e xploring g lobal b usiness c hapter -03 1 dr. gehan shanmuganathan, (dba)

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EXPLORING GLOBAL BUSINESSCHAPTER-03

Dr. Gehan Shanmuganathan, (DBA)

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SAMSUNG ELECTRONICS SHINES IN THE GLOBAL SPOTLIGHT

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SAMSUNG ELECTRONICS SHINES IN THE GLOBAL SPOTLIGHT

Samsung started as a small firm specializing in exporting food

products to China

Later ventured into insurance

In 1970 produced black and white televisions

Today, Samsung is an international corporation offering cameras,

computers, cellphones, disk drivers, and semiconductors

Currently competes with global giants such as Apple, Hewlett-

Packard, Intel, and Motorola

Samsung uses innovation through research and development

centers in the US, Europe, India, and China and partnership with

international companies in terms of sourcing and manufacturing

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LEARNING OBJECTIVES

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LEARNING OBJECTIVES

Explain the economic basis for international business

Discuss the restrictions nations place on international trade, the

objectives of these restrictions, and their results

Outline the extent of international business and world economic

outlook for trade

Discuss international trade agreements and international

economic organizations working to foster trade

Define the methods by which a firm can organize for and enter

into international markets

Discuss the various sources of export assistance

Identify the institutions that help firms and nations finance

international business

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INTERNATIONAL TRADE

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INTERNATIONAL TRADE

When Coca Cola sells parts of its chain to other

countries, Pier 1 imports goods from around

the world into the US

Trade is an important source of good jobs for

our workers and a source of higher growth for

our economy

Trade is an engine of economic growth

Trade has helped millions of people to lift their

lives from poverty to prosperity

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INTERNATIONAL BUSINESS DEFINED

International business encompasses all

business activities that involves

exchanges across national boundaries-

Pride, William M., Hughes, Robert J. and

Kapoor, Jack R. (2012) Business.

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ADVANTAGES IN INTERNATIONAL TRADE

Some countries are better equipped with

national resources compared to other

countries. They trade the production surplus

in an exchange of what they need. These

national resources are based on,

Specialization

Natural resources

Labor

Technological advances

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BASIS FOR INTERNATIONAL BUSINESS

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THE BASIS FOR INTERNATIONAL BUSINESS

Absolute advantage- ability to produce a specific

product more efficiently than any other nation.

Comparative advantage - ability to produce a

specific product more efficiently than any other

product.

Business survival through international

opportunities

Globalization and global presence

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ABSOLUTE ADVANTAGE

The ability to produce a specific product

more efficiently than any other nation

Examples

Saudi Arabia- petroleum products

South Africa- diamonds

Australia – wool

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COMPARATIVE ADVANTAGE

The ability to produce a specific product

more efficiently than any other product

Examples are,

Research and development- USA

High-technology industries – South Korea

Identifying new markets - India

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EXPORTING AND IMPORTING

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EXPORTING AND IMPORTING

Exporting is selling and shipping raw

materials or products to other nations

Importing is purchasing raw materials or

products of other nations and brining them

into one’s own country

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TOP 10 EXPORTS STATES IN THE US- 2005 IN $ BILLIONS

Texas

California

New York

Washington

Michigan

Illinois

Ohio

Florida

Pennsylvania

Massachusetts

$0.0 $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 $140.0

$128.8

$116.8

$50.5

$38.0

$37.6

$36.0

$35.0

$33.4

$22.3

$22.0

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INTERNATIONAL TRADE CONCEPTS

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SOME INTERNATIONAL TRADE CONCEPTS

Balance of Trade-The balance of trade indicates the

difference between nation’s imports and exports

values over a period of time (nation’s export value

minus imports value)

Trade Deficit- The trade deficit is a negative

balance of trade (I > E) (discuss when E>I)

Balance of Payment- Balance of Payment is the

total flow of money into a country (exports) minus

total flow of money out of that country (imports)

over a period of time (National Debt)

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BALANCE OF TRADE

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TRADE DEFICIT

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BALANCE OF PAYMENT

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RESTRICTIONS TO INTERNATIONAL BUSINESS

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TYPES OF TRADE RESTRICTIONS

Tariff Barriers

Non-Tariff Barriers

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TARIFF BARRIERS

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TARIFF BARRIERS

Tariffs- The most commonly imposed custom

duty (import duty)

Two types of tariffs – Protective Tariffs (fresh

tomato from Mexico)and Revenue Tariffs

(Scotch Whiskey)

Both increase the cost price of the product

Dumping - exportation of large quantities of a

product at a lower price than that of the same

product in that home market (impose of

antidumping duties to control)

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NON-TARIFF BARRIERS

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NON-TARIFF BARRIERS A non-tariff barrier is non-tax measure imposed by the

government to favor domestic over foreign suppliers.

This creates obstacles to marketing of foreign goods in a

country and increase costs for exporters

Import quota- imposing a import limit on a particular

product in given period of time

Embargos- a complete halt to trading with a particular

nation used mostly as a political weapon

Foreign exchange control- This is the limitation on the

foreign currency that can be purchased or sold

Currency devaluation- The decrease of nation’s own

currency in relation to the currency of other nations

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REASONS FOR TRADE RESTRICTIONS

To equalize a nation’s balance of payment

To protect new or weak industries- e.g- imposing

quotas on foreign textile in the US

To protect national security- e.g- exporting

strategic defense related products to unfriendly

nations

To protect the health of citizens- e.g- farm

products contaminated with insecticides

To retaliate for another nation’s trade restrictions

To protect domestic employments

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REASONS AGAINST TRADE RESTRICTIONS

Higher prices for consumers

Restrictions of consumers choice

Misallocation of international resources by trying

to protect already weak industries (protection of

weak industries is a waste of national resources)

Loss of jobs if the majority works in exports

oriented industries

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WORLD ECONOMIC OUTLOOK FOR TRADE

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WORLD ECONOMIC OUTLOOK

In the United States, international trade now accounts for

over one-fourth of Gross Domestic Products (GDP)

Growth in advanced economies slowed, while emerging

economies continued to grow. The BRIC countries

United States economy in an economic depression

Canada and Western Europe are projected to slow the

growth

Mexico and Latin America are stagnant

Japan indicates a slow growth

Asia is making a tremendous growth currently

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UNITED STATES CONTINUE IN INTERNATIONAL TRADE

US exports to Central and Eastern Europe

and Russia will increase

US will increase investments in these

countries creating demand for capital goods

and technology

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EXPORTS AND THE US ECONOMY

Globalization has opened opportunities for

US economy for international trading despite

economic recessions in 2001 and 2008

Canada and Mexico are best partners for US

exports, while China and Canada for imports

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US EXPORTS AND IMPORTS 2009

Rank/Trading Partner Exports ($ billion) Rank/Trading Partner Imports ($ billion)

Canada 204.7 China 296.4

Mexico 129 Canada 224.9

China 69.6 Mexico 176.5

Japan 51.2 Japan 95.9

United Kingdom 45.7 Germany 71.3

Germany 43.3 United Kingdom 47.5

Netherlands 32.3 South Korea 39.2

South Korea 28.6 France 34

France 26.5 Taiwan 28.4

Brazil 26.2 Venezuela 28.1

TOTAL 657.1   1042.2

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INTERNATIONAL TRADE AGREEMENTS

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THE GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT)

An international organization of 153 nations

dedicated to reducing or eliminating tariffs

and other barriers to world trade

These 153 nations accounted for more than

97% of world’s merchandise trade

GATT headquartered in Geneva, Switzerland

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GATT NEGOTIATION ROUNDS

The Kennedy Round (1964-1967) to reduce

US tariffs by 50%

The Tokyo Round (1973-1979) to reduce

participating member country tariff by 35%

The Uruguay Round (1986-1993) and also

created World Trade Organization (WTO)

in order to guide GATT

The Doha Round (2001)

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INTERNATIONAL ECONOMIC ORGANIZATIONS WORKING TO FOSTER TRADE

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INTERNATIONAL ECONOMIC ORGANIZATIONS

Economic Community- an organization of

nations formed to promote the free

movement of resources and products among

its members and to create common

economic policies

European Union an example

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INTERNATIONAL ECONOMIC ORGANIZATIONS

European Union

North American Free Trade Agreement (NAFTA)

The Central American Free Trade

Organization(CAFTA)

The Association of Southeast Asian Nation (ASEAN)

The Pacific Rim

Commonwealth of Independent States (CIS)

The Organization of Petroleum Exporting Countries

(OPEC)

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INTERNATIONAL BUSINESS ENTRY STRATEGIES

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INTERNATIONAL BUSINESS ENTRY STRATEGIES

Licensing- A contractual agreement in which one

firm permits another to produce and market its

products and use its brand name in return for royalty

or other compensation. E.g- McDonald, KFC

Exporting- organization manufactures in the home

country to export to other countries. E.g- ExxonMobil

Joint venture- a partnership between two entities

for a business operation in a country (guest

country). E.g- Samsung Research in US

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INTERNATIONAL BUSINESS ENTRY STRATEGIES

Totally owned facility- with total ownership of the

business

Strategic Alliance- partnership formed to create

competitive advantage on a worldwide business

Trading company- These companies provide a link

between the international buyer and the seller

Counter Trade- International barter transactions

Multinational Firms- A firm that operates on a

worldwide scale without ties to any specific nation or

region

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FINANCING INTERNATIONAL BUSINESS

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FINANCING INTERNATIONAL BUSINESS

The Export-Import Bank of the United States

Multilateral Development Banks

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QUESTIONS……..

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WEEKLY ASSIGNMENT-03

What effects might the devaluation of the

nation’s currency have on its export oriented

business firms, its consumers, and the debts

it owes to other nations? Discuss.