Chapter 4

Competing in Global Markets

Exports

- domestically produced goods and services sold in other countries.

Imports

- foreign goods and services purchased by domestic customers.

4-1 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Why Nations Trade

•New markets •New sources of materials and labor •Reduce dependence on home market •More efficient production of goods and services 4-2 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

 Major Emerging Markets for the 21 st Century 4-3 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

4-4

Advantages in International Trade Absolute Advantage

Exists when a country makes a product for which it can maintain a monopoly or that it can produce at a lower cost than any competitor

Comparative Advantage

Supplying a product more efficiently and at a lower price, compared with the outputs of other countries.

Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Measuring Trade Between Nations



Balance of trade

—difference between a nation’s exports and imports.



Trade surplus -

– when a country exports more than it imports and achieves a positive balance of trade 

Trade deficit -

when a country imports more than it exports and achieves a negative balance of trade U.S. has run a trade deficit since 1976 4-5 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Measuring Trade Between Nations



Balance of payments

—difference in money flows into or out of a country.



Balance of payments surplus -

more money has moved into a country than out 

Balance of payments deficit-

more money has gone out of the country than in 4-6 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

 Components of the Balance of Payments 4-7 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.



Exchange Rates

—value of one nation's currency relative to the currencies of other nations.  Currency values fluctuate or “float” depending on supply and demand in the international market.



Devaluation

—describes a fall in a currencies value relative to other currencies.

 Hard versus Soft Currencies 4-8 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Barriers to International Trade

 Businesses are likely to encounter social and cultural, economic, legal and political barriers when engaging in international trade.

4-9 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Barriers to International Trade

Types of Trade Restrictions Tariffs - tax imposed on imported goods Revenue – generate revenue Protective – protect domestic industries Nontariff Barriers Quotas – limit the amounts of certain products that countries can import in a time period.

Embargos – total ban on imports of a specific product or trade with a country Exchange Controls – exporters/importers must buy/sell currency through central bank “Red Tape” – process makes trade difficult 4-10 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

 Arguments for and against Trade Restrictions 4-11 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Reducing Barriers to International Trade

 Organizations Promoting International Trade 

General Agreement on Tariffs and Trade –

series of negotiations, called rounds, that substantially reduced worldwide tariffs and other barriers 

World Trade Organization

(WTO) — Since 1995, this 149 member international institution that monitors GATT agreements and mediates international trade disputes. WTO’s decisions are binding.

4-12 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Reducing Barriers to International Trade

 Organizations Promoting International Trade 

World Bank –

founded shortly after WWII, lends money to less developed and developing countries primarily for infrastructure.



International Monetary Fund –

founded a year after the World Bank, makes short term loans to member nations that can’t meet expenses.

4-13 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Reducing Barriers to International Trade

 International Economic Communities – 

North American Free Trade Agreement

– (NAFTA) 1994 agreement among the U.S., Canada, and Mexico to break down tariffs and trade restrictions.



European Union

—27 nation European economic alliance.

4-14 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

 The introduction of the euro was an event of enormous cultural and financial significance.

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Going Global

 Levels of Involvement in International Business A company’s risk and control increase with the level of involvement. 4-16 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Developing a Strategy for International Business



Global Business

(standardization)

Strategy

Offering a standardized, worldwide product and selling it in essentially the same manner throughout a firm’s domestic and foreign markets. (scientific equipment/jewelry) 

Multidomestic Business

(adaptation)

Strategy

Developing and marketing products to serve different needs and tastes of separate national markets. (McDonald’s/Toyota) 4-17 Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved.