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International Trade and Foreign Direct Investment: International Business by Ball, Mcculloch, Frantz, Geringer, and Minor
International Trade and Foreign Direct Investment: International Business by Ball, Mcculloch, Frantz, Geringer, and Minor
•International trade
and growth
•Direction of trade
•Size, growth and
International Trade and direction of FDI
•Investments in U.S.
Foreign Direct Investment •Reasons for entering
foreign markets
•Dimensions of
globalization
International Business
by Ball, McCulloch, Frantz,
Geringer, and Minor
McGraw-Hill/Irwin Copyright
Copyright © 2006
© 2006 TheThe McGraw-HillCompanies,
McGraw-Hill Companies,Inc.
Inc. All
All rights
rights reserved
reserved.
Chapter Objectives
Appreciate the magnitude of international trade.
Identify the direction of trade.
Explain the size, growth, and direction of U.S. foreign direct
investment.
Identify who invests and how much is invested in the U.S.
Understand the reasons for entering foreign markets.
Comprehend that globalization of an international firms
occurs over seven dimensions and that a company can be
partially global in some dimensions and completely global in
others.
2-2
2-4
2-5
In 2003,
international trade in
goods and services
exceeded $9 trillion.
One-fourth of everything
grown or produced in the
world is now exported.
2-6 Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved
Volume of Trade
Increases in exports to developing countries,
especially
Latin America
Central and Eastern Europe
Middle East
Asia
2-7
2-9
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved
Direction of Trade -
The Exceptions
Reasons the United
States exports more to
developing nations
The U.S. has significantly
more subsidiaries in
developing countries
than Japanese companies
Some customers prefer to
buy from American firms
2-10
2-11
Rising standard of
living
Further industrial
expansion
Import of raw materials
to be assembled
Government pressure
to lower trade surpluses
2-13
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved
Foreign Investment
Two components of foreign investment
Portfolio investment
Purchase of stocks and bonds solely for the purpose of
obtaining a return on the funds invested.
Direct investment
Investors participate in the management of the firm in
addition to receiving a return on their money.
Applies when investors equity participation ratio is 10
percent or more.
2-14
2-15
2-16
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved
FDI in United States
Nearly 82% of stock
owned by firms from
United Kingdom
France
Netherlands
Japan
Germany
Switzerland
Canada
2-17
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Acquire or Build
Majority of FDI acquisitions because
Corporate restructuring put many businesses on
market
Foreign companies want to gain rapid access
2-18
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved
New Markets
New Markets Factors Other Considerations
Saturated home market
Population growth
Find markets with
Preferential Trading
Rising GDP per capita
Agreements
Need reliable data
Must compare
Fast growing economy
purchasing power Improved
Evenly distributed communications
income preferable
2-19
2-20
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved
Why Enter Foreign Markets?
To protect domestic market
Follow customers overseas
Attack in competitor’s home market
Use foreign production to lower costs
Protect from lower-priced foreign imports
In-bond plants (maquiladoras)
Caribbean Basin Initiative
Andean Trade Preference Act
Growth Triangles
Export Processing Zones
2-21
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved
Why Enter Foreign Markets?
To protect foreign market
Lack of foreign exchange
Local production by competitors
Follow suit or risk losing the market
Downstream markets
Protectionism
Government erects barriers to protect local industry
Guarantee supply of raw materials
Acquire technology and management know-how
Geographic diversification
Satisfy management desire for expansion
2-22
2-23
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved
Global Dimensions
Product
Markets
Promotion
Use of non-home-
country personnel
Extent of global
ownership of firm
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved
Exports of Cereals
Source: ese.export.gov
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved
U.S. Trade
Source: www.whitehouse.gov
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved
Global FDI Structure
Source: UNCTAD
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved
The Top U.S. Investors in Poland
(December 1998)
Source: www.mac.doc.gov
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved