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International trade organizations facilitate and
regulate international trade.
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To explain why companies and countries
trade
To discuss the importance of having
balance of trade for countries
To describe the roles played by
international trade organizations
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Success in international business depends on
knowing the benefits and costs of importing
and exporting. It also depends on help from
various international groups and trade
associations.
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Understanding Trade Relationships
Politics, economics, and social factors are
all part of trading with another country.
The benefits of international trade
outweigh the potential problems.
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Why Companies Export
Reasons why companies export include:
Expansion into unsaturated markets
“Smoothing out” sales
A product that is old at home may be new
in other countries
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Why Companies Import
Reasons why companies import include:
Fulfilling unmet needs
Taking advantage of a new opportunity
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Why Countries Import
Reasons why countries import include:
Fulfilling unmet needs
Insufficient supplies such as natural
resources
Fulfilling people’s needs for luxury goods or
variety
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Why Countries Export
Reasons why countries export include:
Increasing sales and economic growth,
which leads to new jobs
Increasing political and economic ties
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Why Countries Export
Question Why do
nations export goods and
services?
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Direct Exporting
A company that exports its own products
uses direct exporting.
A larger company may have an export
department.
Smaller companies use freight forwarders.
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Benefits of Direct Exporting
A company that uses direct exporting has
control over:
Negotiations
Prices
Distribution
Marketing
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Costs of Direct Exporting
The costs of direct exporting include:
Shipping
Maintaining an inventory
Maintaining payment records
Payroll for a sales force
Product price increases
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Can You Hear Me Now, China? By 2005,
more than 200 million people in mainland
China were using cell phones. Motorola
was the first U.S. company to enter the
Chinese Market, selling 17 million cell
phones by 2004. China is a prime target
for other cell phone producers.
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Indirect Exporting
With indirect exporting, a company hires
another company located in the importing
country, or the companies may have an
agreement.
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Indirect Exporting
Manufacturer's
Export Agents
Export
Merchants
Export Commission
Agents
To export through indirect
exporting, a business must
find and select one of four
types of independent
exporters.
International Firms
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Indirect Exporting
Manufacturer's
Export Agents
Represents a company’s
goods without buying them
Export
Merchants
Export Commission
Agents
International Firms
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Indirect Exporting
Manufacturer's
Export Agents
Export
Merchants
Export Commission
Agents
Based in their own home
country and do the work of
buying for their overseas
customers
International Firms
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Indirect Exporting
Manufacturer's
Export Agents
Export
Merchants
Export Commission
Agents
Purchase and sell the
company’s products for their
own profit
International Firms
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Indirect Exporting********
Manufacturer's
Export Agents
Export
Merchants
Export Commission
Agents
International Firms
Can become independent
exporters of goods they
procure from other exporting
companies in their home
countries
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Benefits of Indirect Exporting
Benefits of indirect exporting include:
Simplicity
Volume
Lower costs than direct exporting
Lower retail price
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Disadvantages of Indirect Exporting
Disadvantages of indirect exporting include:
Less control over the process
Representative agencies may
underachieve.
Representative agencies may also carry
competitors’ products.
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Direct versus Indirect Exporting
Businesses must carefully weigh the
benefits and costs of each exporting
option.
Companies often start with indirect
exporting, and then transition to direct
exporting as sales increase.
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Exporting and Risk**
Four Types of Risk
Associated with Exporting
Time Risk
Product Risk
Economic Risk
Country Risk
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Time Risk
The longer it takes to “get your money back”
on an investment, the greater the risk.
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Economic Risk
Economic risk results from the possibility that
downturns in economic conditions can affect
business locally, nationally, or globally.
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Product Risk
Product risk results from the fact that some
products are more risky to sell than others.
For example, a product might go out of
fashion before it reaches retail stores.
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Country Risk
Country risk is the possibility that an
investment will be lost due to political
changes in a country.
A new government may close or take over
a plant.
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Country Risk
A government may raise taxes on a
company’s products or services.
Wars can change business practices
quickly.
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Importing and Risk
The biggest risk in
importing is
dependency.
dependency
the practice of relying
too much on one
trading partner
With dependency, any
price increase and
supply reduction can
cause major problems.
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The Role of Trade Balances
A positive balance of
trade is called a trade
surplus.
A negative balance of
trade is called a trade
deficit.
balance of trade
the difference between
how much a country
imports and how much
it exports
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The Role of Trade Balances
When a country has a trade deficit, a nation
loses jobs, and its companies are less likely
to succeed if international competition wins.
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Increasing Exports
Government
Subsidies
Government
Grants
Methods of
Increasing
Exports
Trade
Junkets
Low- or
No-Interest
Loans
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Decreasing Imports
A government may
establish trade barriers
to decrease imports.
trade barriers
restrictions that reduce
free trade and limit
competition from
imported goods
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Decreasing Imports
Tariffs
Quotas
Types of
Trade
Barriers
Embargoes
Boycotts
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Decreasing Imports
A tariff is a tax on imported goods.
A quota is a regulation that limits the
number of items that can be sold in a
country.
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Decreasing Imports
An embargo is a complete ban on the
import or export of products to a particular
country.
A boycott is a decision to simply not buy
products from another country.
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Decreasing Imports
Other trade barriers include:
Licensing requirements
Exchange rate controls
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Protectionism
Trade barriers are part
of a program called
protectionism.
protectionism
a system of imposing
extra costs on imports
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Protectionism
Reasons for protectionism include:
Protecting jobs for local workers
Defending against unfair competition
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International Trade Agreements
After World War II, national leaders
recognized that protectionism and trade
wars were not in their countries’ interests.
Economic integration and globalization
became important terms in international
trade.
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Economic Integration
Economic integration is the practice of
removing trade barriers and establishing
cooperation to connect businesses and
businesspeople across national borders.
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Globalization
Benefits of globalization include:
Easier to make investments in new areas
More people can share in technological
innovations.
Everyone has access to more and better
goods and services.
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Formation of Alliances
Peace-time negotiations after World War II
made the formation of trade alliances
possible.
General Agreement on
Tariffs and Trade
(GATT)
World Trade
Organization
(WTO)
European Union
(EU)
North American Free
Trade Agreement
(NAFTA)
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General Agreement on Tariffs and
Trade (GATT)
The first round of GATT negotiations were
in 1947 and included 23 nations.
The goal of GATT was to reduce tariffs
between member organizations.
GATT established procedures for trade
disputes and protection for intellectual
property.
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World Trade Organization (WTO)
The WTO was founded in 1995.
The main goals of the WTO included:
– Expanding international trade
– Raising the standard of living around the world
– Fighting discrimination
– Making companies more transparent and
predictable in international trade
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World Trade Organization (WTO)
The WTO addresses four key areas:
1. Most-favored-nation (MFN) treatment
status
2. National treatment
3. Escape clauses
4. Dumping policies
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European Union (EU)
The EU includes 25 member nations.
Many EU nations use a common currency
called the “euro.”
The EU created two new sets of
agreements, known as the EC Free Trade
Agreements and the EC Association
Agreements.
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European Union (EU)
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North American Free Trade
Agreement (NAFTA)
NAFTA includes the United States,
Canada, and Mexico.
NAFTA eliminates most trade barriers for
industrial goods, services, investments,
intellectual property, and agriculture.
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North American Free Trade
Agreement (NAFTA)
Opponents to NAFTA argue that unfair
advantage is given to countries that allow
lower wages, ignore environmental
protections, and flood the U.S. market with
lower-priced goods.
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Other Trade Agreements
Other Trade Agreements
Caribbean Community and the Common Market (CARICOM)
Central American Common Market (CACM)
Latin American Integration Society (LAIA in English; ALADI
in Spanish)
Southern Common Market (MERCOSUR in Spanish; MERCOSUL
in Portuguese)
Pacific Economic Cooperation (APEC)
Central America Free Trade Agreement (CAFTA)
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The Future of International Trade
Agreements
The future of international trade agreements
is uncertain because those who support
protectionism work to create national laws
and policies that reduce free trade.
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