Understanding business 10th chapter 3b doing business in global market

Chapter 03

0

Doing Business
in
Global Markets

McGraw-Hill/Irwin

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


3-2


Why Trade With Other Nations?

•

Global trade allows countries to produce what they
make best and buy what they need from others.
not used

3-3


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

3-6


Company % of
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

$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

MACHINES CORP

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3-7


PLEASURE DOING BUSINESS
Best Countries for Business out of 183 Countries

Economy

Ease of Doing Business Rank Starting a Business Paying Taxes

Trading Across
Borders

Singapore

1

3

5

1

Hong Kong SAR, China

2

5

4

2

New Zealand

3

1

23

21

United States

4

20

64

22

Denmark

5

40

12

8

Malaysia

6

16

36

5

Korea, Rep.

7

34

25

3

Georgia

8

8

29

43

Norway

9

53

17

26

United Kingdom

10

28

14

16

  

.

© 2013 The World Bank, All Rights Reserved
3-8

3-9


CAN YOU SPARE A DIME?
Rank

Name

Net Worth

Age

Source

Country of Citizenship

1

Carlos Slim Helu & family

$73 B

74

telecom

Mexico

2

Bill Gates

$67 B

58

Microsof

United States

3

Amancio Ortega

$57 B

77

Zara

Spain

4

Warren Buffet

$53.5 B

83

Berkshire Hathaway

United States

5

Larry Ellison

$43 B

69

Oracle

United States

6

Charles Koch

$34 B

78

diversified

United States

6

David Koch

$34 B

73

diversified

United States

8

Li Ka-shing

$31 B

85

diversified

Hong Kong

9

Liliane Betencourt & fami

$30 B

91

L'Oreal

France

64

LVMH

France

ly

10

Bernard Arnault & family

$29 B

3-10

Forbes 2014


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.

3-11


TRADING with OTHER NATIONS

Theories of Advantage
Comparative
Absolute

3-12

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.

3-13


Theories of Advantage
Comparative
U. S.

China

China
U. S.

Software
3-14

Clothing


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.

3-15


Theories of Advantage
Absolute

= Virtual Monopoly
South Africa

The Rest of the
World

Diamond Production
3-16


IMPORTING and EXPORTING

•

Importing -- Buying products from another country.

•

Exporting -- Selling products to another country.

•

The U.S. is the largest importing nation in the
world.

3-17


I
N
G

G
L
O
B
A
L
3-18


U
R
E

•

G

Balance of Trade -- The total value of a nation’s exports compared to its imports

L

measured over time.

O

•
•

Trade
B Surplus -- When the value of a country’s exports is more than that of its imports.

A
Trade Deficit -- When the value of a country’s exports is less than that of its imports.

L

T
R
A
D

3-19


Rising U.S. Trade Deficit

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Source: US Dept of Commerce, Bureau of Economic Analysis

3-20


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.

3-21


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.

3-22


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.

3-23


KEY STRATEGIES for REACHING GLOBAL MARKETS

International joint ventures

Licensing

Least

Contract

Exporting

Franchising

Manufacturing

Amount of commitment, control, risk and profit potential

and strategic alliances

Foreign direct
investment

Most

3-24


E
N
S

•

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

N

•

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.

3-25