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* Chapter Three * Doing Business in Global Markets McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. IMPORTING and EXPORTING * The Dynamic Global Market LG1 * • 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. 3-2 * COMPARATIVE and ABSOLUTE ADVANTAGE The Theories of Comparative and Absolute Advantage LG1 * • 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. 3-3 GETTING INVOLVED in GLOBAL TRADE * Importing Goods and Services LG2 * • Starbucks CEO, Howard Shultz, found his importing opportunity in Italy. He transformed a coffee shop in Seattle to mimic the European cafes. 3-4 * HOW to MEASURE GLOBAL TRADE Measuring Global Trade LG2 * • 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. 3-5 * \KEY STRATEGIES for REACHING GLOBAL MARKETS Licensing Least Exporting Franchising Contract Manufacturing International joint ventures and strategic alliances Amount of commitment, control, risk and profit potential Strategies for Reaching Global Markets LG3 * Foreign direct investment Most 3-6 FORCES AFFECTING GLOBAL TRADE * Forces Affecting Trading in Global Markets LG4 * • Sociocultural • Economic and Financial • Legal and Regulatory • Physical and Environmental 3-7 * CULTURAL DIFFERENCES Socio-cultural Forces LG4 * • To be involved in global trade, you must be aware of the cultural differences among nations including: - Social Structures Religion Manners Values Language Personal Communication 3-8 EXCHANGE RATES * Economic and Financial Forces LG4 * • Exchange Rate -- The value of one nation’s currency relative to the currencies of other countries. • High value of the dollar – Dollar is trading for more foreign currency; foreign goods are less expensive. • Low value of the dollar – Dollar is trading for less foreign currency; foreign goods are more expensive. • Currencies float in value depending on the supply and demand for them in the global market. 3-9 DEVALUATION and COUNTERTRADING * Economic and Financial Forces LG4 * • Devaluation -- Lowers the value of a nation’s currency relative to others. • Countertrading -- Complex form of bartering in which several countries each trade goods or services for other goods or services. 3-10 LEGAL CONCERNS OVERSEAS *Legal and Regulatory Forces LG4 • There’s no global system of laws. * • Laws may be inconsistent. • U.S. businesses must follow U.S. laws while conducting global business. • The Organization for Economic Cooperation and Development (OECD) and Transparency International fight to end corruption and bribery in foreign markets and have had limited success. 3-11 TRADE PROTECTIONISM * Trade Protectionism LG5 * • Trade Protectionism -- The use of government regulations to limit the import of goods and services. • Advocates of protectionism believe it allows domestic producers to survive, grow and produce jobs. 3-12 * TARIFFS Trade Protectionism LG5 * • Tariffs -- Taxes on imports. • Two kinds of tariffs: - - Protective – Raise the retail price of imports so domestic goods are competitively priced. Revenue – Raise money for governments. 3-13