World Trade

1. World Trade • World trade refers to the flow of goods and services among different countries - the value of all the exports and imports of the world’s nations • Trade Balance • Almost 25% world trade is non-cash based

2. Competitive Advantage of Nations • Michael Porter* describes four keys to a nation’s competitive advantage relative to other countries • Demand conditions • Related and supporting industries • Factor conditions • Company strategy, structure, rivalry * Often referred to as “Porter’s Diamond”

3. Competitive Advantage for Companies • Organizations that are successful in highly competitive home markets should succeed in international markets • Success requires an international plan, resources, marketing mix adaptation • Conflict between “standardization” and “customization”

4. Borders and Roadblocks • Protectionism is a government policy which seeks to provide home companies an advantage over foreign companies by implementing trade barriers • Import quotas • Embargos • Tariffs • Red tape

5. Economic Communities • Countries band together to form an alliance • Bi or multilateral trade agreements • Such economic communities coordinate trade policies and ease restrictions on trade across the member borders • EU (European Union) • NAFTA (North American Free Trade Agreement) • ASEAN (Association of Southeast Asian Nations

6. WTO • Objective: “to help trade flow smoothly, freely, fairly, and predictably” • Acts as forum for negotiations among countries, settles trade disputes, and assists developing countries with training programs • General Agreement on Tariffs and Trade (GATT) developed by UN after WW II to moderate trade conflicts, replaced (1995) by WTO

7. 1 USA* 2 Japan 3 Germany 4 Canada 5 UK 6 South Korea 7 China 8 Italy * Singapore exceeds US 9 France 10 Australia 11 Taiwan 12 Netherlands 13 Sweden 14 Spain 15 Russia Top 15 Wired Countries

8. The Global Marketing Environment • Economic Environment • Political and Legal Environment • Cultural Environment

9. Economic Development • Less Developed Countries (LDC) • lowest stage of economic development • Developing Countries • economies shift from agriculture to industry; standards of living, education, and use of technology rise • Developed Countries • economically advanced countries; the G7 countries (U.S., U.K., Canada, France, Italy, Germany, Japan)

10. Political and Legal Environment • Political Issues • economic sanctions • nationalization • expropriation • Regulatory Issues • product requirements • local content rules • taxation • Human Rights Issues

11. Cultural Environment • Values • Norms and Customs - handed down from the past & controls basic behaviors • Symbols and Superstitions - colors, numbers, words, food, gestures • Language • Ethnocentricity - preference for local products • Cultural Change - culture shock, globalization

12. Economic Environment • Indicators of Economic Health • Demographic Characteristics • Economic Infrastructure • Internet Coverage • Levels of Economic Development

13. Indicators of Economic Health • Gross Domestic Product (GDP) - the dollar value of goods and services a country produces within its borders within one year • Gross National Product (GNP) - the value of all goods and services produced by a country’s individuals or organizations whether in or out of country borders

14. Total GDP $9.963 trillion $3.15 trillion $4.5 trillion $113.9 billion $720.8 billion Country USA Japan China Hungary Spain Country Comparisons

15. Economic Indicators • Country’s Demographic Characteristics • birth rates • size of different age groups • Economic Infrastructure • quality of a country’s distribution, financial, and communications systems • Internet Coverage • percent of population online

16. Ethnocentrism“Buy American” • The tendency to prefer products or people of one’s own culture over those from other countries • Ethnocentric consumers are likely to feel ethically wrong in buying products from other countries because they want to support their domestic economy

17. Market Entry Strategies Domestic Strategy Exporting Strategy Contractual Agreements Strategic Alliances Direct Investment Without equity With equity Joint ventures Direct export Export merchants Licensing Franchising Subcontracting Building Buying Casual Level of Commitment Significant

18. Standardization versus Localization • Standardization suggests that greater efficiencies and economies of scale are generated when all marketing is the same in each country • Localization recognizes that customer satisfaction will be highest when the marketing mix is tailored to local needs and wants

19. Product Decisions • Sell the same product in the new market (straight extension strategy) • Modify the product for the new market (product adaptation strategy) • Develop a brand new product for that new market (product invention strategy)

20. Promotional Decisions • Will the same promotional message work in the different markets? • Standardized strategies are more likely to work when cultural factors are similar, and when target customers are in cosmopolitan urban areas

21. Price Decisions • Costs associated with transportation, tariffs, insurance, differences in currency exchange rates, and bribes may make a product more expensive in one country than another • Gray marketing - unauthorized (but legal) imports of products and selling for less than authorized “distributors” • Dumping - a company prices its products lower than at home in order to establish a market or to dispose of merchandise