1. Competing in the Global Marketplace
Chapter 3 1 1

2. Chapter 3 Learning Goals
Why is global trade important to the United States?
How is global trade measured?
Why do nations trade?
What are the barriers to international trade?
How do governments and institutions foster world trade?
What are international economic communities?
How do companies enter the global marketplace? 2 2

3. Chapter 3 Learning Goals
What threats and opportunities exist in the global marketplace?
What are the advantages of multinational corporations?
What are the trends in the global marketplace?

4. Learning Goal 1 Why is global trade important to the United States?
Improves relations with friends and allies; eases tensions among nations
Bolsters economies, raises people’s standard of living, and improves quality of life
U.S. is the largest importer/exporter in the world
One of 16 jobs in the U.S. is supported by exports

5. responsiveness to international business opportunities
Global Vision:
responsiveness to international business opportunities
awareness of threats from foreign competition
use international networks for production and distribution
Coca-Cola derives 80% of its profits from overseas (Source: Fortune, Sept. 28, 1998, p. 313)

6. Learning Goal 2 How is global trade measured? Balance of trade
Difference in value between a country’s exports and its imports over some period
Balance of payments
Difference between a country’s total payments to other countries and its total receipts from other countries
Exchange rate
Price of one country’s currency in terms of another country’s currency

7. Measuring Trade Between Nations
1. Exports and Imports
2. Balance of Trade
trade surplus vs. trade deficit
3. Balance of Payments
the difference between total payments to other countries and total receipts from other countries
4. Changing Value of Currency 2 2

8. Trade Between US and China
Baby carriage, toys, & sports
Aircraft & parts
Fertilizer
Shoes
Communication
Communication
Source: Newsweek, Nov. 29, 1999, pp 2 2

9. Learning Goal 3 Why do nations trade? Nations gain by trading
Principle of comparative advantage
Each country should specialize in the goods it can produce most readily and cheaply
Trade those goods for those that other countries can produce most readily and cheaply
Results in more goods at lower prices
Free trade allows trade among nations without government restrictions

10. Why Nations Trade: 1. Absolute advantage
a country can sell a product at a lower price than any other country, or
a country is the only country that can provide a given product
2. Comparative advantage
lower prices result from every country specializing in products it can produce most readily and cheaply, trading them for products specialized in by other countries 2 2

11. Learning Goal 4 What are the barriers to international trade?
Three major barriers
Natural barriers
Distance
Language
Tariff barriers, or taxes on imported goods
Non-tariff barriers
Import quotas
Embargoes
Buy-national and customs regulations
Exchange controls

12. Barriers to Global Trade:
1. Natural Barriers
examples: distance, language
2. Tariff Barriers
taxes on imported goods
3. Nontariff Barriers
import quotas
embargoes
buy-national regulations
custom regulations
exchange controls 2 2

13. Fostering Global Trade:
1. Anti-dumping laws
prevent charging lower price in foreign markets than in home market for same product
2. Uruguay Round
agreement signed in 1994 by 117 nations to lower trade barriers 2 2

14. Learning Goal 5
How do governments and institutions foster world trade?
World Trade Organization
Has dramatically lowered trade barriers worldwide
Covers services, intellectual property rights, and exchange controls
World Bank
Makes loans to developing nations to help build infrastructures
International Monetary Fund
Makes loans to member nations that cannot meet their budgetary expenses

15. Fostering Global Trade:
3. World Trade Organization
provides lower trade barriers among member nations, and helps resolve trade disputes
4. World Bank & International Monetary Fund
lend money to developing nations and troubled nations 2 2

16. 10 Benefits of the WTO Helps promote peace
Handles disputes constructively
Its rules increase efficiency
Its rules make functioning easier
Free trade cuts cost of living
Permits more choice of products
Trade raises incomes
Trade stimulates economic growth
Shields governments from lobbying
Encourages good government
Source: World Trade Organization:

17. Learning Goal 6 What are international economic communities?
Reduce trade barriers among themselves
Often establish common tariffs and other trade barriers toward non-member countries
Best-known economic communities
European Union
NAFTA
Mercosur

18. International Economic Communities
1. North American Free Trade Agreement (NAFTA)
1993 agreement creating free-trade zone including Canada, Mexico, and United States
2. The European Union
organization of 15 European nations (as of 1999) that fosters political and economic integration of Europe
the eurodollar is a new currency to be distributed in 11 of the countries 2 2

19. Industries With High Export Growth Potential
Automobile parts & services
Apparel
Dental equipment
Construction equipment
Electronic components
Toys & games
Building products
Industrial chemicals
Sources: US Department of Commerce & North American Forum, 2 2

20. Learning Goal 7 How do companies enter the global marketplace?
Exporting
Licensing
Contract manufacturing
Joint ventures
Direct investment

21. Participating in the Global Marketplace
1. Exporting
2. Licensing
3. Contract Manufacturing
4. Joint Ventures
5. Direct Foreign Investment
6. Countertrade 2 2

22. Countertrade Example
Nestle had a surplus of After Eight dinner mints packaged for Christmas
Atwood Richards helped distribute the mints in Eastern Europe, a place where the packaging would appear to represent winter rather than Christmas specifically
Source: Atwood Richards,

23. Learning Goal 8
What threats and opportunities exist in the global marketplace?
Government trade policies can be loose or restrictive
Countries can be nationalistic
Governments can change
Products may fail due to lack of understanding of the culture of the target country
Developing countries may lack an economic infrastructure

24. Learning Goal 9 What are the advantages of multinational corporations?
Can sidestep restrictive trade and licensing restrictions by having headquarters in more than one country
Can move their operations from one country to the next based on more favorable economic conditions
Can tap into a vast source of technological expertise by drawing upon the knowledge of a global workforce

25. Threats and Opportunities in the Global Marketplace
intense nationalism
language barriers
cultural misunderstanding
Opportunities:
ability to overcome trade problems
can sidestep regulatory problems
flexibility to shift production as conditions change
tap new technology from other countries
save labor costs 2 2

26. Learning Goal 10 What are the trends in the global marketplace?
Firms will continue to seek opportunities outside their country’s borders
When an organization enters a new global market, competitors typically follow
Technological improvements in communication and transportation will make it easier to sell and distribute products internationally

27. Trends Affecting Global Trade:
1. Market Expansion
Forecasting International has predicted that all industries will go global (Source: HR News: The Society for Human Resource Management, Dec. 1999, p. 17)
2. Resource Acquisition
3. Competition
4. Technological Change
5. Government Actions 2 2