chapter 3 powerpoint
TRANSCRIPT
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Doing Business in
Global Markets
Chapter Three
Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
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*Profile
• First female foreign trade minister of the United Arab Emirates (UAE).
• Adapts her personal communication processes to match the culture of the people with whom she is interacting.
SHEIKA LUBNA AL-QUASIMIForeign Trade Minister of the UAE
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*The Dynamic Global Market
• Over 90% of companies doing business globally believe it is important for employees to have international experience.
• U.S. organizations (like UPS, the NFL and the NBA) are also expanding abroad.
BUSINESS in the GLOBAL MARKET
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Disney
• Let’s check out how Disney does things overseas.
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*The Dynamic Global Market
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WORLD POPULATION by CONTINENT
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*The Dynamic Global Market
• Importing -- Buying products from another country.
• Exporting -- Selling products to another country.
• The U.S. is the largest importing and the second largest exporting nation in the world.
IMPORTING and EXPORTING
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Source: World Features Syndicate and Interbrand.com.
• U.S. – 51 brands
• Germany – 9 brands
• Japan – 8 brands
• France – 8 brands
• U.K. – 6 brands
• Switzerland – 5 brands
The Dynamic Global MarketWHERE ARE THEY FROM?
Countries of Origin for World’s Most Powerful BrandsLG1
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Source: Forbes, www.forbes.com, March 30, 2009.
• U.S. – 359 billionaires
• Germany – 54 billionaires
• Russia – 32 billionaires
• China – 28 billionaires
• India – 24 billionaires
• U.K. – 25 billionaires
• Canada – 20 billionaires
The Dynamic Global Market
CAN YOU SPARE a DIME?Home Countries for Some of the World’s Billionaires
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*Why Trade With Other Nations?
• Countries with abundant natural resources (like Venezuela or Russia) need technological resources from other countries (like Japan).
• Global trade allows countries to produce what they make best and buy what they need from others.
• Free Trade -- The movement of goods and services among nations without political or economic barriers.
TRADING with OTHER NATIONSLG1
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Source: The Progressive Policy Institute, World Health Organization .
Global trade has led the world in a new direction:
• Literacy rates worldwide have increased from 56% in 1950 to 84% in 2006.
• Life expectancy in less developed areas rose from 40.9 years in 1950 to 70.1 years in 2006.
HOW FREE TRADE BENEFITS the WORLD
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Why Trade With Other Nations?
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*The Theories of Comparative and Absolute Advantage
• Comparative Advantage -- A country should sell the products it produces most efficiently and buy from other countries the products it cannot produce as efficiently.
• Absolute Advantage -- A country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries.
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COMPARATIVE and ABSOLUTE ADVANTAGE
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*Getting Involved in Global Trade
• Small businesses may be the key in global job growth.
• They make up almost half of the private sector.
• Only 30% of small businesses export.
• By 2018, it’s expected half of small businesses will export.
GOING GLOBAL with a SMALL BUSINESS
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Source: Investor’s Business Daily, www.investors.com, June 30, 2008.
Getting Involved in Global TradeWHERE DO THEY INVEST?
Leading Destinations for Foreign InvestorsLG2
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Source: U.S. Dept. of Treasury, www.treas.gov, January 31, 2009.
Getting Involved in Global TradeWHO DOES the U.S. OWE?
Countries that Own the Most U.S. DebtLG2
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*Importing Goods and Services
• Starbucks CEO, Howard Shultz, found his importing opportunity in Italy. He transformed a coffee shop in Seattle to mimic the European cafes.
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GETTING INVOLVED in GLOBAL TRADE
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*Exporting Goods and Services
• Exporting provides a great boost to the U.S. economy.
• It’s estimated every $1 billion in U.S. exports generate over 20,000 U.S. jobs.
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GETTING INVOLVED in EXPORTING
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• MFG.com is an online exchange for manufacturers and suppliers.
• Growing numbers of Chinese manufacturers began visiting the site.
• MFG staff had to learn about the Chinese business culture.
• China now accounts for 11% of MFG.com’s revenue.
FINDING CRACKS in the GREAT WALL
(Spotlight on Small Business)
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*Measuring Global Trade
• Balance of Trade -- The total value of a nation’s exports compared to its imports measured over time.
• Trade Surplus -- When the value of a country’s exports is more than that of its imports.
• Trade Deficit -- When the value of a country’s exports is less than that of its imports.
HOW to MEASURE GLOBAL TRADELG2
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*Measuring Global Trade
• Balance of Payments -- The difference between money coming into a country (from exports) and money leaving the country (from imports) plus other money flows.
• The goal is to have more money flowing into a country than out – a favorable balance.
• An unfavorable balance is when more money flows out of a country.
BALANCE of PAYMENTS
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*Measuring Global Trade
• Dumping -- Selling products in a foreign country at lower prices than those charged in the producing country.
• Dumping is prohibited.
• China, Brazil and Russia have been penalized for dumping steel in the U.S.
UNFAIR TRADE PRACTICES LG2
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*Strategies for Reaching Global Markets
Least Amount of commitment, control, risk and profit potential Most
Licensing Exporting FranchisingContract
Manufacturing
International joint ventures and strategic
alliances
Foreign direct
investment
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KEY STRATEGIES for REACHING GLOBAL MARKETS
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*Licensing
• Licensing -- When a firm (licensor) provides the right to manufacture its product or use its trademark to a foreign company (licensee) for a fee (royalty).
• Licensing can benefit a firm by:- Gaining revenues it wouldn’t have otherwise
generated.
- Spending little or no money to produce or market their products.
LICENSING
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*Exporting
• EACs provide hands-on exporting assistance and trade-finance support for small and medium-sized businesses that wish to directly export goods and services.
• ETCs help companies engage in indirect exporting by:- Matching buyers and sellers.- Dealing with foreign customs offices,
documentation, and conversions.
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EXPORT ASSISTANCE CENTERS and EXPORT TRADING CENTERS
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*Franchising
• Franchising -- A contractual agreement whereby someone with a good idea for a business sells others the rights to use the name and sell a product/service in a given area.
• Franchisors need to be careful to adapt their product to the countries they serve.
• Pizza Hut and Dominos learned that pizza topping preferences differ all around the world.
FRANCHISING
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*Franchising
Source: World Features Syndicate.
• Sweet Potato• Honeydew Melon• Corn Crumb Soft Rice Cake• Green Apple• Kiwi Fruit• Mango• Pineapple• Strawberry
TIME to MAKE the DONUTS…Dunkin’ Donuts Flavors in Taiwan
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• McDonald’s has more than 31,000 restaurants in over 118 countries.
• Maintains varying menus around the world due to the different preferences of its customers.
• Responds to challenges by funding research and adding healthier options.
The SUN NEVER SETS on MICKEY D’S
(Reaching Beyond Our Borders)
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*Franchising
Source: McDonalds, www.mcdonalds.com, March 2009.
• Malaysia: Bubur Ayam McD – Chicken strips in porridge with onions, ginger, and shallots.
• Egypt: Mcarabia – Grilled chicken with tehina sauces, lettuce, tomato and onion on Arabic bread.
• Japan: Teritama – Teriyaki burger topped with an egg.
• Germany: Want a beer with your burger? You can order one in the German stores.
• Israel: Operates using Kosher kitchens.
THAT’S at MCDONALD’S?
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*Contract Manufacturing
• Contract Manufacturing -- A foreign company produces private-label goods to which a domestic company then attaches its own brand name or trademark. A form of outsourcing.
• Contract manufacturing can be used to:- Allow a company to experiment in a new market
without incurring heavy start-up costs such as building a manufacturing plant.
- Temporarily meet an unexpected increase in orders.
CONTRACT MANUFACTURING
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*International Joint Ventures and Strategic Alliance
• Joint Venture -- A partnership in which two or more companies join to undertake a major project.
• The Benefits of Joint Ventures:- Shared technology and risk.- Shared marketing and management expertise.- Entry into markets where foreign companies are
often not allowed unless goods are produced locally.
JOINT VENTURES
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*International Joint Ventures and Strategic Alliance
• Strategic Alliance -- A long-term partnership between two or more companies established to help each company build competitive market advantages.
• Unlike joint ventures, strategic alliances don’t typically share costs, risks, management or profits.
• Strategic alliances provide broad access to markets, capital and technical expertise.
STRATEGIC ALLIANCES
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*Foreign Direct Investment
• Foreign Direct Investment (FDI) -- The buying of permanent property and businesses in foreign nations.
• Foreign Subsidiary -- A company owned in a foreign country by another company called the parent company. The most common form of FDI.
- Primary Advantage: Parent company maintains complete control over its technology or expertise.
- Primary Disadvantage: Must commit funds and technology within foreign boundaries.
FOREIGN DIRECT INVESTMENTLG3
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*Foreign Direct Investment
• Multinational Corporation -- A company that manufactures and markets products in many different countries and has multinational stock ownership and management.
• Not all large global businesses are multinational.
• Only firms that have manufacturing capacity or some other physical presence in different nations can truly be multinational.
MULTINATIONAL CORPORATIONSLG3
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*Foreign Direct Investment
SOVEREIGN WEALTH FUNDS
• Sovereign Wealth Funds (SWFs) -- Investment funds controlled by governments holding large stakes in foreign companies.
• The size of the funds and the fact that they are government-owned make some fear they might be used for:- Geopolitical objectives.- Gaining control of strategic natural resources.- Obtaining sensitive technologies.- Undermining the management of the companies in
which they invest.
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*Forces Affecting Trading in Global Markets
• Sociocultural
• Economic and Financial
• Legal and Regulatory
• Physical and Environmental
FORCES AFFECTING GLOBAL TRADE
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Activity
• Evaluating Global Expansion
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*Socio-cultural Forces
• To be involved in global trade, you must be aware of the cultural differences among nations including:- Social Structures- Religion - Manners- Values- Language- Personal
Communication
CULTURAL DIFFERENCES
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*Socio-culturalForces
• Braniff Airlines’ slogan "Fly in leather” translated in Spanish as "Fly naked.”
• Gerber used their U.S. label – a cute baby – on African products. They found out that labels on African products picture what’s inside the package.
• In Italy, Schweppes Tonic Water was mistaken as Schweppes Toilet Water.
LOST in TRANSLATIONAdvertisements Gone Wrong
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*Socio-culturalForces
READY to TRAVEL ABROAD?Know Your Cultural Differences
• In Turkey, it’s rude to cross your arms while facing someone.
• In many Middle Eastern countries, you shouldn’t eat or shake hands with the left hand because it is considered unclean.
• In India, you should never pat anyone’s head. It’s where their soul is kept.
• In Brazil, your meeting may not start on time because punctuality isn’t important to the culture.
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*Economic and Financial Forces
• Exchange Rate -- The value of one nation’s currency relative to the currencies of other countries.
• High value of the dollar – Dollar is trading for more foreign currency; foreign goods are less expensive.
• Low value of the dollar – Dollar is trading for less foreign currency; foreign goods are more expensive.
• Currencies float in value depending on the supply and demand for them in the global market.
EXCHANGE RATES
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Handout
• Foreign Etiquette Tips
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*Economic and Financial Forces
• Devaluation -- Lowers the value of a nation’s currency relative to others.
• Countertrading -- Complex form of bartering in which several countries each trade goods or services for other goods or services.
DEVALUATION and COUNTERTRADING
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*Legal and Regulatory Forces
• There’s no global system of laws.
• Laws may be inconsistent.
• U.S. businesses must follow U.S. laws while conducting global business.
• The Organization for Economic Cooperation and Development (OECD) and Transparency International fight to end corruption and bribery in foreign markets and have had limited success.
LEGAL CONCERNS OVERSEASLG4
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*Physical and Environmental Forces
• Developing countries have transportation and storage systems that make international distribution difficult or impossible.
• Often, technological capabilities are far from those in the U.S. which make for a tough business environment.
ENVIRONMENTAL FORCES
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*Trade Protectionism
• Trade Protectionism -- The use of government regulations to limit the import of goods and services.
• Advocates of protectionism believe it allows domestic producers to survive, grow and produce jobs.
TRADE PROTECTIONISM
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*Trade Protectionism
• Tariffs -- Taxes on imports.
• Two kinds of tariffs:- Protective – Raise the
retail price of imports so domestic goods are competitively priced.
- Revenue – Raise money for governments.
TARIFFS
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*Trade Protectionism
• Import Quota -- Limits the number of products in certain categories a nation can import.
• Embargo -- A complete ban on the import or export of a certain product or the stopping of all trade with a particular country.
• Political disagreements can lead to embargos, like the U.S. embargo against Cuba.
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*The World Trade Organization
• General Agreement on Tariffs and Trade -- A global forum for reducing trade restrictions on goods, services, ideas and cultural problems.
• World Trade Organization (WTO) -- Headquartered in Geneva, the WTO is an independent entity of 152 member nations whose purpose is to oversee cross-border trade issues and global business practices.
WORLD TRADE ORGANIZATIONLG5
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*Common Markets
• Common Market -- A regional group of countries with a common external tariff, no internal tariffs and coordinated laws to facilitate exchange among members.
• The European Union (EU), Mercosur and the ASEAN are common markets.
COMMON MARKETS
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*The North American and Central American Free Trade Agreements
• North American Free Trade Agreement -- Ratified in 1994, created a free-trade area among the United States, Canada and Mexico.
• NAFTA’s objectives are:- Eliminate trade barriers and facilitate cross-border
movement of goods and services.- Promote conditions of fair competition.- Increase investment opportunities.- Provide effective protection and enforcement of
intellectual property rights.- Establish a framework for further regional trade
cooperation.- Improve working conditions in North America.
NAFTA
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*The North American and Central American Free Trade Agreements
CAFTA
Central American Free Trade Agreement -- Passed in 2005, created a free-trade zone with Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua.
• Free traders hope CAFTA will lead to the creation of a Free Trade Area of the Americas (FTAA).
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*The Future of Global Trade
• China is the largest global consumer of steel, copper, coal and cement and second only to the U.S. in the consumption of oil.
• Multinationals are investing heavily in China.
• India has seen huge growth in information technology, pharmaceuticals and biotechnology.
• Russia is a large oil producing country with many multinationals interested in developing there.
FUTURE of GLOBAL TRADE
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*The Challenge of Offshore Outsourcing
• Outsourcing -- Purchasing goods and services from sources outside a firm rather than providing them within the company.
• U.S. firms have outsourced payroll functions, accounting and manufacturing for years.
• With the growth of global markets, companies have been shifting to offshore outsourcing – outsourcing with other countries.
OUTSOURCING
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Source: Investor’s Business Daily, www.ibd.com, December 1, 2008.
The Challenge of Offshore Outsourcing
ELECTRONICS MANUFACTURING AROUND the WORLD LG6
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*Globalization and Your Future
• Study foreign languages• Learn about foreign cultures• Take global business courses.
PLAN for YOUR GLOBAL CAREERLG6
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Case Study
• Let’s Talk about GAP
Test #1
• Chapter 1, 2, 3 • 100 points total for test. • This is an open-notes test. You can use one page of
notes (8 ½ x 11) hand written on both sides. • You will have your regular class time to complete the
test. • It is 50 questions – Multiple Choice and T/F (2 points
each)• I will also give you information on your business plan
on test day.