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Introduction to Business Management 4/4/2013

Chukiat Worasucheep 1

Chukiat Worasucheep

STA 473Business Management

Chapter 3Business in Global Markets

� A soybeans farm in the city of Tangara da Serra, Brazil, on March, 2012. (Reuters/Paulo Whitaker)

� Source: www.theatlantic.com/infocus/2012/04/images-of-earth-from-above/100283 2


Learning Objectives

� Define global business. � Understand the importance of global trade. � Discuss the roles of comparative and absolute

advantage in global trade. � Discuss the two indicators for measuring global trade. � Describe different types of trade protections and trade

agreements.� Discuss the different strategies for reaching global

markets.� Explain the forces affecting the global trade market.

Understanding Globalization

� Why Trade Globally?– No nation can produce all the products that its people need– Mutually beneficial exchange

� Some nations have abundant natural resources but lack technological know-how.

� Others have sophisticated technology but few natural resources.

� Global business– 63 millions people in Thailand, 600+ M. in AEC– 300 M. American, > 800 M. Indian, > 1200 M. Chinese

> 6000 millions around the world.– Domestic vs. Global Markets

� Exporting and Importing.Chukiat Worasucheep 4




GDP per capita (2011 data in USD)

1. Qatar 98,800

3. Singapore 59,700

5. Brunei 49,500

6. USA 48,300

12. Austria 41,000

17. Germany 38,000

27. Korea 31,000

38. Malta 25,500

57. Malaysia 16,240

86. Thailand 9,400

128 Philippines 4,000

Credits: wikipedia.com


World Net Export (2011 in billion USD)

� Saudi Arabia +252� Germany +219� Russia +198

� China +155� Singapore +40� Thailand +34

� UK -160� USA -770

Credits: wikipedia.com


Comparative Advantage and Absolute Advantage

� David Ricardo’s comparative advantage theory– the ability of a party to produce a particular good or service at

a lower cost over another.

– basic principle of free economic exchange, in the 19th century

– England selling wool and France selling wine

� Absolute advantage– the ability of a party (an firm or country) to produce more of a

good or service than competitors, using the same amount of resources.

– Mostly related to natural resources, difficult to sustain

– South Africa once had an absolute advantage in diamond production. Chukiat Worasucheep 8

Measuring Trade

� Two key factors:

� Balance of trade– is a difference of a country’s exports to imports – Trade surplus/deficit

� Balance of payments– is the difference between money coming into a country (from

exports) and money leaving the country (for imports) plus money flows from other factors such as tourism, foreign aid, military expenditures, and foreign investment.




Unfair trade Practices

� Gray Market– is the flow of goods in a distribution channel other than those

intended by the manufacturer, although legal.– Vehicles imported from other cheaper EU countries to sell in

England.

– Prices of branded drugs varies greatly from country to country.

– College level textbooks from some publishers offers lower prices in developing countries.


Unfair trade Practices

� Question:– Do you think gray-market unethical or not? Reasons?

� Dumping– is the practice of selling products in a foreign country at lower

prices than those charged in the producing country� In 1980, Mexico supplied ~ 1/2 of all fresh tomatoes,

cucumbers, eggplants ... in U.S. winter season.� In 1989, Japanese phones dumped in US market.

� USA dumping practices of agricultural products to other countries.


Learning Objectives





Trade Protection and Agreements

� Tariff (tax on imports). Goals:– Protective– Revenue

� General Agreement on Tariffs and Trade (GATT) (1948), followed by World Trade Organization (WTO) (1995)

– Reduces tariff greatly over the past 50 years.




Trade Protection and Agreements

� Non-tariff barriers– Import quota– Embargo

� (nearly) complete ban on the goods to or from a country� e.g. USA-Cuba, Burma

– Restrictive standards that detail exactly how a product must be sold in a country.� For example, Denmark requires that butter be sold in cubes, not

tubs.

– Japanese companies’ keiretsu� grouping of enterprises with informal interlocking business

relationships and shareholdings.

Chukiat Worasucheep 13 Chukiat Worasucheep 14

Keiretsu Credits: wikipedia.com


Common Markets and Agreements

� Organization of the Petroleum Exporting Countries (OPEC)

� 12 member organization’s mission:– Coordinate & unify policies

– Ensure price stability– Provide efficient & regular supply


Common Markets and Agreements

� North American Free Trade Agreement (NAFTA)� Objectives

– Eliminate trade barriers– Promote conditions of fair competition– Increase investment opportunities– Provide protection & enforcement– Establish framework

� Success and difficulties– ?



ASEAN Free Trade Area (AFTA) (1/2)

� ASEAN Free Trade Area (AFTA) is a trade bloc agreement by the ASEAN countries.

� The AFTA agreement– signed in 1992 in Singapore– 6 members, namely, Brunei, Indonesia, Malaysia,

Philippines, Singapore and Thailand. – Vietnam joined in 1995, Laos and Myanmar in 1997 and

Cambodia in 1999.– AFTA now comprises 10 countries of ASEAN.

Chukiat Worasucheep 17Source: en.wikipedia.com, www.aseansec.org/12021.htm

ASEAN Economic Community (AEC)

� พันธสญัญาขอ้ที 1 คอืการเป็นตลาดและฐานการผลติเดยีวกัน

� http://www.thai-aec.com/

� What are the top 5 businesses that will get most benefits from AEC? Why?

� What are the comparative strengths and weaknesses of Thailand, Malaysia, and Indonesia?



Learning Objectives






Strategies for Reaching Global Markets




� Licensing– Additional revenues– Extended timeframe– Firm may lose secrets– Disney, Coca-Cola, PepsiCo, etc.

� Exporting– Export Assistance Centers (EACs)– Export Trading Companies



� Franchising– Franchise Agreement (Franchisor & Franchisee)– Product adaptation– KFC, Pizza Hut

� Contract Manufacturing– Outsourcing– Experiment in new markets and/or meet unexpected increase

in orders– Major disadvantage: Laws are different



� International Joint Ventures and Strategic Alliance– Benefits: Shared technology, marketing, risk, market entry– Strategic alliance

� Foreign Direct Investment (FDI)– Foreign subsidiary is a company owned in a foreign country

by another company (parent company)– Multinational corporation (MNC)

� Nike, Samsung, Toshiba, Seagate, etc.



� Questions:– Thailand’s BOI vs. Singapore’s?– Which categories are Coke, Disney, KFC, Nestle in?




Learning Objectives





Forces Affecting Trade in Global Markets

� Socio-cultural Forces– Culture – Americans? Japanese? Thai?

� Religion– Most important of socio-cultural forces– McDonald’s and Coca-Cola offended Muslims by putting the

Saudi Arabian flag on their packaging

� Human resource management– Employee training on culture



� Economic and Financial Forces

� Currency exchange, Exchange rate: USD, Euro, Yen– www.bot.or.th

� Communication– Global marketing means selling the same product in

essentially the same way everywhere in the world.– “Think global, act local.”– The U.S. is one of only five nations that still haven’t

converted to the metric system.



� Bartering– Many developing countries

� Counter-trading– a complex form of bartering in which several nations may be

involved, each trading goods for goods or services for services.

– Approximately 20% of the global exchanges involve countertrading.

– The example of the Ford Motor Company trading vehicles to Jamaica for bauxite.






� Legal and Regulatory Forces– No central law in global markets

� Physical and Environmental Forces

� Technological constraint


Assignment

� Study and write an article for a brief profile, its recent scandals and the legal consequences of the following corporations: Enron, WorldCom, and Tyco International.

� The report length should not be approximate one page for each corporation.

� Due: next class� Notes:

– Don’t forget to use your own words.– Don’t forget to cites all references you may have.

ASEAN Economic Community (AEC)

� http://www.thai-aec.com/

� What are the top 5 businesses that will get most benefits from AEC? Why?

� What are the comparative strengths and weaknesses of Thailand, Malaysia, and Indonesia?


www.bot.or.th, www.set.or.th, www.sec.or.th

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