Chapter 3: THE WORLD MARKETPLACE
Business without Borders
AN UNPRECEDENTED OPPORTUNITY
With technology and
telecommunications booming,
and trade barriers falling, the
economic boundaries between
nations have begun to blur.
WORLDWIDE ECONOMIC GROWTH
Nation
Population
Per Capita GDP
(U.S. Dollars)
GDP Growth
Rates
China
1,330,044,605
$6,100
+9.8%
India
1,147,995,898
$2,900
+7.3%
United States
303,824,646
$48,000
+1.4%
Indonesia
237,512,355
$3,900
+5.9%
Brazil
196,342,592
$10,300
+5.2%
KEY REASONS FOR INTERNATIONAL
TRADE

Access to Factors of Production

Reduced Economic Risk

Innovation

Competitive Advantage
GLOBAL TRADE: TAKING MEASURE

Balance of Trade
 Trade
Deficit
 Trade Surplus

Total value of imports > Total value of exports
Total value of imports < Total value of exports
Balance of Payments
 Balance
of Payments Deficit
 Balance of Payments Surplus


Exchange Rates
Countertrade
$$ flowing in < $$ flowing out
$$ flowing in > $$ flowing out
United States Balance of Trade
Year
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Total
2009
-37.0
-26.6
-28.9
-29.1
-26.4
-27.5
-31.9
-30.7
2008
-61.5
-61.7
-59.4
-62.1
-60.5
-60.2
-64.9
-60.9
-60.1
-59.4
-43.2
-41.9
-695.9
2007
-58.6
-57.8
-61.6
-59.7
-59.2
-58.7
-57.9
-56.3
-57.3
-57.0
-59.5
-57.8
-701.4
2006
-67.0
-62.5
-62.2
-62.6
-64.9
-63.6
-66.8
-67.8
-64.7
-58.8
-58.4
-61.0
-760.4
-238.0
The balance of trade is the difference between the monetary value of exports and
imports in an economy over a certain period of time. A positive balance of trade is known
as a trade surplus and consists of exporting more than is imported; a negative balance
of trade is known as a trade deficit or, informally, a trade gap.
EXCHANGE RATES: WHO BENEFITS?
STRONG DOLLAR VS EURO:
(Example: $1.00 = 1.20 euros)
•
U.S. travelers to Europe
Dollar buys more in Europe
•
American firms with European operations
Operating cost are lower
•
European exporters
European products costs less in U.S.
WEAK DOLLAR VS. EURO:
(Example: $1.00 = .60 euros)
•
European travelers to U.S.
Euro buys more in America
•
European firms with American operations
Operating costs are lower
•
American exporters
American products cost less in Europe
American Dollar Exchange Rate
Country
AUSTRALIA
BELGIUM
CANADA
DENMARK
EUROPEAN UNION
FINLAND
FRANCE
GERMANY
HONG KONG
ISRAEL
ITALY
JAPAN
KOREA (SOUTH)
MEXICO
NETHERLANDS
NEW ZEALAND
NORWAY
RUSSIA
SAUDI ARABIA
SINGAPORE
SOUTH AFRICA
SPAIN
SWEDEN
SWITZERLAND
TAIWAN
UNITED KINGDOM
Currency
ISO
03/06/09
03/05/09
Change
Dollar
Franc
Dollar
Krone
Euro
Markka
Franc
Mark
Dollar
Sheqel
Lira
Yen
Won
Peso
Guilder
Dollar
Krone
Ruble
Riyal
Dollar
Rand
Peseta
Krona
Franc
Dollar
Pound
AUD
BEF
CAD
DKK
EUR
FIM
FRF
DEM
HKD
ILS
ITL
JPY
KRW
MXN
NLG
NZD
NOK
RUB
SAR
SGD
ZAR
ESP
SEK
CHF
TWD
GBP
1.561302
31.83601
1.286062
5.887687
0.789194
4.692334
5.176773
1.543529
7.755508
4.241282
1528.093
97.89695
1549.853
15.26503
1.739155
1.985100
7.064156
35.73181
3.755190
1.545703
10.42447
131.3108
9.201466
1.152777
34.67172
0.708837
1.560571
32.10681
1.287082
5.937769
0.795907
4.732248
5.220808
1.556659
7.758287
4.234666
1541.091
98.37888
1568.522
15.31762
1.753948
1.994357
7.098946
35.86129
3.755172
1.554073
10.65067
132.4278
9.291274
1.172858
34.94653
0.708185
+0.0468%
-0.8434%
-0.0792%
-0.8434%
-0.8434%
-0.8434%
-0.8435%
-0.8435%
-0.0358%
+0.1562%
-0.8434%
-0.4899%
-1.1902%
-0.3433%
-0.8434%
-0.4642%
-0.4901%
-0.3611%
+0.0005%
-0.5386%
-2.1238%
-0.8435%
-0.9666%
-1.7121%
-0.7864%
+0.0921%
in USD
GLOBAL MARKET DEVELOPMENT
OPTIONS
Lower
Risk
Exporting
Less
Control
Higher
Risk
Licensing
Franchising
Direct
Investment
More
Control
STRATEGIES FOR REACHING GLOBAL
MARKETS

Licensing



McDonalds
Providing the right to produce and market
products under its operating requirements.
Direct Investment


Authority given by domestic firm for rights to
produce/market its product and use
trademarks/patents.
Franchising

Coke/Pepsi
Firms acquire businesses or develop new
facilities in foreign countries.
Joint Ventures

Two or more companies joining forces to pursue
specific opportunities (Partnership or Strategic
Alliances
MULTINATIONAL FIRMS
Do you know where the firm that ultimately owns each brand is headquartered?
Nestle Quick
Switzerland
Nokia Cell Phones
Finland
Jaguar Automobiles
India
Michelin Tires
France
Shell Oil
Netherlands/England
Columbia Records
Japan/Germany
BARRIERS TO
INTERNATIONAL TRADE

Sociocultural Differences

Economic Differences

Political & Legal Differences
SOCIAL/CULTURAL DIFFERENCES
Think beyond the obvious
differences.
Social/cultural differences
can rapidly undermine  Nonverbal Communication
business relationships.  Forms of Address
 Attitudes toward punctuality
 Religious Celebrations
 Business Practice/Gifts
ECONOMIC DIFFERENCES




Exchange Rates
Population
Per Capita Income
Infrastructure
 Transportation
 Communication
 Energy

Finance
Can you profitably
provide your product or
service to meet the
needs of the market?
POLITICAL & LEGAL DIFFERENCES


Political regimes differ around the world
Legal Differences
Lack of Enforcement
 Bribery


Political Climate
Stability
 Violence


Piracy and intellectual property is a problem in
several foreign nations
PROTECTIONISM
Reasons to Create Trade
Restrictions
Reasons to Eliminate Trade
Restrictions
Protect domestic industry
Reduce prices and increase
choices for consumers
Protect domestic jobs in key
industries
Increase domestic jobs
Retaliate against countries who
have engaged in unfair trade
practices
Build exporting opportunities
Pressure other countries to change
their policies and practices
Use world resources more
efficiently
TRADE RESTRICTIONS

Tariffs


Quotas


Limitations on the amount of specific products that
may be imported from certain countries
Voluntary Export Restrictions


Taxes levied against imports
Limitations on the amount of specific products that
one nation will export to another
Embargo

Total ban on international trade of a certain item
or a total halt in trade with a specific nation
GLOBAL EMPLOYMENT
“
A new study suggests that 2.3 million service
jobs will have moved from the
United States to other countries
by 2008, up from 900,000 as of 2003.
“
REVERSE BRAIN DRAIN



Many talented immigrants are moving
home to take advantage of new economic
opportunities.
US companies can cut costs by sourcing
employees from overseas.
But is America losing potential innovators
such as Sergey Brin, founder of Google?
FREE TRADE: THE MOVEMENT GAINS
MOMENTUM
There has been a global move
toward free trade – the unrestricted
movement of good and services
across borders.
GATT AND WORLD TRADE
ORGANIZATION (WTO)

General Agreement on Tariffs & Trade (GATT)
 Established
in 1948
 Now encompasses 125 nations
 Slashed tariffs by about 30%

 Promote
International Trade
 Settle Trade Disputes
FREE TRADE

The World Bank
185 Member Countries
 Reduce World Poverty in Developing World
 Influence Global Economy
 Provide Financial Assistance



Low interest loans
The International Monetary Fund
Support Stable Exchange Rates
 Facilitate International Payments
 Adopt Economic Policies
 Promote Trade
 Lend money to member nations

TRADING BLOCS/COMMON
MARKETS
Groups of Countries promoting the free flow of goods and services

The North American Free Trade
Agreement (NAFTA)
The largest trading bloc
 US, Canada, Mexico


European Union (EU)
The largest common market
 27 nations; combined GDP $15Trillion
 Goal is to bolster Europe’s trade
position
