Navigating International Trade: Concepts, Strategies, and Agreements Explained

1. International Trade

2. International Trade • The exchange of good/services among Nations • IMPORTS: Goods/Services purchased from other countries (IN) • Exports: Goods/Services sold to other countries (EXIT)

3. Economic Interdependency • Nations need to obtain goods/services from other nations • Absolute Advantage: Country has natural resources that allow it to produce an item at the lowest cost • China with 80% of the world’s silk • Comparative Advantage: The value a nation gains by selling what it produces most efficiently; specializing in products that suit their capabilities • US and Technology due to our infrastructure (airplanes, machinery, telecommunications, ent.)

4. Government Involvement • Balance of Trade • Trade Barriers • Trade Agreements and Alliances

5. Balance of Trade • The difference in value between exports and imports of a nation • Trade Deficit (Negative Balance)= We import more than we export • US has a large deficit to the surprise of many! • Decreases national revenue; increases debt; increase unemployment • Trade Surplus (Positive Balance)

6. Trade Barriers • Tariff: Tax on imports (duty) • Quota: Limits quantity of imports • Embargo: Complete ban on trade • Protectionism: Restrictions that protect domestic industry • Tariffs/Quotas • Opposite of Free Trade

7. Trade Agreements and Alliances • World Trade Organization(WTO): Coalition of nations that make international trade rules • Formed to design GATT (General Agreement on Tariffs and Trade) in 1995 • WTO polices these rules of free trade • 148 members as of Oct. 2004

8. Trade Agreements and Alliances • NAFTA (North American Free Trade Agreement): Agreement between US, Canada and Mexico that eliminates trade barriers and restrictions • European Union (EU): Free trade agreement between European nations

9. Trade Support • Most Favored Nation Status (MFNS): Encourages trade and provides nations with lower tariffs and better quotas • Foreign Trade Zones: Lower tariff areas • Export-Import Bank(ExImBank): provides loans • International Monetary Fund(IMF): stabalizes exchange of currency

10. International Trade The Global Marketplace Day 2

11. International Trade Activity • Importing • Exporting • Licensing • Contract Manufacturing • Joint Ventures • Foreign Direct Investments

12. Importing • Standards of products must meet same of domestic and FDA • Quotas must be met to avoid quarantine by US Customs • Custom Brokers:specialists who are licensed by the US Treasury to know and regulate the different trade laws, procedures and tariffs.

13. Exporting • Internet is making this easy for most domestic companies • BuyUsa • US Government Sites

14. Licensing • Letting another company use a trademark, patent, special formula, company name and some other property for a fee or royalty. • Franchise: Special Licensing offer for operation of an actual business • McDonalds

15. Contract Manufacturing • Hiring a foreign manufacturer to make your products • Growing as emerging countries gain facilities, know-how and inexpensive labor • Benefits: low wages, better pricing • Risk: Loss of information

16. Joint Venture • Business enterprise that companies set up together • Some countries do not allow foreign investors to own 100% of a business • Helps because local partners know the market and procedures for business

17. Foreign Direct Investment • Establishment of a business in a foreign country • Nissan in Smyrna!!

18. Trade Related Terms to Know • MultiNationals: Large corporations that have operations in several countries • Mini-Nationals: Midsize/smaller companies that have operations in foreign countries. (including factories, offices and additional facilities)

19. International Trade Considerations/Global Scan • Political and Legal Factors: Government stability; privatization vs. nationalizes • Nationalizes: the gov’t takes ownership, and the owners usually get nothing. • Trade Regulations and Laws • Economic Factors: infrastructure, labor costs, taxes, employee benefits, taxes, standard of living, Foreign Exchange Rate

20. International Trade Considerations • Socio-Cultural Factors: Understand the Culture first and establish a relationship. (ex. Chevrolet Nova) • Language, Symbols, Holidays, Religious Observance, Ettiquette • Technological Factors: Use of computers, faxes, Internet, Cell Phones, # of Telephone lines,

21. Customization vs. Globalization • Customization: Inventing a totally new product for a different country’s market. • Globalization: Keeping the product and advertising message the same to build brand recognition. • Product Adaptation: Changing a product to make more appropriate for foreign market • Promotion Adaptation: Not changing product but simply altering the promotional strategies in foreign markets