Understanding business 10th chapter 3 doing business in global market

Chapter 03

Doing 
Business 
in 
Global 
Markets

McGraw-Hill/Irwin

0

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.


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Why Trade With Other Nations?
• Global trade allows countries 
to produce what they make 
best and buy what they need 
from others.

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3-4


TRADING with OTHER NATIONS

• Countries with abundant natural resources (like 
Venezuela or Russia) need technological 
resources from other countries (like Japan).

3-5


HOW FREE TRADE 
BENEFITS the WORLD
Global trade has led the world in a new direction:
• Literacy rates worldwide have increased from 
56% in 1950 to 99% in 2012.
• Life expectancy in less developed areas rose 
from 40.9 years in 1950 to 70.5 years in 2012.

Source: The World Bank, June 2014
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% of Company
Earnings From Outside U.S.
Company

Total Assets Reinvested
Overseas in 2011

Total Assets Reinvested
Overseas in 2012

Total Added in 2012

GENERAL ELECTRIC CO

$102,000

$108,000

$6,000

PFIZER INC

$63,000

$73,000

$10,000

MICROSOFT CORP

$44,800

$60,800

$16,000

MEREC CO

$44,300

$53,400

$9,100

JOHNSON & JOHNSON

$41,600

$49,000

$7,400

INTL BUSINESS
MACHINES CORP

$37,900

$44,400

$6,500

EXXON MOBIL CORP

$47,000

$43,000

-$4,000

CITIGROUP INC

$35,900

$42,600

$6,700

CISCO SYSTEMS INC

$36,700

$41,300

$4,600

APPLE INC

$23,400

$40,400

$17,000

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PLEASURE DOING BUSINESS
Best Countries for Business out of 183 Countries

Economy

  

Singapore
Hong Kong SAR, China
New Zealand
United States
Denmark
Malaysia
Korea, Rep.
Georgia
Norway
United Kingdom

Ease of Doing Starting a Paying Trading
Across
Business Rank Business Taxes Borders
1
2
3 .
4
5
6
7
8
9
10

© 2013 The World Bank, All Rights Reserved

3
5
1
20
40
16
34
8
53
28

5
4
23
64
12
36
25
29
17
14

1
2
21
22
8
5
3

43
26
16

3-8


TOP 10 COUNTRIES - BILLIONARIES
Country

Number

Person

Networth
$73 B

Source

United States

492

Bill Gates

Telecom

China

152

Wang Jianlin

$14.6 B

Investment
Property

Russia

111

Alisher Usmanov

$19.6 B

Metal & Mining

Germany

85

Karl Albrecht

$25.4 B

Aldi - Discount
Superchains

Brazil

65

Jorge Paulo Lemann

$21.9 B

Banker

India

56

Mukesh Ambani

$19.6 B

Petrochemicals

United Kingdom

47

Gerald Cavendish
Grosvenor & Family

$8.5

Duke of
Westminister - Land

Owner

Hong Kong

45

Li Ka-shing

$31 B

Diversified

France

43

Liliane Bettencourt &
Family

$30 B

L’Oreal

Italy

35

Michele Ferrero & Family

$26 B

Chocolate
Manufacturing
3-9


Why    Trade with
Other Nations?
LG1

TRADING with OTHER NATIONS

• Countries with abundant natural
resources (like Venezuela or Russia)
need technical 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.
3-10


THEORIES of 
COMPARATIVE 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.

U. S.

China
China

Softwar

U. S.

Clothin

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THEORIES of
ABSOLUTE ADVANTAGE
• Absolute Advantage ­­ A country has a 

monopoly on producing a specific product or is 
able to produce it more efficiently than all other 
countries.

Absolute = Virtual Monopoly
South
Africa

The Rest

of the
World
Diamond
Production

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IMPORTING and EXPORTING
• Importing ­­ Buying products 
from another country.

• The U.S. is the largest 
importing nation in the 
world. 
• Exporting ­­ Selling products 
to another country.

3-13


U
R
E
 
G
• Balance of Trade ­­ The total value of a nation’s 
L
exports compared to its imports measured over 
O

time.
B
• Trade Surplus ­­ 
When the value of a country’s 
A
exports is more than that of its imports.
L
 
• Trade Deficit ­­ 
When the value of a country’s 
T
exports is less than that of its imports. 
R
A
D

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Rising U.S. Trade Deficit

/>
Source: US Dept of Commerce, Bureau of Economic Analysis

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GETTING INVOLVED in 
EXPORTING
• Exporting provides a 

great boost to the U.S. 
economy.
• It is estimated, every 
$1 billion in U.S. dollars 
exported generates 
over 7,000 U.S. jobs.

3-16


BALANCE of PAYMENTS
• 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.
3-17


UNFAIR TRADE PRACTICES 
• Dumping ­­ Selling products in a foreign country at 
lower prices than those charged in the producing 
country.

• Dumping is prohibited in the U.S.

• China, Brazil and Russia have been 
penalized for dumping steel in the U.S.

3-18


KEY STRATEGIES for REACHING 
GLOBAL MARKETS

Licensing

Least

International
joint ventures
and strategic
alliances

Foreign 
direct 
investment

Amount of commitment, control, risk and profit potential

Most

Exporting

Franchising

Contract
 Manufacturing 

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E
N
S
• Licensing ­­ 
When a firm (licensor) provides the 
I
right to manufacture its product or use its trademark 
N
to a foreign company (licensee) for a fee (royalty).
G
• 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.

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EXPORT ASSISTANCE CENTERS 
& EXPORT TRADING CENTERS
• 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.

3-21


HOW EXPORTS 
AFFECT the GDP

Source: Bloomberg Businessweek, November 22, 2011.
3-22


GOING GLOBAL with a 
SMALL BUSINESS
• Small businesses may be the key in global job 
growth.
• Only 1% of U.S. small businesses export, yet 
they account for 30% of total U.S. exports.
• President Obama 
wants small 
businesses to help 
double exports by 
2015.
3-23

C
H
I
• Franchising ­­ 
A contractual agreement whereby 
S
someone with a good idea for a business sells 
I
others the rights to use the name and sell a 
N
product/service in a given area.
G

• 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. 
3-24


What’s On Your Pizza
•
•
•
•
•
•
•

Costa Rica - Coconut
France - Bacon, onion and fresh cream
India - Pickled ginger, minced mutton and tofu
Australia - Shrimp and pineapple
Pakistan - Curry
Brazil - Green peas
Japan - Squid and mayo jaga

Source: World Features Syndicate

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