Lecture 04
emad@iqraisb.edu.pk
Global Markets.
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Objectives
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Understand the importance of importing &
exporting and other international business
concepts.
Be familiar with strategies for reaching global
markets used by multinational companies.
Understand the forces that affect global
trading.
Explain how e-commerce is affecting global
business.
The global village
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Single biggest factor that has allowed the
growth of international business.
How has increased connectivity allowed global
operations for companies?
– Ideas?
 Why should nations trade with other nations?
 No country is entirely self sufficient.
 Resources are not evenly distributed.
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Examples of relevant resources?
 Countries need the produce of other countries that
they lack.
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Imports.
Comparative Advantage.
 A country should make and sell those products it
produces most efficiently but buy those that it
cannot produce efficiently.
 Theory of comparative advantage states the
need for efficiency in the production of goods
and services.
 & the idea that trade is a beneficial enterprise i.e./
free trade.
Pros & Cons
 Pros
 Global market offers a huge number of potential
consumers.
 Productivity increases when nations trade in goods
with comparative advantage.
 Global trade keeps costs down and helps avoid
inflation curtailing economic growth.
 Free trace inspires innovation and competition
between a wider range of competitors.
 Nations gain access to foreign investment which helps
keep inflation low.
 Cons
 Domestic workers can lose work and experience pay
cuts.
 Moving operations abroad causes loss of service
related white collar jobs.
 Domestic companies can lose comparative advantage
when competitors build advanced production
operations in low wage countries.
Largest Traders.
 Countries that trade the most :
 United States.
 Germany.
 Japan.
 France.
 Britain.
 China/Hong Kong.
 Canada.
 Italy.
 Netherlands.
Absolute advantage.
 When a country has a monopoly on a certain
product or can produce the product more
efficiently than any other country.
 Relatively rare to have absolute advantage.
 Examples?
 What is absolute advantage based on?
Business Terms
 Exporting
 is selling products/services to other countries.
 Importing
 is buying products/services from other countries.
 The balance of trade
 is the relationship of imports to exports.
 The balance of payments
 is the balance of trade plus other money flows such as
foreign aid and tourism.
 Dumping
 is selling products for less in a foreign country than in
your own.
 Trade protectionism
 is the use of government regulations to limit the
import of products.
 Free Trade
 Movement of goods and services among nations
without political or economic trade barriers.
Strategies.
 Strategies aimed at entering foreign markets include
the following:
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Licensing,
Exporting,
Franchising,
Contract Manufacturing,
Joint ventures,
Strategic Alliances,
Foreign Subsidiaries,
Foreign Direct Investment.
» Homework > Look up real life examples (not the ones
given in class).
 A Trade Deficit
 is an unfavorable balance of trade, i.e. when imports
are greater than exports.
 Foreign Direct Investment
 The buying of permanent property and businesses in
foreign nations.
 Licensing
 A global strategy in which a firm (the licensor) allows
a foreign company (the licensee) to produce its
product in exchange for a fee (royalty).
 Contract Manufacturing
 A foreign countries production of private label goods
to which a domestic company then attaches.
 Joint Venture
 A partnership in which two or more companies (often
from different countries) join to undertake a major
project.
 Strategic Alliance
 A long-term partnership between two or more companies
established to help each company build comparative
advantages.
 Foreign Subsidiary
 A company owned in a foreign country by another (called
the parent company).
 Multinational Corporation
 An organisation that manufactures and markets products
in many different countries and multinational stock
ownership and multinational management.
 Multinational companies are different in that
they have manufacturing facilities in many
different countries.
 A large problem for multinationals is trade
restrictions in the form of
 Socio-cultural forces.
 Economic & Financial forces.
 Legal and regulatory forces.
 Physical & Environmental forces.
 Biggest restriction on global trade is political
difference.
 The use of government regulations to limit the
import of goods and services is known as Trade
_____________?
 Ideas?
 Hint ~ it uses
 Tariffs,
 Import Quotas &
 Embargoes.
 Supporters of trade protectionism believe it
allows domestic producers to survive and grow.
 This in turn produces more jobs.