Competing in global markets

Trading in/with other nations  Unlikely that a single country can produce everything its people needs  If they did, other countries would want to trade with them  Abundance of natural resources, but lack of technology  Beneficial relationships between countries to attain what goods they need leads to free trade  Movement of goods and services among nations without political or economic trade barriers

Trading in/with other nations  Comparative advantage theory – states that a country should import only that which it is inefficient at producing, and export what it is efficient at producing  Absolute advantage – when a country has a monopoly on producing a specific product, or can produce it more efficiently than all other countries  Balance of trade – the ratio of a nation’s exports to imports  When the value of a country’s exports exceeds its imports, this is a favourable balance aka trade deficit  Balance of payments – money flowing in and out of the country, due to tourism, military, foreign aid, investments, etc.

Trading in/with other nations  Dumping – entering a foreign market and selling products at a lower price than what the domestic market sells it for  Foreign direct investment

Strategies for reaching global markets  1. Exporting  2. Licensing – giving the right to manufacture or use its trademark for a fee.  The licensor follows through with the licensee to assist in setup, distribution, promotion and consulting  Licensing agreements are usually signed for many years at a time ex 10+ years  Pros and cons?

Strategies for reaching global markets  3. Franchising – selling the rights to use a business name and sell a product or service to others in a given territory  Ex: McDonalds, Subway, Pizza Hut/Dominoes  4. Contract manufacturing – a foreign company produces private- label goods, which then another company attaches it with their own brand name or trademark  Ex: Dell computers, alcohol companies

Strategies for reaching global markets  4. International joint ventures – a partnership between two or more companies to undertake a major project  Advantages?  Shared risk, shared technology, shared marketing and management expertise  Entry into a market where goods must be produced locally  Shared knowledge of the local market: customs, government connections, access to local skilled labourers, supplies, awareness of bylaws

Strategies for reaching global markets  5. Strategic alliance – a long-term partnership between two or more companies to help each company build competitive market advantages  Ex: Wireless company RIM partnered with Consilient to use Blackberry’s devices to run MX software, so that the NYFD can communicate securely with their mobile forces  6. Foreign direct investment - the buying of permanent property and businesses in foreign countries  As investment increases, foreign subsidiaries are established. A foreign subsidiary operates like a domestic firm, everything is managed b themselves

Forces affecting trade in global markets  1. Sociocultural forces  In your cohort, discuss the challenges a company faces if they want to enter a foreign market  Think about things like customs, traditions, taboo, religion, public behavior, what the general public is used to  Perhaps start by choosing a country the “parent company” is from, and what foreign country they would like to enter.  Ex: a Canadian company entering Israel, wanting to start a meat distribution business  Personal views and/or experiences should also be considered

Forces affecting trade in global markets  2. Economic and Financial Forces – This one is a bit less straight- forward  So… let’s open this up for discussion

Forces affecting trade in global markets  3. Legal and Regulatory forces – describes the types of laws, by-laws etc. that a company needs to be aware of  Ex: In Canada, we have Federal (nation), provincial (province) and municipal (local areas) laws and regulations that must be adhered to  4. Physical and Environmental forces – broad range of factors  Open to discussion

Forces affecting trade in global markets  5. Trade protectionism – whereby government regulations limit the import of goods and services A. Import quota – limits the number of products in a certain category that a nation can import B. Embargo – the complete ban of importing AND exporting of a particular product  Benefits domestic companies… how?  How might you impose certain ‘blocks’ without implementing taxes/tariffs in order to discourage foreign companies from entering the market?

Other factors to consider:  1. Producer’s cartels – Organization of commodity-producing countries that are formed to stabilize or increase prices.  A. To optimize overall profits in the long run  B. Contradicts free trade and letting the market set prices  2. Common markets – a region that have external tariffs, but no internal tariffs. Essentially there is free-trade between regions, ex the European Union  Read the short section on NAFTA, make your own notes

Assignment – 2 short paragraphs  Discuss within your cohort, or brainstorm on your own; take the position of the CEO and her/his associates.  Then in a short paragraph answer:  Why would you want to keep the prices as high as $8/pill (20x the cost)  Why would you not want to lower your prices (other than to get rich)  What would you do with your profits?  Now take the position of an innovative project manager, what would you suggest to your CEO as an alternative plan, knowing how low prices could be, and knowing what the CEO plans to do with profits?

Homework  Read the profile on Li YiFei, and in a brief paragraph: respond how you think you may set up your career, beginning with education choices, such that you can be as competitive as Li

Read: to bribe or not to bribe  Do questions 1-4