CHAPTER 3 Doing Business in Global Markets Mc

LEARNING OBJECTIVES 1. Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade. 2. Explain the importance of importing and exporting, and understand key terms used in global business. 3. Illustrate the strategies used in reaching global markets and explain the role of multinational corporations. 1 -2

LEARNING OBJECTIVE 4. Evaluate the forces that affect trading in global markets. 5. Debate the advantages and disadvantages of trade protectionism. 6. Discuss the changing landscape of the global market and the issue of offshore outsourcing. 1 -3

LEILA JANAH Samasource • Started Samasource to help people in developing countries rise out of poverty. • Janah has been working to combat world poverty since she was a teen. • Employees are carefully selected and are taught new skills. 3 -4

NAME that COMPANY This Swiss-based company has many foreign subsidiaries including Jenny Craig (weight management), Ralston Purina, Chef America (maker of Hot Pockets) and Dreyer’s Ice Cream in the United States as well as Perrier in France. The company employs over 328, 000 people and has operations in almost every country in the world. Name that company! 1 -5

BUSINESS in the GLOBAL MARKET LO 3 -1 • Over 90% of companies doing business globally believe it is important for employees to have international experience. • U. S. organizations (like UPS, MLB, the NFL and the NBA) are also expanding abroad. 3 -6

WORLD POPULATION by CONTINENT LO 3 -1 3 -7

WORLD POPULATION GROWTH LO 3 -1 3 -8

IMPORTING and EXPORTING LO 3 -1 • Importing -- Buying products from another country. • Exporting -- Selling products to another country. • The U. S. is the largest importing and the second largest exporting nation in the world. 3 -9

PLEASURE DOING BUSINESS LO 3 -1 Best Countries for Business 2013 Rank Country 2012 Rank 1 Ireland - 2 New Zealand - 3 Hong Kong - 4 Denmark - 5 Sweden 3 6 Finland 2 7 Singapore 1 8 Canada - 9 Norway - 10 Netherlands - Source: Forbes, www. forbes. com, accessed November 2014. 3 -10

CAN YOU SPARE a DIME? LO 3 -1 Home Countries for Some of the World’s Billionaires • U. S. – 516 billionaires • China – 136 billionaires • Russia – 88 billionaires • Germany – 82 billionaires • India – 54 billionaires • U. K. – 43 billionaires • Hong Kong – 41 billionaires Source: Forbes, www. forbes. com, accessed November 2014. 3 -11

TRADING with OTHER NATIONS LO 3 -1 • Countries with abundant natural resources (like Venezuela or Russia) need technological resources from other countries (like Japan). • Global trade allows countries to produce what they make best and buy what they need from others. • Free Trade -- The movement of goods and services among nations without political or economic barriers. 3 -12

PROS and CONS of FREE TRADE LO 3 -13

COMPARATIVE and ABSOLUTE ADVANTAGE LO 3 -1 • Comparative Advantage -- A country should sell the products it produces most efficiently and buy from other countries the products it cannot produce as efficiently. • Absolute Advantage -- A country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries. 3 -14

GOING GLOBAL with a SMALL BUSINESS LO 3 -2 • Small businesses may be the key in global job growth. • Only 1% of U. S. small businesses export, yet they account for 30% of total U. S. exports. 3 -15

WHOM DOES the U. S. OWE? LO 3 -2 Countries that Own the Most U. S. Debt Source: Max Fisher, Washington Post, www. washingtonpost. com, accessed November 2014. 3 -16

GETTING INVOLVED in IMPORTING LO 3 -2 • Students attending schools abroad tend to notice products that they’re used to are unavailable in their new country. • By working with producers in their native country, some become importers while still in school. 3 -17

GETTING INVOLVED in EXPORTING LO 3 -2 • Exporting provides a great boost to the U. S. economy. • It’s estimated every $1 billion in U. S. exports generate over 7, 000 U. S. jobs. 3 -18

HOW to MEASURE GLOBAL TRADE LO 3 -2 • Balance of Trade -- The total value of a nation’s exports compared to its imports measured over a particular period. • Trade Surplus (Favorable) -- When the value of a country’s exports is more than that of its imports. • Trade Deficit (Unfavorable) -- When the value of a country’s exports is less than that of its imports. 3 -19

BALANCE of PAYMENTS LO 3 -2 • Balance of Payments -- The difference between money coming into a country (from exports) and money leaving the country (from imports) plus other money flows. • The goal is to have more money flowing into a country than out – a favorable balance. • An unfavorable balance is when more money flows out of a country. 3 -20

UNFAIR TRADE PRACTICES LO 3 -2 • Dumping -- Selling products in a foreign country at lower prices than those charged in the producing country. • Dumping is prohibited. • China, Brazil and Russia have been penalized for dumping steel in the U. S. 3 -21

LARGEST EXPORTING NATIONS and TRADE PARTNERS LO 3 -22

TEST PREP • What are two of the main arguments favoring the expansion of U. S. businesses into global markets? • What is comparative advantage, and what are some examples of this concept at work in the United States? • How are a nation’s balance of trade and balance of payments determined? • What is meant by dumping in global trade? 3 -23

KEY STRATEGIES for REACHING GLOBAL MARKETS Licensing Least Exporting Franchising Contract Manufacturing International joint ventures and strategic alliances Amount of commitment, control, risk and profit potential LO 3 -3 Foreign direct investment Most 3 -24

LICENSING LO 3 -3 • Licensing -- When a firm (licensor) provides the right to manufacture its product or use its trademark to a foreign company (licensee) for a fee (royalty). • Licensing can benefit a firm by: - Gaining revenues it wouldn’t have otherwise generated. - Spending little or no money to produce or market their products. 3 -25

EXPORT ASSISTANCE CENTERS and EXPORT TRADING CENTERS LO 3 -3 • EACs provide hands-on exporting assistance and trade-finance support for small and medium-sized businesses that wish to directly export goods and services. • ETCs help companies engage in indirect exporting by: - Matching buyers and sellers. - Dealing with foreign customs offices, documentation, and conversions. 3 -26

FRANCHISING LO 3 -3 • Franchising -- A contractual agreement whereby someone with a good idea for a business sells others the rights to use the name and sell a product/service in a given area. • Franchisors need to be careful to adapt their product to the countries they serve. • Yum! Brands, home of KFC, Taco Bell and Pizza Hut, learned that food preferences differ all around the world. 3 -27

TIME to MAKE the DONUTS… LO 3 -3 Dunkin’ Donuts Flavors in Taiwan • Sweet Potato • Honeydew Melon • Green Apple • Kiwi Fruit • Mango • Pineapple Photo Credit: Dennis Yang • Strawberry • Corn Crumb Soft Rice Cake Source: World Features Syndicate. 3 -28

MCDONALD’S: OVER 100 CULTURES SERVED • Mc. Donald’s has more than 34, 000 restaurants in over 118 countries. • Maintains varying menus around the world due to the different preferences of its customers. • Attracts top-level college graduates to be trained for management spots. • Only 8 of every 1, 000 applicants actually makes it into the program! 3 -29