1

4. Global Markets

2

The BasisFor International Business

• Encompasses all exchanges across international boundaries

• Steady increase in trade since WWII

• For U.S., international business means:

– New markets

– New sources of inexpensive labor, raw materials, etc.

• For foreign firms, means piece of large, lucrative U.S. market

3

Forms of Trade Advantage

• Absolute advantage– Ability to produce specific product more

efficiently than any other nation

• Comparative advantage– The ability to produce specific product more

efficiently than any other product

4

Exporting & Importing

• Exporting

• Importing

• Balance of trade

• Trade deficit

• Balance of payments

5

RestrictionsOn International Business

• Trade restrictions– Tariffs

• Dumping

– Nontariff barriers• Import quotas• Embargoes• Foreign-exchange controls• Societal, economic & regulatory differences

– Language, values, infrastructure, currency shifts, political/legal

6

Reasons for Trade Restrictions

• Equalization of balance of payments

• Protection of:– New/weak industries– National security– Public health– Jobs

• Retaliation

7

The Extent of International Business

• Trend toward elimination of trade barriers

• General Agreement on Tariffs & Trade (Monitored by World Trade Organization)– The Kennedy Round (1964-1967)– The Tokyo Round (1973-1979)– The Uruguay Round (1986-1993)– The Doha Round (2001-Ongoing)

8

The Extent of International Business (Cont.)

• International Economic Communities– European Union (EU)

– European Economic Area (EEA)

– European Monetary Union (EMU)

– North American Free Trade Agreement (NAFTA)

– Association of Southeast Asian Nations (ASEAN)

– Pacific Rim

– Commonwealth of Independent States (CIS)

– Caribbean Basin Initiative (CBI)

– Organization of Petroleum Exporting Countries (OPEC)

– Organization for Economic Cooperation & Development (OECD)

9

Methods of EnteringInternational Business

• Contractual agreements

– Licensing, franchising, subcontracting

• Exporting (indirect & direct) & importing

– Through an export-import merchant or agent

– Through export trading or management companies

– Through offset agreements

– Through establishment of sales offices or branches

• Joint ventures & strategic alliances

• Totally owned facilities (direct investment)

• Countertrade

• Multinational corporations

10

Strategies forInternational Business

• Global business strategy– Standardization strategy

• Multidomestic business strategy– Adaptation strategy

11

Sources of Export Assistance

• Some export assistance programs include:– U.S. Export Assistance Centers

– International Trade Administration

– U.S. and Foreign Commercial Services

– Export Legal Assistance Network

– Advocacy Center

– American Business Center

– The Business Service for the Newly Independent States

– Eastern Europe Business Information Center

– National Trade Data bank

12

Financing International Business

• Export-Import Bank of the United States (Eximbank)

• Multilateral Development Banks (MDB)– World Bank

– Inter-American Development Bank (IDB)

– African Development Bank (AFDB)

– European Bank for Reconstruction and Development (EBRD)

• International Monetary Fund (IMF)