© 2009 south-western, a division of cengage learning 1 chapter 3: the world marketplace business...
TRANSCRIPT
© 2009 South-Western, a division of Cengage Learning 1
Chapter 3: THE WORLD MARKETPLACE
Business without Borders
© 2009 South-Western, a division of Cengage Learning2
LOOKING AHEAD
• Why should today’s managers think globally?
• What opportunities exist in the world economy for businesses?
• Why do nations trade?
• How do we measure trade?
• How do companies reach global markets?
• What are the barriers to international trade?
• What are the benefits and criticisms of the free trade movement?
© 2009 South-Western, a division of Cengage Learning3
With technology and telecommunications booming, and trade barriers falling, the
economic boundaries between nations have
begun to blur.
AN UNPRECEDENTED OPPORTUNITY
TRADITIONAL CAPITALISM
• You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income.
AN AMERICAN CORPORATION
• You have two cows. You sell one, and force the other to produce the milk of four cows. You are surprised when the cow drops dead.
A FRENCH CORPORATION
• You have two cows. You go on strike because you want three cows.
A JAPANESE CORPORATION
• You have no cows. You create clever cow cartoon images called Cowkimon and market them worldwide.
© 2009 South-Western, a division of Cengage Learning
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A GERMAN CORPORATION
• You have two cows. You reengineer them so they live for 100 years, eat once a month, and milk themselves.
AN ITALIAN CORPORATION
• You have two cows, but you don’t know where they are. You break for lunch.
A RUSSIAN CORPORATION
• You have 2 cows. You count them and learn you have 5 cows. You count them again and learn you have 42 cows. You count them again and learn you have 12 cows. You stop counting cows and open another bottle of vodka.
© 2009 South-Western, a division of Cengage Learning5
© 2009 South-Western, a division of Cengage Learning6
WORLDWIDE ECONOMIC GROWTH
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GLOBAL TRADE: TAKING MEASURE
• Balance of Trade– Trade Deficit– Trade Surplus
• Balance of Payments– Balance of Payments Deficit– Balance of Payments Surplus
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FREE TRADE: THE MOVEMENT GAINS MOMENTUM
There has been a global move toward free trade – the
unrestricted movement of good and services across
borders.
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MULTINATIONAL FIRMS
Shell Oil
Michelin Tires
Jaguar Automobiles
Nokia Cell Phones
Nestle Quick
Netherlands/England
France
United States
Finland
Switzerland
Columbia Records Japan/Germany
Do you know where the firm that ultimately owns each brand is headquartered?
© 2009 South-Western, a division of Cengage Learning10
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
© 2009 South-Western, a division of Cengage Learning11
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
© 2009 South-Western, a division of Cengage Learning12
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
© 2009 South-Western, a division of Cengage Learning13
KEY REASONS FOR INTERNATIONAL TRADE
• Access to Factors of Production
• Reduced Economic Risk
• Innovation
• Competitive Advantage
© 2009 South-Western, a division of Cengage Learning14
COMPETITIVE ADVANTAGE
A country has an absolute advantage when
It can produce more of a good than other nations, using the same amount
of resources.
Comparativeadvantage - thebenefit a country
has in a given industry if it can make products at a
lower opportunityCost.
Opportunity cost –The cost of giving up the second-best choice when making a
decision.
Melora
© 2009 South-Western, a division of Cengage Learning15
Typing – better than anyone else in her village- $20 per hour produces 100 pages
Surgery – better than anyone else in her village- $150 per hour
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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.
© 2009 South-Western, a division of Cengage Learning18
FOREIGN INVESTMENT RISK
© 2009 South-Western, a division of Cengage Learning19
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.
© 2009 South-Western, a division of Cengage Learning20
BARRIERS TO INTERNATIONAL TRADE
• Sociocultural Differences
• Economic Differences
• Political & Legal Differences
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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.
© 2009 South-Western, a division of Cengage Learning22
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.
What do women want?
• American women want convenience
• Italian women want cleaning strength
© 2009 South-Western, a division of Cengage Learning23
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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?
© 2009 South-Western, a division of Cengage Learning25
THE MANY NAMES OF MONEY
China
England
European Union
India
Iran
Israel
Japan
Mexico
South Africa
South Korea
Yuan
Pound
Euro
Rupee
Rial
Shekel
Yen
Peso
Rand
Won
Exchange rates as of 9/10/2008 - 8:44:39 AM
CurrencyIn US Dollar (Per one foreign currency unit)
Per US Dollar
Brazilian Real 0.56117 1.78200
Japanese Yen 0.00927 107.84000
Mexican Peso 0.09452 10.57970
Canadian Dollar 0.93197 1.07300
Chinese Yuan 0.14632 6.83450
Euro 1.40331 0.71260
Indian Rupee 0.02206 45.32800
Swiss Franc 0.88051 1.13570
© 2009 South-Western, a division of Cengage Learning26
© 2009 South-Western, a division of Cengage Learning27
EXCHANGE RATES: WHO BENEFITS?
STRONG DOLLAR VS EURO:(Example: $1.00 = 1.20 euros)
WEAK DOLLAR VS. EURO:(Example: $1.00 = .60 euros)
U.S. travelers to Europe European travelers to U.S.
American firms with European operations
European firms with American operations
European exporters American exporters
© 2009 South-Western, a division of Cengage Learning28
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
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PROTECTIONISM
Reasons to Create Trade Restrictions
Reasons to Eliminate Trade Restrictions
Protect domestic industry Reduce prices and increase choices for consumers
Protect domestic jobs in key industries
Increase domestic jobs
Retaliate against countries who have engaged in unfair trade
practices
Build exporting opportunities
Pressure other countries Use world resources more efficiently
© 2009 South-Western, a division of Cengage Learning30
TRADE RESTRICTIONS
• Tariffs
• Quotas
• Voluntary Export Restrictions
• Embargo
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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
• video
After years closed off from the world, China is experiencing economic growth of approximately 10% per year
• http://www.pbs.org/newshour/bb/asia/jan-june07/china_06-25.html
• Video
© 2009 South-Western, a division of Cengage Learning32
© 2009 South-Western, a division of Cengage Learning33
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.
© 2009 South-Western, a division of Cengage Learning34
LOOKING BACK
• What barriers and opportunities are fueling the growth of the global economy?
• What are strategies for reaching global markets?
• How do we measure trade?
• Discuss barriers to international trade?
• What are strategies for promoting free trade?
• What are the benefits and criticisms of free trade?
© 2009 South-Western, a division of Cengage Learning35
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?