Competing in Global Markets

1. Competing in Global Markets

2. Why Is International Business Important? • Provides source of raw materials, and parts and demands for foreign products • Allows for new market and investment opportunities • Improves political relations

3. The Fundamentals of International Trade • Exports Domestically produced goods and services sold in market in other countries • Imports Foreign-made products and services purchased by domestic consumers

4. Why Nations Trade • Boosts economic growth by providing access to new markets and needed resources. • More efficient production systems • Less reliance on economic of home nations

5. International Sources of Factors of Production • Decision to operate abroad depend on availability, price, and quality of • Labor • Natural Resources • Capital • Entrepreneurship • Allows a company to spread risk throughout nations in different stages of the business cycle of development

6. Size of the International Marketplace • World population = 7 billion • One in five people live in a relatively well-developed countries. • Share of world’s population in less-developed countries will grow in coming years. • Population size is no guarantee of prosperity • Though developing nations generally have lower per capita income, many have strong GDP growth rates and their huge populations can be lucrative markets

7. Economics of Foreign Trade • Absolute Advantage • Countries can maintain a monopoly or produce at a lower cost than any competitor • Example: China’s domination of silk • Rare these days, mostly tied to climate advantages for growing certain crops. • Comparative Advantage • Country can supply a product more efficiently more efficiently and at lower cost than it can supply other goods, compared with other countries. • Example: India’s combination of a highly educated workforce and low wage scale.

8. Measuring Trade Between Nations • Balance of trade Difference between a nation’s imports and exports. • Balance of payment Overall flow of money into or out of a country. Major U.S. Exports and Imports • U.S. leads world, exports and imports annually totals $3 trillion. • U.S. imports more goods than exports; exports more services than imports

9. Exchange Rates • Exchange rate is the value of one nation’s currency relative to the currencies of other nations. • Values fluctuate, or “float,” depending on supply and demand for each currency in the international market. • Business transactions usually conducted in currency of the region where they happen.

10. BARRIERS TO INTERNATIONAL TRADE • Social and Cultural Differences • Language • Values and Religious Attitude

11. Economic Differences • Infrastructure – Basic systems of communications, transportation, energy facilities, and financial systems. • Currency Conversion and Shifts – Fluctuating values can make pricing in local currencies difficult and affect decision about market desirability and investment opportunities.

12. Political and Legal Differences • Political Climate – Stability is a key consideration • Legal Environment – Three dimension: U.S. law, international regulations, laws of the countries where they plan to trade. Corruption can be an important issue. • International Regulations – Friendship, commerce, and navigation treaties between U.S. and other nations.

13. Types of Trade Restrictions Tariff – Taxes, surcharges, or duties on foreign products • Revenue tariff generate income for the government • Protective tariffs raise prices of imported goods to level the playing field for domestic competition

14. Types of Trade RestrictionsCont’ Nontariff Barriers – also called administrative trade barriers Quotas – limited the amount of a product that can be imported over a specified time period Embargo—imposes a total ban on importing a specified product or all trading with a particular country Exchange controls through central banks or government agencies regulate the buying and selling of currency to shape foreign exchange in accordance with national policy.

15. Going Global • Levels of Involvement • Importers and Exporters – most basic level of international involvement, with the least risk and control. • Countertrade – payments made in the form of local products, not currency • Contractual Agreements – often come after a company has some experience in international sales. Include franchising, foreign licensing, and subcontracting.

16. Going GlobalCont’ • Franchising- contractual agreement in which a wholesaler or a retailer gains the right to sell the franchisors’ products under that companies brand name in exchange for agreeing to relate operating requirements. • Off-shoring – relocation of business processes to lower-cost location overseas.

17. From Multinational Corporation to Global Business Multinational Corporation (MNC) an organization with significant foreign operations and marketing activities outside its home country.

18. DEVELOPING A STRATEGY FOR INTERNATIONAL BUSINESS • Global Business Strategies • Firm sells same product in essentially the same manner throughout the world • Works well for products with nearly universal appeal and luxury items. • Multi-Domestic Business Strategies • Firm develops products and marketing strategies that appeal to customs, tastes, and buying habits of particular national markets • Example: Spinach, egg, and tomato soup on the menu in KFC’s menu in China