CHAPTER 4 Competing in World Markets

TRADE PRACTICES Imports- foreign goods and services purchased by domestic customers Exports- domestically produced goods and services sold in other countries  When the dollar is strong imports slow and exports increase.  When the dollar is weak imports strengthen and exports increase. International market trade is essential because it boosts economic growth by providing a market for its products and access to needed resources.

WHY NATIONS TRADE Provides Markets Reduces Dependency Absolute Advantage – making a product for which it can maintain a monopoly or that it can produce at a lower cost than any competitor.  –produce the cheapest of all Comparative Advantage – a country can supply its products more efficiently and at a lower price than it can supply other goods, compared to the outputs of other countries.  – efficiently produced and lower prices Blue Ocean Strategies for Developing Countries

MEASURING TRADE Balance of Trade- difference between a nations exports and imports. (surplus and deficit) Balance of payments- overall money flows into and out of a country. (surplus and deficit) Exchange Rates- value of one nations currency relative to another countries.  Devaluation – drop in currencies value  Influenced by:  Economy  Political Conditions  Central Bank Intervention  Balance-of-Payments Position (where is the $ moving)  Speculation over future currency values Hard Currency – can easily be converted

TRADE RESTRICTIONS  Taxes or tariffs  tax imposed on imported goods  Revenue tariffs – generate income for the government  Protective tariffs – raise the price of goods bought cheaper out of the country  Seeks to level the competitive field  Quotas  amts allowed at a specific time into a country  Dumping – selling products abroad at prices below typical prices in the home market  Embargo  total ban on a particular product or trading with a specific country  Exchange controls  use central bank to exchange $ for these transactions

BARRIERS TO INTERNATIONAL TRADING Social and Cultural Economic Legal and Political

PROMOTING INTERNATIONAL TRADE North American Free Trade Agreement (NAFTA)  agreement among the United States, Canada, and Mexico to break down tariffs and trade restrictions Central American Free Trade Agreement (CAFTA)  free trade between US, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua European Union  27 European economic alliances World Trade Organization  mediates international trade disputes Foreign Corrupt Practices Act  forbids US companies from bribing foreign officials, political candidates, or government representatives. World Bank  organization established by industrialized nations to lend money to less developed countries

GOING GLOBAL Questions to ask…  Determine which market(s) to enter  Analyze the governments entering and their laws/barriers  Decide how to organize your corporation Global business strategy…  Exporting vs importing  Franchising, licensing, subcontracting  Acquisitions, joint ventures, establishment of overseas division

WHAT ARE YOU GOING TO DO THERE? You can participate in…  Trading  Countertrading  Contractual Agreements  Franchising  Foreign Licensing  Subcontracting  Direct Operations  Offshoring  Relocation of business  Joint Venture

MULTINATIONAL CORPORATION – Significant operations and marketing activities outside a home country. Explain…  Global Business Strategy Vs Multidomestic Business Strategy