Chapter 9 Global Markets (1)

Global Marketing Overview

Chapter Objectives

• Understanding the rationale for international trade.

• Exploring the key theories of trade.

Question on International Trade

• Why does international trade occur?

  • Laws that ban international trade are not practical.

    • Reduces competition for domestic firms leads to higher profits.

    • Can create more jobs, enhancing public welfare.

Theories of Trade

Key Theories

• Mercantilism

• Absolute Advantage

• Comparative Advantage

Mercantilism

• Principles

  • Exports are considered beneficial; imports are seen as detrimental.

  • Exporting yields gold or silver, equating national wealth with precious metals.

• Critique

  • Rigid refusal to import can deprive a population of necessary goods.

Smoot-Hawley Tariff Act

• Legislation Overview

  • Enacted on June 17, 1930, raised tariffs on 20,000 goods.

  • Resulted in retaliatory tariffs from other countries.

• Consequences

  • Significant decline in American exports and imports:

    • Imports from Europe: fell by $944 million.

    • Exports to Europe: fell by $1,557 million.

  • Widely viewed as a catalyst for the Great Depression.

Absolute Advantage

• Specialization is key:

  • Countries should produce goods where they hold superiority.

• Factors influencing absolute advantage:

  • Climate, geography, labor force skills, size.

Comparative Advantage

• Definition

  • Relative cost differences in production between countries.

• Opportunity Cost

  • Refers to sacrificed value in choosing one production option over another.

• Implication

  • Comparative advantage enables countries to produce goods with lower opportunity costs, optimizing resources globally.

Forces in Global Commerce

Flattening Forces by Thomas Friedman

• **Ten Forces that Flattened the World: **

  • Convergence around 1990-2000.

  • Notable events: Berlin Wall Collapse, Netscape launch.

  • Technology: Workflow software and email increase global collaboration.

  • The rise of economies (India, China, Russia).

Nature of Global Marketing

• Statistics

  • U.S.: only 7% of global population.

  • Major corporations expanded footprint: Walmart (11,000 units in 28 countries), Starbucks (24,000 shops in 75 markets), GM (dominant sales in China).

Drivers of Global Marketing Growth

• Primary reasons for growth:

  • Advancements in technology

  • Political transformations

  • Economic conditions and opportunities

Trade Barriers

• Types of Trade Barriers

  • Import Tariff: Duty on foreign goods.

  • Quota: Limit on the volume of imports.

  • Embargo: Suspension of trade by the government.

  • Exchange Controls: Restrictions on currency amounts.

Environmental Forces in Global Marketing

Competitive Forces

• Variances in competitive landscape across countries.

• Interdependence influenced by government policies, trade agreements, and cultural aspects.

• Formation of triad blocks: North America, European Union, Asia.

Economic Forces

• Key Metrics

  • Balance of Trade: Difference between imports and exports.

  • Gross Domestic Product (GDP): Total output measure; GDP per capita is vital.

• Instability: A constant in the global economic environment.

Political, Legal, and Regulatory Forces

• Political climate shapes retail regulations.

• Challenges from diverse ethical standards and international import barriers.

• U.S. regulations like the Foreign Corrupt Practices Act may hinder market entry.

Sociocultural Forces

• Key Considerations:

  • Cultural influences on marketing practices: language, social norms, and values impact strategies.

Global Ethical and Social Responsibility Issues

• Challenges:

  • Ethical dilemmas: bribery, IP protection, and dumping strategies.

  • Cultural relativism complicates defining right and wrong in business practices.

  • Significant variations in corruption levels across countries.

Regional Trade Alliances

• Key Agreements:

  • NAFTA: 1994-2018, now replaced by USMCA (2019).

  • EU: Established in 1958, comprising 22% of world GDP.

  • Other significant agreements: DR-CAFTA (2005), MERCOSUR (1991), APEC (1989), ASEAN (1967), WTO (1995).

Trade Data Overview

Top Trading Countries (2017)

• Statistics on trade flows between countries, focusing on exports, imports, and total trade volume.

U.S.-China Trade Statistics

• Trade trends from 2008 to 2017 highlight the relationship dynamics.

World Trade Organization (WTO)

• General Overview:

  • Established in 1995 to facilitate global trade.

• Functions:

  • Reduced trade barriers, set trade rules, and provided dispute resolution.

• Criticisms:

  • Favoritism toward rich nations, protected agriculture in developed countries, and neglect of environmental issues.

Modes of Market Entry

• Importing and exporting through agents, trading companies, franchising (like McDonald's), and joint ventures.

• Direct ownership of operations can offer full control but demands more resources.

Customization vs. Globalization

• Customization:

  • Tailors marketing strategies to the distinct demands of various countries.

• Globalization:

  • Focuses on universal strategies leveraging economies of scale.