Global Analysis Chapter 4 Nature of International Trade

Global Analysis Chapter 4

Nature of International Trade • What are some items you have seen that were made or manufactured in some other country? • Marketplace existence – The need for trade • International trade – The exchange of G’s & S’s among nations – Imports • Purchased from other countries – Exports • Sold to other countries – Controlled by the governments involved

Interdependence of Nations • Write down 1 commodity that you believe we generally purchase as an import. – Top Imports – Why have imports? • Unique resources and capabilities • Absolute advantage – Occurs when a country has natural resources or talents that allow it to produce an item at the lowest cost possible » China – produces 80% of all silk = absolute advantage • Comparative advantage – The value that a nation gains by selling what it produces most efficiently » Well suited for their country – low skilled labor? ? ?

Benefits of International Trade • Consumers • Producers • Workers • Nations • Competition that the foreign companies offer – encourages highquality and low prices • Producers can expand by conducting operations in other countries – 1/3 of profit of US businesses • Can lead to higher employment rates home and abroad – Toyota = over 50 million jobs in US • Nations benefit due to increased foreign investment = increased standard of living and options

Government Involvement of International Trade • All nations control and monitor their trade • United States – Monitors imports through the customs division of the U. S. Treasury Department – Imports subject to search and review – Exports (and international traveling) must meet customs requirements

Government Involvement of International Trade • Balance of Trade – The difference in value between exports and imports of a nation (AKA Net exports) – Positive Balance of Trade = Surplus – Negative Balance of Trade = Deficit • US = largest exporter AND large trade deficit • Consequences – Reduction in GDP – Debt – Increased unemployment – To survive, US relies on foreign investors to buy US Securities

Government Involvement of International Trade: Trade Barriers Free trade is favored; however, barriers are placed to limit trade Tariff Quota Embargo • AKA duty • A tax on imports • Used to produce revenue • Minimal in US • Limits quantity or value of a product that may be imported • Purpose: to control quantity imported for domestic competition • Also can be used strategically to improve relations (limit exports) • Total ban on specific goods coming in or out • US embargoed Chilean grapes in 1989 (1 wk) • Political differences • US lifted its 30 year embargo with Vietnam in 1994 Protective tariff • Generally high • Purpose: to increase price of imports for domestic competition • Protectionism • Restriction of imports in order to protect domestic industries • Subsidies • Gov’t funds to industries to compete • Most noted: agriculture • Excess to export at low cost

Government Involvement of International Trade: Trade Agreements and Alliances Governments make agreements with each other to establish guidelines World Trade Organization (WTO) North American Free Trade Agreement (NAFTA) European Union (EU) • Coalition of nations that makes rules governing international trade • WTO was created to police the agreements by GATT (General Agreement on Tariffs and Trade) • Supporters believe globalization and expansion of trade increased wealth • Maintained and expanded through a borderless economy • Minimizing trade wars • Critics are concerned with democracy, labor rights, environment • An international trade • Created to establish agreement among the US, free trade among Canada, and Mexico member nations, • Main goal: get rid of all single currency trade barriers and (Euro), and a central investment restrictions bank among the three by 2009 • Everything that the • Canada and Mexico were EU does is founded top purchasers of US on treaties, exports in 2010 (32. 2%) voluntarily and • Canada and Mexico were democratically 2 nd & 3 rd top importers to agreed by all US in 2010 (26. 5%) member countries.

Review 1. Explain the nature of international trade 2. What are the two key reasons why embargoes are imposed? 3. What is the common goal or purpose of the WTO, NAFTA, and the EU trade agreements

Global Environmental Scan • Environmental scan involves looking at the outside influences that may have an impact on an organization. – (PEST) – How would you use those factors to evaluate a country’s marketing opportunities and threats?

PEST Political Factors – Government stability • Changes in the government=reluctant investors – Madagascar – Trade regulations and laws • Reduced tariffs, laws to protect intellectual property, increase in percentage of business ownership allowed by foreign investors – China

PEST Economic Factors • Infrastructure – Telephone service, roads, energy plants, telecommunication • Bad for some companies, good for others? • Labor Force – Quality and cost of labor: education and skills, customary wages, employment laws • Employee Benefits – Most countries require companies to provide/pay

PEST Economic Factors • Taxes – On property and profit (reduced for a specified time? ) • Standard of Living – Income to sustain the company (products) • Foreign Exchange Rate – Changes daily

PEST Socio-cultural Factors • Cross cultural analysis − Language and symbols − Differences in language and customs, symbols − China: 4=Death, sets of 6 or 8 instead − Holidays and Religious Observances − India= Cow is sacred – Mc. Donald’s − Social and Business Etiquette − Gift giving expectations vs. illegal

PEST Technological Factors • Most basic (voltage) to high tech – Country Profiles – World Factbook – Baidu vs. Google

Global Marketing Strategies • In planning and making decisions about the marketing mix, global marketers need to consider all the factors analyzed for the environmental scan (PEST) • Globalization – Selling the same product and using the same promotion methods in all countries • Small portion can get away with this = global brand recognition (Coke, MS) • Adaptation • Customization

Chapter 5 Supply and Demand

Demand Supply • P = Price • Qd = Quantity Demanded • Qs= Quantity Supplied Where is the equilibrium point?

Price and Quantity on Y and X axis

Equilibrium: Supply and Demand Graphed

Demand Supply • Full curve is considered Demand and/or Supply. Each point is considered the quantity demanded or quantity supplied at that particular price.

Non-Price Determinants Demand • • • Number of buyers Tastes and Preferences Income Complementary Substitutes Future Expectations Supply • • • Number of Suppliers Input prices Future Expectations Technology Taxes and Subsidies Weather conditions (as appropriate)

Decrease in Demand

Increase in Demand

Increase in Supply

Decrease in Supply

What curves and what changes would the following cause? 1. Increase in number of competitors in an area 2. Increase in number of buyers of hotdogs in the hotdog roll market 3. Advertising increase in a competitors good (semi-equal substitute) 4. Freezing conditions in the south affecting orange crops 5. Income rises affecting the market for luxury cars 6. Increase of the cost of wood affecting the market for building sheds 7. Subsidy provided for wheat affecting the bread market 8. Price of oil goes down affecting the market for gasoline