CHAPTER 4

GLOBAL ECONOMY  Global Economy is the interconnected economies of the nations of the world.  Exporting – selling and shipping of goods to another country  Importing – buying or bringing in goods from other countries to sell

GLOBAL ECONOMY  Two important factors that brought about a global economy: Reduction in Trade Tariffs Advances in communication technology, particularly the Internet

GLOBAL ECONOMY  The World Trade Organization Global coalition of Governments that makes the rules that govern International Trade Eliminates or lessen Trade Barriers Promotes Free Trade ○ NAFTA - North American Free Trade Agreement - Canada, US, and Mexico trade has become more profitable ○ EU - European Union – Europe’s trading bloc promotes free trade and shared currency

TRADE BARRIERS  Trade Barrier – a restriction on goods entering or leaving a country.  Lowering of barriers has increased the flow of goods between countries Tariffs – taxes on imports and/or exports Governments charge tariffs on imports to protect domestic industries

TECHNOLOGY  Developments in communications, information processing and transportation technology has transformed how business is done.  Technology has made the world smaller Communicate with people in other countries by phone, through fax machines, with and over the Internet

Global Opportunities International Markets: Need to study and learn cultural differences. US companies export 25% of our GDP Gross Domestic Product (GDP) total value of all goods produced during the year.

GLOBAL OPPORTUNITIES Asia

GLOBAL OPPORTUNITIES Asia China:  government controls business, and laws and regulations are fairly strict.  Fastest-growing economy in world  Looking for new products and services. Japan:  In the past a “closed” society- hard to sell exports  US Fast-food menu reflects their culture.  Today they desire our clothing and fashion accessories  Advertise using humor, fantasy, harmony, collective material success and things uniquely Japanese

GLOBAL OPPORTUNITIES  Latin America

GLOBAL OPPORTUNITIES Latin America  Diverse communities: traditional and modern  Speak Spanish, Portuguese, and French  Buying decision based on family needs not individual needs  Look at merits of product, do comparison shopping before they buy  Mexico consumers prefer U.S. goods

GLOBAL OPPORTUNITIES: Europe

 Business failures and risk taking not accepted, not as many entrepreneurs  No common European culture  Common currency made commerce easier  French more likely to east in restaurants than Italians  Italy culture is very individualistic, whereas France’s culture is more collectivist  Segment Markets/ Ads based on cultural differences rather than national boundaries

GLOBAL OPPORTUNITIES  Regions in Transition: Africa, Middle East, and former Soviet Union Unstable or developing countries offer a risky form of opportunity Many barriers: lack infrastructure, shifting political power, and lack of support once the business is in operation Research the culture and business practices Consider partnering with a local company Be sure to know your rights

GLOBAL OPPORTUNITIES  Entrepreneurship in the Global Marketplace Different from domestic business Countries differ in their cultures, political systems, economic systems, legal systems, and levels of economic development Cultural differences make the management of an international business more complicated than the management of a domestic business Cross-boarder business transactions requires an in- depth understanding of the rules of international trade An international business must have policies for dealing with movements in exchange rates.

WAYS to ENTER the GLOBAL MARKET: Understanding International Business  Importance of Culture Study customs…..there may be contrasting differences ○ American business owners often travel to Japan in a hurry to close a transaction. ○ Japanese business people, like to take their time completing a deal, they want to get to know the person before they complete transaction. Trust is very important, they are willing to take the time to make sure that you are trustworthy.

Tips for Showing Respect  Dress Conservatively  Do not correct the other person’s use of English.  Be prepared to remove your shoes.  Respect different tastes in food  Know something about the country and its culture  Build a relations and trust before conducting business  If necessary bring an interpreter to translate

ENTERING the GLOBAL MARKET  Sources for locating the best market  Consult the U.S. Census Bureau’s Guide to Foreign Trade Statistics - sources for various trade statistics  Standard Industrial Trade Classification (SITC) Codes – what types of products are traded in specific countries. Also find information about how well your product or service competes in different marketplaces

Sources for Locating Best Market  Suppose you are planning to export a toy. Find out how many toys are sold in different countries every year. Look for a country that imports more toys than the average. The country should have a history of importing goods from U.S. Generally, in order for a country to be considered a good export candidate, about 5% of its total imports should be American goods.

Sources for Locating Best Market  Other Sources of Help Contact International Trade Administration office and the Department of Commerce in Washington, DC. International Business Exchange (IBEX). It allows you to sell products and services online anywhere in the world. It is a good source to find trading partners, too.

Sources for Locating Best Market  Other Sources of Help U.S. Government and private agencies offer small businesses the opportunity to go on trade missions. Trade Missions allow owners to meet and talk with foreign agents, distributors, or potential business partners. ○ To participate you need a product that is on the government’s “Best Prospect” list. It is a product that other countries are looking to purchase. You also need a good Business Plan.

Importing and Exporting  Exporting: selling and shipping goods to another country.  Importing: buying products from other countries to resell in your own country.  Deciding on a Product to Export: best products for exporting are paper, electronics, chemicals, apparel, computers, and industrial and agricultural products. Country must have Disposable Income that is money people have to spend after paying for necessary expenses.

Importing and Exporting  Import Opportunities: U.S. imports a lot of goods for two main reasons ○ Competitive Advantage: Low labor costs ○ Apple Apple ○ Apple Apple ○ Absolute Advantage: Some products are found only in other countries; coffee

Importing and Exporting  Import Opportunities: Where to Find Import Opportunities ○ Attend Trade Shows – representatives from other countries display their products and services ○ Read trade publications and catalogs show available products ○ Research Your Market do people actually want the products?

Importing and Exporting  Export Opportunities: Expand your business to new markets Exporting is more complicated than importing ○ Need to understand foreign countries ○ Takes longer to make a profit due to necessary time to build relationships Where to Find Export Opportunities ○ Establish an e-commerce web site ○ Use a Trade Intermediary – an agency that serves as distributor in a foreign country ○ Establish a Foreign Joint Venture – an alliance between an American small business and a foreign company

Importing and Exporting  Export Opportunities: Where to Find Export Opportunities ○ Establish an e-commerce web site ○ Use a Trade Intermediary – an agency that serves as distributor in a foreign country ○ Establish a Foreign Joint Venture – an alliance between an American small business and a foreign company ○ License foreign businesses to sell your business’s products ○ Use an Export Management Company - for a commission will handle all tasks related to exporting ○ Hire a Freight Forward – handles overseas shipments

Government Regulations on International Trade  Over 100 federal agencies are involved with import and export process. Food and Drug Administration regulates food/drugs U.S. Customs Service oversight import requirements U.S. Census Bureau general information with export requirements U.S. Department of Commerce International Trade Administration Trade Information Center (TIC) – Trade Specialists counsel programs help with process 104 Export Assistance Centers- operate in cooperation with SBA and Export-Import Bank of America – marketing and trade finance support

Things to Consider Before Going Global  Conduct Market Research Is there a need for your product/service? Do you need to make any modifications in order to sell in in foreign market? Can you solve a problem for people from country Study the country, its culture, and people