Chapter+03+PowerPoint

Chapter 3: Doing Business in Global Markets

Copyright

• Copyright 2022 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter Overview

• Chapter Contents:

  • The Dynamic Global Market

  • Why Trade with Other Nations?

  • Getting Involved in Global Trade

  • Strategies for Reaching Global Markets

  • Forces Affecting Trading in Global Markets

  • Trade Protectionism

  • The Future of Global Trade

Learning Objectives

• LO 3-1: Discuss the importance of the global market; roles of comparative and absolute advantage.

• LO 3-2: Explain the importance of import/export; understand key terms in global business.

• LO 3-3: Illustrate strategies to reach global markets; role of multinational corporations.

• LO 3-4: Evaluate forces affecting global trade.

• LO 3-5: Debate advantages/disadvantages of trade protectionism.

• LO 3-6: Discuss the changing global market landscape, including offshore outsourcing.

The Dynamic Global Market

• Expansion: Global business is rapidly expanding, influenced by a population of 7.7 billion potential customers.

• Key Terms:

  • Importing: Buying products from another country.

  • Exporting: Selling products to another country.

Population Distribution

• MajorInsight: 59.64% of the world’s population lives in Asia; only 4.73% in North America.

Why Trade with Other Nations?

• Resource Sharing: Countries benefit from trading resources (e.g., Venezuela needs tech from Japan).

• Efficiency: Allows countries to specialize in the production of certain goods and purchase others, fostering global trade.

• Free Trade: Movement of goods/services without political or economic barriers.

Pros and Cons of Free Trade

• Pros:

  • Access to a large market with 7.7 billion consumers.

  • Enhanced productivity from countries specializing in comparative advantages.

  • Lower prices due to global competition and imports.

  • Encourages innovation and facilitates foreign investments.

• Cons:

  • Job losses in domestic sectors due to increased imports.

  • Pressure on workers to accept pay cuts.

  • Loss of domestic comparative advantage from increased global competition.

Theories of Comparative and Absolute Advantage

• Comparative Advantage:

  • A country should sell products it produces most efficiently and buy those it cannot produce effectively.

• Absolute Advantage:

  • A country creates a specific product more efficiently than others or has a monopoly on its production.

Getting Involved in Global Trade

• Importing: Facilitates the availability of unique products.

• Exporting Benefits:

  • Less competition abroad; boosts U.S. economy.

  • Exports generate jobs and contribute to GDP.

Measuring Global Trade

• Balance of Trade: Difference in value between exports and imports.

• Trade Surplus: Exports exceed imports (favorable).

• Trade Deficit: Imports exceed exports (unfavorable).

• Balance of Payments: Difference in money flow from exports vs. imports plus other financial factors.

• Dumping: Selling products in foreign markets at lower prices than in home country; prohibited in the U.S.

International Market Strategies

• Licensing: Allows foreign companies to produce goods in exchange for royalties.

• Export Assistance Centers (EACs): Support small to medium-sized businesses with direct exporting.

• Franchising: Selling rights to sell a product/service in a specified territory.

• Contract Manufacturing: Using foreign companies to produce goods for branding in the home market.

• Joint Ventures and Strategic Alliances: Partnerships for major projects, enhancing expansion.

• Foreign Direct Investment (FDI): Buying permanent property/businesses in foreign nations, maintaining control but involving risk.

Forces Affecting Trading in Global Markets

• Sociocultural Forces: Understanding different cultural values, communication, and practices is critical for global business.

• Economic and Financial Forces: Exchange rates must be monitored as they impact trade dynamics.

• Legal and Regulatory Forces: U.S. businesses must adhere to domestic laws while operating internationally.

• Environmental Forces: Limitations due to inadequate infrastructure in developing countries and technological variances must be considered.

Trade Protectionism

• Definition: Use of regulations to support domestic industries against foreign competition.

• Types of Protectionism:

  • Tariffs: Taxes on imports.

  • Import Quotas: Limits on quantities of products imported.

  • Embargoes: Total bans on trade with specific countries.

• WTO and GATT: Organizations aimed at reducing trade restrictions.

The Future of Global Trade

• Emerging Economies: China as a leading exporter; India’s rapid growth in tech/biotech sectors. Issues facing other major markets like Brazil and Russia.

• Offshore Outsourcing: Challenges of quality and job displacement when companies move operations abroad.

• Globalization Impact: Need for cultural understanding, language skills, and an awareness of global market competition.