1. International Trade and Direct Foreign Investment
Chapter 2

2. International Trade Volume of Trade Where has it grown?
1990= $4 trillion
2003= $9 trillion
2008= $16.1 trillion
2012= $18.2 trillion
2016= $15.96 trillion
Where has it grown?
Top 10 countries produce:
56% of exports
63% of imports

3. International Trade Where is trade going? Japan U.S.
Developed countries  developed countries (75%)
Japan
Developing countries
Lack of resources
U.S.
Captive market
Australia and New Zealand
Shifting focus

4. International Trade Changing Direction of Trade Trade agreements
NAFTA’s effects
World trade between agreement partners
1980= 37.3%
1990= 59.9%
1999= 70.7%

5. Why Focus on Major Trading Partners?
Demonstrates
Business climate
Regulations
No strong cultural objections
Transportation
Intermediaries
Foreign exchange
Government
Asian imports

6. Foreign Investment Two components Portfolio investment
Less than 10%
$2.86 trillion invested in U.S. stocks and bonds from overseas
Direct investment
More than 10%

7. Foreign Investment Volume Annual Outflows Annual Inflows
U.S.= $1.5 billion (largest in world)
Declining proportion (35.5% tp 21.9%)
Annual Outflows
US & EU= 80%
Developed countries
Annual Inflows
Developed countries Developed countries
Trends

8. Foreign Investment Level and Direction Trade Leads to FDI?
What does it tell you?
Trade Leads to FDI?
Exporting leads to investment
FDI Leads to Trade
Lower barriers, increased competition, new production and communication technology

9. U.S. Foreign Investment Investment Abroad Investment in the U.S.
Increasing areas
Decreasing areas
Investment in the U.S.
Where is it coming from?
More invested in U.S. than U.S. is investing abroad

10. U.S. Foreign Investment What is being purchased in U.S.?
Existing companies
Assets are for sale
Fast access to technology
Known brand
Competitive pressures

11. Why Enter Foreign Markets?
Increased Profits and Sales
Enter new markets
New market creation
GDP per capita
Preferential Trading Arrangements
Larger markets
Faster-Growing Markets
Consumer support
Government support
Improved Communications
Easier to oversee
Supplement work done domestically

12. Why Enter Foreign Markets?
Obtain greater profits
Greater revenue
Reduced costs
Spread out fixed costs
Economies of scale
Higher profits
Test markets

13. Why Enter Foreign Markets?
Protect Markets, Profits, and Sales
Protect domestic market
Follow customers overseas
Follow main accounts
Attack competitors’ home markets
Using foreign production to lower costs
In-bond industry (maquiladora)
Impact
Caribbean Basin Initiative
Growth Triangles
Export Processing Zones

14. Why Enter Foreign Markets?
Protect Foreign Markets
Lack of foreign exchange
Local production by competitors
Downstream markets
Protectionism
Guarantee supply of raw materials
Acquire technology and management experience
Geographic diversification
Satisfy management’s desire

15. Multidomestic or Global?
Usual flow for exporting and investment
Why more standardization?
Seven dimensions
Product
Market
Promotion
Where value added
Competitive strategy
Use of non-home country personnel
Extent of global ownership