inl mkt ch.2 (cateora)

8/8/2019 Inl MKT Ch.2 (Cateora)

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Chapter Learning Objectives

5 . The Importance of GATT

6. The importance of World Trade Organization

7. The emergence of the International MonetaryFund and the World Bank Group


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T he International Marketing Environment

7

3. ECONOMY

Environmental uncontrollablescountry market A

Environmental uncontrollablescountry market B

Environmental uncontrollablescountry market C

1. Competition

1. Competition

2. Technology Price Product

Promotion Place or Distribution

6. Geography and Infrastructure

Foreign Environment

(Uncontrollables

)7. Structure of Distribution

3. Economy

5. Political-Legal

Domestic environment (Uncontrollables)

(Controllables)

2 .Technology

4.Culture

5. Political-Legal

4. Culture

T argetMarket


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Introduction

P roliferation of trade and emergence of the global economy

Intensification of global competition

More emerging markets

Developments in technology allow communications withglobal consumers and movement of goods


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T he 20 th to the 21 st Century

Worldwide economicdepression

First World War

Second world war

Cold war and divide between communist-socialist-capitalist approach to economicdevelopment

T he Marshall Plan for rebuildingEurope


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T he 20 th to the 21 st Century

Role of Agency for International Development tofoster economic growth in the underdevelopedworld

Financial and industrial development assistance to rebuildJapan

Greater demand for U.S. goodsand services

Greater cooperation among trading nationsGA TT via reduction of tariffs and trade

barriers

GA TT replaced by the World T radeOrganization (W T O) and new era of free trade


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World T rade Multinationals

1. Rapid growth of underdeveloped countriesand new global marketing opportunities

2. Rising living standards have createdmarketing opportunities for Saudi firms

3. Resistance over domination of U.S.multinationals

4. Expropriation and domestication of U.S.investments in Latin America

5 . In the Europe and Middle East U.S.multinationals were controlled tightly by

protectionism laws


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World T rade and U.S. Multinationals

1. Resurgence of competition from all over theworld challenged the supremacy of Americanindustry

2. Newly industrialized countries (NICs) such asBrazil, Mexico, South Korea, Taiwan, Singapore,and Hong Kong experienced rapidindustrialization

3. Economic power evenly distributed with growthof MNCs from other countries (see Exhibit 2-2)

4. Establishment of the WTO5 . Integration of European Union countries6. Creation of NAFTA, AFTA, and A P EC


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21st Century: T he First Decade and Beyond

With exception of China, slower economic growth

in U.S. and other countries is currently evident.

Faster growth rates expected in developingcountries such as Brazil, China, India, Indonesia,and Russia.

More trade expected in emerging markets, regionaltrade areas, and the established markets in Europe,Japan, Saudi Arabia and U.S.

Companies need to be more efficient, improveproductivity, expand global reach, and respondquickly.

Greater growth in international sales expected bysmaller firms.


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Balance of Payments

1. When countries trade there are financial transactions among

businesses or consumers of different nations2. Money constantly flows into and out of a country3. The system of accounts that records a nations international

financial transactions is called its balance of payments (B P )4. It records all financial transactions between a countrys firms,

and residents, and the rest of the world usually over a year 5 . The B P is maintained on a double-entry bookkeeping system


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Balance of PaymentsThe B P is the difference between receipts and payments

merchandise and Oil export sales.money spent by Hajj and Umrah

visitors.

transportation.payments of dividends and

interest from FDI abroad.new foreign investments in the

Saudi Arabia.

BP Receipts

costs of goods imported.spending by Saudi tourists

overseas.new overseas investments.cost of foreign military and

economic aid.

BP Payments


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Balance of PaymentsThe B P includes three accounts:

(1) current accounta record of all merchandise exports, imports,and services plus unilateraltransfers of funds;

(2) the capital accounta record of direct investment, portfolioinvestment, and short-term capitalmovements to and from countries;

(3) the official reserves accounta record of exports and imports of gold,increases or decreases in foreign exchange, and increases or decreases inliabilities to foreign central banks;


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Balance of Payments and Exchange Rate

1. If a countrys expenditures consistently exceed its income, its

standard of living falls2. Its exchange rate vis--vis foreign monies declines3. When foreign currencies can be traded for more Saudi Riyals,

Saudi products are less expensive for foreign customers andexports of Saudi goods increase

4. Simultaneously foreign products are more expensive for Saudi. buyers and the demand for imported goods is reduced


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Protectionism: Logic and Illogic

Countries use protectionist measures to shield a countrys markets from

intrusion by foreign competition and imports.

Argu ments fo r P r otectionism incl ud e:

1. maintain employment and reduce unemployment.2. increase of business size, and3. retaliation and bargaining.4. protection of the home market.5. need to keep money at home.6. encouragement of capital accumulation.

7. maintenance of the standard of living and real wages.8. conservation of natural resources.9. protection of an infant industry10. industrialization of a low-wage nation11. national defense


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Protectionism: Logic and Illogic

In general, protectionism contributes to industrialinefficiency and makes a nation uncompetitive

Arguments 9-11 above are considered valid forprotectionism

Protectionism is implemented through theimposition of trade barriers, which include tariff barriers and non-tariff barriers


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T he Impact of T ariff ( T ax) Barriers

T ariff Barriers tend to Increase :

1. Inflationary pressures2. Special interests privileges3. Government control and political considerations in

economic matters4. The number of tariffs they beget via reciprocity

T ariff Barriers tend to Weaken :1. Balance-of-payments positions2. Supply-and-demand patterns3. International relations (they can start trade wars)

T ariff Barriers tend to Restrict :1. Manufacturer supply sources2. Choices available to consumers3. Competition


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Six T ypes of Non- T ariff Barriers

(2) Customs and Administrative Entry Procedures:1. Valuation systems2. Antidumping practices3. Tariff classifications4. Documentation requirements5 . Fees

(1) Specific Limitations on T rade:1. Quotas2. Import Licensing requirements3. P roportion restrictions of foreign to

domestic goods (local content requirements)4. Minimum import price limits5 . Embargoes


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(3) Standards:1. Standard disparities2. Intergovernmental acceptances of testing

methods and standards3. P ackaging, labeling, and marking

(4) Government Participation in T rade:

1. Government procurement policies2. Export subsidies3. Domestic assistance programs


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(5) Charges on imports:1. P rior import deposit subsidies2. Administrative fees3. Special supplementary duties4. Import credit discriminations5 . Variable levies6. Border taxes

(6) Others:

1. Voluntary export restraints2. Orderly marketing agreements


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Monetary Barriers

In addition to the Six T ypes of Non- T ariff Barriers, monetary barriers are

also used by countries

Th r ee types of moneta r y ba rr ie r s incl ud e:

1. Blocke d c urr ency: B lockage is accomplished by refusingto allow importers to exchange its national currency for thesellers currency.

2 . Diffe r ential exc h an g e r ates: It encourages theimportation of goods the government deems desirable anddiscourages importation of goods the government does notwant by adjusting the exchange rate. The exchange rate for

importation of a desirable product is favorable and vice-versa3. Gove r nment app r oval: In countries where there is a

severe shortage of foreign exchange, an exchange permitto import foreign goods is required from the government


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General Agreement on T ariffsand T rade (GA TT )

1. GATT created as an agency to serve as watchdog over worldtrade and provide a process to reduce tariffs2. GATT also provided a mechanism to resolve trade disputes

bilaterally

GA TT covers three basic areas:1. trade shall be conducted on a nondiscriminatory basis;2. protection shall be afforded domestic industries

through customs tariffs, not through such commercialmeasures as import quotas; and

3. consultation shall be the primary method used to solveglobal trade problems.

3. GATT now replaced by the World Trade Organization


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World T rade Organization (W T O)

T he objective is to reduce tariffs and other barriers totrade and to eliminate discrimination in trade

Principles of W T Onon-discriminationProgressive reduction in tariff and non-tariff barriersSolving trade disputes through consultation ratherthan retaliation

Unlike GA TT , is an institution, not an agreement


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T he International Monetary Fund (IMF)

1. IMF was created to assist nations in becoming and remaining

economically viable2. It assists countries that seek capital for economic development

and restructuring (providing liquidity)3. IMF loans come with stipulations that borrowing countries slash

spending and impose controls to curb inflation4. It helps maintain stability in the world financial markets5 . P ermanent members are USA, Germany, UK, France, Japan

Saudi Arabia and China. 1 5 are elected

Objectives of the IMF include:1. stabilization of foreign exchange rates2. establish convertible currencies to

facilitate international trade3. lend money to members in financial

trouble


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World Bank Group (WBG)

Th e f u nctions of t h e WBG incl ud e:

T he goal of WBG is to reduce poverty and the improvement of

living standards by promoting sustainable growth and investmentin people.

1. lending money to countries to finance development projects in

education, health, and infrastructure;2. providing assistance for projects to the poorest developing countries;3. lending directly to the private sector in developing countries with

long-term loans, equity investments, and other financial assistance;4. provide investors with investment guarantees against

noncommercial risk, so developing countries will attract FDI; and5. provide conciliation and arbitration of disputes between governments

and foreign investors


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Protests Against Global Institutions

Over the years, anti-capitalist protestors complained against the W T O,and IMF, over the unintended consequences of globalization that include:

1. environmental concerns2. worker exploitation and domestic job losses3. cultural extinction4. higher oil and high tech. prices5. diminished sovereignty of nations

1. Competence2. Form3. Autonomy4. Authority5. Legitimacy

inl mkt ch.2 (cateora)

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