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Business in Global Markets

Business in Global Markets. Ass . Prof. Dr. Özgür KÖKALAN İstanbul Sabahattin Zaim University. Chapter Objectives. D efine what the meaning of trade and internationalization are . Discuss the absolute and comparative advantage of a country Define the ways to be global

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Business in Global Markets

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  1. Business in Global Markets Ass. Prof. Dr. Özgür KÖKALAN İstanbul Sabahattin Zaim University

  2. Chapter Objectives • Definewhatthemeaning of tradeandinternationalizationare. • Discuss the absoluteandcomparativeadvantage of a country • Define thewaysto be global • Comparethesewaysbased on profit, risk andcontrol • Explainthebarriers a company can facewhen it wantsto be global

  3. Why Do CountriesTrade? • Countriestradewithothercountries is because • Countriesarecapable of answeringvariousdemands of theircitizens in efficientwayusingtheirresources.

  4. Absolute & Comparative Advantage • Absoluteadvantage; somecountriesefficientlyproducegoodsandservices at lowercoststhanothercountries. Inthiscasethesecountriesmorecontrolovertheprices. • TheRepublic of South Africa has a monopoly in diamondmining . China has a absoluteadvantage in silk production. • Comparativeadvantage; somecountriesproducespecificproductscomparativelyefficientlyand at a lowercostthantheothercountries. Thesecountries has comparativeadvantage

  5. What is themeaning of Internationlization?

  6. TheWaysto Be Global • Therearemanywaysto be global. Theseare, • Importing / Exporting • Franchising • Licensing • Subcontracting • Jointventure • Overseas Marketing • International Merger & Aqusition • OverseasProduction ( Foreign Direct Investment)

  7. Importing & Exporting • Importing; localbusinesses buy foreigngoodsandservicesfromothercountriesto be sold in thethelocal market. • Exporting; localbusinessesselldomesticallyproducedgoodsandservicestoforeigncountries. • Direct export; sellingthefinishedproductstotheforeigncountries . Ex. Car • Indirectexport; sellingthecomponents as an inputforfinishedproduct. Ex. Tires

  8. Balance of Trade • Therelationshipbetween a country’sexportandimport • If a country’sexport is morethanitsimport, thissituation is called as tradesurplus. • If a country’sexport is lessthanitsimport, thissituation is called as tradedeficit.

  9. Balance of Payments • Therelationshipbetweeninflowandoutflowmoney. • Ifinflowmoneyintothecountry is morethanoutflowmoneyfromthecountry, thissituation is called as balance of paymentsurplus. • If inflow money into the country is less than outflow money from the country, this situation is called as balance of payment deficit.

  10. Exchange Rates Exchange rate; is a value of a nation’slocalcurrency in relationtothecurrencies of theothercountries. Fixedexchange rate; Theexchange rate is determinedbythegovernment Floatingexchange rate; Theexchange rate is determinedbydemand Devaluation; sometimesgovermentsreduce thevalue of theirlocalcurrencytoother currencies.

  11. ContractualAgreements: Franchising, ForeignLicensing, Subcontracting • Franchising; Manufacturersgive a localbusinesstherighttoselltheirproductsunderthetheirgloballyregisteredbrandname. • ForeignLicensing; Under thecontractedlicensingagreement, themanufacturerallowsthelocalbusinesstouseitsintellectualproperty in returnforcompensation in form of royalities. • Subcontracting; Theforeigncompanieshirelocalcompaniestoproduce, sellordistributegoodsandservices.

  12. International Investments: JointVentures, Overseas Marketing, OverseasProduction, International MergerandAcqusition • JointVentures; Thecompanies in differentcountriessharetherisks, costs, profitsandmanagementresponsibilitybyutilizingtheirresourcesandcapabilitiestoserve in anyone of theinternational market.

  13. Overseas Marketing; sellersormanufacturersopensandowns a salesofficeordivision in foreigncountries. Theyimportsgoodsfromhomecountriesandsellthem in foreigncountries. • OverseasProduction (WhollyOwnedFacilities); Thesellersormanufacturersmakeproduction in theoverseascountrieswheretheywanttoselltheirproduct

  14. International Merger & Acquisition; • Merger; A merger occurs when two companies combine to form a single company. • Verticalmerger; A vertical merger is one in which a firm or company combines with a supplier or distributor • HorizantalMerger; A horizontal merger is when two companies competing in the same market merge or join together

  15. An acquisition or takeover (Foreign Direct Investment); is the purchase of one business or company by another company or other business entity • Ininternationalmerger & acqusition; Foreigncompanypurchases a localcompanyorcombineswithlocalcompanytoopreateitsbusiness in theareawhere it wantstoenter.

  16. Stages of Global Business Involvement International Investment Import / Export ContractualAgreements • International JointVentures • Overseas Marketing • OverseasProduction • International Merger & Acqusitions • Importing • Exporting • Franchising • ForeignLicensing • Subcontracting • Risk &Profit • Control

  17. Barriers in Global Business • When a businessdecidesto be global, it willfacetofacemanyrisks. Theserisksaredividedintotwogroups: • Natural barriers (Natural risks), • Physicalbarriers: oneimportantphysicalbarrier is thelocation of tradingcompaniesthataffectstheamount of business. • SocialandCulturalBarriers; people of theworldhavedifferentbeliefs, attitudes, values, languages. What is consideredrightfor a person in onenationmay not be welcomedbyothers in differentnations.

  18. Man – Made / ArtificalBarriers Manmadebarriersareartificalbarrierstopreventinternationaltrading. Because of differentreasons, countriescreatedifferentobstaclestopreventtheireconomy. Therearemainlytwotypes of artificalbarriers. Theseare; • EconomicalBarriers • Politicaland Legal Barriers

  19. EconomicalBarriers • Tariffs: Customstaxes, dutiesorcharges on importedgoodsarecalledtariffs. Tariffsmaketheimportsmoreexpensiveforlocalcustomersandusuallyleadthemtopurchaselessexpensivedomestixproducts. • Traderestrictions: Thesearenon –tariffbarriersthatrestrictimportsbysettingadminstrativeregulationsandrules.

  20. Quotas: theyrestricttheamount of theparticularimportantcommoditiesinto a countryfor a specificperiod of time. Limitsmay be put on quatitiesandvalue. • Embargo: Stoppingtradewith a particularcountry. • Customadministrativeregulations: Inthisbarrier, settingunnecessaryandirrationalbureaucraticrulesforimportedproducts.

  21. Politicaland Legal Barriers Governmentsmayalsorestrictthefreeinternationaltradebycreatingdifficulties in entryregulationsforsomecountries, whilefacilitatingthesameforothers. A companyshouldinvestigatethe legal structure of a countrywhere it wantstoenter. Itwillneverenterthecountrywhichdoes not acceptsinternationallawanddecisions of internationalcourts

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