Doing Business in Global Markets * * * Doing Business in Global Markets CHAPTER 3 Nickels McHugh McHugh * * 1-1

Common Forms of Doing International Business Export: Producing the product at home country and selling it to other countries. For example: Bangladesh exports jute, tea, shrimps, ready-made garments etc. Import: Buying products from another country. For example: Bangladesh imports car, gold, air crafts etc.

Why Trade with Other Nations? No country can produce all the required products/services by itself Other countries will seek for opportunities to trade with your country Having natural resources is not enough to become self-sufficient Having only technical expertise is also not enough Free Trade: The movement of goods and services among nations without political or economic barriers.

Comparative Advantage Comparative Advantage -- A country should sell the products it produces most efficiently and effectively. Also it should buy from other countries those products that it cannot produce as effectively or efficiently.

Absolute Advantage Absolute Advantage -- A country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries.

Measuring Global Trade Balance of Trade -- The total value of a nation’s exports compared to its imports measured over time. Trade Surplus – Exports > Imports. Trade Deficit – Exports < Imports.

Measuring Global Trade (cont..) Balance of Payments: It is the difference between money coming into a country (from exports) and money leaving the country (for imports) from factors such as tourism, foreign aid, military expenditure and foreign investment. Dumping: Selling products in a foreign country at lower prices than those charged in the producing country. China and Russia used to dump steel in United States.

Strategies to Reach Global Market Exporting Importing Licensing Franchising Contract Manufacturing Joint Venture Strategic Alliance Multinational Corporation Foreign Direct Investment (FDI) Foreign Subsidiary: A company owned in a foreign country by another company, called the parent company.

Forces Affecting Trading in Global Markets Socio-Cultural Forces: Social structure, religion, manners and customs, values and attitudes, language, and personal communication.

Forces Affecting Trading in Global Markets (cont…) Economic and Financial Forces: Per- capita income, currency exchange rate, currency devaluation, countertrading. Legal and Regulatory Forces: Rules and regulations of different countries.

Forces Affecting Trading in Global Markets (cont…) Physical and Environmental Forces: Infrastructural facilities, technological facility etc.

Factors Affecting Trading in Global Markets (cont...) Trade Protectionism: The use of government regulations to limit the import of goods and services. Tariff: A tax imposed on imports. Two kinds of tariffs: Protective – Raise the retail price of imports so domestic goods are competitively priced. Revenue – Raise money for governments. Import Quota: A limit on the number of products in certain categories that a nation can import. Embargo: A complete ban on the import or export of a certain product, or the stopping of all trade with a particular country.

GATT WTO General Agreement on Tariffs and Trade On 1948, leaders from 23 nations initiated this forum. It supports the reduction of trade restrictions on goods and services. WTO World Trade Organization Established after the Uruguay Round of ‘GATT’ Headquarter is in Geneva, with 152 member nations.

Common Markets The European Union (EU) Mercosur Association of Southeast Asian Nations (ASEAN) NAFTA