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Chapter 3: THE WORLD MARKETPLACE

Chapter 3: THE WORLD MARKETPLACE. Business without Borders. With technology and telecommunications booming, and trade barriers falling, the economic boundaries between nations have begun to blur. AN UNPRECEDENTED OPPORTUNITY. WORLDWIDE ECONOMIC GROWTH. KEY REASONS FOR INTERNATIONAL TRADE.

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Chapter 3: THE WORLD MARKETPLACE

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  1. Chapter 3: THE WORLD MARKETPLACE Business without Borders

  2. With technology and telecommunications booming, and trade barriers falling, the economic boundaries between nations have begun to blur. AN UNPRECEDENTED OPPORTUNITY

  3. WORLDWIDE ECONOMIC GROWTH

  4. KEY REASONS FOR INTERNATIONAL TRADE • Access to Factors of Production • Reduced Economic Risk • Innovation • Competitive Advantage

  5. GLOBAL TRADE: TAKING MEASURE • Balance of Trade • Trade Deficit • Trade Surplus • Balance of Payments • Balance of Payments Deficit • Balance of Payments Surplus • Exchange Rates • Countertrade Total value of imports > Total value of exports Total value of imports < Total value of exports $$ flowing in < $$ flowing out $$ flowing in > $$ flowing out

  6. United States Balance of Trade The balance of trade is the difference between the monetary value of exports and imports in an economy over a certain period of time. A positive balance of trade is known as a trade surplus and consists of exporting more than is imported; a negative balance of trade is known as a trade deficit or, informally, a trade gap.

  7. EXCHANGE RATES: WHO BENEFITS?

  8. American Dollar Exchange Rate in USD

  9. GLOBAL MARKET DEVELOPMENT OPTIONS Lower Risk Higher Risk Direct Investment Exporting Licensing Franchising Less Control More Control

  10. STRATEGIES FOR REACHING GLOBAL MARKETS • Licensing • Authority given by domestic firm for rights to produce/market its product and use trademarks/patents. • Franchising • Providing the right to produce and market products under its operating requirements. • Direct Investment • Firms acquire businesses or develop new facilities in foreign countries. • Joint Ventures • Two or more companies joining forces to pursue specific opportunities (Partnership or Strategic Alliances Coke/Pepsi McDonalds

  11. MULTINATIONAL FIRMS Do you know where the firm that ultimately owns each brand is headquartered? Nestle Quick Switzerland Nokia Cell Phones Finland Jaguar Automobiles India Michelin Tires France Shell Oil Netherlands/England Columbia Records Japan/Germany

  12. BARRIERS TO INTERNATIONAL TRADE • Sociocultural Differences • Economic Differences • Political & Legal Differences

  13. SOCIAL/CULTURAL DIFFERENCES • Nonverbal Communication • Forms of Address • Attitudes toward punctuality • Religious Celebrations • Business Practice/Gifts Think beyond the obvious differences. Social/cultural differences can rapidly undermine business relationships.

  14. ECONOMIC DIFFERENCES • Exchange Rates • Population • Per Capita Income • Infrastructure • Transportation • Communication • Energy • Finance Can you profitably provide your product or service to meet the needs of the market?

  15. POLITICAL & LEGAL DIFFERENCES • Political regimes differ around the world • Legal Differences • Lack of Enforcement • Bribery • Political Climate • Stability • Violence • Piracy and intellectual property is a problem in several foreign nations

  16. PROTECTIONISM

  17. TRADE RESTRICTIONS • Tariffs • Taxes levied against imports • Quotas • Limitations on the amount of specific products that may be imported from certain countries • Voluntary Export Restrictions • Limitations on the amount of specific products that one nation will export to another • Embargo • Total ban on international trade of a certain item or a total halt in trade with a specific nation

  18. GLOBAL EMPLOYMENT “ A new study suggests that 2.3 million service jobs will have moved from the United States to other countries by 2008, up from 900,000 as of 2003. “

  19. REVERSE BRAIN DRAIN • Many talented immigrants are moving home to take advantage of new economic opportunities. • US companies can cut costs by sourcing employees from overseas. • But is America losing potential innovators such as Sergey Brin, founder of Google?

  20. FREE TRADE: THE MOVEMENT GAINS MOMENTUM There has been a global move toward free trade – the unrestricted movement of good and services across borders.

  21. GATT AND WORLD TRADE ORGANIZATION (WTO) • General Agreement on Tariffs & Trade (GATT) • Established in 1948 • Now encompasses 125 nations • Slashed tariffs by about 30% • Promote International Trade • Settle Trade Disputes

  22. FREE TRADE • The World Bank • 185 Member Countries • Reduce World Poverty in Developing World • Influence Global Economy • Provide Financial Assistance • Low interest loans • The International Monetary Fund • Support Stable Exchange Rates • Facilitate International Payments • Adopt Economic Policies • Promote Trade • Lend money to member nations

  23. TRADING BLOCS/COMMON MARKETS • The North American Free Trade Agreement (NAFTA) • The largest trading bloc • US, Canada, Mexico • European Union (EU) • The largest common market • 27 nations; combined GDP $15Trillion • Goal is to bolster Europe’s trade position Groups of Countries promoting the free flow of goods and services

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