Managing International Business – due in 16 hours
Chapter 3 Managing International Business
DUE IN 16 HOURS
MANAGING INTERNATIONAL BUSINESS ACROSS BUSINESS FUNCTIONS
When a firm plans to conduct business in a foreign country, it should request input from its managers across various departments. The production managers may assess a country according to the expenses associated with production and therefore may focus on the following :
- What is the cost of hiring the necessary labor?
- What is the cost of developing a new facility?
- What is the cost of purchasing an existing facility?
- Does the country have access to the necessary materials and technology?
- What is the foreign demand for the firm’s product?
- What is the cost of marketing the product in that country?
- Is it possible to obtain a local loan in that country?
- What is the interest rate charged on local loans?
With these questions in mind choose one of the products below to determine if this product based out of the United States has a chance of becoming successful in the country that it is listed with it.
- Electronics/Japan
- Wine/France
- Automobiles/Germany
- Clothing/China
EXAMPLE:
There is no example for this assignment.
ASSIGNMENT:
Illustrate the current demand for the product and why.
Show how that demand would withstand a different culture as of the one of the country and product you have chosen.
How would you market the product to this new market?
Utilize the internet, textbook, magazines, and publications to supply information for your answers.
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Doing Business in Global Markets
Chapter Three
Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
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Profile
First female foreign trade minister of the United Arab Emirates (UAE).
Adapts her personal communication processes to match the culture of the people with whom she is interacting.
SHEIKA LUBNA AL-QUASIMI
Foreign Trade Minister of the UAE
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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, the NFL and the NBA) are also expanding abroad.
BUSINESS in the
GLOBAL MARKET
LG1
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See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
1. The U.S. is a market of over 300 million potential customers, but the world market is over 6.7 billion.
2. It is easy for student’s in the United States to lose sight of the importance of the global market. This slide helps them see that the international marketplace offers businesses opportunities due to the size of the market. Companies like Procter & Gamble and Wal-Mart have found the international market offers opportunities for additional revenue growth.
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The Dynamic Global Market
LG1
WORLD POPULATION
by CONTINENT
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See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
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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 second largest exporting nation in the world.
IMPORTING and EXPORTING
LG1
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See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
Germany is the largest exporting nation. China is barely behind the U.S.
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Source: World Features Syndicate and Interbrand.com.
U.S. – 51 brands
Germany – 9 brands
Japan – 8 brands
France – 8 brands
U.K. – 6 brands
Switzerland – 5 brands
The Dynamic Global Market
WHERE ARE THEY FROM?
Countries of Origin for World’s Most Powerful Brands
LG1
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See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
Where Are They From?
A large percentage of the world’s most powerful brands originate from the U.S.
Ask students: What creates a powerful brand? What brands are the most powerful?
Why do the majority of powerful brands trace their origin to the U.S.? (Since the United States has the largest economy in the world brands tend to originate there due to consumer demand.)
Some Top Brands:
USA – Coca-Cola, IBM, Microsoft, Disney, McDonald’s and Apple
Germany – Mercedes-Benz, BMW, Siemans and Adidas
Japan – Toyota, Honda, Sony, Canon and Nintendo
France – Louis Vuitton, L’Oreal, AXA and Chanel
U.K. – Burberry, Reuters, BP and HSBC
Switzerland – Nescafe, Rolex, UBS, Nestle and Cartier
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Source: Forbes, www.forbes.com, March 30, 2009.
U.S. – 359 billionaires
Germany – 54 billionaires
Russia – 32 billionaires
China – 28 billionaires
India – 24 billionaires
U.K. – 25 billionaires
Canada – 20 billionaires
The Dynamic Global Market
CAN YOU SPARE a DIME?
Home Countries for Some of the World’s Billionaires
LG1
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See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
Can You Spare a DIME?
The United States has the most billionaires in the world.
Ask students: Why does the United States have more billionaires than any other country in the world? (There are many reasons why this is true. We have a larger population than some of the other countries on the slide, so it would stand to reason that we would have more billionaires than those countries. However, some of the countries listed have a larger population than the United States, namely India and China. In the United States there is less regulation on businesses and wages/salaries are much higher.)
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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 NATIONS
LG1
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See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
No nation can produce all the products its people want and need.
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Source: The Progressive Policy Institute, World Health Organization .
Global trade has led the world in a new direction:
Literacy rates worldwide have increased from 56% in 1950 to 84% in 2006.
Life expectancy in less developed areas rose from 40.9 years in 1950 to 70.1 years in 2006.
HOW FREE TRADE
BENEFITS the WORLD
LG1
Why Trade With Other Nations?
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See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
How Free Trade Benefits the World
Often it is difficult for students to see how world trade has improved the living conditions of millions of the world’s poorest individuals.
This slide shows some of the improvement in literacy rates and life expectancy since 1950. These improvements in the standard of living can be somewhat attributed to free trade.
From The Economist January 26, 2008 print edition: twenty-five years ago two-thirds of the population or 600 million people were living in extreme poverty (on less than $1 a day). Now, the number living on $1 a day is below 180 million and yet the world’s population has increased.
To start a discussion ask the students: Why has China been able to improve the living conditions of so many of its citizens in the last twenty-five years? (More liberal economic policies have led to greater economic growth and an increase in the standard of living for individuals)
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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.
LG1
COMPARATIVE and ABSOLUTE
ADVANTAGE
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See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
David Ricardo expanded on Adam Smith’s theory of absolute advantage with the theory of comparative advantage. This theory can be difficult for students to grasp. A country should produce only what it can produce efficiently buying what it cannot produce as efficiently. This theory of international trade along with Adam Smith’s Theory of Absolute Advantage have been guiding tenets of international trade since the late 1700s.
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Getting Involved in Global Trade
Small businesses may be the key in global job growth.
They make up almost half of the private sector.
Only 30% of small businesses export.
By 2018, it’s expected half of small businesses will export.
GOING GLOBAL with a
SMALL BUSINESS
LG2
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See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
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Source: Investor’s Business Daily, www.investors.com, June 30, 2008.
Getting Involved in Global Trade
WHERE DO THEY INVEST?
Leading Destinations for Foreign Investors
LG2
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See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
Where Do Foreigners Invest?
Foreign Direct Investment in the process in which a company in one country buys the assets located in another country.
This table shows students the leading destinations for foreign investors.
Ask students: How is foreign direct investment in China a sign of investor confidence? (Foreign direct investment in China is a sign of confidence in the Chinese political and economic structure. When investors make an investment they careful weigh the risk and reward.)
Chart1
U.S. U.S.
China China
U.K. U.K.
Germany Germany
Russia Russia
India India
2008
2014
0.27
0.23
0.17
0.24
0.14
0
0.13
0
0
0.19
0
0.18
Sheet1
2008 2014 Series 3
U.S. 27% 23% 2
China 17% 24% 2
U.K. 14% 0 3
Germany 13% 0 5
Russia 0% 19%
India 0% 18%
To resize chart data range, drag lower right corner of range.
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Source: U.S. Dept. of Treasury, www.treas.gov, January 31, 2009.
Getting Involved in Global Trade
WHO DOES the U.S. OWE?
Countries that Own the Most U.S. Debt
LG2
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See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
Who Does the U.S. Owe
1. As the world’s largest debtor nation the United States relies on other countries purchasing debt as an investment.
2. OPEC Nations include: Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, U.A.E., Venezuela.
3. Ask students: What are the ramification of U.S. indebtedness on its population? (Answers to this question will vary but may include: lost sovereignty, weakening of the U.S. dollar and a loss of purchasing power as import prices rise, inflation and an increase in taxes.)
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Chart1
China
Japan
OPEC Nations
Brazil
U.K.
In $ Billions
739
634
186
134
124
Sheet1
In $ Billions Series 2 Series 3
China 739 2.4 2
Japan 634 4.4 2
OPEC Nations 186 1.8 3
Brazil 134 2.8 5
U.K. 124
To resize chart data range, drag lower right corner of range.
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Importing Goods and Services
Starbucks CEO, Howard Shultz, found his importing opportunity in Italy. He transformed a coffee shop in Seattle to mimic the European cafes.
LG2
GETTING INVOLVED in
GLOBAL TRADE
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See Learning Goal 2: Explain the importance of importing and exporting, and understand key terms used in global business.
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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 20,000 U.S. jobs.
LG2
GETTING INVOLVED in
EXPORTING
3-*
See Learning Goal 2: Explain the importance of importing and exporting, and understand key terms used in global business.
One Web site that can be bring a lecture on exporting alive is http://tse.export.gov. The TradeStats Express website is presented by the U.S. Commerce Department and gives students a look at any number of statistics on exporting. One example that may surprise students is that snow plows/blowers have been sold in Middle Eastern countries, like Saudi Arabia. They are used to clear sand from driveways.
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MFG.com is an online exchange for manufacturers and suppliers.
Growing numbers of Chinese manufacturers began visiting the site.
MFG staff had to learn about the Chinese business culture.
China now accounts for 11% of MFG.com’s revenue.
FINDING CRACKS in the
GREAT WALL
(Spotlight on Small Business)
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See Learning Goal 2: Explain the importance of importing and exporting, and understand key terms used in global business.
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Measuring Global Trade
Balance of Trade — The total value of a nation’s exports compared to its imports measured over time.
Trade Surplus — When the value of a country’s exports is more than that of its imports.
Trade Deficit — When the value of a country’s exports is less than that of its imports.
HOW to MEASURE GLOBAL TRADE
LG2
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See Learning Goal 2: Explain the importance of importing and exporting, and understand key terms used in global business.
Currently, the United States maintains the largest trade deficit in the world.
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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 PAYMENTS
LG2
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See Learning Goal 2: Explain the importance of importing and exporting, and understand key terms used in global business.
Since 1975, the U.S. has bought more goods from other nations than it has sold and thus has a trade deficit.
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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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See Learning Goal 2: Explain the importance of importing and exporting, and understand key terms used in global business.
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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? 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
3-*
1) One major argument is the shear size of the global market; 6.7 billion people in the world are too large to ignore. Plus it’s hard for an economy, even one as large as the U.S. economy, to produce all the goods and services its citizens desire.
2) Comparative advantage theory was proposed by David Ricardo and simply states that a country should sell to other countries those products it produces most effectively and efficiently, and buy from other countries those products it cannot produce as effectively and efficiently. Examples include the U.S. producing goods and services such as software and engineering services and buying goods from other countries such as coffee and shoes from other nations.
3) The balance of trade is the difference in the total value of a nation’s exports compared to its imports. The balance of payments is the difference between money coming into a country (from exports) and money leaving the country (for imports) plus money flows coming into or leaving a country from other factors such as tourism, foreign aid, military expenditures, and foreign investment.
4) Dumping is the selling of products in foreign countries at lower prices than those charged in the producing country. This tactic is sometimes used to reduce surplus products in foreign markets or gain a foothold in a new market.
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Strategies for Reaching Global Markets
Least
Amount of commitment, control, risk and profit potential
Most
Licensing
Exporting
Franchising
Contract
Manufacturing
International joint ventures and strategic alliances
Foreign direct investment
LG3
KEY STRATEGIES for REACHING GLOBAL MARKETS
3-*
See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
When senior management elects to expand internationally, they have a wide range of options available to them. Such options range from licensing with the least risk all the way to foreign direct investment with the most risk. A few examples to be shared during this portion of the lecture include: Coca-Cola’s use of licensing, McDonald’s use of franchising, Nike’s use of contract manufacturing, Volkswagen’s joint venture in China and Toyota’s foreign direct investment in the United States.
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Licensing
LICENSING
LG3
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See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
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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.
LG3
EXPORT ASSISTANCE CENTERS
and EXPORT TRADING CENTERS
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See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
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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.
Pizza Hut and Dominos learned that pizza topping preferences differ all around the world.
FRANCHISING
LG3
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See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
The next few slides offer specific examples of how franchisors have adapted their products for various countries.
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Franchising
Source: World Features Syndicate.
Sweet Potato
Honeydew Melon
Corn Crumb Soft Rice Cake
Green Apple
Kiwi Fruit
Mango
Pineapple
Strawberry
TIME to MAKE the DONUTS…
Dunkin’ Donuts Flavors in Taiwan
LG3
3-*
See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
What’s on Your Donuts
Students should enjoy this slide. It shows the cultural influence with donuts preferences.
Ask the students: What type of donuts do they enjoy? Would they prefer sweet potato, or green apple, or mango on their donuts?
Ask the students: What modifications do companies need to make when they go to different countries like the ones shown in this slide? (Students should point out the need to understand and research the market and cultural/customer preferences and then offer what the customers want.)
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McDonald’s has more than 31,000 restaurants in over 118 countries.
Maintains varying menus around the world due to the different preferences of its customers.
Responds to challenges by funding research and adding healthier options.
The SUN NEVER SETS
on MICKEY D’S
(Reaching Beyond Our Borders)
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See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
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Franchising
Source: McDonalds, www.mcdonalds.com, March 2009.
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
3-*
See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
McDonald’s Items Worldwide
Per the company’s website. McDonald’s is a leader in franchising and the company operates in 118 different countries.
This slide gives students an insight into some of the changes McDonald’s has made to its menu when operating in the world market.
Ask students why the leading provider of American style fast-food adopted different menu items? (Like all successful companies, McDonald’s has adapted its menu to meet the different needs of its customers worldwide.)
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Contract Manufacturing
CONTRACT MANUFACTURING
LG3
3-*
See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
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International Joint Ventures and Strategic Alliance
JOINT VENTURES
LG3
3-*
See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
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International Joint Ventures and Strategic Alliance
STRATEGIC ALLIANCES
LG3
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See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
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Foreign Direct Investment
FOREIGN DIRECT INVESTMENT
LG3
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See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
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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 CORPORATIONS
LG3
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See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
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Foreign Direct Investment
SOVEREIGN WEALTH FUNDS
LG3
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See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
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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
3-*
The key advantages of using licensing as a method of entry are: A) A firm can often gain revenues in a market it would not have generated in its home market; B) Licensees must purchase start-up supplies and consulting services from the licensing firm; and C) Licensors spend little or no money to produce and market their products. Disadvantages to licensing include: A) If a product is extremely successful in another market the licensor does not receive the bulk of the revenues and B) If the foreign licensee learns the company’s technology and product secrets, it may break the agreement and begin producing similar products on its own.
2) Export trading companies provide such services as assistance in associating and establishing the desired trading relationships, matching buyers and sellers from different countries, and help dealing with foreign customs offices, documentation, and weights and measures.
3) A joint venture is a partnership between two or more companies whereby they undertake a major project. Joint ventures generally involve: A) sharing technology and risk; B) sharing marketing and management expertise; C) entry into markets where foreign companies are often not allowed unless goods are produced locally. In a strategic alliance partners do not share costs, risks, management, or even profits. The purpose is to gain advantages in building competitive market advantages.
4) A multinational corporation manufactures and markets products in many different countries and has multinational stock ownership and management. Only firms that have manufacturing capacity or other physical presence in other countries can be called multinational.
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Forces Affecting Trading in Global Markets
LG4
3-*
See Learning Goal 4: Evaluate the forces that affect trading in global markets.
What makes operating in the international environment more complex than operating only in the domestic market is the addition of new uncontrollable forces. Examples of these forces include: sociocultural, economic, financial, legal, regulatory, physical and environmental.
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Socio-cultural Forces
CULTURAL DIFFERENCES
LG4
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See Learning Goal 4: Evaluate the forces that affect trading in global markets.
A lack of cultural understanding can create problems with working in the international market. One book that provides numerous examples to share with students entitled Kiss, Bow or Shake Hands: How to Do Business in Sixty Countries . Never assume what works in one country will work in another.
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Socio-cultural
Forces
Braniff Airlines’ slogan “Fly in leather” translated in Spanish as “Fly naked.”
Gerber used their U.S. label – a cute baby – on African products. They found out that labels on African products picture what’s inside the package.
In Italy, Schweppes Tonic Water was mistaken as Schweppes Toilet Water.
LOST in TRANSLATION
Advertisements Gone Wrong
LG4
3-*
See Learning Goal 4: Evaluate the forces that affect trading in global markets.
Lost In Translation
1. Culture refers to the set of values, beliefs, rules, and institutions held by a specific group of people.
2. One of the basic elements of culture is language and language delineates cultures.
To operate successfully in the international marketplace, a company must never assume what works in one country will work in another.
To avoid the funny and sometimes disastrous advertisements listed above, shrewd marketers must use back translations. Back translation is a process in which the first translation is made by a bilingual native, the work will then be translated back by a bilingual foreigner to see how it compares with the original.
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Socio-cultural
Forces
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 their soul is kept.
In Brazil, your meeting may not start on time because punctuality isn’t important to the culture.
LG4
3-*
See Learning Goal 4: Evaluate the forces that affect trading in global markets.
Did you Know?
1. Some very fascinating cultural and social differences exist in other nations.
2. Discuss the following interesting points:
A smile in Japan can mean that a person is uncomfortable or sad.
When traveling to Sweden, make appointments two weeks in advance.
Lack of punctuality is a fact of life in Brazil. Become accustomed to waiting.
3. Review the following helpful hints when dealing globally:
a. Be culturally savvy. Learn about the culture, language, and dress code.
b. Recognize the importance of dealing with cultural differences and consequences of taking no action.
c. Manage and learn to appreciate various cultures.
d. Build a database of information about each country where you have business relationships.
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Economic and Financial Forces
EXCHANGE RATES
LG4
3-*
See Learning Goal 4: Evaluate the forces that affect trading in global markets.
The floating exchange rate system creates transaction risk. If the U.S. dollar is trading for more foreign currency it is said to be getting stronger. When the U.S. dollar is trading for less foreign currency it is said to be getting weaker. Since the breakdown of the Bretton Woods agreement in 1971, the value of the U.S. currency has generally trended downward versus major world currencies.
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Economic and Financial Forces
DEVALUATION and COUNTERTRADING
LG4
3-*
See Learning Goal 4: Evaluate the forces that affect trading in global markets.
One famous example of countertrading involved Pepsi and Russian vodka. Pepsi received the right to market Russian vodka in the United States as payment for Pepsi sold in Russia. More information on countertrading can be found at www.londoncountertrade.org.
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Legal and Regulatory Forces
LEGAL CONCERNS OVERSEAS
LG4
3-*
See Learning Goal 4: Evaluate the forces that affect trading in global markets.
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Physical and Environmental Forces
ENVIRONMENTAL FORCES
LG4
3-*
See Learning Goal 4: Evaluate the forces that affect trading in global markets.
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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
3-*
1) Four major hurdles to successful global trade are: sociocultural forces, economic and financial forces, legal and regulatory forces, and physical and environmental forces.
2) Ethnocentricity is an attitude that your nation’s culture is superior to other cultures. It can affect global trade because all nations are proud of their cultures and do not aspire to be like other countries. Thus it’s easy to offend potential customers by being ethnocentric.
3) A low value of the dollar would make U.S. exports cheaper in foreign markets and may lead to higher demand for U.S. products.
4) The Foreign Corrupt Practices Act prohibits “questionable” or “dubious” payments to foreign officials to secure business contracts. Other nations do not have to follow this law causing some disadvantages for U.S. businesses.
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Trade Protectionism
TRADE PROTECTIONISM
LG5
3-*
See Learning Goal 5: Debate the advantages and disadvantages of trade protectionism.
The Great Depression was exacerbated by the passage of the Glass-Steagall Act. The Glass-Steagall Act of 1933 raised the tariff rates on thousand of products imported into the United States. This led to other nations enacting similar protectionist measures effectively shutting down world trade. Many fear that the economic contraction the world is currently experiencing will lead to similar laws.
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Trade Protectionism
TARIFFS
LG5
3-*
See Learning Goal 5: Debate the advantages and disadvantages of trade protectionism.
While a tariff may end up raising revenue for the government it ultimately costs consumers more money in the long run. Due to tariff rates on the importation of sugar consumers in the United States end up paying close to 50 percent more for sugar than the rest of the world.
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Trade Protectionism
IMPORT QUOTAS and EMBARGOS
LG5
3-*
See Learning Goal 5: Debate the advantages and disadvantages of trade protectionism.
The United States also maintains an embargo against Iran and North Korea.
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The World Trade Organization
WORLD TRADE ORGANIZATION
LG5
3-*
See Learning Goal 5: Debate the advantages and disadvantages of trade protectionism.
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Common Markets
COMMON MARKETS
LG5
3-*
See Learning Goal 5: Debate the advantages and disadvantages of trade protectionism.
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The North American and Central American Free Trade Agreements
NAFTA
LG5
3-*
See Learning Goal 5: Debate the advantages and disadvantages of trade protectionism.
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The North American and Central American Free Trade Agreements
CAFTA
LG5
3-*
See Learning Goal 5: Debate the advantages and disadvantages of trade protectionism.
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The U.S. trade deficit with Mexico has increased.
There are positives though:
Trade with Canada and Mexico has nearly tripled since 1994.
Though manufacturing jobs are down, output has increased 54% in the U.S.
Though NAFTA has not delivered on all promises, it isn’t the major cause of our nation’s current economic state.
NAFTA or SHAFTA?
(Legal Briefcase)
3-*
See Learning Goal 5: Debate the advantages and disadvantages of trade protectionism.
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Progress Assessment
What are the advantages and disadvantages of trade protectionism and of tariffs?
What’s the primary purpose of the World Trade Organization (WTO)?
What’s the key objective of a common market like the EU?
Which three nations comprise NAFTA? Which nations comprise CAFTA?
PROGRESS ASSESSMENT
3-*
1) Trade protectionism is the use of government regulations to limit the import of goods and services. It can be a barrier to global trade. Trade protectionism often involves the use of tariffs or taxes on imported goods that makes them more expensive to buy. Protective tariffs can be an advantage to workers in certain industries since it makes the products they produce more cost competitive with imported products. American labor unions have sought certain protective tariffs. Revenue tariffs are designed as a source of revenue for the government. Most economists do not favor the use of tariffs instead are in favor of free trade.
2) The World Trade Organization (WTO) was established to mediate trade disputes among nations.
3) The purpose of a common market like the EU is to have common external tariffs, no internal tariff, and coordinate laws to facilitate exchange between member nations. This enables smaller nations to compete as a group against large economies like the United States, China, and Japan.
4) NAFTA is comprised of the United States, Canada, and Mexico. CAFTA is a free trade zone with the United States, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua.
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The Future of Global Trade
FUTURE of GLOBAL TRADE
LG6
3-*
See Learning Goal 6: Discuss the changing landscape of the global market and the issue of offshore outsourcing.
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The Challenge
of Offshore Outsourcing
OUTSOURCING
LG6
3-*
See Learning Goal 6: Discuss the changing landscape of the global market and the issue of offshore outsourcing.
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Source: Investor’s Business Daily, www.ibd.com, December 1, 2008.
The Challenge
of Offshore Outsourcing
ELECTRONICS MANUFACTURING AROUND the WORLD
LG6
3-*
See Learning Goal 6: Discuss the changing landscape of the global market and the issue of offshore outsourcing.
Electronics Manufacturing Around the World
Electronics manufacturing has spread around the world.
Students will be familiar with different types of electronics and the companies that manufacture these electronics.
Ask students why a large percentage of electronics are made in Asia? (Comparative advantage is the obvious answer) This question can be followed up with the question of why does Asia have this comparative advantage? (Labor cost, favorable trade policies and lack of regulation)
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Chart1
S. America
India & Central Asia
N. America
Europe
S.E. Asia
N. Asia
Rest of World
2008
0.128
0.038
0.04
0.291
0.076
0.416
0.011
Sheet1
2008
S. America 12.80%
India & Central Asia 3.80%
N. America 4%
Europe 29.10%
S.E. Asia 7.60%
N. Asia 41.60%
Rest of World 1.10%
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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?
TAKE TWO ASPIRIN and GO to THAILAND
(Making Ethical Decisions)
3-*
See Learning Goal 6: Discuss the changing landscape of the global market and the issue of offshore outsourcing.
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Globalization and Your Future
LG6
3-*
See Learning Goal 6: Discuss the changing landscape of the global market and the issue of offshore outsourcing.
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Progress Assessment
How has the Internet impacted doing business in global markets?
What are the economic risks of doing business in countries like China?
What might be some important factors that will have an impact on global trading?
What are the two primary concerns of offshore outsourcing?
PROGRESS ASSESSMENT
3-*
1) The Internet has made it possible to make global trade available to small as well as large companies. It has simplified and expanded trade opportunities across the globe.
2) China’s one-party political system, human rights abuses, underground economy with counterfeit goods, and other issues still make it a risky place to do business.
3) Terrorism, nuclear proliferation, rogue states with dangerous dictators, and other issues cast a dark shadow on global markets and could inhibit global trade.
4) The key concern surrounding offshore outsourcing is the loss of jobs. Today such loss includes professional services as well as production jobs. Questions also linger about outsourcing sensitive products like airline maintenance and medical devices. Consumer’s fears about quality and product safety keep the issue center stage.
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