Professional Documents
Culture Documents
Doing Business in Global Markets: BUS 100 - Introduction To Business Alaa Hamade
Doing Business in Global Markets: BUS 100 - Introduction To Business Alaa Hamade
Doing Business in Global Markets: BUS 100 - Introduction To Business Alaa Hamade
Alaa Hamade
Chapter 3
Doing Business in Global
Markets
©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
The Dynamic Global Market
Business in the Global Market
• Over 90% of companies doing business globally believe it is
important for employees to have international experience.
• U.S. organizations are also expanding abroad.
• Importing — Buying products from another country.
• Exporting — Selling products to another country.
• The United States is the largest importing and the third-largest
exporting nation in the world.
LO 3-1
©McGraw-Hill Education.
Why Trade with Other Nations? 1 of 2
Countries with abundant natural resources (like Venezuela
or Iraq) need technological resources from other countries
(like Japan).
Global trade allows countries to produce what they make
best and buy what they need from others.
• Free trade—The movement of goods and services among
nations without political or economic barriers.
LO 3-1
©McGraw-Hill Education.
Figure 3.2 The Pros and Cons of Free
Trade
LO 3-1
©McGraw-Hill Education.
Getting Involved in Global Trade 1 of 3
Importing Goods and Services
• Students attending schools abroad tend to notice products that
they’re used to are unavailable in their new country.
• By working with producers in their native country, some become
importers while still in school.
LO 3-2
©McGraw-Hill Education.
Getting Involved in Global Trade 2 of 3
Measuring Global Trade
• Balance of trade — The total value of a nation’s exports
compared to its imports over a particular period.
• Trade surplus (favorable) — Occurs when the value of a
country’s exports exceeds that of its imports.
• Trade deficit (unfavorable) — Occurs when the value of a
country’s imports exceeds that of its exports.
LO 3-2
©McGraw-Hill Education.
Getting Involved in Global Trade 3 of 3
Measuring Global Trade continued
• Balance of payments — The difference between money coming
into a country (from exports) and money leaving the country
(from imports) plus money flows from other factors such as
tourism, foreign aid, military expenditures, and foreign
investment.
• The goal is to have more money flowing into a country than out—a
favorable balance.
• An unfavorable balance is when more money flows out of a country.
• Dumping — Selling products in a foreign country at lower prices
than those charged in the producing country.
• Dumping is prohibited.
• China and Brazil have been penalized for dumping steel in the
United States.
LO 3-2
©McGraw-Hill Education.
Which Country?
For this exercise, assume you are the owner of a small electronics firm based
in the American Midwest. Your research department has developed a cellular
phone that translates conversations into any of 24 languages. From
conversations with business associates and friends, you have identified two
especially attractive overseas markets—Brazil and Australia. Use the CIA
World Factbook to help you research these two countries.
Excercise
©McGraw-Hill Education.
Figure 3.4 Strategies for Reaching
Global Markets
Licensing
• Licensing — A global strategy in which a firm (the licensor)
allows a foreign company (the licensee) to produce its product in
exchange for a fee (a royalty).
• Licensing can benefit a firm by:
• Gaining revenues it wouldn’t have otherwise generated
• Spending little or no money to produce or market their products
• Disney licensing toy makers
LO 3-3
©McGraw-Hill Education.
Strategies for Reaching Global
Markets 2 of 9
Exporting
• Export Assistance Centers (EAC) provide hands-on exporting
assistance and trade-finance support for small and medium-
sized businesses that wish to directly export goods and services.
• Export-trading companies (ETC) help companies engage in
indirect exporting by:
• Matching buyers and sellers
• Dealing with foreign customs offices, documentation, and
conversions
LO 3-3
©McGraw-Hill Education.
Strategies for Reaching Global
Markets 3 of 9
Franchising
• Franchising — A contractual agreement whereby someone with
a good idea for a business sells others the rights to use the
name and sell a product or service in a given territory in a
specified manner.
• Franchisors need to be careful to adapt their product to the
countries they serve.
• Domino’s Pizza and Dunkin Donuts all adapted their products to
different tastes in different countries.
• Most fast food chains
LO 3-3
©McGraw-Hill Education.
Strategies for Reaching Global
Markets 4 of 9
Contract Manufacturing
• Contract manufacturing — A foreign company’s production of
private-label goods to which a domestic company then attaches
its own brand name or trademark; part of the broad category of
outsourcing.
• Contract manufacturing can be used to:
• Allow a company to experiment in a new market without incurring
heavy start-up costs such as building a manufacturing plant
• Temporarily meet an unexpected increase in orders
• Apple using Foxconn to manufacture iPhones
LO 3-3
©McGraw-Hill Education.
Strategies for Reaching Global
Markets 5 of 9
LO 3-3
©McGraw-Hill Education.
Strategies for Reaching Global
Markets 6 of 9
LO 3-3
©McGraw-Hill Education.
Strategies for Reaching Global
Markets 7 of 9
LO 3-3
©McGraw-Hill Education.
Strategies for Reaching Global
Markets 8 of 9
LO 3-3
©McGraw-Hill Education.
Strategies for Reaching Global
Markets 9 of 9
LO 3-3
©McGraw-Hill Education.
Forces Affecting Trading in Global
Markets 1 of 5
Sociocultural Forces
• To be involved in global trade, you must be aware of the cultural
differences among nations, including:
• Social structures
• Religion
• Manners and customs
• Values and attitudes
• Language
• Personal communication
LO 3-4
©McGraw-Hill Education.
Figure 3.6 Oops, Did We Say That?
LO 3-4
©McGraw-Hill Education.
Forces Affecting Trading in Global
Markets 3 of 5
LO 3-4
©McGraw-Hill Education.
Forces Affecting Trading in Global
Markets 4 of 5
LO 3-4
©McGraw-Hill Education.
Forces Affecting Trading in Global
Markets 5 of 5
LO 3-4
©McGraw-Hill Education.
Trade Protectionism 1 of 5
Trade protectionism — The use of government
regulations to limit the import of goods and services.
• Advocates of protectionism believe it allows domestic
producers to survive, grow, and produce jobs.
• Tariffs — A tax imposed on imports.
• Protective tariffs
• Revenue tariffs
LO 3-5
©McGraw-Hill Education.
Trade Protectionism 2 of 5
Import quota — A limit on the number of products in
certain categories that a nation can import.
Embargo — A complete ban on the import or export of a
certain product, or the stopping of all trade with a particular
country.
• Political disagreements can lead to embargos, like the U.S.
embargo against Cuba.
LO 3-5
©McGraw-Hill Education.
Trade Protectionism 3 of 5
The World Trade Organization
• General Agreement on Tariffs and Trade (GATT) — A 1948
agreement that established an international forum for negotiating
mutual reductions in trade restrictions.
• World Trade Organization (WTO) — An independent entity of
164 member nations whose purpose is to oversee cross-border
trade issues and global business practices; headquartered in
Geneva.
LO 3-5
©McGraw-Hill Education.
Trade Protectionism 4 of 5
Common Markets
• Common market — A regional group of countries that have a
common external tariff, no internal tariffs, and a coordination of
laws to facilitate exchange; also called a trading bloc.
• Some common markets are:
• European Union (EU)
• Mercosur
• ASEAN
• COMESA
LO 3-5
©McGraw-Hill Education.
Figure 3.8 Members of the European
Union
LO 3-5
©McGraw-Hill Education.
The Future of Global Trade 1 of 2
China
• With over 1.38 billion people, has transformed the world
economic map. Over 400 of the Fortune 500 companies have
invested in China.
India
• Has seen huge growth in information technology,
biotechnology, and pharmaceuticals.
Russia
• Projected to be a wealthy global economy by 2025, but
declining oil prices have slowed the economy. It is also
plagued by political, currency, and social problems.
Brazil
• Seventh-largest economy in the world with well-developed
agriculture, mining, manufacturing, and service sectors.
LO 3-6
©McGraw-Hill Education.
The Future of Global Trade 2 of 2
The Challenge of Offshore Outsourcing
• Outsourcing — Process whereby one firm contracts with other
companies to do some or all of its functions.
• U.S. firms have outsourced payroll functions, accounting, and
manufacturing for years.
• With the growth of global markets, companies have been shifting to
offshore outsourcing — outsourcing with other countries.
LO 3-6
©McGraw-Hill Education.
Figure 3.9 The Pros and Cons of
Offshore Outsourcing