Exploring Global Business Chapter-03

1. Exploring Global BusinessChapter-03 Dr. GehanShanmuganathan, (DBA)

2. Samsung electronics shines in the global spotlight

3. Samsung electronics shines in the global spotlight • Samsung started as a small firm specializing in exporting food products to China • Later ventured into insurance • In 1970 produced black and white televisions • Today, Samsung is an international corporation offering cameras, computers, cellphones, disk drivers, and semiconductors • Currently competes with global giants such as Apple, Hewlett-Packard, Intel, and Motorola • Samsung uses innovation through research and development centers in the US, Europe, India, and China and partnership with international companies in terms of sourcing and manufacturing

4. Learning objectives

5. Learning objectives • Explain the economic basis for international business • Discuss the restrictions nations place on international trade, the objectives of these restrictions, and their results • Outline the extent of international business and world economic outlook for trade • Discuss international trade agreements and international economic organizations working to foster trade • Define the methods by which a firm can organize for and enter into international markets • Discuss the various sources of export assistance • Identify the institutions that help firms and nations finance international business

6. International trade

7. International trade • When Coca Cola sells parts of its chain to other countries, Pier 1 imports goods from around the world into the US • Trade is an important source of good jobs for our workers and a source of higher growth for our economy • Trade is an engine of economic growth • Trade has helped millions of people to lift their lives from poverty to prosperity

8. International business defined • International business encompasses all business activities that involves exchangesacross national boundaries- Pride, William M., Hughes, Robert J. and Kapoor, Jack R. (2012) Business.

9. Advantages in international trade • Some countries are better equipped with national resources compared to other countries. They trade the production surplus in an exchange of what they need. These national resources are based on, • Specialization • Natural resources • Labor • Technological advances

10. Basis for international business

11. The basis for international business • Absolute advantage- ability to produce a specific product more efficiently than any other nation. • Comparative advantage - ability to produce a specific product more efficiently than any other product. • Business survival through international opportunities • Globalization and global presence

12. Absolute advantage • The ability to produce a specific product more efficiently than any other nation • Examples • Saudi Arabia- petroleum products • South Africa- diamonds • Australia – wool

13. comparative advantage • The ability to produce a specific product more efficiently than any other product • Examples are, • Research and development- USA • High-technology industries – South Korea • Identifying new markets - India

14. Exporting and importing

15. Exporting and importing • Exporting is selling and shipping raw materials or products to other nations • Importing is purchasing raw materials or products of other nations and brining them into one’s own country

16. Top 10 exports states in the US- 2005 in $ Billions

17. international trade concepts

18. Some international trade concepts • Balance of Trade-The balance of trade indicates the difference between nation’s imports and exports values over a period of time (nation’s export value minus imports value) • Trade Deficit- The trade deficit is a negative balance of trade (I > E) (discuss when E>I) • Balance of Payment- Balance of Payment is the total flow of money into a country (exports) minus total flow of money out of that country (imports) over a period of time (National Debt)

19. Balance of trade

20. Trade deficit

21. Balance of payment

22. Restrictions to international business

23. Types of trade restrictions • Tariff Barriers • Non-Tariff Barriers

24. Tariff Barriers

25. Tariff Barriers • Tariffs- The most commonly imposed custom duty (import duty) • Two types of tariffs – Protective Tariffs (fresh tomato from Mexico)and Revenue Tariffs (Scotch Whiskey) • Both increase the cost price of the product • Dumping - exportation of large quantities of a product at a lower price than that of the same product in that home market (impose of antidumping duties to control)

26. Non-tariff Barriers

27. Non-tariff Barriers • A non-tariff barrier is non-tax measure imposed by the government to favor domestic over foreign suppliers. This creates obstacles to marketing of foreign goods in a country and increase costs for exporters • Import quota- imposing a import limit on a particular product in given period of time • Embargos- a complete halt to trading with a particular nation used mostly as a political weapon • Foreign exchange control- This is the limitation on the foreign currency that can be purchased or sold • Currency devaluation- The decrease of nation’s own currency in relation to the currency of other nations

28. Reasons for trade restrictions • To equalize a nation’s balance of payment • To protect new or weak industries- e.g- imposing quotas on foreign textile in the US • To protect national security- e.g- exporting strategic defense related products to unfriendly nations • To protect the health of citizens- e.g- farm products contaminated with insecticides • To retaliate for another nation’s trade restrictions • To protect domestic employments

29. Reasons against trade restrictions • Higher prices for consumers • Restrictions of consumers choice • Misallocation of international resources by trying to protect already weak industries (protection of weak industries is a waste of national resources) • Loss of jobs if the majority works in exports oriented industries

30. World economic outlook for trade

31. World economic outlook • In the United States, international trade now accounts for over one-fourth of Gross Domestic Products (GDP) • Growth in advanced economies slowed, while emerging economies continued to grow. The BRIC countries • United States economy in an economic depression • Canada and Western Europe are projected to slow the growth • Mexico and Latin America are stagnant • Japan indicates a slow growth • Asia is making a tremendous growth currently

32. United States continue in international trade • US exports to Central and Eastern Europe and Russia will increase • US will increase investments in these countries creating demand for capital goods and technology

33. Exports and the US economy • Globalization has opened opportunities for US economy for international trading despite economic recessions in 2001 and 2008 • Canada and Mexico are best partners for US exports, while China and Canada for imports

34. US exports and imports 2009

35. International trade agreements

36. The General Agreement on Tariffs and Trade (GATT) • An international organization of 153 nations dedicated to reducing or eliminating tariffs and other barriers to world trade • These 153 nations accounted for more than 97% of world’s merchandise trade • GATT headquartered in Geneva, Switzerland

37. GATT negotiation rounds • The Kennedy Round (1964-1967) to reduce US tariffs by 50% • The Tokyo Round (1973-1979) to reduce participating member country tariff by 35% • The Uruguay Round (1986-1993) and also created World Trade Organization (WTO) in order to guide GATT • The Doha Round (2001)

38. International economic organizations working to foster trade

39. International Economic Organizations • Economic Community- an organization of nations formed to promote the free movement of resources and products among its members and to create common economic policies • European Union an example

40. International Economic Organizations • European Union • North American Free Trade Agreement (NAFTA) • The Central American Free Trade Organization(CAFTA) • The Association of Southeast Asian Nation (ASEAN) • The Pacific Rim • Commonwealth of Independent States (CIS) • The Organization of Petroleum Exporting Countries (OPEC)

41. International Business Entry Strategies

42. International Business Entry Strategies • Licensing- A contractual agreement in which one firm permits another to produce and market its products and use its brand name in return for royalty or other compensation. E.g- McDonald, KFC • Exporting- organization manufactures in the home country to export to other countries. E.g- ExxonMobil • Joint venture- a partnership between two entities for a business operation in a country (guest country). E.g- Samsung Research in US

43. International Business Entry Strategies • Totally owned facility- with total ownership of the business • Strategic Alliance- partnership formed to create competitive advantage on a worldwide business • Trading company- These companies provide a link between the international buyer and the seller • Counter Trade- International barter transactions • Multinational Firms- A firm that operates on a worldwide scale without ties to any specific nation or region

44. Financing international business

45. Financing international business • The Export-Import Bank of the United States • Multilateral Development Banks

46. Questions……..

47. Weekly Assignment-03 • What effects might the devaluation of the nation’s currency have on its export oriented business firms, its consumers, and the debts it owes to other nations? Discuss.