Chapter 3a doing business in global market

Chapter 03 Doing Business in Global Markets McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc All rights reserved TRADING with OTHER NATIONS • Countries with abundant natural resources (like Venezuela or Russia) need technological resources from other countries (like Japan) 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 Company % of Earnings From Outside U.S Source: Investment Advisor, August 2000 3-4 TRADING with OTHER NATIONS Theories of Advantage Comparative Absolute COMPARATIVE ADVANTAGE • Comparative Advantage A country should sell the products it produces most efficiently and buy from other countries the products it cannot produce as efficiently 3-8 Theories of Advantage Comparative U S China China U S Software 3-9 Clothing ABSOLUTE ADVANTAGE • Absolute Advantage A country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries 3-10 Theories of Advantage Absolute = Virtual Monopoly South Africa The Rest of the World Diamond Production 3-11 IMPORTING and EXPORTING • Importing Buying products from another country • Exporting Selling products to another country • The U.S is the largest importing and the third largest exporting nation in the world 3-12 TRADING with OTHER NATIONS 3-48 TRADING with OTHER NATIONS • Free Trade The movement of goods and services among nations without political or economic barriers 3-49 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 3-50 TARIFFS • Tariffs Taxes on imports • Two kinds of tariffs: - Revenue – Raise money for governments Protective – Raise the retail price of imports so domestic goods are competitively priced 3-51 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 3-52 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 cross-border trade issues and global business practices 3-53 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 are common markets 3-54 EU MEMBERS 3-55 NAFTA • North American Free Trade Agreement Ratified in 1994, created a free-trade area among the United States, Canada and Mexico • NAFTA’s objectives are: - Eliminate trade barriers and facilitate cross-border 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 3-56 CAFTA Central American Free Trade Agreement Passed in 2005, created a free-trade 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) 3-57 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 nine-nation free trade bloc called the Trans-Pacific Partnership 3-58 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 3-59 OUTSOURCING • Outsourcing Process by which a firm contracts with other companies to 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 3-60 BUSINESS in the GLOBAL MARKET • Over 90% of companies doing business globally believe it is important for employees to have international experience • U.S organizations (like UPS, MLB, the NFL and the NBA) are expanding abroad 3-61 PLAN for YOUR GLOBAL CAREER • • • Study foreign languages Learn about foreign cultures Take global business courses 3-62 ... penalized for dumping steel in the U.S 3-17 KEY STRATEGIES for REACHING GLOBAL MARKETS International joint ventures Licensing Least Contract Exporting Franchising Manufacturing Amount of commitment,... Bloomberg Businessweek, November 22, 2011 3-23 HOW EXPORTS AFFECT the GDP Source: Bloomberg Businessweek, November 22, 2011 3-24 GOING GLOBAL with a SMALL BUSINESS • Small businesses may be the key in. .. Licensing can benefit a firm by: - Gaining revenues it wouldn’t have otherwise generated - Spending little or no money to produce or market their products 3-19 GETTING INVOLVED in EXPORTING •