chapter 3 bom 120
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Chapter 3
Competing in Global Markets
The Global Market Globalization means that
companies manufacture, finance, and market worldwide
Canada represents a potential market of only 32 million customers
There are over 6 billion potential customers in 193 countries globally.
The Global Market
Importing: buying products from another country.
Exporting: selling products to another country.
Free trade is the movement of goods and services among nations without political or economic trade barriers.
Why Countries TradeWe trade to get goods that are not
available locallyIn Canada, we do not produce citrus
fruit, so we trade for itWe produce other goods, like lumber,
beyond our ability to consume, so we export these goods
Some countries have an abundance of natural resources but lack the technological know- how to retrieve them
Other countries have the technology but lack natural resources.
The Theory of Comparative Advantage
Countries export those goods and services that they produce most effectively and efficiently
Countries import those goods and services where they do not have this comparative advantage
In practice, many countries ignore this economic principle. They inhibit the free flow of goods using duties and tariffs
They attempt to give their producers a competitive advantage
Theories of Advantage
Output per Output per Unit of Unit of InputInput
ComparativComparativee
U. S.U. S.
ChinaChina
SoftwarSoftwaree
U. S.U. S.
ChinaChina
ClothinClothingg
Theories of Advantage
AbsolutAbsolutee
Output Output per Unit of per Unit of
InputInput
Copper ProductionCopper Production
ZambiaZambia
The Rest of The Rest of the Worldthe World
= Virtual = Virtual Monopoly Monopoly
International Trade - Terminology
Balance of Trade: a country’s ratio of exports to imports.
Trade Surplus: occurs when the value of the country’s exports exceeds that of its imports (a favourable balance of trade).
Trade Deficit: occurs when the value of the country’s imports exceeds that of its exports (an unfavourable balance of trade)
Balance of Payments: the difference between money coming into the country and money leaving the country
International Trade - Terminology
Dumping - selling cheaper in foreign markets than at home
Protectionism - using government regulations to keep foreign goods out
Exchange rate - the value of our currency compared to other countries’ currency
Exporting
Licensing
Franchising
Contract Manufacturing
Strategies for Reaching Global Markets
International
Joint Ventures Strategic Alliances Foreign Direct
Investment
Hurdles of Trading in the World Market
Socio-cultural forces
-customs Economic forces-money, wealth/poverty
Legal and regulatory forces-laws,taxes, copyright, patents: require local expertise
Technological forces-voltages, video standards, internet
Trade Protectionism The use of government regulations to
limit the import of goods and services in order to protect domestic producers• Dumping• Tariffs• Import quotas• Embargos
Protectionism Practices
Tariffs and quotas to limit imports
Revenue tariffs to generate funds for the government
Regulatory trade barriers - labeling, health, safety, emission standards can be used as trade embargoes
Restrictive paper work or port facilities can act as non-tariff barriers
Protectionism in Use
The 1980s saw Canada and the U.S. pass laws to protect the auto industry from Japanese competition with negative results for North American consumers
Trade embargoes are used for political purposes, i.e., Iraq, Cuba, South Africa, etc.
During the Great Depression the U.S. acted to restrict imports and others retaliated, thus worsening the Depression