Chapter 3: THE WORLD MARKETPLACE

1. Chapter 3: THE WORLD MARKETPLACE Business without Borders

2. With technology and telecommunications booming, and trade barriers falling, the economic boundaries between nations have begun to blur. AN UNPRECEDENTED OPPORTUNITY

3. WORLDWIDE ECONOMIC GROWTH

4. KEY REASONS FOR INTERNATIONAL TRADE • Access to Factors of Production • Reduced Economic Risk • Innovation • Competitive Advantage

5. COMPETITIVE ADVANTAGE Opportunity cost –The cost of giving up the second-best choice when making a decision. A country has an absolute advantage when It can produce more of a good than other nations, using the same amount of resources. Comparative advantage - the benefit a country has in a given industry if it can make products at a lower opportunity Cost.

6. GLOBAL TRADE: TAKING MEASURE • Balance of Trade • Trade Deficit • Trade Surplus • Balance of Payments • Balance of Payments Deficit • Balance of Payments Surplus • Exchange Rates • Countertrade

7. EXCHANGE RATES: WHO BENEFITS?

8. STRATEGIES FOR FINDING GLOBAL SUPPLIERS Foreign Outsourcing/Contract Manufacturing – contracting with Foreign suppliers to produce products, usually at a fraction of the domestic cost. Importing – buying products that have been produced or grown in foreign nations.

9. STRATEGIES FOR REACHING GLOBAL MARKETS • Licensing • Authority given by domestic firm for rights to produce/market its product and use trademarks/patents. • Franchising • Offering businesses in other countries the right to produce and market products under its operating requirements. • Direct Investment • Firms acquire businesses or develop new facilities in foreign countries.

10. THE SLEEPING DRAGON AWAKES • In one generation, per capita income in China has tripled • 300 million have been pulled from poverty • China ranks 3rd in international commerce • China will play a pivotal role in shaping the world economy After years closed off from the world, China is experiencing economic growth of approximately 10% per year

11. FOREIGN INVESTMENT RISK

12. MULTINATIONAL FIRMS Do you know where the firm that ultimately owns each brand is headquartered? Nestle Quick Switzerland Nokia Cell Phones Finland Jaguar Automobiles United States Michelin Tires France Shell Oil Netherlands/England Columbia Records Japan/Germany

13. BARRIERS TO INTERNATIONAL TRADE • Sociocultural Differences • Economic Differences • Political & Legal Differences

14. SOCIAL/CULTURAL DIFFERENCES • Nonverbal Communication • Forms of Address • Attitudes toward punctuality • Religious Celebrations • Business Practice/Gifts Think beyond the obvious differences. Social/cultural differences can rapidly undermine business relationships.

15. OOPS: TRANSLATION GAFFS • “It takes a virile man to make a chicken affectionate” • Perdue Farms slogan “It takes a tough man to make a chicken tender” translation in Mexico. • Irish Manure Liquor, Silver Dung Rolls Royce? • Several foreign companies have introduced products in Germany with the word “mist” which roughly translates into “dung” or “manure” • “Nothing sucks like an Electrolux” • Electrolux, a Swedish maker vacuum cleaners, introduced their vacuums in the U.S. with a literal translation of their slogan.

16. ECONOMIC DIFFERENCES • Exchange Rates • Population • Per Capita Income • Infrastructure • Transportation • Communication • Energy Finance Can you profitably provide your product or service to meet the needs of the market?

17. POLITICAL & LEGAL DIFFERENCES • Political regimes differ around the world • Legal Differences • Lack of Enforcement • Bribery • Political Climate • Stability • Violence • Piracy and intellectual property is a problem in several foreign nations

18. PROTECTIONISM

19. TRADE RESTRICTIONS • Tariffs • Quotas • Voluntary Export Restrictions • Embargo

20. GLOBAL EMPLOYMENT “ A new study suggests that 2.3 million service jobs will have moved from the United States to other countries by 2008, up from 900,000 as of 2003. “

21. REVERSE BRAIN DRAIN • Many talented immigrants are moving home to take advantage of new economic opportunities. • US companies can cut costs by sourcing employees from overseas. • But is America losing potential innovators such as Sergey Brin, founder of Google?

22. FREE TRADE: THE MOVEMENT GAINS MOMENTUM There has been a global move toward free trade – the unrestricted movement of good and services across borders.

23. GATT AND WORLD TRADE ORGANIZATION (WTO) • General Agreement on Tariffs & Trade (GATT) • Established in 1948 • Now encompasses 125 nations • Slashed tariffs by about 30% • World Trade Organization (WTO) • Promote International Trade • Settle Trade Disputes

24. FREE TRADE • The World Bank • 184 Member Countries • Reduce World Poverty in Developing World • Influence Global Economy • Provide Financial Assistance • Low interest loans • The International Monetary Fund • Support Stable Exchange Rates • Facilitate International Payments • Adopt Economic Policies • Promote Trade

25. TRADING BLOCS/COMMON MARKETS • Groups of Countries promoting the free flow of goods and services • The North American Free Trade Agreement (NAFTA) • The largest trading bloc • US, Canada, Mexico • European Union (EU) • The largest common market