3-2 The Global Marketplace

The Global Environment Doing business in another country requires knowledge of the differences that exist among people and places. Doing business in another country requires knowledge of the differences that exist among people and places. 4 factors that need to be considered: 4 factors that need to be considered: GeographyGeography Cultural InfluencesCultural Influences Economic DifferencesEconomic Differences Political & Legal ConcernsPolitical & Legal Concerns

Geography When going international, geography is a major issue to consider. When going international, geography is a major issue to consider. The following topics are important to consider: The following topics are important to consider: LocationLocation ClimateClimate TerrainTerrain WaterwaysWaterways Natural resourcesNatural resources

Cultural We’ll get to this tomorrow / later….. We’ll get to this tomorrow / later…..

Economic Dev. Things to think about another country’s economy: Things to think about another country’s economy: Literacy LevelLiteracy Level TechnologyTechnology Agricultural dependencyAgricultural dependency InfrastructureInfrastructure EducationEducation

Political / Legal Factors Things to think about another country’s government: Things to think about another country’s government: Government systemGovernment system Political stabilityPolitical stability Trade barriersTrade barriers Business regulationsBusiness regulations

Barriers to International Business Purpose of Barriers To help protect domestic businesses and consumers To help protect domestic businesses and consumers May be used to: 1. help assist a new business getting started 2. protect an existing industry struggling in a competitive global environment. 3. protect consumers from imports with problems or that do not conform to Canadian safety standards.

Barriers to International Business Barriers include: 1. Tariffs or Custom duties 2. Non-Tariff barriers 3. Increased costs of importing and Exporting 4. Quotas 5. Embargo

1. Tariffs Also called custom duties Also called custom duties One of the most important tools for any government in managing trade with other countries. One of the most important tools for any government in managing trade with other countries. A form of tax on certain types of imports (goods coming into U.S. from other countries) A form of tax on certain types of imports (goods coming into U.S. from other countries) Companies bringing in the goods from another country to sell in U.S. must pay the tariffs. Companies bringing in the goods from another country to sell in U.S. must pay the tariffs. Tariffs are based on a percentage of the retail value, (i.e. 5% of retail selling price.) or; Tariffs are based on a percentage of the retail value, (i.e. 5% of retail selling price.) or; On another basis (i.e. $6 per kilogram) On another basis (i.e. $6 per kilogram) Money collected goes to the government. Money collected goes to the government.

Tariffs Whose job is it to: 1. monitor U.S. tariff policies? 2. monitor tariff policies of other countries? 2. monitor tariff policies of other countries? 3. change U.S. tariff policies to best serve the U.S. economy? Answer: Finance U.S. Finance U.S.

Tariffs Provide an example of when it may be: beneficial for U.S. to reduce tariffs on certain goods imported from outside countries? beneficial for U.S. to reduce tariffs on certain goods imported from outside countries? beneficial to increase or create tariffs on certain goods being imported from outside countries? beneficial to increase or create tariffs on certain goods being imported from outside countries?

2. Non-tariff Barriers Legal and policy standards for the quality of imported goods are set so high that foreign competitors can not enter the market. Legal and policy standards for the quality of imported goods are set so high that foreign competitors can not enter the market.Examples: A U.S. law forces an international company to apply for a license to do business in U.S. (it may be very time consuming A U.S. law forces an international company to apply for a license to do business in U.S. (it may be very time consuming and expensive) and expensive) Government will allow some goods into the country only after being inspected and having met certain health and safety standards set out by the U.S. Food and Inspection Agency. Government will allow some goods into the country only after being inspected and having met certain health and safety standards set out by the U.S. Food and Inspection Agency.

Imported Goods That Require Permits, Inspection, or Special Packaging Imported Goods Government Department__________ 1. Endangered animals and 1. Environment U.S. plants and products made plants and products made from them from them 2. Agricultural and food 2. Agriculture and Agri-food U.S. products products 3. Non-food products and clothing 3. Industry U.S. precious metals, and precious metals, and radio communications equip. radio communications equip. 4. Fish and fish products 4. Fisheries and Oceans U.S. 5. Food, drugs, medicines, 5. Health U.S. pharmaceuticals, medical pharmaceuticals, medical and radiation-emitting and radiation-emitting devices devices 6. Hazardous waste, goods that 6. Environment U.S. may contain chlorofluorocarbons may contain chlorofluorocarbons or lead gas or lead gas 7. Motor vehicles 7. Transport U.S.

3. Costs of Importing and Exporting Landed Cost The actual cost for an imported purchased item. The actual cost for an imported purchased item. It is composed of the vendor cost, transportation charges, duties, taxes, broker fees, and any other charges associated with getting the product ready to sell in a foreign market. (another country) It is composed of the vendor cost, transportation charges, duties, taxes, broker fees, and any other charges associated with getting the product ready to sell in a foreign market. (another country)Question If you owned American Tire and had to choose between selling a tool from an American manufacturer or a foreign manufacturer, which one would you select if the quality of both products was equal? If you owned American Tire and had to choose between selling a tool from an American manufacturer or a foreign manufacturer, which one would you select if the quality of both products was equal? a. the foreign tool whose landed cost was greater than the domestic purchase cost or; a. the foreign tool whose landed cost was greater than the domestic purchase cost or; b. the domestic tool whose cost was cheaper than the landed cost. b. the domestic tool whose cost was cheaper than the landed cost.

Costs of Importing and Exporting Price of a good sold is based on the following costs among others: Price of a good sold is based on the following costs among others: Manufacturing (includes wages); Manufacturing (includes wages); storage; storage; Marketing; Marketing; Shipping; Shipping; Advertising Advertising Overhead (Equipment, Heating etc, Salaries) Overhead (Equipment, Heating etc, Salaries) % of profit the company wants to make on the sale % of profit the company wants to make on the sale Depending on the laws of another country and cultural differences, additional costs may be incurred. Depending on the laws of another country and cultural differences, additional costs may be incurred.

4. Quotas Quota a limit the government sets on the quantity of a product that may be imported or exported within a given period a limit the government sets on the quantity of a product that may be imported or exported within a given period Reasons Reasons So supply remains low and prices stay at a certain level (oil)So supply remains low and prices stay at a certain level (oil) To “punish” other countriesTo “punish” other countries To protect an industry from too much competition (sugar, cattle, dairy, textiles)To protect an industry from too much competition (sugar, cattle, dairy, textiles)

5. Embargos Embargo If a government wishes to do so, it can stop the export or import of a product completely If a government wishes to do so, it can stop the export or import of a product completely A.K.A. – Banning trade! A.K.A. – Banning trade! Reasons: Reasons: Industry protectionIndustry protection Prevent certain products from falling into the wrong hands (dept. of defense)Prevent certain products from falling into the wrong hands (dept. of defense) PunishmentPunishment

The Impact of Culture, Customs and Beliefs on International Trade

Impact of Cultural Differences Culture the sum of a country’s way of life, beliefs, customs the sum of a country’s way of life, beliefs, customs Influences how things are purchased, sold, Influences how things are purchased, sold, Sets boundaries on what can or can not be done Sets boundaries on what can or can not be done Impacts preferences, style, values, and norms Impacts preferences, style, values, and norms May be represented by a specific language May be represented by a specific language

Cultural Differences In order to do business with differing cultures, much market research is needed to help companies understand various similarities and differences even when dealing with everyday cultural norms dealing with people such as: In order to do business with differing cultures, much market research is needed to help companies understand various similarities and differences even when dealing with everyday cultural norms dealing with people such as: 1. Punctuality 2. Greetings 3. Nonverbal communication signals 4. Good Manners 5. Decision making

Punctuality Punctuality Norms in North America? People are expected to be People are expected to be on time on time Rely on books, calendars and Rely on books, calendars and even pay a fee sometimes even pay a fee sometimes for missed appointments for missed appointments Punctuality Norms in Other Countries Time is considered flowing, flexible, beyond’s people control Time is considered flowing, flexible, beyond’s people control

Greetings Shaking hands – differs from one country to the next Shaking hands – differs from one country to the next Eye contact made in some countries, not in others Eye contact made in some countries, not in others Bowing before an elder acquaintance versus not bowing at all Bowing before an elder acquaintance versus not bowing at all

Nonverbal Communications Signals Considered rude in Asian cultures to refuse someone’s request, so an Asian business person may not give a direct “no” answer to a sales request Considered rude in Asian cultures to refuse someone’s request, so an Asian business person may not give a direct “no” answer to a sales request A “nod” means “yes” to North Americans but “no” to a Bulgarian. A “nod” means “yes” to North Americans but “no” to a Bulgarian. Shaking the head “side to side” means “no” to North Americans but “yes” to Bulgarians. Shaking the head “side to side” means “no” to North Americans but “yes” to Bulgarians. The sign okay with ones hand is a symbol for money in Japan and is an offensive gesture in Brazil. The sign okay with ones hand is a symbol for money in Japan and is an offensive gesture in Brazil. Personal space interpretations also differs from place to place. Personal space interpretations also differs from place to place.

Good Manners In North America, getting down to business is the norm when to business people meet. In other Asian and Latin American countries it would be considered rude not to discuss family, friends, and favors first to establish a personal relationship before business.

Decision Making In some cultures, decisions are made from the top down approach, in others, from the bottom up approach. In some cultures, decisions are made from the top down approach, in others, from the bottom up approach.

Other Differences North Americans read from left to right. North Americans read from left to right. Israel and Egyptians read right to left. Israel and Egyptians read right to left. This difference may impact the order in which a sequential advertisement is laid out from one country to another. This difference may impact the order in which a sequential advertisement is laid out from one country to another.