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CHAPTER 4
GLOBAL ECONOMY
Global Economy is the interconnected
economies of the nations of the world.
 Exporting – selling and shipping of
goods to another country
 Importing – buying or bringing in goods
from other countries to sell

GLOBAL ECONOMY

Two important factors that brought about
a global economy:
 Reduction in Trade Tariffs
 Advances in communication technology,
particularly the Internet
GLOBAL ECONOMY

The World Trade Organization
 Global coalition of Governments that makes the
rules that govern International Trade
 Eliminates or lessen Trade Barriers
 Promotes Free Trade
○ NAFTA - North American Free Trade Agreement
- Canada, US, and Mexico trade has become more
profitable
○ EU - European Union – Europe’s trading bloc
promotes free trade and shared currency
TRADE BARRIERS
Trade Barrier – a restriction on goods
entering or leaving a country.
 Lowering of barriers has increased the
flow of goods between countries

 Tariffs – taxes on imports and/or exports
 Governments charge tariffs on imports to
protect domestic industries
TECHNOLOGY
Developments in communications,
information processing and
transportation technology has
transformed how business is done.
 Technology has made the world smaller

 Communicate with people in other countries
by phone, through fax machines, with e-mail
and over the Internet
Global Opportunities
International Markets:
Need to study and learn cultural
differences.
US companies export 25% of our GDP
Gross Domestic Product (GDP) total
value of all goods produced during the
year.
GLOBAL OPPORTUNITIES
Asia
GLOBAL OPPORTUNITIES Asia
China:
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government controls business, and laws and regulations are
fairly strict.
Fastest-growing economy in world
Looking for new products and services.
Japan:
In the past a “closed” society- hard to sell exports
 US Fast-food menu reflects their culture.
 Today they desire our clothing and fashion accessories
 Advertise using humor, fantasy, harmony, collective material
success and things uniquely Japanese

GLOBAL OPPORTUNITIES

Latin America
GLOBAL OPPORTUNITIES Latin America
Diverse communities: traditional and modern
 Speak Spanish, Portuguese, and French
 Buying decision based on family needs not
individual needs
 Look at merits of product, do comparison
shopping before they buy
 Mexico consumers prefer U.S. goods

GLOBAL OPPORTUNITIES: Europe
GLOBAL OPPORTUNITIES: Europe
Business failures and risk taking not accepted,
not as many entrepreneurs
 No common European culture
 Common currency made commerce easier
 French more likely to east in restaurants than
Italians
 Italy culture is very individualistic, whereas
France’s culture is more collectivist
 Segment Markets/ Ads based on cultural
differences rather than national boundaries

GLOBAL OPPORTUNITIES

Regions in Transition: Africa, Middle East, and
former Soviet Union
 Unstable or developing countries offer a risky form of

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
opportunity
Many barriers: lack infrastructure, shifting political
power, and lack of support once the business is in
operation
Research the culture and business practices
Consider partnering with a local company
Be sure to know your rights
GLOBAL OPPORTUNITIES

Entrepreneurship in the Global Marketplace
 Different from domestic business
 Countries differ in their cultures, political systems,
economic systems, legal systems, and levels of
economic development
 Cultural differences make the management of an
international business more complicated than the
management of a domestic business
 Cross-boarder business transactions requires an indepth understanding of the rules of international trade
 An international business must have policies for dealing
with movements in exchange rates.
WAYS to ENTER the GLOBAL MARKET:
Understanding International Business

Importance of Culture
 Study customs…..there may be contrasting differences
○ American business owners often travel to Japan in a hurry
to close a transaction.
○ Japanese business people, like to take their time
completing a deal, they want to get to know the person
before they complete transaction. Trust is very important,
they are willing to take the time to make sure that you are
trustworthy.
Tips for Showing Respect
Dress Conservatively
 Do not correct the other person’s use of English.
 Be prepared to remove your shoes.
 Respect different tastes in food
 Know something about the country and its culture
 Build a relations and trust before conducting
business
 If necessary bring an interpreter to translate

ENTERING the GLOBAL MARKET
Sources for locating the best market
 Consult the U.S. Census Bureau’s Guide to
Foreign Trade Statistics - sources for various
trade statistics
 Standard Industrial Trade Classification
(SITC) Codes – what types of products are
traded in specific countries. Also find information
about how well your product or service
competes in different marketplaces

Sources for Locating Best Market
Suppose you are planning to export a toy.
Find out how many toys are sold in different
countries every year. Look for a country that
imports more toys than the average. The country
should have a history of importing goods from
U.S. Generally, in order for a country to be
considered a good export candidate, about 5% of
its total imports should be American goods.

Sources for Locating Best Market

Other Sources of Help
 Contact International Trade Administration office and
the Department of Commerce in Washington, DC.
 International Business Exchange (IBEX). It allows you
to sell products and services online anywhere in the
world. It is a good source to find trading partners, too.
Sources for Locating Best Market

Other Sources of Help
 U.S. Government and private agencies offer small
businesses the opportunity to go on trade missions.
 Trade Missions allow owners to meet and talk with
foreign agents, distributors, or potential business
partners.
○ To participate you need a product that is on the
government’s “Best Prospect” list. It is a product that
other countries are looking to purchase. You also need a
good Business Plan.
Importing and Exporting
Exporting: selling and shipping goods to
another country.
 Importing: buying products from other
countries to resell in your own country.
 Deciding on a Product to Export:

 best products for exporting are paper, electronics,
chemicals, apparel, computers, and industrial and
agricultural products.
 Country must have Disposable Income that is
money people have to spend after paying for
necessary expenses.
Importing and Exporting

Import Opportunities:
 U.S. imports a lot of goods for two main reasons
○ Competitive Advantage: Low labor costs
○ Apple
○ Apple
○ Absolute Advantage: Some products are found only in
other countries; coffee
Importing and Exporting

Import Opportunities:
 Where to Find Import Opportunities
○ Attend Trade Shows – representatives from other
countries display their products and services
○ Read trade publications and catalogs show available
products
○ Research Your Market do people actually want the
products?
Importing and Exporting

Export Opportunities:
 Expand your business to new markets
 Exporting is more complicated than importing
○ Need to understand foreign countries
○ Takes longer to make a profit due to necessary time to
build relationships
 Where to Find Export Opportunities
○ Establish an e-commerce web site
○ Use a Trade Intermediary – an agency that serves as
distributor in a foreign country
○ Establish a Foreign Joint Venture – an alliance between
an American small business and a foreign company
Importing and Exporting

Export Opportunities:
 Where to Find Export Opportunities
○ Establish an e-commerce web site
○ Use a Trade Intermediary – an agency that serves as
distributor in a foreign country
○ Establish a Foreign Joint Venture – an alliance
between an American small business and a foreign
company
○ License foreign businesses to sell your business’s
products
○ Use an Export Management Company - for a
commission will handle all tasks related to exporting
○ Hire a Freight Forward – handles overseas shipments
Government Regulations on
International Trade

Over 100 federal agencies are involved with import
and export process.
 Food and Drug Administration regulates food/drugs
 U.S. Customs Service oversight import requirements
 U.S. Census Bureau general information with export
requirements
 U.S. Department of Commerce International Trade
Administration Trade Information Center (TIC) –
Trade Specialists counsel programs help with process
 104 Export Assistance Centers- operate in
cooperation with SBA and Export-Import Bank of
America – marketing and trade finance support
Things to Consider Before Going Global

Conduct Market Research
 Is there a need for your product/service?
 Do you need to make any modifications in order to
sell in in foreign market?
 Can you solve a problem for people from country
 Study the country, its culture, and people