CHAPTER 4

 Global Economy is the interconnected economies of the nations of the world.
 Exporting – selling and shipping of goods to another country
 Importing – buying or bringing in goods from other countries to sell

 Two important factors that brought about a global economy:
 Reduction in Trade Tariffs
 Advances in communication technology, particularly the Internet

 The World Trade Organization
 Global coalition of Governments that makes the rules that govern International Trade
 Eliminates or lessen Trade Barriers
 Promotes Free Trade
○
○
NAFTA - North American Free Trade Agreement
- Canada, US, and Mexico trade has become more profitable
EU - European Union – Europe’s trading bloc promotes free trade and shared currency

 Trade Barrier – a restriction on goods entering or leaving a country.
 Lowering of barriers has increased the flow of goods between countries
 Tariffs – taxes on imports and/or exports
 Governments charge tariffs on imports to protect domestic industries

 Developments in communications, information processing and transportation technology has transformed how business is done.
 Technology has made the world smaller
 Communicate with people in other countries by phone, through fax machines, with e-mail and over the Internet

International Markets:
Need to study and learn cultural differences.
US companies export 25% of our GDP
Gross Domestic Product (GDP) total value of all goods produced during the year.

Asia

China:

 government controls business, and laws and regulations are fairly strict.
Fastest-growing economy in world
 Looking for new products and services.
Japan:

In the past a “closed” society- hard to sell exports


US Fast-food menu reflects their culture.
Today they desire our clothing and fashion accessories
 Advertise using humor, fantasy, harmony, collective material success and things uniquely Japanese

 Latin America

 Diverse communities: traditional and modern
 Speak Spanish, Portuguese, and French
 Buying decision based on family needs not individual needs
 Look at merits of product, do comparison shopping before they buy
 Mexico consumers prefer U.S. goods

 Business failures and risk taking not accepted, not as many entrepreneurs
 No common European culture
 Common currency made commerce easier
 French more likely to east in restaurants than
Italians
 Italy culture is very individualistic, whereas
France’s culture is more collectivist
 Segment Markets/ Ads based on cultural differences rather than national boundaries

 Regions in Transition: Africa, Middle East, and former Soviet Union
 Unstable or developing countries offer a risky form of opportunity
 Many barriers: lack infrastructure, shifting political power, and lack of support once the business is in operation
 Research the culture and business practices
 Consider partnering with a local company
 Be sure to know your rights

 Entrepreneurship in the Global Marketplace
 Different from domestic business
 Countries differ in their cultures, political systems, economic systems, legal systems, and levels of economic development
 Cultural differences make the management of an international business more complicated than the management of a domestic business
 Cross-boarder business transactions requires an indepth understanding of the rules of international trade
 An international business must have policies for dealing with movements in exchange rates.

 Importance of Culture
 Study customs…..there may be contrasting differences
○ American business owners often travel to Japan in a hurry to close a transaction.
○ Japanese business people, like to take their time completing a deal, they want to get to know the person before they complete transaction. Trust is very important, they are willing to take the time to make sure that you are trustworthy.

 Dress Conservatively

Do not correct the other person’s use of English.
 Be prepared to remove your shoes.
 Respect different tastes in food
 Know something about the country and its culture
 Build a relations and trust before conducting business
 If necessary bring an interpreter to translate

 Sources for locating the best market

Consult the U.S. Census Bureau’s Guide to
Foreign Trade Statistics - sources for various trade statistics
 Standard Industrial Trade Classification
(SITC) Codes – what types of products are traded in specific countries. Also find information about how well your product or service competes in different marketplaces

Sources for Locating Best Market
 Suppose you are planning to export a toy.
Find out how many toys are sold in different countries every year. Look for a country that imports more toys than the average. The country should have a history of importing goods from
U.S. Generally, in order for a country to be considered a good export candidate, about 5% of its total imports should be American goods.

Sources for Locating Best Market
 Other Sources of Help
 Contact International Trade Administration office and the Department of Commerce in Washington, DC.
 International Business Exchange (IBEX). It allows you to sell products and services online anywhere in the world. It is a good source to find trading partners, too.

Sources for Locating Best Market
 Other Sources of Help
 U.S. Government and private agencies offer small businesses the opportunity to go on trade missions.
 Trade Missions allow owners to meet and talk with foreign agents, distributors, or potential business partners.
○ To participate you need a product that is on the government’s “Best Prospect” list. It is a product that other countries are looking to purchase. You also need a good Business Plan.

 Exporting : selling and shipping goods to another country.
 Importing : buying products from other countries to resell in your own country.
 Deciding on a Product to Export:
 best products for exporting are paper, electronics, chemicals, apparel, computers, and industrial and agricultural products.
 Country must have Disposable Income that is money people have to spend after paying for necessary expenses.

 Import Opportunities:
 U.S. imports a lot of goods for two main reasons
○ Competitive Advantage: Low labor costs
○ Apple
○ Apple
○ Absolute Advantage: Some products are found only in other countries; coffee

 Import Opportunities:
 Where to Find Import Opportunities
○ Attend Trade Shows – representatives from other countries display their products and services
○ Read trade publications and catalogs show available products
○ Research Your Market do people actually want the products?

 Export Opportunities:
 Expand your business to new markets
 Exporting is more complicated than importing
○ Need to understand foreign countries
○ Takes longer to make a profit due to necessary time to build relationships
 Where to Find Export Opportunities
○
○
Establish an e-commerce web site
Use a Trade Intermediary – an agency that serves as distributor in a foreign country
○ Establish a Foreign Joint Venture – an alliance between an American small business and a foreign company

 Export Opportunities:
 Where to Find Export Opportunities
○
○
○
Establish an e-commerce web site
Use a Trade Intermediary – an agency that serves as distributor in a foreign country
Establish a Foreign Joint Venture – an alliance between an American small business and a foreign company
○ License foreign businesses to sell your business’s products
○
○
Use an Export Management Company - for a commission will handle all tasks related to exporting
Hire a Freight Forward – handles overseas shipments


Over 100 federal agencies are involved with import and export process.
 Food and Drug Administration regulates food/drugs
 U.S. Customs Service oversight import requirements
 U.S. Census Bureau general information with export requirements
 U.S. Department of Commerce International Trade
Administration Trade Information Center (TIC) –
Trade Specialists counsel programs help with process
 104 Export Assistance Centers - operate in cooperation with SBA and Export-Import Bank of
America – marketing and trade finance support

 Conduct Market Research
 Is there a need for your product/service?
 Do you need to make any modifications in order to sell in in foreign market?
 Can you solve a problem for people from country
 Study the country, its culture, and people