007 -58.6 -57.8 -61.6 -59.7 -59.2 -58.7 -57.9 -56.3 -57.3 -57.0 -59.5 -57.8 -701.4
2006 -67.0 -62.5 -62.2 -62.6 -64.9 -63.6 -66.8 -67.8 -64.7 -58.8 -58.4 -61.0 -760.4
EXCHANGE RATES: WHO BENEFITS?
STRONG DOLLAR VS EURO:(Example: $1.00 = 1.20 euros)
• U.S. travelers to Europe Dollar buys more in Europe• American firms with European operations Operating cost are lower• European exporters European products costs less in
U.S.
WEAK DOLLAR VS. EURO:(Example: $1.00 = .60 euros)
• European travelers to U.S. Euro buys more in America• European firms with American operations Operating costs are lower• American exporters American products cost less in
Europe
American Dollar Exchange RateCountry
Currency
ISO 03/06/09 03/05/09 Change
AUSTRALIA Dollar AUD 1.561302 1.560571 +0.0468%
BELGIUM Franc BEF 31.83601 32.10681 -0.8434%
CANADA Dollar CAD 1.286062 1.287082 -0.0792%
DENMARK Krone DKK 5.887687 5.937769 -0.8434%
EUROPEAN UNION Euro EUR 0.789194 0.795907 -0.8434%
FINLAND Markka FIM 4.692334 4.732248 -0.8434%
FRANCE Franc FRF 5.176773 5.220808 -0.8435%
GERMANY Mark DEM 1.543529 1.556659 -0.8435%
HONG KONG Dollar HKD 7.755508 7.758287 -0.0358%
ISRAEL Sheqel ILS 4.241282 4.234666 +0.1562%
ITALY Lira ITL 1528.093 1541.091 -0.8434%
JAPAN Yen JPY 97.89695 98.37888 -0.4899%
KOREA (SOUTH) Won KRW 1549.853 1568.522 -1.1902%
MEXICO Peso MXN 15.26503 15.31762 -0.3433%
NETHERLANDS Guilder NLG 1.739155 1.753948 -0.8434%
NEW ZEALAND Dollar NZD 1.985100 1.994357 -0.4642%
NORWAY Krone NOK 7.064156 7.098946 -0.4901%
RUSSIA Ruble RUB 35.73181 35.86129 -0.3611%
SAUDI ARABIA Riyal SAR 3.755190 3.755172 +0.0005%
SINGAPORE Dollar SGD 1.545703 1.554073 -0.5386%
SOUTH AFRICA Rand ZAR 10.42447 10.65067 -2.1238%
SPAIN Peseta ESP 131.3108 132.4278 -0.8435%
SWEDEN Krona SEK 9.201466 9.291274 -0.9666%
SWITZERLAND Franc CHF 1.152777 1.172858 -1.7121%
TAIWAN Dollar TWD 34.67172 34.94653 -0.7864%
UNITED KINGDOM Pound GBP 0.708837 0.708185 +0.0921%
in USD
GLOBAL MARKET DEVELOPMENT OPTIONS
Exporting Licensing Franchising DirectInvestment
Lower Risk
Higher Risk
Less Control
More Control
STRATEGIES FOR REACHING GLOBAL MARKETS
Licensing Authority given by domestic firm for rights
to produce/market its product and use trademarks/patents.
Franchising Providing the right to produce and market
products under its operating requirements. Direct Investment
Firms acquire businesses or develop new facilities in foreign countries.
Joint Ventures Two or more companies joining forces to
pursue specific opportunities (Partnership or Strategic Alliances
Coke/Pepsi
McDonalds
MULTINATIONAL FIRMS
Shell Oil
Michelin Tires
Jaguar Automobiles
Nokia Cell Phones
Nestle Quick
Netherlands/England
France
India
Finland
Switzerland
Columbia Records Japan/Germany
Do you know where the firm that ultimately owns each brand is headquartered?
BARRIERS TO INTERNATIONAL TRADE
Sociocultural Differences
Economic Differences
Political & Legal Differences
SOCIAL/CULTURAL DIFFERENCES
Nonverbal Communication Forms of Address Attitudes toward
punctuality Religious Celebrations Business Practice/Gifts
Think beyond the obvious differences.
Social/cultural differences can rapidly
undermine business relationships.
ECONOMIC DIFFERENCES
Exchange Rates Population Per Capita Income Infrastructure
Transportation Communication Energy Finance
Can you profitably provide your product
or service to meet the needs of the
market?
POLITICAL & LEGAL DIFFERENCES
Political regimes differ around the world Legal Differences
Lack of Enforcement Bribery
Political Climate Stability Violence
Piracy and intellectual property is a problem in several foreign nations
PROTECTIONISM
Reasons to Create Trade Restrictions
Reasons to Eliminate Trade Restrictions
Protect domestic industry Reduce prices and increase choices for consumers
Protect domestic jobs in key industries
Increase domestic jobs
Retaliate against countries who have engaged in unfair trade
practices
Build exporting opportunities
Pressure other countries to change their policies and practices
Use world resources more efficiently
TRADE RESTRICTIONS Tariffs
Taxes levied against imports Quotas
Limitations on the amount of specific products that may be imported from certain countries
Voluntary Export Restrictions Limitations on the amount of specific
products that one nation will export to another
Embargo Total ban on international trade of a certain
item or a total halt in trade with a specific nation
GLOBAL EMPLOYMENT
““
A new study suggests that 2.3 million service jobs will have moved from the
United States to other countries by 2008, up from 900,000 as of 2003.
REVERSE BRAIN DRAIN
Many talented immigrants are moving home to take advantage of new economic opportunities.
US companies can cut costs by sourcing employees from overseas.
But is America losing potential innovators such as Sergey Brin, founder of Google?
FREE TRADE: THE MOVEMENT GAINS MOMENTUM
There has been a global move toward free trade – the unrestricted movement of good and services across
borders.
GATT AND WORLD TRADE ORGANIZATION (WTO)
General Agreement on Tariffs & Trade (GATT) Established in 1948 Now encompasses 125 nations Slashed tariffs by about 30%
Promote International Trade Settle Trade Disputes
FREE TRADE
The World Bank 185 Member Countries Reduce World Poverty in Developing World Influence Global Economy Provide Financial Assistance
Low interest loans The International Monetary Fund
Support Stable Exchange Rates Facilitate International Payments Adopt Economic Policies Promote Trade Lend money to member nations
TRADING BLOCS/COMMON MARKETS
The North American Free Trade Agreement (NAFTA) The largest trading bloc US, Canada, Mexico
European Union (EU) The largest common market 27 nations; combined GDP
$15Trillion Goal is to bolster Europe’s
trade position
Groups of Countries promoting the free flow of goods and services