© Prentice Hall, 2005Business In Action 3eChapter 3 - 1 Competing in the Global Economy.

© Prentice Hall, 2005 Business In Action 3e Chapter 3 - 1

Competing in the Competing in the Global EconomyGlobal Economy


Why Nations TradeWhy Nations TradeWhy Nations TradeWhy Nations Trade

Scarce Scarce RecoursesRecoursesScarce Scarce

RecoursesRecourses

GlobalGlobalAmbitionsAmbitions

GlobalGlobalAmbitionsAmbitions

Limited Limited CapabilitiesCapabilities

Limited Limited CapabilitiesCapabilities

Economies Economies of Scaleof Scale

Economies Economies of Scaleof Scale


Theories of Theories of Production and Production and

TradingTrading

AbsoluteAbsoluteAdvantageAdvantageAbsoluteAbsolute

AdvantageAdvantageComparativeComparativeAdvantageAdvantage

ComparativeComparativeAdvantageAdvantage


MeasuringMeasuringInternational TradeInternational Trade

Balance Balance of Tradeof TradeBalance Balance of Tradeof Trade

SurplusSurplusSurplusSurplus

DeficitDeficitDeficitDeficit

BalanceBalanceof Paymentsof Payments

BalanceBalanceof Paymentsof Payments

Cash InflowCash InflowCash InflowCash Inflow

Cash OutflowCash OutflowCash OutflowCash Outflow


US Exports and Imports – GoodsUS Exports and Imports – Goods(in $ billions, 2002 data)(in $ billions, 2002 data)

Foods, Feeds andBeverages

IndustrialSupplies &Materials(including

Petroleum)

Machinery &TransportEquipment(not autos)

AutomotiveVehicles,Engines &

Parts

ConsumerGoods

(non-food)

OtherGoods

Exports

Imports

49,616

49,687

156,837

267,681

290,496

283,323

78,942

203,743

84,359

307,854

32,854

49,078


US Exports and Imports – ServicesUS Exports and Imports – Services(in $ billions, 2002 data)(in $ billions, 2002 data)

Travel andPassenger

Fares

OtherTransport

Royaltiesand License

Fees

OtherPrivate

Services

Military,DefenseServices

Misc.Government

Services

Exports

Imports

83,593

78,013

29,166

38,527

44,142

19,258

122,594

69,436

11,943

19,245

795

2,920


Trade Deficit on the RiseTrade Deficit on the Rise

-$500

-$450

-$400

-$350

-$300

-$250

-$200

-$150

-$100

-$50

$0

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '03

Trade deficit (in $ billions)


Global Trade IssuesGlobal Trade Issues

Free TradeFree TradeFree TradeFree Trade

Fair TradeFair TradeFair TradeFair Trade

Trade RestrictionsTrade RestrictionsTrade RestrictionsTrade Restrictions


Protectionism Protectionism and Trade Restrictionsand Trade Restrictions

SanctionsSanctionsSanctionsSanctions RestrictiveRestrictiveImportsImports

RestrictiveRestrictiveImportsImports SubsidiesSubsidiesSubsidiesSubsidies DumpingDumpingDumpingDumping

TariffsTariffsTariffsTariffs QuotasQuotasQuotasQuotas EmbargoesEmbargoesEmbargoesEmbargoes

© Prentice Hall, 2005 Excellence in Business, Revised Edition

Chapter 3 - 10

Restrictive import standards. Countries can assist their domestic producers by establishing restrictive import standards, such as requiring special licenses for doing certain kinds of business and then making it difficult for foreign companies to obtain such a license. For example, Chiquita claims that an eight-year European Union restriction on banana imports from Latin America cost the company $1.5 billion. Other countries restrict imports by requiring goods to pass special tests.

Subsidies. Rather than restrict imports, some countries subsidize domestic producers so that their prices can compete favorably in the global marketplace. Airbus, originally an alliance of state companies from Germany, France, England, and Spain, was subsidized for years to help the company compete against rival Boeing. Now that Airbus is a strong competitor, the complex alliance has been sold to a joint venture composed of two private companies—the French-German-Spanish European Aeronautic Defense and Space Company and Britain's BAE Systems PLC.

Dumping. The practice of selling large quantities of a product at a price lower than the cost of production or below what the company would charge in its home market is called dumping.


Promoting Free TradePromoting Free Trade

World Trade Organization

(WTO)

World Trade Organization

(WTO)

InternationalMonetary Fund

(IMF)

InternationalMonetary Fund

(IMF)The World BankThe World Bank

General Agreementon Tariffs and Trade

(GATT)

General Agreementon Tariffs and Trade

(GATT)

Asia Pacific Econ CooperationCouncil (APECC)

Asia Pacific Econ CooperationCouncil (APECC)


Trading BlocsTrading Blocs

AdvantagesAdvantages

Help smaller countries

Promote competition

Widen markets

Foster economic growth

DisadvantagesDisadvantages

Economic isolation

Trade restrictions

Decline in world trade

Fewer choices


North American Free North American Free Trade Agreement Trade Agreement

(NAFTA)(NAFTA)

United StatesUnited States

CanadaCanada

MexicoMexico


The European UnionThe European Union

MinimizingMinimizing EstablishingEstablishing

Local RegulationsLocal Regulations

Variations in Variations in Product StandardsProduct Standards

Trade ProtectionismTrade Protectionism

GlobalGlobalProduct StandardsProduct Standards

Consumer ProtectionConsumer Protection

Environmental Environmental ProtectionProtection


The Economic and The Economic and Monetary Union (EMU)Monetary Union (EMU)

EconomicEconomicImpactImpact

EconomicEconomicImpactImpact

CurrencyCurrencyExchangeExchange

CurrencyCurrencyExchangeExchange

CentralizedCentralizedBankingBanking

CentralizedCentralizedBankingBanking

CurrencyCurrencyUnificationUnification

CurrencyCurrencyUnificationUnificationThe EURO


Foreign Exchange Rates Foreign Exchange Rates and Currency Valuationsand Currency Valuations

Floating Rates

Government Action

Currency Devaluation

Fixed Value System


The GlobalThe GlobalBusiness EnvironmentBusiness Environment

Opportunities

Growth Potential

Increased Sales

Operating Efficiencies

New Technologies

More Consumer Choices

Challenges

Laws and Customs

Consumer Preferences

Ethical Standards

Labor Skills

Politics and Economics


Cultural Differences In Cultural Differences In Global BusinessGlobal Business

• Consider the other person’s customsConsider the other person’s customs

• Deal with the individualDeal with the individual

• Clarify your intent and meaningClarify your intent and meaning

• Adapt your style to the other personAdapt your style to the other person

• Show respectShow respect


Legal Differences In Legal Differences In Global BusinessGlobal Business

Common Law

Civil Law

Theocratic Law


Chapter 3 - 20

Legal Differences in Legal Differences in Global BusinessGlobal Business

Domestic Laws

International Laws

Country-Specific Laws


Chapter 3 - 21

InternationalInternationalMarket-Entry Market-Entry

StrategiesStrategies

StrategicAlliances and Joint Ventures

StrategicAlliances and Joint Ventures

Foreign DirectInvestment

Foreign DirectInvestment

InternationalFranchisingInternationalFranchising

International Licensing

International Licensing

Importing andExporting

Importing andExporting

Commitment, Risk, Control, Profit PotentialLeast Most


Chapter 3 - 22

• License agreements entitle one company to use some or all of another firm's intellectual property (patents, trademarks, brand names, copyrights, or trade secrets) in return for a royalty payment.

• Under international franchising arrangement, a franchisor enters into an agreement whereby the franchisee obtains the rights to duplicate a specific product or service—perhaps a restaurant, photocopy shop, or video rental store—and the franchisor obtains a royalty fee in exchange.

• A strategic alliance is a long-term partnership between two or more companies to jointly develop, produce, or sell products in the global marketplace. To reach their individual but complementary goals, the companies typically share ideas, expertise, resources, technologies, investment costs, risks, management, and profits.

• A joint venture is a special type of strategic alliance in which two or more firms join together to create a new business entity that is legally separate and distinct from its parents.


International Business ActivityInternational Business Activity

Importing and ExportingImporting and Exporting

Licensing and FranchisingLicensing and Franchising

Strategic Alliances Strategic Alliances and Joint Venturesand Joint Ventures

Direct Foreign InvestmentDirect Foreign Investment

OwnershipOwnership FinancialFinancial RiskRisk

LowLow LowLow LowLow

LowLow LowLow LowLow

ModerateModerate ModerateModerate ModerateModerate

HighHigh HighHigh HighHigh

Common FormsCommon FormsLevels of CommitmentLevels of Commitment


Strategic Approaches to Strategic Approaches to International MarketsInternational Markets

Products

Support

Promotion

Pricing

Staffing


Impact of Terrorism on Impact of Terrorism on Global BusinessGlobal Business

GovernmentGovernmentExpendituresExpenditures

Business Business ExpendituresExpenditures

BankingBankingTransportationTransportation

© Prentice Hall, 2005Business In Action 3eChapter 3 - 1 Competing in the Global Economy.

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Transcript of © Prentice Hall, 2005Business In Action 3eChapter 3 - 1 Competing in the Global Economy.