Business without Borders

Chapter 3: THE WORLD MARKETPLACE

With technology and telecommunications

booming, and trade barriers falling, the economic

boundaries between nations have begun to blur.

AN UNPRECEDENTED OPPORTUNITY

WORLDWIDE ECONOMIC GROWTH

Nation Population Per Capita GDP (U.S.

Dollars)

GDP Growth Rates

China 1,330,044,605 $6,100 +9.8%

India 1,147,995,898 $2,900 +7.3%

United States 303,824,646 $48,000 +1.4%

Indonesia 237,512,355 $3,900 +5.9%

Brazil 196,342,592 $10,300 +5.2%

KEY REASONS FOR INTERNATIONAL TRADE

Access to Factors of Production

Reduced Economic Risk

Innovation

Competitive Advantage

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

Total value of imports > Total value of exports

Total value of imports < Total value of exports

$$ flowing in > $$ flowing out

$$ flowing in < $$ flowing out

United States Balance of Trade

The balance of trade is the difference between the monetary value of exports and imports in an economy over a certain period of time. A positive balance of trade is known as a trade surplus and consists of exporting more than is imported; a negative balance of trade is known as a trade deficit or, informally, a trade gap.

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total

2009 -37.0 -26.6 -28.9 -29.1 -26.4 -27.5 -31.9 -30.7         -238.0

2008 -61.5 -61.7 -59.4 -62.1 -60.5 -60.2 -64.9 -60.9 -60.1 -59.4 -43.2 -41.9 -695.9

2007 -58.6 -57.8 -61.6 -59.7 -59.2 -58.7 -57.9 -56.3 -57.3 -57.0 -59.5 -57.8 -701.4

2006 -67.0 -62.5 -62.2 -62.6 -64.9 -63.6 -66.8 -67.8 -64.7 -58.8 -58.4 -61.0 -760.4

EXCHANGE RATES: WHO BENEFITS?

STRONG DOLLAR VS EURO:(Example: $1.00 = 1.20 euros)

• U.S. travelers to Europe Dollar buys more in Europe• American firms with European operations Operating cost are lower• European exporters European products costs less in

U.S.

WEAK DOLLAR VS. EURO:(Example: $1.00 = .60 euros)

• European travelers to U.S. Euro buys more in America• European firms with American operations Operating costs are lower• American exporters American products cost less in

Europe

American Dollar Exchange RateCountry

Currency

ISO 03/06/09 03/05/09 Change

AUSTRALIA Dollar AUD 1.561302 1.560571 +0.0468%

BELGIUM Franc BEF 31.83601 32.10681 -0.8434%

CANADA Dollar CAD 1.286062 1.287082 -0.0792%

DENMARK Krone DKK 5.887687 5.937769 -0.8434%

EUROPEAN UNION Euro EUR 0.789194 0.795907 -0.8434%

FINLAND Markka FIM 4.692334 4.732248 -0.8434%

FRANCE Franc FRF 5.176773 5.220808 -0.8435%

GERMANY Mark DEM 1.543529 1.556659 -0.8435%

HONG KONG Dollar HKD 7.755508 7.758287 -0.0358%

ISRAEL Sheqel ILS 4.241282 4.234666 +0.1562%

ITALY Lira ITL 1528.093 1541.091 -0.8434%

JAPAN Yen JPY 97.89695 98.37888 -0.4899%

KOREA (SOUTH) Won KRW 1549.853 1568.522 -1.1902%

MEXICO Peso MXN 15.26503 15.31762 -0.3433%

NETHERLANDS Guilder NLG 1.739155 1.753948 -0.8434%

NEW ZEALAND Dollar NZD 1.985100 1.994357 -0.4642%

NORWAY Krone NOK 7.064156 7.098946 -0.4901%

RUSSIA Ruble RUB 35.73181 35.86129 -0.3611%

SAUDI ARABIA Riyal SAR 3.755190 3.755172 +0.0005%

SINGAPORE Dollar SGD 1.545703 1.554073 -0.5386%

SOUTH AFRICA Rand ZAR 10.42447 10.65067 -2.1238%

SPAIN Peseta ESP 131.3108 132.4278 -0.8435%

SWEDEN Krona SEK 9.201466 9.291274 -0.9666%

SWITZERLAND Franc CHF 1.152777 1.172858 -1.7121%

TAIWAN Dollar TWD 34.67172 34.94653 -0.7864%

UNITED KINGDOM Pound GBP 0.708837 0.708185 +0.0921%

in USD

GLOBAL MARKET DEVELOPMENT OPTIONS

Exporting Licensing Franchising DirectInvestment

Lower Risk

Higher Risk

Less Control

More Control

STRATEGIES FOR REACHING GLOBAL MARKETS

Licensing Authority given by domestic firm for rights

to produce/market its product and use trademarks/patents.

Franchising Providing the right to produce and market

products under its operating requirements. Direct Investment

Firms acquire businesses or develop new facilities in foreign countries.

Joint Ventures Two or more companies joining forces to

pursue specific opportunities (Partnership or Strategic Alliances

Coke/Pepsi

McDonalds

MULTINATIONAL FIRMS

Shell Oil

Michelin Tires

Jaguar Automobiles

Nokia Cell Phones

Nestle Quick

Netherlands/England

France

India

Finland

Switzerland

Columbia Records Japan/Germany

Do you know where the firm that ultimately owns each brand is headquartered?

BARRIERS TO INTERNATIONAL TRADE

Sociocultural Differences

Economic Differences

Political & Legal Differences

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.

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?

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

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 to change their policies and practices

Use world resources more efficiently

TRADE RESTRICTIONS Tariffs

Taxes levied against imports Quotas

Limitations on the amount of specific products that may be imported from certain countries

Voluntary Export Restrictions Limitations on the amount of specific

products that one nation will export to another

Embargo Total ban on international trade of a certain

item or a total halt in trade with a specific nation

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.

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?

FREE TRADE: THE MOVEMENT GAINS MOMENTUM

There has been a global move toward free trade – the unrestricted movement of good and services across

borders.

GATT AND WORLD TRADE ORGANIZATION (WTO)

General Agreement on Tariffs & Trade (GATT) Established in 1948 Now encompasses 125 nations Slashed tariffs by about 30%

Promote International Trade Settle Trade Disputes

FREE TRADE

The World Bank 185 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 Lend money to member nations

TRADING BLOCS/COMMON MARKETS

The North American Free Trade Agreement (NAFTA) The largest trading bloc US, Canada, Mexico

European Union (EU) The largest common market 27 nations; combined GDP

$15Trillion Goal is to bolster Europe’s

trade position

Groups of Countries promoting the free flow of goods and services