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CHAPTER 3
© Corbis / Jupiterimages
Competing
in the Global
Marketplace
The Future of Business
The Essentials 4th Edition
Gitman & McDaniel
Chapter 3
Copyright ©2009 by South-Western, a division of Cengage Learning. All rights reserved
Prepared by
Deborah Baker
CHAPTER 3
Learning Goals
1 Why is global trade important to the United States
and how is it measured?
2 Why do nations trade?
3 What are the barriers to international trade?
4 How do governments and institutions foster world
trade?
2
5
What are international economic communities?
6
How do companies enter the global marketplace?
7
What threats and opportunities exist in the global
marketplace?
8
What are the advantages of multinational
corporations?
9
What are the trends in the global marketplace?
CHAPTER 3
Learning Goals (continued)
3
Global Trade in the United States
1
1
Why is global trade important to the
United States and how is it measured?
4
Global Vision
Recognizing and reacting to
international business
opportunities
Being aware of threats from
foreign competitors
Effectively using international
distribution networks
1
5
The Importance of Global Business to the U.S.
1

U.S. exports a fifth of industrial production and a
third of its farm products

One of every five jobs in U.S. is supported by
exports

A third of U.S. corporate profits is from
international trade and foreign investment

Exports accounted for almost 25 percent
of U.S. economic growth
6
Measuring Trade Between Nations
exports
Goods and services produced in one country
and sold to other countries.
imports
Goods and services that are bought from other
countries.
1
7
Measuring Trade Between Nations
1
balance of trade
The difference between the value of a
country’s exports and the value of its
imports during a specific time.
balance
of payments
A summary of a country’s international
financial transactions showing the difference
between the country’s payments to and its
receipts from other countries.
floating
exchange
rate
A system in which prices of currencies move
up and down based upon the demand for and
supply of the various currencies.
8
CONCEPT check
What is global vision, and why is it
important?
What impact does international trade have
on the U.S. economy?
Explain the impact of a currency
devaluation.
1
9
Why Nations Trade
2
2
Why do nations trade?
10
Demographic Factors
absolute advantage
A country can produce and sell products
at a lower cost and is the only provider of a product
comparative advantage
A country should specialize in the products
that it can produce most readily and cheaply,
and trade those for goods that foreign countries
can produce most readily and cheaply
2
11
The Fear of Trade and Globalization
outsourcing
Sending work functions to another country
resulting in domestic workers losing their jobs.
2
12
Benefits of Globalization
 Productivity grows more quickly when countries
produce goods and services in which they have a
comparative advantage.
 Global competition and cheap imports keep prices down
 An open economy spurs innovation
 The U.S. buys $2 trillion a year from other countries
 Prices for many heavily traded goods have fallen
 Income from U.S. foreign subsidiaries is over $200
billion a year
2
13
CONCEPT check
Describe the policy of free trade and its
relationship to comparative advantage.
Why do people fear globalization?
What are the benefits of globalization?
2
14
Barriers to Trade
3
3
What are the barriers to international trade?
15
Barriers to Trade
Natural Barriers
Tariff Barriers
Nontariff Barriers
3
16
For and Against Tariffs
For Tariffs
 Protect infant
industries
Against Tariffs
 Discourage free trade
 Raise prices
 Protect American jobs
 Aid in military
preparedness
3
17
Nontariff Barriers
1. Import quotas
2. Embargos
3. Buy-National Regulations
4. Exchange Controls
3
18
CONCEPT check
Discuss the concept of natural trade barriers.
Describe several tariff and nontariff barriers
to trade.
3
19
Fostering Global Trade
4
4
How do governments and institutions
foster world trade?
20
Fostering Global Trade
Antidumping Laws
The Uruguay Round and the WTO
The World Bank and International Monetary Fund
4
21
Antidumping Laws
dumping
The practice of charging a lower price for a product in
foreign markets than in the firm’s home market.
4
22
The Uruguay Round and the WTO
The Uruguay Round
A 1994 agreement to lower trade barriers worldwide.
World Trade Organization (WTO)
An organization established by the Uruguay Round in
1994 to oversee international trade, reduce trade
barriers, and resolve disputes among member nations.
4
23
The World Bank and
International Monetary Fund
The World Bank
An international bank that offers low-interest loans, as
well as advice and information, to developing nations.
International Monetary Fund (IMF)
An international organization, founded in 1945, that
promotes trade, makes short-term loans to member
nations, and acts as a lender of last resort for troubled
nations.
4
24
CONCEPT check
Describe the purpose and role of the WTO.
What are the roles of the World Bank and the
IMF in world trade?
4
25
International Economic Communities
5
5
What are international economic communities?
26
International Economic Communities
preferential tariff
A tariff that is lower for some nations than for
others.
free-trade zone
An area where the nations allow free, or almost
free, trade among each other while imposing
tariffs on goods of nations outside the zone.
5
27
International Economic Communities
North American Free Trade Agreement
Central America Free Trade Agreement
The European Union
5
28
CONCEPT check
Explain the pros and cons of NAFTA.
What is the European Union? Will it ever
be a United States of Europe?
5
29
Participating in the Global Marketplace
6
6
How do companies enter the global marketplace?
30
Why Go Global?
Earn additional profits
Leverage a unique product or
technological advantage
Possess exclusive
market information
Saturated domestic markets
and excess capacity
Potential for cost savings
6
31
Entering the Global Marketplace
6
Export
Sell domestically produced products to
buyers in other countries.
Licensing
Legal process allowing use of
manufacturing/patents/knowledge.
Contract
Manufacturing
Private-label manufacturing by a
foreign country
Joint Venture
Domestic firm buys/joins a foreign
company to create new entity.
Direct Investment
Active ownership of a foreign
company/manufacturing facility.
32
Entering the Global Marketplace
countertrade
A form of international trade in which part or all of
the payment for goods and services is in the form
of other goods and services.
6
33
CONCEPT check
Discuss several ways that a company can enter
international trade.
Explain the concept of countertrade.
6
34
Threats and Opportunities
in the Global Marketplace
7
7
What threats and opportunities exist in the
global marketplace?
35
Political Considerations
nationalism
A sense of national consciousness that boosts the
culture and interests of one country over those of
all other countries.
In a hostile climate, a government may expropriate
or confiscate a foreign company’s assets.
7
36
Economic Environment
Infrastructure






7
Money and banking
Education
Transportation
Communications
Energy
Market system
37
CONCEPT check
Explain how political factors can affect
international trade.
Describe several cultural factors that a company
involved in international trade should consider.
How can economic conditions affect trade
opportunities?
7
38
Impact of Multinational Corporations
8
8
What are the advantages of multinational
corporations?
39
The Impact of
Multinational Corporations
multinational corporations
Corporations that move resources, goods,
services, and skills across national boundaries
without regard to the country in which their
headquarters are located.
8
40
The Multinational Advantage
8

Overcome trade problems

Sidestep regulatory problems

Shift production from one plant to another

Tap new technology from around the world

Save in labor costs
41
CONCEPT check
What is a multinational corporation?
What are the advantages of multinationals?
8
42
Trends in Global Competition
9
9
What are the trends in the global marketplace?
43
CONCEPT check
What trends will foster continued growth in
world trade?
Describe some of the ways businesses can
take advantage of these trends to “go global.”
9
44