Day 3

Unit #3:Day 3

Opening Activity• Please read the handout about

McDonald’s commitment to the communities it operates in

– The handout is on the table by the front door

– I will collect it later

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Today’s Questions?

1. What are challenges & opportunities faced by McDonald’s?

2. What are actions governments can take to encourage international trade?

3. What are international trade barriers countries can impose?

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Presentations• Volunteers• Agenda

– Take some notes– Look at other companies & see you

they have addressing or are currently dealing with similar challenges• International Expansion/Trade• Marketing• Domestic Business Operations

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Encouraging International Trade• Government actions can promote international

business activities• Why?

– Governments view exporting as an effective way to create jobs an foster economic prosperity

• Common efforts to encourage international trade include:

1. Free-trade zones2. Free-trade agreements3. Common markets

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Encouraging International Trade1. Free-trade zone

• A selected area where products can be imported duty-free and then stored, assembled, and/or used in manufacturing

2. Free-trade agreements• Countries set up with one another in which they agree to remove duties

and trade barriers on products traded among them• Example: North America Free Trade Agreement (NAFTA)

3. Common markets• Members do away with duties and other trade barriers

• Allow companies to invest freely in each member’s country• Allow workers to move freely across borders

• The goals are to expand trade among member nations and promote regional economic integration

• Example: European Union (EU)

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International Trade Barriers• Government actions can create trade barriers

which are restrictions to free trade

• Why?– Want to protect domestic industries– These political actions are formal trade barriers

1. Quotas

2. Tariffs

3. Embargos

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International Trade: Formal Trade Barriers1. Quotas

• Government set limit on the quantity of a product that may be imported or exported within a given period

• Why may be set?• Countries that export oil may put quotas on crude oil so

that the supply will remain low and prices will stay at a certain level

• May be set on imports from another country to express displeasure at the policies of that country

• To protect one of its industries from too much competition from abroad• U.S. government in the past has imposed quotas on sugar,

cattle, dairy products and textiles

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International Trade: Formal Trade Barriers

2. Tariffs• A tax that a government places on certain imported

products• A tariff increases the price for an imported product

• A high tariff tends to lower the demand for the product and reduce the quantity of that import

• Example• Suppose you want to buy a Chinese made bicycle which

has a cost of $140

• The U.S. government imposes a 20% tariff

• The bike will now cost you $168• $140 * 1.20 = $168

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International Trade: Formal Trade Barriers

3. Embargos• A government order to stop the export or import of

a product completely• Why may be set?

• To protect one of its industries from international competition more than either a quota or tariff will achieve

• The government may wish to prevent sensitive products from falling into the hands of unfriendly groups or nations

• To express its disapproval of the actions or policies of another country• E.g., U.S. embargo with Cuba

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International Trade Barriers• Does McDonald’s have to deal with formal

trade barriers?– Yes, to a little extent but bigger problem are the

informal trade barriers as they expand abroad– Examples:

• Culture

• Traditions

• Religion

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International Trade: Informal Trade Barriers

• The culture, traditions and religion of a country can create informal trade barriers

– These situations are not based on formal government actions but they do restrict trade

• Read the article Appreciating Cultural Differences Makes Good Business Sense

– I will need it back

• Review foreign branding faux pas

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Foreign Branding Faux Pas1. Clairol’s “Mist Stick” curling iron marketed in Germany – “mist”

is German slang for manure2. Schweppes Tonic Water translated into “Schweppes Toilet Water”

in Italy3. Chevy’s Nova car in Spanish means “No go” 4. Coors’ slogan “Turn it loose” in Spanish means “Suffer from

diarrhea”5. Parker ball-point pen marketed in Mexico had a slogan “It won’t

leak in your pocket and embarrass you” that translated into “It won’t leak in your pocket and make you pregnant”

6. “Come alive with the Pepsi Generation” in Chinese translated to: “Pepsi brings your ancestors back from the grave”

7. Gerber sold baby food in Africa with the same packaging as used in the U.S. featuring a beautiful baby on the label. Since most Africans cannot read English, the companies there put pictures of what is inside on the label!

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International Trade: Informal Trade Barriers

• Watch clip about Wal-Mart’s entrance in China

– Think about what they learned & adjustments in their business practices they had to make

– Reactions?

Point: Firms cannot impart/duplicate their Western ways on foreign customers

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How Other Companies Address Challenges• Marketing

– Watch clip on how Coke adapts advertising to current political and social climate

– Coke’s slogans over the years• http://www.tvacres.com/adslogans_c.htm

– Reaction?• Did you realize there were this many?

– How about McDonald’s advertising, has it changed over time?

• http://www.tvacres.com/adslogans_m.htm

Point: Firms have to adapt to changing times to be

relevant to their customer

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How Other Companies Address Challenges• Domestic Business Operations

– Watch clip on how Wal-Mart is able to sell products at low prices

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How Other Companies Address Challenges• Domestic Business Operations

– Reaction?– Changed the manufacturer & retailer relationship

• Push strategy: Mftrs. decide what to produce

• Pull strategy: Retailers decide what to sell

– Not without controversy• Lost jobs/shifting production to the lowest cost producer

Point: Firms need to establish their core competency

& continue to find ways to deliver it

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Today’s Questions Wrap-Up 1. What are some challenges & opportunities

facing McDonald’s?2. What are actions governments can take to

encourage international trade?• Free-trade zones, free-trade agreements,

common markets

3. What are international trade barriers countries can impose?

• Formal: Quotas, tariffs and embargos• Informal: Culture, tradition and religion

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Homework • Next class going to analyze Nike• Compare three (3) challenges Nike faces to the

those of McDonald’s, Wal-Mart and Coke• Responses must be typed and use following

format:

How MCD How WMT How KONike’s Challenge would respond? would respond? would

respond?#1#2#3

Unit #3:Day 3

Today’s Questions? The Competitive, Political, Social, Economic and International

Environment

1. What are imports and exports?2. What is the trade balance?3. What must a business consider when doing

business internationally?4. http://www.youtube.com/watch?v=lHDgYH

NokmE

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Trade with Other Nations • Why do so?

– Our economy cannot provide all the goods consumers want– Additional markets/consumers to sell our goods to

• Imports– Goods & services that U.S. companies buy from other countries

• Exports– Goods & services that U.S. companies sell to other countries

• Balance of trade = difference between exports & imports– Positive/Surplus = Exports > Imports– Negative/Deficit = Imports > Exports

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Trade with Other Nations

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Trade with Other Nations

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Can anything stop the Chinese export machine? In August the mainland's trade surplus hit $18.8 billion -- the fourth straight month with a record-setting gap. For the year to date, the surplus stands at

$94.7 billion, 57% ahead of a year ago. Although China's imports jumped to a record $72 billion, exports surged nearly a third to -- yes, another record -- $90.8 billion. And much of that gap can be attributed to the vast quantities of goods shipped to eager American consumers.

For the year, China's exports to the U.S. look set to approach $300 billion, up from $243 billion in 2005.

Just what are Americans buying? Numbers won't be available until 2007, but it's a safe bet that gizmos such as TVs and iPods were

popular. U.S. Commerce Dept. data show that electronic gear was the largest category of imports from China last year. That's a big change from a decade ago, when low-tech manufactured goods dominated.

Below, the true scope of America's imports from China.

Trade with China

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Unit #3:Day 3

Trade with Other Nations

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Doing Business Internationally• Another challenge faced by businesses involved in

international trade is the various currencies used around the world

• Examples:– Russia uses the rubble– EU uses the euro– Great Britain the pound– Japan the yen

• Firms doing business internationally need to pay for the goods or services with the local currency

– i.e., currencies need to be exchanged

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International Currencies • Exchange rate

– Value of a currency in one country compared with the value in another– http://www.xe.com/ucc/

• Exchange rates, the relative values of two currencies, affect the prices of products

– Example: $1 US = 1.06 euros; 1 euro = $0.94– Strong dollar

• $1 US = 1.15 euros; 1 euro = $0.86• Makes our exports more expensive in foreign countries; imports are cheaper

– Weak dollar• $1 US = 1.01 euros; 1 euro = $0.98• Makes our exports cheaper in foreign countries; imports are

now more expensive

Unit #3:Day 3

Stock Research Project • Individual project• Choose two stocks you would recommend

– One to buy– One to short sell

• Complete stock research report for each stock & present your recommendations to the class

– Will be evaluated on your analysis and ability to defend your recommendations

• 1 presentation will be given each class period moving forward

• You need to pick a presentation date and your stocks– No duplicate stock recommendations will be allowed

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Stock Research Project • Short selling

– Take a pessimistic view– Make money if the stock goes down

• Borrow shares from a broker & replace them (cover) at a lower price

– Very risky: Potential loss is limitless– Look at an example

• Build A Bear (BBW)

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Today’s Questions? The Competitive, Political, Social, Economic and International

Environment 1. What are imports and exports?

– Imports: Goods & services that U.S. companies buy from other countries

– Exports: Goods & services that U.S. companies sell to other countries

2. What is the trade balance?– Dollar value/Difference between a country’s exports and imports

3. What must a business consider when doing business internationally?

– Government regulations, cultural differences and foreign currencies

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Labor Production Costs

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GAP Inc. • Why don’t you pay factory workers more?

Workers’ wages are determined by law and the factory that employs them. As one of many customers of a factory, we negotiate prices for finished products. However, our Code of Vendor Conduct clearly requires that factories pay workers the local legal minimum, or prevailing industry wage, whichever is higher. We actively monitor payment of wages to ensure that workers are consistently being paid the wages they are entitled to for the hours they’ve worked, including overtime. In instances where we've discovered non-compliance, we have forced payment of back wages and required factories to improve record keeping. To earn and keep our business, factories must compensate workers appropriately for all hours worked.

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Nike

• http://www.nike.com/nikebiz/gc/mp/pdf/disclosure_list_2005-06.pdf

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Stock Research Project • Selecting stocks – What can you look at when

choosing your picks?– Company/industry news– Product you use/believe in– Market leader or a up and comer– Fundamental & Technical analysis

1. Earnings per share (EPS)

2. Price to earnings ratio (PE)

3. Financial statements

4. Moving averages

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Stock Research Project • www.fidelity.com/tradingknowledgecenter

– Trading Knowledge Center

• Going to go to computer lab to work on project

• Investigate some stocks you would be interested in researching

• We will spend time on this project next class and I will go over more technical specifics