Chapter 2: The Dynamic Environment of International Trade

1. Chapter 2: The Dynamic Environment of International Trade

2. The International Marketing Environment Foreign Environment (Uncontrollables) 7 1. Competition 7. Structure of Distribution Domestic environment (Uncontrollables) Environmental uncontrollables country market A (Controllables) 1. Competition Price Product 2. Technology Target Market 5. Political- Legal Environmental uncontrollables country market B 6. Geography and Infrastructure Place or Distribution 2 .Technology Promotion 4. Culture Environmental uncontrollables country market C 3. Economy 5. Political- Legal 3. ECONOMY 4. Culture

3. Proliferation of trade and emergence of the global economy Intensification of global competition More emerging markets Developments in technology allow communications with global consumers and movement of goods Introduction

6. 21st Century: The 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 developing countries such as Brazil, China, India, Indonesia, and Russia. More trade expected within emerging markets, regional trade areas, and the established markets in Europe, Japan, and U.S. Companies need to be more efficient, improve productivity, expand global reach, and respond quickly. Greater growth in international sales expected by smaller firms.

7. When countries trade money flows into and out of each country The accounts that record a nation’s international financial transactions are called its balance of payments (BP) Records all financial transactions between a country and the rest of the world over a year The BP is maintained on a double-entry bookkeeping system Balance of Payments

8. The difference between receipts and payments BP Receipts BP Payments • costs of goods exported. • money spent by foreign tourists. • transportation. • payments of dividends and interest from FDI abroad. • new foreign investments • costs of goods imported. • spending by tourists abroad • new overseas investments. • cost of foreign aid. Balance of Payments

9. The Balance of Payments includes three accounts: Balance of Payments (1) current account (2) the capital account (3) the official reserves account

10. Balance of Trade (1) current account (2) the capital account • If exports exceed imports, The Balance of Trade is positive • If imports exceed exports, the Balance of Trade is negative • Is a negative balance bad? (3) the official reserves account

11. Balance of Payments and Exchange Rate • The Exchange Rate is determined by Supply and Demand • To buy Canadian goods, Canadian currency is demanded • More exports or direct investment will increase the exchange rate • As the value of the dollar increases, the price of exports increases.

12. Protectionism: Logic and Illogic Countries use protectionist measures to shield a country’s markets from intrusion by foreign competition and imports. • Arguments for Protectionism include: • Maintain employment and reduce unemployment • Increase of business size • Retaliation and bargaining • Protection of the home market • Need to keep money at home • Encouragement of capital accumulation

13. Protectionism: Logic and Illogic • Arguments for Protectionism include: • Maintenance of the standard of living and real wages • Conservation of natural resources • Protection of an infant industry • Industrialization of a low-wage nation • National defense

14. Protectionism: Logic and Illogic In general, protectionism contributes to industrial inefficiency and makes a nation uncompetitive Protectionism is implemented through the imposition of trade barriers, which include tariff barriers and non-tariff barriers

15. The Impact of Tariff (Tax) Barriers • Tariff Barriers tend to Weaken: • Balance-of-payments positions • Supply-and-demand patterns • International relations (they can start trade wars)

16. The Impact of Tariff (Tax) Barriers • Tariff Barriers tend to Restrict: • Manufacturer’ supply sources • Choices available to consumers • Competition

17. (1) Specific Limitations on Trade: • Quotas • Import Licensing requirements • Proportion restrictions of foreign to domestic goods (local content requirements) • Minimum import price limits • Embargoes Six Types of Non-Tariff Barriers • (2) Customs and Administrative Entry Procedures: • Valuation systems • Antidumping practices • Tariff classifications • Documentation requirements • Fees

18. (3) Standards: • Standard disparities • Intergovernmental acceptances of testing methods and standards • Packaging, labeling, and marking • (4) Government Participation in Trade: • Government procurement policies • Export subsidies • Countervailing duties • Domestic assistance programs Six Types of Non-Tariff Barriers

19. (5) Charges on imports: • Prior import deposit subsidies • Administrative fees • Special supplementary duties • Import credit discriminations • Variable levies • Border taxes • (6) Others: • Voluntary export restraints • Orderly marketing agreements Six Types of Non-Tariff Barriers

20. Monetary Barriers In addition to the Six Types of Non-Tariff Barriers, monetary barriers are also used by countries • Three types of monetary barriers include: • Blocked currency • Differential exchange rates • Government approval

21. It sets many rules governing trade between its 132 members WTO provides a panel of experts to hear and rule on trade disputes between members, and, unlike GATT, issues binding decisions Unlike GATT, is an institution, not an agreement World Trade Organization (WTO)

22. IMF was created to assist nations in becoming and remaining economically viable It assists countries that seek capital for economic development and restructuring IMF loans come with stipulations that borrowing countries slash spending and impose controls to curb inflation It helps maintain stability in the world financial markets • Objectives of the IMF include: • stabilization of foreign exchange rates • establish convertible currencies to facilitate international trade • lend money to members in financial trouble The International Monetary Fund (IMF)

23. lending money to countries to finance development projects in education, health, and infrastructure; providing assistance for projects to the poorest developing countries; lending directly to the private sector in developing countries with long-term loans, equity investments, and other financial assistance; provide investors with investment guarantees against “noncommercial risk,” so developing countries will attract FDI; and provide conciliation and arbitration of disputes between governments and foreign investors The goal of WBG is to reduce poverty and the improvement of living standards by promoting sustainable growth and investment in people. World Bank Group (WBG) The functions of the WBG include:

24. Protests Against Global Institutions In 1999 “anti-capitalist protestors” complained against the WTO and IMF, over the unintended consequences of globalization that include: • environmental concerns • worker exploitation and domestic job losses • cultural extinction • higher oil prices, and • diminished sovereignty of nations