Competing in Global Markets

Chapter 4

Chapter Objectives1. Explain the importance of international business and

the main reasons nations trade.2. Discuss the relationship of absolute and comparative

advantage to international trade.3. Describe how nations measure international trade and

the significance of exchange rates.4. Identify the major barriers that confront global

businesses.5. Explain how international trade organizations and

economic communities reduce barriers to international trade.

6. Compare the different levels of involvement used by businesses when entering global markets.

7. Distinguish between a global business strategy and a multidomestic business strategy.

Competing in Global Markets

Exports—domestically produced goods and services sold in other countries.

Imports—foreign goods and services purchased by domestic customers.

Why Nations Trade

International trade is vital because: It expands markets for products Allows companies to seek out growth

opportunities in other nations Makes production and distribution

systems more efficient Reduces firms’ dependence on the

economies of their home nations

Why Nations Trade

International Sources of Factors of Production Business decisions to operate abroad

depend on the availability, price, and quality of labor, natural resources, capital and entrepreneurship.

Why Nations Trade Size of the International Marketplace

Firms are attracted to international business by the sheer size of the marketplace

As developing nations expand, the potential for reaching new groups of customers increases

Even though people in developing nations have relatively low per capita incomes, their huge populations often offer lucrative markets

The World’s Top 10 Nations Based on Population and Wealth

Why Nations Trade

Major World Markets Major trading partners of U.S. firms

include the country’s northern and southern neighbors

Emerging Markets

Major Emerging Markets for the 21st Century

Why Nations Trade

Absolute and Comparative Advantage Absolute Advantage

Exists when a country makes a product for which it can maintain a monopoly or that it can produce at a lower cost than any competitor

Why Nations Trade

Absolute and Comparative Advantage Comparative Advantage

Supplying a product more efficiently and at a lower price than it can supply other goods, compared with the outputs of other countries.

Measuring Trade Between Nations Balance of trade—difference between a

nation’s exports and imports.

Trade surplus

Trade deficit

U.S. International Trade in Goods and Services

Measuring Trade Between Nations Balance or payments—difference in

money flows into or out of a country.

Balance of payments surplus

Balance of payments deficit

Components of the Balance of Payments

Measuring Trade Between Nations Major U.S. Exports and Imports

The U.S., with combined exports of over $2 trillion, leads the world in the international trade of goods and services.

Top 10 U.S. Exports and Imports

Measuring Trade Between Nations Exchange Rates—value of one nation's

currency relative to the currencies of other nations. Devaluation—describes a fall in a

currencies value relative to other currencies.

Floating Exchange Rates Hard versus Soft Currencies

Barriers to International Trade All businesses encounter social and cultural,

economic, legal and political barriers to both local and domestic trade

Barriers to International Trade Social and Cultural Differences

Language

Values and Religious Attitudes

Barriers to International Trade

Economic Differences Infrastructure

Currency Conversion and Shifts

AT&T Advertisement Offering a Solution to Language Differences

Barriers to International Trade

Political and Legal Differences Political Climate

Legal Environment

International Regulations

Corruption in Business and Government

Barriers to International Trade Types of Trade Restrictions

Tariffs—tax imposed on imported goods.

Nontariff Barriers Quotas Dumping Embargo Exchange controls

Arguments for and against Trade Restrictions

Reducing Barriers to International Trade

Organizations Promoting International Trade General Agreement on Tariffs and

Trade World Trade Organization (WTO)—

135 member international institution that monitors GATT agreements and mediates international trade disputes.

Reducing Barriers to International Trade

Organizations Promoting International Trade World Bank

International Monetary Fund

Reducing Barriers to International Trade International Economic Communities

North American Free Trade Agreement– (NAFTA) 1994 agreement among the U.S., Canada, and Mexico to break down tariffs and trade restrictions.

MERCOSUR ASEAN European Union—25 nation European

economic alliance.

NAFTA, MERCOSUR, and ASEAN Free-Trade Areas

The 25 Nations of the European Union

The introduction of the euro was an event of enormous cultural and financial significance.

Going Global While expanding into overseas markets can

increase profits and marketing opportunities, it also introduces new complexities to operations.

Key decisions before expanding overseas include Determining which foreign market (s) to enter Analyzing the expenditures required Deciding on the best way to organize overseas

operations

International Trade Research Resources

Going Global Levels of Involvement in International

Business

Going Global

Importers and Exporters Importers: Firms that bring in goods

produced abroad to sell domestically Exporters: Firms that produce or

purchase goods at home to sell overseas

Counter trade

Going Global

Contractual Agreements Franchising. Foreign Licensing. Subcontracting.

International Direct Investment Acquisitions Joint Ventures

Going Global

From Multinational Corporation to Global Business Multinational Corporation—firm with

significant operations and marketing activities outside its home country.

The World’s Top Ten Marketers

Going Global

Sources of Export Assistance U.S. Department of Commerce Website 1-800-USA-TRADE Commerce Department’s

68 district offices

Destinations and Sources of Direct Investment Dollars

Developing a Strategy for International Business Global Business Strategies

Offering a standardized, worldwide product and selling it in essentially the same manner throughout a firm’s domestic and foreign markets.

Multidomestic Business StrategyDeveloping and marketing products to serve different needs and tastes of separate national markets.