Introduction to Business Management
4/4/2013
STA 473
Business Management
Chapter 3
Business in Global Markets
Chukiat Worasucheep
A soybeans farm in the city of Tangara da Serra, Brazil, on March, 2012.
(Reuters/Paulo Whitaker)
Source: www.theatlantic.com/infocus/2012/04/images-of-earth-fromabove/100283
Learning Objectives
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Understanding Globalization
Define global business.
Understand the importance of global trade.
Discuss the roles of comparative and absolute
advantage in global trade.
Discuss the two indicators for measuring global trade.
Describe different types of trade protections and trade
agreements.
Discuss the different strategies for reaching global
markets.
Explain the forces affecting the global trade market.
Why Trade Globally?
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No nation can produce all the products that its people need
Mutually beneficial exchange
Some nations have abundant natural resources but lack
technological know-how.
Others have sophisticated technology but few natural
resources.
Global business
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63 millions people in Thailand, 600+ M. in AEC
300 M. American, > 800 M. Indian, > 1200 M. Chinese
> 6000 millions around the world.
Domestic vs. Global Markets
Exporting and Importing.
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Introduction to Business Management
4/4/2013
GDP per capita (2011 data in USD)
1. Qatar
98,800
27. Korea
31,000
3. Singapore
59,700
38. Malta
25,500
5. Brunei
49,500
57. Malaysia
16,240
6. USA
48,300
86. Thailand
9,400
12. Austria
41,000
128 Philippines
4,000
17. Germany
38,000
World Net Export (2011 in billion USD)
Saudi Arabia
Germany
Russia
China
Singapore
Thailand
UK
USA
Credits: wikipedia.com
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Credits: wikipedia.com
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Comparative Advantage
and Absolute Advantage
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Measuring Trade
Two key factors:
David Ricardo’s comparative advantage theory
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the ability of a party to produce a particular good or service at
a lower cost over another.
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basic principle of free economic exchange, in the 19th
century
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+252
+219
+198
+155
+40
+34
-160
-770
Balance of trade
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is a difference of a country’s exports to imports
Trade surplus/deficit
England selling wool and France selling wine
Absolute advantage
Balance of payments
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the ability of a party (an firm or country) to produce more of a
good or service than competitors, using the same amount of
resources.
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Mostly related to natural resources, difficult to sustain
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South Africa once had an absolute advantage in diamond
production.
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is the difference between money coming into a country (from
exports) and money leaving the country (for imports) plus
money flows from other factors such as tourism, foreign aid,
military expenditures, and foreign investment.
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Unfair trade Practices
Unfair trade Practices
Gray Market
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Question:
is the flow of goods in a distribution channel other than those
intended by the manufacturer, although legal.
Vehicles imported from other cheaper EU countries to sell in
England.
Prices of branded drugs varies greatly from country to
country.
College level textbooks from some publishers offers lower
prices in developing countries.
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Learning Objectives
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Do you think gray-market unethical or not? Reasons?
Dumping
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is the practice of selling products in a foreign country at lower
prices than those charged in the producing country
In 1980, Mexico supplied ~ 1/2 of all fresh tomatoes,
cucumbers, eggplants ... in U.S. winter season.
In 1989, Japanese phones dumped in US market.
USA dumping practices of agricultural products to other
countries.
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Trade Protection and Agreements
Define global business.
Understand the importance of global trade.
Discuss the roles of comparative and absolute
advantage in global trade.
Discuss the two indicators for measuring global trade.
Describe different types of trade protections and trade
agreements.
Discuss the different strategies for reaching global
markets.
Explain the forces affecting the global trade market.
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Tariff (tax on imports). Goals:
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Protective
Revenue
General Agreement on Tariffs and Trade (GATT)
(1948), followed by World Trade Organization (WTO)
(1995)
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Reduces tariff greatly over the past 50 years.
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Introduction to Business Management
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Keiretsu
Trade Protection and Agreements
Credits: wikipedia.com
Non-tariff barriers
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Import quota
Embargo
(nearly) complete ban on the goods to or from a country
e.g. USA-Cuba, Burma
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Restrictive standards that detail exactly how a product must
be sold in a country.
For example, Denmark requires that butter be sold in cubes, not
tubs.
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Japanese companies’ keiretsu
grouping of enterprises with informal interlocking business
relationships and shareholdings.
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Common Markets and Agreements
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Common Markets and Agreements
Organization of the Petroleum Exporting Countries
(OPEC)
12 member organization’s mission:
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North American Free Trade Agreement (NAFTA)
Objectives
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Coordinate & unify policies
Ensure price stability
Provide efficient & regular supply
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Eliminate trade barriers
Promote conditions of fair competition
Increase investment opportunities
Provide protection & enforcement
Establish framework
Success and difficulties
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ASEAN Free Trade Area (AFTA) (1/2)
ASEAN Economic Community (AEC)
พันธสัญญาข ้อที 1 คือการเป็ นตลาดและฐานการผลิตเดียวกัน
ASEAN Free Trade Area (AFTA) is a trade bloc
agreement by the ASEAN countries.
The AFTA agreement
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http://www.thai-aec.com/
signed in 1992 in Singapore
6 members, namely, Brunei, Indonesia, Malaysia,
Philippines, Singapore and Thailand.
Vietnam joined in 1995, Laos and Myanmar in 1997 and
Cambodia in 1999.
AFTA now comprises 10 countries of ASEAN.
What are the top 5 businesses that will get most
benefits from AEC? Why?
What are the comparative strengths and weaknesses
of Thailand, Malaysia, and Indonesia?
Source: en.wikipedia.com, www.aseansec.org/12021.htm
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Learning Objectives
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Strategies for Reaching Global Markets
Define global business.
Understand the importance of global trade.
Discuss the roles of comparative and absolute
advantage in global trade.
Discuss the two indicators for measuring global trade.
Describe different types of trade protections and trade
agreements.
Discuss the different strategies for reaching global
markets.
Explain the forces affecting the global trade market.
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Strategies for Reaching Global Markets
Strategies for Reaching Global Markets
Licensing
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Franchising
Additional revenues
Extended timeframe
Firm may lose secrets
Disney, Coca-Cola, PepsiCo, etc.
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Contract Manufacturing
Exporting
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Export Assistance Centers (EACs)
Export Trading Companies
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International Joint Ventures and Strategic Alliance
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Outsourcing
Experiment in new markets and/or meet unexpected increase
in orders
Major disadvantage: Laws are different
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Strategies for Reaching Global Markets
Strategies for Reaching Global Markets
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Franchise Agreement (Franchisor & Franchisee)
Product adaptation
KFC, Pizza Hut
Questions:
Benefits: Shared technology, marketing, risk, market entry
Strategic alliance
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Thailand’s BOI vs. Singapore’s?
Which categories are Coke, Disney, KFC, Nestle in?
Foreign Direct Investment (FDI)
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Foreign subsidiary is a company owned in a foreign country
by another company (parent company)
Multinational corporation (MNC)
Nike, Samsung, Toshiba, Seagate, etc.
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Introduction to Business Management
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Learning Objectives
Forces Affecting Trade in Global Markets
Define global business.
Understand the importance of global trade.
Discuss the roles of comparative and absolute
advantage in global trade.
Discuss the two indicators for measuring global trade.
Describe different types of trade protections and trade
agreements.
Discuss the different strategies for reaching global
markets.
Explain the forces affecting the global trade market.
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Forces Affecting Trade in Global Markets
Socio-cultural Forces
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Culture
Americans? Japanese? Thai?
Religion
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Most important of socio-cultural forces
McDonald’s and Coca-Cola offended Muslims by putting the
Saudi Arabian flag on their packaging
Human resource management
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Employee training on culture
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Forces Affecting Trade in Global Markets
Economic and Financial Forces
Bartering
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Many developing countries
Currency exchange, Exchange rate: USD, Euro, Yen
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Counter-trading
www.bot.or.th
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Communication
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Global marketing means selling the same product in
essentially the same way everywhere in the world.
“Think global, act local.”
The U.S. is one of only five nations that still haven’t
converted to the metric system.
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a complex form of bartering in which several nations may be
involved, each trading goods for goods or services for
services.
Approximately 20% of the global exchanges involve
countertrading.
The example of the Ford Motor Company trading vehicles to
Jamaica for bauxite.
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Introduction to Business Management
4/4/2013
Assignment
Forces Affecting Trade in Global Markets
Legal and Regulatory Forces
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Study and write an article for a brief profile, its recent
scandals and the legal consequences of the following
corporations: Enron, WorldCom, and Tyco
International.
The report length should not be approximate one page
for each corporation.
Due: next class
Notes:
No central law in global markets
Physical and Environmental Forces
Technological constraint
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Don’t forget to use your own words.
Don’t forget to cites all references you may have.
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ASEAN Economic Community (AEC)
http://www.thai-aec.com/
What are the top 5 businesses that will get most
benefits from AEC? Why?
What are the comparative strengths and weaknesses
of Thailand, Malaysia, and Indonesia?
www.bot.or.th, www.set.or.th, www.sec.or.th
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