Chapter 3: THE WORLD MARKETPLACE

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CHAPTER 3: THE WORLD MARKETPLA Business without Borders

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Chapter 3: THE WORLD MARKETPLACE. Business without Borders. With technology and telecommunications booming, and trade barriers falling, the economic boundaries between nations have begun to blur. AN UNPRECEDENTED OPPORTUNITY. WORLDWIDE ECONOMIC GROWTH. KEY REASONS FOR INTERNATIONAL TRADE. - PowerPoint PPT Presentation

Transcript of Chapter 3: THE WORLD MARKETPLACE

Page 1: Chapter 3: THE WORLD MARKETPLACE

CHAPTER 3: THE WORLD MARKETPLACE

Business without Borders

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With technology and telecommunications

booming, and trade barriers falling, the economic

boundaries between nations have begun to blur.

AN UNPRECEDENTED OPPORTUNITY

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WORLDWIDE ECONOMIC GROWTH

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KEY REASONS FOR INTERNATIONAL TRADE

Access to Factors of Production

Reduced Economic Risk

Innovation

Competitive Advantage

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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.

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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

Exchange Rates Countertrade

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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

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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.

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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.

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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

After years closed off from the world, China is experiencing economic growth of approximately 10%

per year

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FOREIGN INVESTMENT RISK

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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?

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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.

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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.

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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?

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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

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TRADE RESTRICTIONS

Tariffs Quotas Voluntary Export Restrictions Embargo

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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.

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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?

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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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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

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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

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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