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.