Chapter 03 Doing Business in Global Markets McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc All rights reserved 3-2 Why Trade With Other Nations? • Global trade allows countries to produce what they make best and buy what they need from others 3-3 3-4 TRADING with OTHER NATIONS • Countries with abundant natural resources (like Venezuela or Russia) need technological resources from other countries (like Japan) 3-5 HOW FREE TRADE BENEFITS the WORLD Global trade has led the world in a new direction: • Literacy rates worldwide have increased from 56% in 1950 to 99% in 2012 • Life expectancy in less developed areas rose from 40.9 years in 1950 to 70.5 years in 2012 Source: The World Bank, June 2014 3-6 % of Company Earnings From Outside U.S Company Total Assets Reinvested Overseas in 2011 Total Assets Reinvested Overseas in 2012 Total Added in 2012 GENERAL ELECTRIC CO $102,000 $108,000 $6,000 PFIZER INC $63,000 $73,000 $10,000 MICROSOFT CORP $44,800 $60,800 $16,000 MEREC CO $44,300 $53,400 $9,100 JOHNSON & JOHNSON $41,600 $49,000 $7,400 INTL BUSINESS MACHINES CORP $37,900 $44,400 $6,500 EXXON MOBIL CORP $47,000 $43,000 -$4,000 CITIGROUP INC $35,900 $42,600 $6,700 CISCO SYSTEMS INC $36,700 $41,300 $4,600 APPLE INC $23,400 $40,400 $17,000 http://online.wsj.com/news/interactive/FORCASH20130311? ref=SB10001424127887324034804578348131432634740 3-7 PLEASURE DOING BUSINESS Best Countries for Business out of 183 Countries Economy Singapore Hong Kong SAR, China New Zealand United States Denmark Malaysia Korea, Rep Georgia Norway United Kingdom Ease of Doing Starting a Paying Trading Across Business Rank Business Taxes Borders 10 © 2013 The World Bank, All Rights Reserved 20 40 16 34 53 28 23 64 12 36 25 29 17 14 21 22 43 26 16 3-8 TOP 10 COUNTRIES - BILLIONARIES Country Number Person Networth $73 B Source United States 492 Bill Gates Telecom China 152 Wang Jianlin $14.6 B Investment Property Russia 111 Alisher Usmanov $19.6 B Metal & Mining Germany 85 Karl Albrecht $25.4 B Aldi - Discount Superchains Brazil 65 Jorge Paulo Lemann $21.9 B Banker India 56 Mukesh Ambani $19.6 B Petrochemicals United Kingdom 47 Gerald Cavendish Grosvenor & Family $8.5 Duke of Westminister - Land Owner Hong Kong 45 Li Ka-shing $31 B Diversified France 43 Liliane Bettencourt & Family $30 B L’Oreal Italy 35 Michele Ferrero & Family $26 B Chocolate Manufacturing 3-9 Why Trade with Other Nations? LG1 TRADING with OTHER NATIONS • Countries with abundant natural resources (like Venezuela or Russia) need technical 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 3-10 ENVIRONMENTAL FORCES • Developing countries have transportation and storage systems that make international distribution difficult or impossible • Often, technological capabilities are far from those in the U.S. which make for a tough business environment 3-43 TRADING with OTHER NATIONS • Free Trade The movement of goods and services among nations without political or economic barriers 3-44 TRADE PROTECTIONISM • Trade Protectionism The use of government regulations to limit the import of goods and services • Advocates of protectionism believe it allows domestic producers to survive, grow and produce jobs 3-45 TARIFFS • Tariffs Taxes on imports - Revenue – Raise money for governments. Protective – Raise the retail price of imports so domestic goods are competitively priced 3-46 IMPORT QUOTAS and EMBARGOS • Import Quota Limits the number of products in certain categories a nation can import • Embargo A complete ban on the import or export of a certain product or the stopping of all trade with a particular country • Political disagreements can lead to embargos, like the U.S. embargo against Cuba 3-47 WORLD TRADE ORGANIZATION • General Agreement on Tariffs and Trade A global forum for reducing trade restrictions on goods, services, ideas and cultural problems • World Trade Organization (WTO) Headquartered in Geneva, the WTO is an independent entity of 152 member nations whose purpose is to oversee crossborder trade issues and global business practices 3-48 COMMON MARKETS • Common Market A regional group of countries with a common external tariff, no internal tariffs and coordinated laws to facilitate exchange among members • The European Union (EU), Mercosur and the ASEAN and COMESA are common markets 3-49 EU MEMBERS 3-50 NAFTA • North American Free Trade Agreement Ratified in 1994, created a freetrade area among the United States, Canada and Mexico • NAFTA’s objectives are: - Eliminate trade barriers and facilitate crossborder movement of goods and services Promote conditions of fair competition Increase investment opportunities Provide effective protection and enforcement of intellectual property rights Establish a framework for further regional trade cooperation Improve working conditions in North America 3-51 CAFTA Central American Free Trade Agreement Passed in 2005, created a freetrade zone with Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua • Free traders hope CAFTA will lead to the creation of a Free Trade Area of the Americas (FTAA) 3-52 NEW FREE TRADE AGREEMENTS • Today, free trade agreements are being negotiated with South Korea, Colombia and Panama • The U.S. is considering an agreement with a ninenation free trade bloc called the Trans Pacific Partnership 3-53 FUTURE of GLOBAL TRADE • With over 1.3 billion people, China has transformed the world economic map. Many multinationals invest heavily in China • India has seen huge growth in information technology, pharmaceuticals and biotechnology • Russia is a large oil producing country with many multinationals interested in developing there • Brazil is expected to be one of the wealthier economies by 2030 3-54 OUTSOURCING • Outsourcing Process by which a firm contracts with other companies to do some or all of its functions • U.S. firms have outsourced payroll functions, accounting and manufacturing for years • With the growth of global markets, companies have been shifting to offshore outsourcing – outsourcing with other countries Photo Courtesy of: Vitor Lima 3-55 3-56 3-57 ... http://online.wsj.com/news/interactive/FORCASH20 130 311? ref=SB1000142412788 732 4 034 80457 834 8 131 432 634 740 3- 7 PLEASURE DOING BUSINESS Best Countries for Business out of 1 83 Countries Economy Singapore... $7,400 INTL BUSINESS MACHINES CORP $37 ,900 $44,400 $6,500 EXXON MOBIL CORP $47,000 $ 43, 000 -$4,000 CITIGROUP INC $35 ,900 $42,600 $6,700 CISCO SYSTEMS INC $36 ,700 $41 ,30 0 $4,600 APPLE INC $ 23, 400... SAR, China New Zealand United States Denmark Malaysia Korea, Rep Georgia Norway United Kingdom Ease of Doing Starting a Paying Trading Across Business Rank Business Taxes Borders 10 © 20 13 The