Chapter 3a doing business in global market

Chapter 03

Doing Business
in
Global Markets

McGraw-Hill/Irwin

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


TRADING with OTHER NATIONS

•

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

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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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Company % of
Earnings From Outside U.S.

Source: Investment Advisor, August 2000

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TRADING with OTHER NATIONS

Theories of Advantage
Comparative
Absolute


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.

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Theories of Advantage
Comparative
U. S.

China

China
U. S.

Software
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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.

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Theories of Advantage
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.

•

Exporting -- Selling products to another country.

•

The U.S. is the largest importing and the third
largest exporting nation in the world.

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I
N
G

G
L
O

B
A
L
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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

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Rising U.S. Trade Deficit

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

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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.

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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.

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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

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E
N
S
I

• NLicensing -- When a firm (licensor) provides the right to manufacture its product or use

its trademark 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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GETTING INVOLVED in
EXPORTING

•

Exporting provides a great boost to the
U.S. economy.

•

It’s estimated every $1 billion in U.S.

exports generate over 7,000 U.S. jobs.

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EXPORT ASSISTANCE CENTERS
and 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.

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HOW EXPORTS
AFFECT the GDP

Source: Bloomberg Businessweek, November 22, 2011.

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HOW EXPORTS
AFFECT the GDP

Source: Bloomberg Businessweek, November 22, 2011.

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HOW EXPORTS
AFFECT the GDP

Source: Bloomberg Businessweek, November 22, 2011.

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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.

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C
H
I

•

S
Franchising -- A contractual agreement whereby someone with a good idea for a

I

business sells others the rights to use the name and sell a product/service in a given area.

N

•

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.

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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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