3-2

1. 3-2 The GlobalMarketplace

2. The Global Environment • Doing business in another country requires knowledge of the differences that exist among people and places. • 4 factors need to be considered: • Geography • Cultural Influences • Economic Differences • Political & Legal Concerns

3. Geography • When going international, geography is a major issue to consider. • The following topics are important to consider: • Location • Climate • Terrain • Waterways • Natural resources

4. Cultural • We’ll get to this tomorrow / later…..

5. Economic Dev. • Things to think about another country’s economy: • Literacy Level • Technology • Agricultural dependency • Infrastructure • Education

6. Political / Legal Factors • Things to think about another country’s government: • Government system • Political stability • Trade barriers • Business regulations

7. Barriers to International Business Purpose of Barriers To help protect domestic businesses and consumers May be used to: 1. help assist a new business getting started 2. protect an existing industry struggling in a competitive global environment. 3. protect consumers from imports with problems or that do not conform to Canadian safety standards.

8. Barriers to International Business Barriers include: • Tariffs or Custom duties • Non-Tariff barriers • Increased costs of importing and Exporting • Quotas • Embargo

9. 1. Tariffs • Also called custom duties • One of the most important tools for any government in managing trade with other countries. • A form of tax on certain types of imports (goods coming into U.S. from other countries) • Companies bringing in the goods from another country to sell in U.S. must pay the tariffs. • Tariffs are based on a percentage of the retail value, (i.e. 5% of retail selling price.) or; • On another basis (i.e. $6 per kilogram) • Money collected goes to the government.

10. Tariffs Whose job is it to: 1. monitor U.S. tariff policies? 2. monitor tariff policies of other countries? 3. change U.S. tariff policies to best serve the U.S. economy? Answer: • Finance U.S.

11. Tariffs Provide an example of when it may be: beneficial for U.S. to reduce tariffs on certain goods imported from outside countries? beneficial to increase or create tariffs on certain goods being imported from outside countries?

12. 2. Non-tariff Barriers Legal and policy standards for the quality of imported goods are set so high that foreign competitors can not enter the market. Examples: A U.S. law forces an international company to apply for a license to do business in U.S. (it may be very time consuming and expensive) Government will allow some goods into the country only after being inspected and having met certain health and safety standards set out by the U.S. Food and Inspection Agency.

13. Imported Goods That Require Permits, Inspection, or Special Packaging Imported Goods Government Department__________ 1. Endangered animals and 1. Environment U.S. plants and products made from them 2. Agricultural and food 2. Agriculture and Agri-food U.S. products 3. Non-food products and clothing 3. Industry U.S. precious metals, and radio communications equip. 4. Fish and fish products 4. Fisheries and Oceans U.S. 5. Food, drugs, medicines, 5. Health U.S. pharmaceuticals, medical and radiation-emitting devices 6. Hazardous waste, goods that 6. Environment U.S. may contain chlorofluorocarbons or lead gas 7. Motor vehicles 7. Transport U.S.

14. 3. Costs of Importing and Exporting Landed Cost • The actual cost for an imported purchased item. • It is composed of the vendor cost, transportation charges, duties, taxes, broker fees, and any other charges associated with getting the product ready to sell in a foreign market. (another country) Question If you owned American Tire and had to choose between selling a tool from an American manufacturer or a foreign manufacturer, which one would you select if the quality of both products was equal? a. the foreign tool whose landed cost was greater than the domestic purchase cost or; b. the domestic tool whose cost was cheaper than the landed cost.

15. Costs of Importing and Exporting Price of a good sold is based on the following costs among others: • Manufacturing (includes wages); • storage; • Marketing; • Shipping; • Advertising • Overhead (Equipment, Heating etc, Salaries) • % of profit the company wants to make on the sale Depending on the laws of another country and cultural differences, additional costs may be incurred.

16. 4. Quotas Quota • a limit the government sets on the quantity of a product that may be imported or exported within a given period • Reasons • So supply remains low and prices stay at a certain level (oil) • To “punish” other countries • To protect an industry from too much competition (sugar, cattle, dairy, textiles)

17. 5. Embargos Embargo • If a government wishes to do so, it can stop the export or import of a product completely • A.K.A. – Banning trade! • Reasons: • Industry protection • Prevent certain products from falling into the wrong hands (dept. of defense) • Punishment