Chap003

Doing Business in

Global Markets

Chapter 03

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

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.

LEARNING GOALSChapter Three

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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.

LEARNING GOALSChapter Three

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Profile

• China has the world’s largest media market, but much remains controlled by the state.

• Lan attracts 200 million daily viewers and has interviewed some of the world’s most famous people.

• Lan used her media clout to create a media empire, despite struggles.

YANG LANCo-Founder and Chair of Sun Media Group

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We franchise 37,000 of our KFC, Taco Bell and Pizza Hut restaurants in 109 countries around the world. We found in Japan that a favorite pizza enjoyed by our patrons was topped with squid and sweet mayonnaise. In China it’s a must to serve a “dragon twister” with our chicken.

Name that company!

NAME that COMPANYChapter Three

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The Dynamic Global Market

• 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.

BUSINESS in the GLOBAL MARKETLG1

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The Dynamic Global Market WORLD POPULATION

by CONTINENTLG1

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The Dynamic Global Market

• Importing -- Buying products from another country.

• Exporting -- Selling products to another country.

• The U.S. is the largest importing and the third largest exporting nation in the world.

IMPORTING and EXPORTINGLG1

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Source: Forbes, September 27, 2010.

The Dynamic Global Market PLEASURE DOING BUSINESS

Best Countries for BusinessLG1

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Source: Forbes, www.forbes.com, June 2011.

• U.S. – 412 billionaires

• China – 115 billionaires

• Russia – 101 billionaires

• India – 55 billionaires

• Germany – 52 billionaires

• U.K. – 32 billionaires

• Canada – 22 billionaires

The Dynamic Global Market CAN YOU SPARE a DIME?

Home Countries for Some of the World’s BillionairesLG1

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Why Trade With Other Nations?

• 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.

TRADING with OTHER NATIONSLG1

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Source: Bloomberg Businessweek, November 22, 2011.

HOW EXPORTS AFFECT the GDP

Why Trade With Other Nations?

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Source: Bloomberg Businessweek, November 22, 2011.

HOW EXPORTS AFFECT the GDP

Why Trade With Other Nations?

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Source: Bloomberg Businessweek, November 22, 2011.

HOW EXPORTS AFFECT the GDP

Why Trade With Other Nations?

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Source: The World Bank, June 2011.

Global trade has led the world in a new direction:

• Literacy rates worldwide have increased from 56% in 1950 to 89% in 2011.

• Life expectancy in less developed areas rose from 40.9 years in 1950 to 69 years in 2011.

HOW FREE TRADE BENEFITS the WORLD

Why Trade With Other Nations?

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The Theories of Comparative and Absolute Advantage

• 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.

COMPARATIVE and ABSOLUTE ADVANTAGELG1

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Getting Involved in Global Trade

• 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.

GOING GLOBAL with a SMALL BUSINESSLG2

• President Obama wants small businesses to help double exports by 2015.

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Source: HuffPost Business, March 2, 2011.

Getting Involved in Global Trade WHOM DOES the U.S. OWE?

Countries that Own the Most U.S. DebtLG2

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• Jordan Kassalow visited Mexico and saw how the lack of eyeglasses affected the local workers.

• He founded VisionSpring, part charity and part franchisor, with a partner.

• VisionSpring employs mostly women needing additional income. They buy glasses from VisionSpring and then sell them to locals.

• This gives eyesight to those who need it and stimulates the local economy.

A SMALL BUSINESS with a BIG VISION

(Spotlight on Small Business)

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Importing Goods and Services

• 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.

GETTING INVOLVED in IMPORTINGLG2

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Exporting Goods and Services

• 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.

GETTING INVOLVED in EXPORTINGLG2

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Measuring Global Trade

• 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.

HOW to

MEASURE

GLOBAL

TRADE

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Measuring Global Trade

• 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.

BALANCE of PAYMENTSLG2

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Measuring Global Trade

• 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.

UNFAIR TRADE PRACTICES LG2

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Progress Assessment

• What are two of the main arguments favoring the expansion of U.S. businesses into global markets?

• What’s comparative advantage, and what are some examples of this concept at work in global markets?

• How are a nation’s balance of trade and balance of payments determined?

• What’s meant by dumping in global trade?

PROGRESS ASSESSMENT

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Strategies for Reaching Global Markets

Least Amount of commitment, control, risk and profit potential Most

Licensing Exporting FranchisingContract

Manufacturing

International joint ventures and strategic

alliances

Foreign direct

investment

KEY STRATEGIES for REACHING GLOBAL MARKETSLG3

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Licensing

LICENSING

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Exporting

• 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.

EXPORT ASSISTANCE CENTERS and EXPORT TRADING CENTERSLG3

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Franchising

• 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.

FRANCHISING

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Franchising

Source: World Features Syndicate.

• Sweet Potato• Honeydew Melon• Green Apple• Kiwi Fruit• Mango• Pineapple• Strawberry• Corn Crumb Soft Rice Cake

TIME to MAKE the DONUTS…Dunkin’ Donuts Flavors in Taiwan

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Photo Courtesy of: Dennis Yang

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• McDonald’s has more than 32,000 restaurants in over 117 countries.

• Maintains varying menus around the world due to the different preferences of its customers.

GOLDEN ARCHES GLOWING ACROSS the GLOBE

(Reaching Beyond Our Borders)

• Attracts top-level college graduates to be trained for management spots.

• Only 8 of every 1,000 applicants actually makes it into the program!

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Franchising

Source: McDonalds, www.mcdonalds.com, June 2011.

• Malaysia: Bubur Ayam McD – Chicken strips in porridge with onions, ginger, and shallots.

• Egypt: Mcarabia – Grilled chicken with tehina sauces, lettuce, tomato and onion on Arabic bread.

• Japan: Teritama – Teriyaki burger topped with an egg.

• Germany: Want a beer with your burger? You can order one in the German stores.

• Israel: Operates using Kosher kitchens.

THAT’S at MCDONALD’S?LG3

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Contract Manufacturing CONTRACT MANUFACTURING

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International Joint Ventures and Strategic Alliances JOINT VENTURES

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International Joint Ventures and Strategic Alliances

• Strategic Alliance -- A long-term partnership between two or more companies established to help each company build competitive market advantages.

STRATEGIC ALLIANCESLG3

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Foreign Direct Investment FOREIGN DIRECT INVESTMENT

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Foreign Direct Investment

• Multinational Corporation -- A company that manufactures and markets products in many different countries and has multinational stock ownership and management.

• Not all large global businesses are multinational.

• Only firms that have manufacturing capacity or some other physical presence in different nations can truly be multinational.

MULTINATIONAL CORPORATIONSLG3

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Foreign Direct Investment SOVEREIGN WEALTH FUNDS

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Progress Assessment

• What are the advantages of using licensing as a method of entry in global markets? What are the disadvantages?

• What services are usually provided by an export-trading company?

• What’s the key difference between a joint venture and a strategic alliance?

• What makes a company a multinational corporation?

PROGRESS ASSESSMENT

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Forces Affecting Trading in Global Markets

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Socio-cultural Forces CULTURAL DIFFERENCES

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Socio-culturalForces

• Braniff Airlines’ slogan "Fly in leather” translated in Spanish as "Fly naked.”

• Siri, Apple’s new digital assistant on iPhone 4S, is a common slang term for “butt” in Japanese.

• In Italy, Schweppes Tonic Water was mistaken as Schweppes Toilet Water.

• Nokia’s line of Lumia phones is Spanish for “prostitute.”

LOST in TRANSLATIONAdvertisements Gone Wrong

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Socio-culturalForces READY to TRAVEL ABROAD?

Know Your Cultural Differences

• In Turkey, it’s rude to cross your arms while facing someone.

• In many Middle Eastern countries, you shouldn’t eat or shake hands with the left hand because it is considered unclean.

• In India, you should never pat anyone’s head. It’s where one’s soul is kept.

• In Brazil, your meeting may not start on time because punctuality isn’t important to the culture.

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Socio-culturalForces DO as the GERMANS…

How to Not Embarrass Yourself in Germany

• Always use titles like Doctor, Frau, or Herr.

• Always provide food and drinks for your birthday.

• Don’t remove your jacket until your host does.

• Wear conservative business attire, anything else is considered sloppy.

• Never jaywalk.

• Always keep your hands on the table when eating.

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Economic and Financial Forces EXCHANGE RATES

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Economic and Financial Forces DEVALUATION and

COUNTERTRADINGLG4

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Legal and Regulatory Forces LEGAL CONCERNS OVERSEAS

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Physical and Environmental Forces

ENVIRONMENTAL FORCESLG4

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Progress Assessment

• What are four major hurdles to successful global trade?

• What does ethnocentricity mean and how can it affect global success?

• How would a low value of the dollar affect U.S. exports?

• What does the Foreign Corrupt Practices Act prohibit?

PROGRESS ASSESSMENT

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Trade Protectionism TRADE PROTECTIONISM

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Trade Protectionism TARIFFS

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Trade Protectionism IMPORT QUOTAS and EMBARGOS

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The World Trade Organization WORLD TRADE ORGANIZATION

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Common Markets COMMON MARKETS

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Common Markets EU MEMBERS

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The North American and Central American Free Trade Agreements

NAFTALG5

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CAFTALG5

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The North American and Central American Free Trade Agreements

NEW FREE TRADE AGREEMENTSLG5

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The North American and Central American Free Trade Agreements

Progress Assessment

• What are the advantages and disadvantages of trade protectionism and of tariffs?

• What’s the primary purpose of the WTO?

• What’s the key objective of a common market like the EU?

• Which three nations comprise NAFTA?

PROGRESS ASSESSMENT

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The Future of Global Trade FUTURE of GLOBAL TRADE

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The Challenge of Offshore Outsourcing OUTSOURCING

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Photo Courtesy of: Vitor Lima

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• Some insurance companies encourage patients to seek medical care in foreign countries.

• Procedures are cheaper and involve top-flight doctors at state-of-the-art facilities.

• Would it be ethical to force patients to travel to other countries to save money?

SEE the SIGHTS, MEET the DOCTORS

(Making Ethical Decisions)

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Globalizationand Your Future

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Progress Assessment

• What are the major threats to doing business in global markets?

• What key challenges must India and Russia face before becoming global economic leaders?

• What does the acronym BRIC stand for?

• What are the two primary concerns about offshore outsourcing?

PROGRESS ASSESSMENT

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