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Chapter 2: The Dynamic
Environment of International Trade
The International Marketing Environment
Foreign Environment
(Uncontrollables)
7. Structure of
Distribution
1. Competition
Domestic environment
(Uncontrollables)
Environmental
uncontrollables
country market A
(Controllables) 1. Competition
2. Technology
Price
Product
Target
5. PoliticalEnvironmental
7
Market
uncontrollables
6. Geography and Legal
country
Promotion Place or 2 .Technology
Infrastructure
market B
Distribution
4.
Culture
Environmental
3. Economy
uncontrollables
5. Political3. ECONOMY country
Legal
market C
4. Culture
Introduction
Proliferation of trade and emergence of the global economy
Intensification of global competition
More emerging markets
Developments in technology allow communications with
global consumers and movement of goods
21st Century: The First Decade and Beyond
With exception of China, slower economic growth
in U.S. and other countries is currently evident.
Faster growth rates expected in developing
countries such as Brazil, China, India, Indonesia,
and Russia.
More trade expected within emerging markets,
regional trade areas, and the established markets
in Europe, Japan, and U.S.
Companies need to be more efficient, improve
productivity, expand global reach, and respond
quickly.
Greater growth in international sales expected by
smaller firms.
Balance of Payments
1.
2.
3.
4.
When countries trade money flows into and out of
each country
The accounts that record a nation’s international
financial transactions are called its balance of
payments (BP)
Records all financial transactions between a country
and the rest of the world over a year
The BP is maintained on a double-entry bookkeeping
system
Balance of Payments
The difference between receipts and payments
BP Receipts
• costs of goods exported.
• money spent by foreign
tourists.
• transportation.
• payments of dividends and
interest from FDI abroad.
• new foreign investments
BP Payments
• costs of goods imported.
• spending by tourists abroad
• new overseas investments.
• cost of foreign aid.
Balance of Payments
The Balance of Payments includes three accounts:
(1) current account
(2) the capital account
(3) the official reserves account
Balance of Trade
(1) current account
(2) the capital account
• If exports exceed imports, The Balance of
Trade is positive
• If imports exceed exports, the Balance of
Trade is negative
• Is a(3)
negative
balance
bad? account
the official
reserves
Balance of Payments and Exchange Rate
•
•
•
•
The Exchange Rate is
determined by Supply and
Demand
To buy Canadian goods,
Canadian currency is
demanded
More exports or direct
investment will increase
the exchange rate
As the value of the dollar
increases, the price of
exports increases.
Protectionism: Logic and Illogic
Countries use protectionist measures to shield a country’s
markets from intrusion by foreign competition and imports.
Arguments for Protectionism include:
1.
2.
3.
4.
5.
6.
Maintain employment and reduce unemployment
Increase of business size
Retaliation and bargaining
Protection of the home market
Need to keep money at home
Encouragement of capital accumulation
Protectionism: Logic and Illogic
Arguments for Protectionism include:
7.
Maintenance of the standard of living and real
wages
8. Conservation of natural resources
9. Protection of an infant industry
10. Industrialization of a low-wage nation
11. National defense
Protectionism: Logic and Illogic
In general, protectionism
contributes to industrial
inefficiency and makes a nation
uncompetitive
Protectionism is implemented
through the imposition of trade
barriers, which include tariff
barriers and non-tariff barriers
The Impact of Tariff (Tax) Barriers
Tariff Barriers tend to Weaken:
1. Balance-of-payments positions
2. Supply-and-demand patterns
3. International relations (they can start
trade wars)
The Impact of Tariff (Tax) Barriers
Tariff Barriers tend to Restrict:
1. Manufacturer’ supply sources
2. Choices available to consumers
3. Competition
Six Types of Non-Tariff Barriers
(1) Specific Limitations on Trade:
1. Quotas
2. Import Licensing requirements
3. Proportion restrictions of foreign to
domestic goods (local content requirements)
4. Minimum import price limits
5. Embargoes
(2) Customs and Administrative Entry Procedures:
1. Valuation systems
2. Antidumping practices
3. Tariff classifications
4. Documentation requirements
5. Fees
Six Types of Non-Tariff Barriers
(3) Standards:
1. Standard disparities
2. Intergovernmental acceptances of testing
methods and standards
3. Packaging, labeling, and marking
(4) Government Participation in Trade:
1. Government procurement policies
2. Export subsidies
3. Countervailing duties
4. Domestic assistance programs
Six Types of Non-Tariff Barriers
(5) Charges on imports:
1. Prior import deposit subsidies
2. Administrative fees
3. Special supplementary duties
4. Import credit discriminations
5. Variable levies
6. Border taxes
(6) Others:
1. Voluntary export restraints
2. Orderly marketing agreements
Monetary Barriers
In addition to the Six Types of Non-Tariff Barriers,
monetary barriers are also used by countries
Three types of monetary barriers
include:
1. Blocked currency
2. Differential exchange rates
3. Government approval
World Trade Organization (WTO)
Unlike GATT,
is an institution, not an agreement
1. It sets many rules governing trade between its 132
members
2. WTO provides a panel of experts to hear and rule on
trade disputes between members, and, unlike GATT,
issues binding decisions
The International Monetary Fund (IMF)
1.
2.
3.
4.
IMF was created to assist nations in becoming and remaining
economically viable
It assists countries that seek capital for economic development
and restructuring
IMF loans come with stipulations that borrowing countries slash
spending and impose controls to curb inflation
It helps maintain stability in the world financial markets
Objectives of the IMF include:
1. stabilization of foreign exchange rates
2. establish convertible currencies to
facilitate international trade
3. lend money to members in financial
trouble
World Bank Group (WBG)
The goal of WBG is to reduce poverty and the improvement of
living standards by promoting sustainable growth and investment
in people.
The functions of the WBG include:
1.
2.
3.
4.
5.
lending money to countries to finance development projects in
education, health, and infrastructure;
providing assistance for projects to the poorest developing countries;
lending directly to the private sector in developing countries with
long-term loans, equity investments, and other financial assistance;
provide investors with investment guarantees against
“noncommercial risk,” so developing countries will attract FDI; and
provide conciliation and arbitration of disputes between governments
and foreign investors
Protests Against Global Institutions
In 1999 “anti-capitalist protestors” complained
against the WTO and IMF, over the unintended
consequences of globalization that include:
1. environmental concerns
2. worker exploitation and
domestic job losses
3. cultural extinction
4. higher oil prices, and
5. diminished sovereignty of
nations