Competingin the GlobalMarketplace

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The Future of BusinessThe Essentials 4th EditionGitman & McDaniel

Prepared byDeborah BakerChapter 3

Copyright ©2009 by South-Western, a division of Cengage Learning. All rights reserved

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Learning Goals

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R 31 Why is global trade important to the United States

and how is it measured?

2 Why do nations trade?

3 What are the barriers to international trade?

4 How do governments and institutions foster world trade?

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Learning Goals (continued)

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R 35 What are international economic communities?

6 How do companies enter the global marketplace?

7 What threats and opportunities exist in the global marketplace?

8 What are the advantages of multinational corporations?

9 What are the trends in the global marketplace?

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Global Trade in the United States

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Why is global trade important to the United States and how is it measured?

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5

Recognizing and reacting tointernational business opportunities

Being aware of threats fromforeign competitors

Effectively using internationaldistribution networks

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Global Vision

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U.S. exports a fifth of industrial production and a third of its farm products

One of every five jobs in U.S. is supported by exports

A third of U.S. corporate profits is from international trade and foreign investment

Exports accounted for almost 25 percent of U.S. economic growth

The Importance of Global Business to the U.S.

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Measuring Trade Between Nations

exports

Goods and services produced in one country and sold to other countries.

imports

Goods and services that are bought from other countries.

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balance of trade The difference between the value of a country’s exports and the value of its imports during a specific time.

Measuring Trade Between Nations

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CONCEPT check

1

What is global vision, and why is it important?

What impact does international trade have on the U.S. economy?

Explain the impact of a currency devaluation.

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Why Nations Trade

2

Why do nations trade? 2

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Demographic Factors

absolute advantage

A country can produce and sell products at a lower cost and is the only provider of a product

comparative advantage

A country should specialize in the products that it can produce most readily and cheaply, and trade those for goods that foreign countries can produce most readily and cheaply

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outsourcing

Sending work functions to another country resulting in domestic workers losing their jobs.

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The Fear of Trade and Globalization

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Benefits of Globalization

Productivity grows more quickly when countries produce goods and services in which they have a comparative advantage.

Global competition and cheap imports keep prices down

An open economy spurs innovation

The U.S. buys $2 trillion a year from other countries

Prices for many heavily traded goods have fallen

Income from U.S. foreign subsidiaries is over $200 billion a year

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CONCEPT check

Describe the policy of free trade and its relationship to comparative advantage.

Why do people fear globalization?

What are the benefits of globalization?

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Barriers to Trade

3

What are the barriers to international trade?3

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Barriers to Trade

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Against TariffsAgainst TariffsFor TariffsFor Tariffs

Protect infant industries

Protect American jobs

Aid in military preparedness

Discourage free trade

Raise prices

For and Against Tariffs

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1. Import quotas

2. Embargos

3. Buy-National Regulations

4. Exchange Controls

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Nontariff Barriers

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CONCEPT check

Discuss the concept of natural trade barriers.

Describe several tariff and nontariff barriers to trade.

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Fostering Global Trade

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How do governments and institutionsfoster world trade?

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Fostering Global Trade

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dumping

The practice of charging a lower price for a product in foreign markets than in the firm’s home market.

Antidumping Laws

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The Uruguay Round

A 1994 agreement to lower trade barriers worldwide.

World Trade Organization (WTO)

An organization established by the Uruguay Round in 1994 to oversee international trade, reduce trade barriers, and resolve disputes among member nations.

The Uruguay Round and the WTO

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The World Bank

An international bank that offers low-interest loans, as well as advice and information, to developing nations.

International Monetary Fund (IMF)

An international organization, founded in 1945, that promotes trade, makes short-term loans to member nations, and acts as a lender of last resort for troubled nations.

The World Bank and International Monetary Fund

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CONCEPT check

Describe the purpose and role of the WTO.

What are the roles of the World Bank and the IMF in world trade?

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International Economic Communities

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What are international economic communities?5

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preferential tariff

A tariff that is lower for some nations than for others.

free-trade zone

An area where the nations allow free, or almost free, trade among each other while imposing tariffs on goods of nations outside the zone.

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International Economic Communities

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International Economic Communities

North American Free Trade Agreement North American Free Trade Agreement

Central America Free Trade AgreementCentral America Free Trade Agreement

The European UnionThe European Union

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CONCEPT check

Explain the pros and cons of NAFTA.

What is the European Union? Will it ever be a United States of Europe?

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Participating in the Global Marketplace

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How do companies enter the global marketplace?6

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Why Go Global?

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Licensing Legal process allowing use of manufacturing/patents/knowledge.

ContractManufacturing

Private-label manufacturing by a foreign country

Joint Venture Domestic firm buys/joins a foreign company to create new entity.

Export Sell domestically produced products to buyers in other countries.

Direct Investment Active ownership of a foreign company/manufacturing facility.

Entering the Global Marketplace

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countertrade

A form of international trade in which part or all of the payment for goods and services is in the form of other goods and services.

Entering the Global Marketplace

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CONCEPT check

Discuss several ways that a company can enter international trade.

Explain the concept of countertrade.

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Threats and Opportunities in the Global Marketplace

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What threats and opportunities exist in the global marketplace?

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nationalism

A sense of national consciousness that boosts the culture and interests of one country over those of all other countries.

In a hostile climate, a government may expropriate or confiscate a foreign company’s assets.

Political Considerations

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Economic Environment

Money and banking Education Transportation Communications Energy Market system

Infrastructure

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CONCEPT check

Explain how political factors can affect international trade.

Describe several cultural factors that a company involved in international trade should consider.

How can economic conditions affect trade opportunities?

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What are the advantages of multinational corporations?

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Impact of Multinational Corporations

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multinational corporations

Corporations that move resources, goods, services, and skills across national boundaries without regard to the country in which their headquarters are located.

The Impact of Multinational Corporations

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The Multinational Advantage

Overcome trade problems

Sidestep regulatory problems

Shift production from one plant to another

Tap new technology from around the world

Save in labor costs

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CONCEPT check

What is a multinational corporation?

What are the advantages of multinationals?

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What are the trends in the global marketplace?9

Trends in Global Competition

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CONCEPT check

What trends will foster continued growth in world trade?

Describe some of the ways businesses can take advantage of these trends to “go global.”

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