1. © 2009 South-Western, a division of Cengage Learning 1 Chapter 3: THE WORLD MARKETPLACE Business without Borders

2. © 2009 South-Western, a division of Cengage Learning 2 LOOKING AHEAD Why should today’s managers think globally? What opportunities exist in the world economy for businesses? Why do nations trade? How do we measure trade? How do companies reach global markets? What are the barriers to international trade? What are the benefits and criticisms of the free trade movement?

3. © 2009 South-Western, a division of Cengage Learning 3 With technology and telecommunications booming, and trade barriers falling, the economic boundaries between nations have begun to blur. AN UNPRECEDENTED OPPORTUNITY

4. TRADITIONAL CAPITALISM You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income. AN AMERICAN CORPORATION You have two cows. You sell one, and force the other to produce the milk of four cows. You are surprised when the cow drops dead. A FRENCH CORPORATION You have two cows. You go on strike because you want three cows. A JAPANESE CORPORATION You have no cows. You create clever cow cartoon images called Cowkimon and market them worldwide. © 2009 South-Western, a division of Cengage Learning 4

5. A GERMAN CORPORATION You have two cows. You reengineer them so they live for 100 years, eat once a month, and milk themselves. AN ITALIAN CORPORATION You have two cows, but you don’t know where they are. You break for lunch. A RUSSIAN CORPORATION You have 2 cows. You count them and learn you have 5 cows. You count them again and learn you have 42 cows. You count them again and learn you have 12 cows. You stop counting cows and open another bottle of vodka. © 2009 South-Western, a division of Cengage Learning 5

6. 6 WORLDWIDE ECONOMIC GROWTH

7. © 2009 South-Western, a division of Cengage Learning 7 GLOBAL TRADE: TAKING MEASURE Balance of Trade –Trade Deficit –Trade Surplus Balance of Payments –Balance of Payments Deficit –Balance of Payments Surplus

8. © 2009 South-Western, a division of Cengage Learning 8 FREE TRADE: THE MOVEMENT GAINS MOMENTUM There has been a global move toward free trade – the unrestricted movement of good and services across borders.

9. © 2009 South-Western, a division of Cengage Learning 9 MULTINATIONAL FIRMS Shell Oil Michelin Tires Jaguar Automobiles Nokia Cell Phones Nestle Quick Netherlands/England France United States Finland Switzerland Columbia RecordsJapan/Germany Do you know where the firm that ultimately owns each brand is headquartered?

10. © 2009 South-Western, a division of Cengage Learning 10 GATT AND WORLD TRADE ORGANIZATION (WTO) General Agreement on Tariffs & Trade (GATT) –Established in 1948 –Now encompasses 125 nations –Slashed tariffs by about 30% World Trade Organization (WTO) –Promote International Trade –Settle Trade Disputes

11. © 2009 South-Western, a division of Cengage Learning 11 FREE TRADE The World Bank –184 Member Countries –Reduce World Poverty in Developing World –Influence Global Economy –Provide Financial Assistance Low interest loans The International Monetary Fund –Support Stable Exchange Rates –Facilitate International Payments –Adopt Economic Policies –Promote Trade

12. © 2009 South-Western, a division of Cengage Learning 12 TRADING BLOCS/COMMON MARKETS Groups of Countries promoting the free flow of goods and services The North American Free Trade Agreement (NAFTA) –The largest trading bloc –US, Canada, Mexico European Union (EU) –The largest common market

13. © 2009 South-Western, a division of Cengage Learning 13 KEY REASONS FOR INTERNATIONAL TRADE Access to Factors of Production Reduced Economic Risk Innovation Competitive Advantage

14. © 2009 South-Western, a division of Cengage Learning 14 COMPETITIVE ADVANTAGE A country has an absolute advantage when It can produce more of a good than other nations, using the same amount of resources. Comparative advantage - the benefit a country has in a given industry if it can make products at a lower opportunity Cost. Opportunity cost –The cost of giving up the second-best choice when making a decision.

15. Melora © 2009 South-Western, a division of Cengage Learning 15 Typing – better than anyone else in her village - $20 per hour produces 100 pages Surgery – better than anyone else in her village - $150 per hour

16. © 2009 South-Western, a division of Cengage Learning 16

17. © 2009 South-Western, a division of Cengage Learning 17 STRATEGIES FOR FINDING GLOBAL SUPPLIERS Foreign Outsourcing/Contract Manufacturing – contracting with Foreign suppliers to produce products, usually at a fraction of the domestic cost. Importing – buying products that have been produced or grown in foreign nations.

18. © 2009 South-Western, a division of Cengage Learning 18 FOREIGN INVESTMENT RISK

19. © 2009 South-Western, a division of Cengage Learning 19 STRATEGIES FOR REACHING GLOBAL MARKETS Licensing –Authority given by domestic firm for rights to produce/market its product and use trademarks/patents. Franchising –Offering businesses in other countries the right to produce and market products under its operating requirements. Direct Investment –Firms acquire businesses or develop new facilities in foreign countries.

20. © 2009 South-Western, a division of Cengage Learning 20 BARRIERS TO INTERNATIONAL TRADE Sociocultural Differences Economic Differences Political & Legal Differences

21. © 2009 South-Western, a division of Cengage Learning 21 SOCIAL/CULTURAL DIFFERENCES Nonverbal Communication Forms of Address Attitudes toward punctuality Religious Celebrations Business Practice/Gifts Think beyond the obvious differences. Social/cultural differences can rapidly undermine business relationships.

22. © 2009 South-Western, a division of Cengage Learning 22 OOPS: TRANSLATION GAFFS “It takes a virile man to make a chicken affectionate” –Perdue Farms slogan “It takes a tough man to make a chicken tender” translation in Mexico. Irish Manure Liquor, Silver Dung Rolls Royce? –Several foreign companies have introduced products in Germany with the word “mist” which roughly translates into “dung” or “manure” “Nothing sucks like an Electrolux” –Electrolux, a Swedish maker vacuum cleaners, introduced their vacuums in the U.S. with a literal translation of their slogan.

23. What do women want? American women want convenience Italian women want cleaning strength © 2009 South-Western, a division of Cengage Learning 23

24. © 2009 South-Western, a division of Cengage Learning 24 ECONOMIC DIFFERENCES Exchange Rates Population Per Capita Income Infrastructure –Transportation –Communication –Energy Finance Can you profitably provide your product or service to meet the needs of the market?

25. © 2009 South-Western, a division of Cengage Learning 25 THE MANY NAMES OF MONEY China England European Union India Iran Israel Japan Mexico South Africa South Korea Yuan Pound Euro Rupee Rial Shekel Yen Peso Rand Won

26. Exchange rates as of 9/10/2008 - 8:44:39 AM Currency In US Dollar (Per one foreign currency unit) Per US Dollar Brazilian Real0.561171.78200 Japanese Yen0.00927107.84000 Mexican Peso0.0945210.57970 Canadian Dollar0.931971.07300 Chinese Yuan0.146326.83450 Euro1.403310.71260 Indian Rupee0.0220645.32800 Swiss Franc0.880511.13570 © 2009 South-Western, a division of Cengage Learning 26

27. © 2009 South-Western, a division of Cengage Learning 27 EXCHANGE RATES: WHO BENEFITS? STRONG DOLLAR VS EURO: (Example: $1.00 = 1.20 euros) WEAK DOLLAR VS. EURO: (Example: $1.00 =.60 euros) U.S. travelers to EuropeEuropean travelers to U.S. American firms with European operations European firms with American operations European exportersAmerican exporters

28. © 2009 South-Western, a division of Cengage Learning 28 POLITICAL & LEGAL DIFFERENCES Political regimes differ around the world Legal Differences –Lack of Enforcement –Bribery Political Climate –Stability –Violence Piracy and intellectual property is a problem in several foreign nations

29. © 2009 South-Western, a division of Cengage Learning 29 PROTECTIONISM Reasons to Create Trade Restrictions Reasons to Eliminate Trade Restrictions Protect domestic industryReduce prices and increase choices for consumers Protect domestic jobs in key industries Increase domestic jobs Retaliate against countries who have engaged in unfair trade practices Build exporting opportunities Pressure other countriesUse world resources more efficiently

30. © 2009 South-Western, a division of Cengage Learning 30 TRADE RESTRICTIONS Tariffs Quotas Voluntary Export Restrictions Embargo

31. © 2009 South-Western, a division of Cengage Learning 31 THE SLEEPING DRAGON AWAKES In one generation, per capita income in China has tripled 300 million have been pulled from poverty China ranks 3rd in international commerce China will play a pivotal role in shaping the world economy video After years closed off from the world, China is experiencing economic growth of approximately 10% per year

32. http://www.pbs.org/newshour/bb/asia/ja n-june07/china_06-25.htmlhttp://www.pbs.org/newshour/bb/asia/ja n-june07/china_06-25.html Video © 2009 South-Western, a division of Cengage Learning 32

33. © 2009 South-Western, a division of Cengage Learning 33 GLOBAL EMPLOYMENT “ “ A new study suggests that 2.3 million service jobs will have moved from the United States to other countries by 2008, up from 900,000 as of 2003.

34. © 2009 South-Western, a division of Cengage Learning 34 LOOKING BACK What barriers and opportunities are fueling the growth of the global economy? What are strategies for reaching global markets? How do we measure trade? Discuss barriers to international trade? What are strategies for promoting free trade? What are the benefits and criticisms of free trade?

35. © 2009 South-Western, a division of Cengage Learning 35 REVERSE BRAIN DRAIN Many talented immigrants are moving home to take advantage of new economic opportunities. US companies can cut costs by sourcing employees from overseas. But is America losing potential innovators such as Sergey Brin, founder of Google?