* * Chapter Three Doing Business in Global Markets Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

* * The Dynamic Global Market Importing -- Buying products from another country. Exporting -- Selling products to another country. The U.S. is the largest importing and the second largest exporting nation in the world. IMPORTING and EXPORTING LG1 3-2

* * The Theories of Comparative and Absolute Advantage Comparative Advantage -- A country should sell the products it produces most efficiently and buy from other countries the products it cannot produce as efficiently. Absolute Advantage -- A country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries. LG1 COMPARATIVE and ABSOLUTE ADVANTAGE 3-3

* * Importing Goods and Services Starbucks CEO, Howard Shultz, found his importing opportunity in Italy. He transformed a coffee shop in Seattle to mimic the European cafes.Starbucks LG2 GETTING INVOLVED in GLOBAL TRADE 3-4

* * Measuring Global Trade Balance of Trade -- The total value of a nation’s exports compared to its imports measured over time. Trade Surplus -- When the value of a country’s exports is more than that of its imports. Trade Deficit -- When the value of a country’s exports is less than that of its imports. HOW to MEASURE GLOBAL TRADE LG2 3-5

* * Strategies for Reaching Global Markets Least Amount of commitment, control, risk and profit potential Most LicensingExportingFranchising Contract Manufacturing International joint ventures and strategic alliances Foreign direct investment LG3 \KEY STRATEGIES for REACHING GLOBAL MARKETS 3-6

* * Forces Affecting Trading in Global Markets Sociocultural Economic and Financial Legal and Regulatory Physical and Environmental FORCES AFFECTING GLOBAL TRADE LG4 3-7

* * Socio-cultural Forces To be involved in global trade, you must be aware of the cultural differences among nations including: - Social Structures - Religion - Manners - Values - Language - Personal Communication CULTURAL DIFFERENCES LG4 3-8

* * Economic and Financial Forces Exchange Rate -- The value of one nation’s currency relative to the currencies of other countries. High value of the dollar – Dollar is trading for more foreign currency; foreign goods are less expensive. Low value of the dollar – Dollar is trading for less foreign currency; foreign goods are more expensive. Currencies float in value depending on the supply and demand for them in the global market. EXCHANGE RATES LG4 3-9

* * Economic and Financial Forces Devaluation -- Lowers the value of a nation’s currency relative to others. Countertrading -- Complex form of bartering in which several countries each trade goods or services for other goods or services. DEVALUATION and COUNTERTRADING LG4 3-10

* * Legal and Regulatory Forces There’s no global system of laws. Laws may be inconsistent. U.S. businesses must follow U.S. laws while conducting global business. The Organization for Economic Cooperation and Development (OECD) and Transparency International fight to end corruption and bribery in foreign markets and have had limited success. LEGAL CONCERNS OVERSEAS LG4 3-11

* * Trade Protectionism Trade Protectionism -- The use of government regulations to limit the import of goods and services. Advocates of protectionism believe it allows domestic producers to survive, grow and produce jobs. TRADE PROTECTIONISM LG5 3-12

* * Trade Protectionism Tariffs -- Taxes on imports. Two kinds of tariffs: - Protective – Raise the retail price of imports so domestic goods are competitively priced. - Revenue – Raise money for governments. TARIFFS LG5 3-13