Getting involved in global trade
 People interested in finding job in international business often think
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of firms like Boeing, Ford, IBM, and Du Pont that have large
multinational accounts.
But the real job potential in global markets may be with small
businesses.
Getting started is often a matter of observation, determination and
risk.
First of all, it is important to observe and study global markets. the
college library, and the internet are good starting points for doing
research.
Travel is a way to learn about cultures and lifestyles in other countries.
It can also be a source of business inspiration.
Global Trade
Goods & Services
Importing
Exporting
Measuring Trade
 Balance of Trade/Payments
Trade Deficit
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BASIC STAGES IN GLOBAL
BUSINESS
 EXPORTING, IMPORTING, COUNTERTRADING
 FRANCHISING, FOREIGN LICENCING,
SUBCONTRACTING
 OVERSEAS MARKETING, OVERSEAS PRODUCTION,
INT’L JOINT VENTURES, INT’L MERGERS AND
ACQUISITIONS
IMPORTING :
BUYING FOREIGN GOODS AND SERVICES FROM
OTHER COUNTRIES TO BE SOLD IN THE LOCAL
MARKET
EXPORTING :
SELLING DOMESTICALLY PRODUCED GOODS AND
SERVICES TO OTHER COUNTRIES
BALANCE OF TRADE :
THE RELATIONSHIP BETWEEN A COUNTRY’S
IMPORT AND EXPORT
* TRADE DEFICIT :
EXPORT < IMPORT (UNFAVORABLE)
* TRADE SURPLUS:
EXPORT > IMPORT (FAVORABLE)
Getting involved in global trade
 Importing goods and services
 Can you think of goods and services currently not available in our
economy that might appeal to Turkish customers?
 Howard Schultz the owner of Starbucks, while traveling in Italy he
came to appreciate the special sense of community the
neighborhood coffee and espresso bars enjoyed in Italian
communities. When he returned home to The US, he purchased the
Starbucks coffee shop in Seattle and proceeded to build into an
international phenomenon.
 Today Starbucks has stores around the world.
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Getting involved in global trade
 Exporting goods and services
 You can sell just about any goods or services to other
countries as long as you make good quality products.
 When you export products or services, you may need to
adapt them to the country you sell?
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Getting involved in global trade
 Measuring global trade
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In measuring the effectiveness of global trade nations should
carefully follow two indicators: balance of trade and balance
of payments.
Balance of trade is a nation’s relationship of exports to
imports.
A favorable balance of trade, or trade surplus, occurs when the
value of a country’s exports exceeds that of its imports.
An unfavorable balance of trade, or trade deficit, occurs when
the value of the country’s import exceeds that of its exports.
That is why countries prefer to export more than they import.
 Measuring global trade
 The balance of payments is the difference between money
coming into a country (from exports) and money leaving the
country (for imports) plus money flows coming into or
leaving country from other factors such as tourism, foreign
aid, military expenditures, and foreign investment.
 The goal is always to have more money flowing into country
than flowing out.
 A favorable balance of payments means more money is
flowing into a country than flowing out. Conversely, an
unfavorable balance of payments is when more money is
flowing out of country than coming in.
 Measuring global trade
 To make sure that trade is conducted fairly on global
basis, different countries enforce laws to prohibit
unfair practices such as dumping.
 Dumping is the practice of selling products in a
foreign country at lower prices than those charged
in the producing country.
 Companies use this technique to reduce surplus
products in foreign markets or to gain foothold in a
new market.
BALANCE OF PAYMENTS:
OVERALL MONEYFLOW INTO OR OUT OF A
COUNTRY
* BALANCE OF PAYMENT SURPLUS :
INCOMING MONEYFLOW > OUTGOING
MONEYFLOW
* BALANCE OF PAYMENT DEFICIT :
INCOMING MONEYFLOW < OUTGOING
MONEYFLOW
EXCHANGE RATES
VALUE OF NATION’S LOCAL CURRENCY IN
RELATION TO THE CURRENCIES OF OTHER
COUNTRIES
NECESSARY DOCUMENTS IN
FOREIGN TRADE
 INVOICE
 PACKING LIST
 INSURANCE POLICY
 BILL OF LADING
 CUSTOM PAYMENT RECEIPT
DELIVERY TERMS
DELIVERY TERMS
 EXWORKS
 FREE ON BOARD(FOB)
 COST AND FREIGHT (CF)
 COST, INSURANCE AND FREIGHT (CIF)
PAYMENT TERMS
PAYMENT TERMS
 CASH WITH ORDER
 LETTER OF CREDIT(LC)
 CASH AGAINST DOCUMENTS(CAD)
 CASH AGAINST GOODS (CAG)
 BARTERING
The pros and cons of free trade
 Pros
 The global market contains over 6 billion potential
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customers for goods and services
Productivity grows when countries produce goods and
services in which they have a comparative advantage
Global competition and lower cost imports keep prices down
Open trade encourages innovation, with fresh ideas coming
from foreign markets
Uninterrupted flow of capital give countries access to
foreign investments, which keeps interest rates low.
The pros and cons of free trade
 Cons
 Domestic workers in manufacturing and service sectors
lose jobs due to increased imports or production shifts
to global markets
 Workers can face pay-cut demands from employers
 Competitive pressure often makes services and goods
better quality
 Domestic companies can lose their comparative
advantage when competitors build advanced production
operations in low wage countries
Strategies for
Reaching Global Markets
Licensing
Exporting
Joint Ventures
Strategic Alliances
Subsidiaries-MNCs
Franchising
Foreign Direct
Contract Manufacturing
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Investment
Strategies for
Reaching Global Markets
 Licensing: a firm (the licensor) may decide to compete in
global market by licensing the right to manufacture its
products or use its trademark to a foreign company for a fee
of loyalty
 A company with an interest in licensing generally needs to
send company representatives to the foreign producer to
help set up the production process.
 The licensor may also assist or work with a licensee in such
areas as distribution and promotion.
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Strategies for
Reaching Global Markets
 Franchising
 Contract manufacturing involves a foreign country’s production of
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private-label goods to which a domestic company then attaches its
own brand name or trademark.
A contract manufacturer ("CM") is a firm that manufactures
components or products for another "hiring" firm.
Levi-Strauss and Nike practice contract manufacturing. Contract
manufacturing often enables a company to experiment in a new
market without incurring heavy start up cost.
A firm can also use it temporarily to meet an unexpected increase in
orders.
Contract manufacturing is also called outsourcing
Strategies for
Reaching Global Markets
 International joint ventures: a joint venture is a
partnership in which two or more companies (often
from different countries) join to undertake a major
project. Koç-Allianze insurance company.
 Companies participating joint ventures grow faster than
those not participating.
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Strategies for
Reaching Global Markets
 Sometimes joint ventures are mandated by
governments. For example, it is often hard to gain
entry into a country like China, whose economy is
centrally planned, but agreeing to a joint venture
can help a firm gain such entry.
 Most joint ventures are usually limited to specific
time frame. However, some extend many years as
in the case of Xerox and Fuji photo film company.
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Strategies for
Reaching Global Markets
 Advantages of international joint ventures
 Shared technology
 Shared management and marketing expertise
 Entry into markets where foreign companies are
not allowed unless their goods are produced locally
 Shared risk
 One obvious disadvantage is that a partner can learn
the other’s technology and practices and then go off
on its own as a competitor.
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Strategies for
Reaching Global Markets
 Strategic alliance is a long term partnership between two or
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more companies established to help each company build
competitive market advantages.
Such alliances can provide access to markets, capital, and
technological expertise.
Unless joint ventures, strategic alliances do not share costs,
risks, management or even profits.
Many executives and management consultants predict that
few companies in the 21 st century will not succeed in the
global market by going it alone, most will need strategic
alliances.
Computer giant Oracle has strategic alliances with more
than 15,000 companies, one of which is Ford.
Strategies for
Reaching Global Markets
 Foreign subsidiary is a company that is owned
in a foreign country by another company
(called parent company).
 Such a subsidiary would operate much like a
domestic firm, with production, distribution,
promotion, pricing, and other business
functions are under the control of the foreign
subsidiary's management.
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Strategies for
Reaching Global Markets
 Advantage of a subsidiary
 The company has complete control over any
technology or expertise it may posses. Food giant
Nestle is an example for a firm with many foreign
subsidiaries.
 Disadvantage of a subsidiary
 Parent company is committing a large amount of
funds and technology within foreign boundaries. If
relationships with the host country falter, the
firm’s assets could be taken over by the foreign
government.
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Strategies for
Reaching Global Markets
 Foreign direct investment is the buying of permanent
property and business in foreign nations.
 In 1980’s the surge in foreign direct investment by
countries such as Japan caused much concern in the US.
 Japan owns American landmarks such as Rockefeller
Center and Columbia pictures.
 Foreign direct investment can be viewed as a sign of
strength in a nation’s economy.
 The time to worry is when investors no longer find a
country attractive.
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Starbucks Around the World
World Locations
26%
International Locations
1%
23%
74%
6%
15%
International
Source: Business 2.0, July 2002.
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30%
U.S.
25%
Japan
U.K.
Taiwan/China
Mid-East
Europe
All Others
Sources of U.S. Oil Imports
471
In Millions of Barrels
307
495
509
Saudi Arabia
Mexico
Canada
Venezuela
Nigeria
588
Source: USA Today
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Sources of Foreign
Direct Investments In the U.S.
Japan
5%
Canada
11%
Other
4%
Europe
minus Britain
32%
Asia
13%
Latin
America
17%
Source: U.S. Commerce Dept.
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Britain
18%