MKTG Discussion Questions
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David_IL_5e_Chapter01.pptxChapter 1 International Trade
International Trade
International Trade Growth
International Trade Milestones
Largest Exporting and Importing Countries
International Trade Drivers
International Trade Theories
International Business Environment
International Trade Growth
International Trade Growth 1953-2015.
Source: World Trade Organization
International Trade Milestones
Bretton-Woods Conference (1944)
Creation of the International Monetary Fund (1945)
First General Agreement on Tariffs and Trade (Geneva, 1948)
General Agreement on Tariffs and Trade
Multiple reductions on tariffs: GATT’s Kennedy Round (1964-67), Tokyo Round (1973-79), and Uruguay Round (1986-94). Currently in the Doha Round (started in 1998, stalled).
Treaty of Rome (1957)
World Trade Organization (1995)
The Euro’s creation (1999) and placement in circulation (2002)
Major Exporting Countries (2015)
| Country | Exports (US$ billions) | Percentage |
| China | 2,275 | 13.8% |
| United States | 1,505 | 9.1% |
| Germany | 1,329 | 8.1% |
| Japan | 625 | 3.8% |
| Netherlands | 567 | 3.4% |
| Korea, Republic of | 527 | 3.2% |
| Hong Kong, China | 511 | 3.1% |
| France | 506 | 3.1% |
| United Kingdom | 460 | 2.8% |
| Italy | 459 | 2.8% |
| Canada | 408 | 2.5% |
| Belgium | 398 | 2.4% |
| Mexico | 381 | 2.3% |
| Singapore | 351 | 2.1% |
| Russian Federation | 340 | 2.1% |
| Rest of the World | 5,839 | 35.4% |
| World | 14,482 | 100.0% |
Major Importing Countries (2015)
| Country | Imports (in US$ billions) | Percentage |
| United States | 2,308 | 13.8% |
| China | 1,682 | 10.1% |
| Germany | 1,050 | 6.3% |
| Japan | 648 | 3.9% |
| United Kingdom | 626 | 3.7% |
| France | 573 | 3.4% |
| Hong Kong, China | 559 | 3.3% |
| Netherlands | 506 | 3.0% |
| Korea, Republic of | 436 | 2.6% |
| Canada | 436 | 2.6% |
| Italy | 409 | 2.4% |
| Mexico | 405 | 2.4% |
| India | 392 | 2.3% |
| Belgium | 309 | 2.2% |
| Spain | 280 | 1.8% |
| Rest of the World | 6,361,028 | 35.9% |
| World | 18,567,000 | 100.0% |
International Trade Drivers
Cost Drivers
Companies increase their sales worldwide to recover their high investment costs.
Competition Drivers
Companies enter foreign markets to keep up with their competitors , retaliate against them, or enter a market first.
Market Drivers
Companies enter foreign markets because their customers expect them to be present in those countries.
Technology Drivers
Companies enter foreign markets because their customers use technology to make purchases from these markets
Cost Drivers
Companies in industries with high fixed costs try to spread these costs over many units, and therefore seek sales outside of their home markets.
Automobile companies were among the first to seek sales abroad:
Automobile production is dominated by 19 companies
(89 percent of all automobiles worldwide)
Automobile production is concentrated in 15 countries
(88 percent of worldwide production)
yet
Automobiles are sold in 143 countries.
Major Automobile Makers (2015)
| Company | Units Sold Worldwide | Brands |
| Toyota Motors Corp. | 10,475,000 | Toyota, Lexus, Daihatsu, Hino |
| Volkswagen Group AG | 9,895,000 | Volkswagen, Audi, Porsche, Škoda, Scania, SEAT |
| General Motors Corp. | 9,609,000 | Chevrolet, Buick, Cadillac, GMC, Opel, Holden |
| Hyundai Motor Group | 8,009,000 | Hyundai, Kia |
| Ford Motor Company | 5,970,000 | Ford, Lincoln, Troller, Bedford |
| Nissan | 5,098,000 | Nissan, Dacia, Infiniti, Datsun |
| Fiat Chrysler Automobiles | 4,866,000 | Fiat, Chrysler, Dodge, Alfa-Romeo, Ferrari |
| Honda Motors | 5,514,000 | Honda, Acura |
| Suzuki | 3,017,000 | Suzuki, Maruti |
| Peugeot-Citroën SA | 2,917,000 | Peugeot, Citroën |
| Renault | 2,762,000 | Renault |
| BMW AG | 2,166,000 | BMW, Mini, Rolls-Royce |
| SAIC Motors | 2,088,000 | Wuling, Baojun |
| Daimler AG | 1,973,000 | Mercedes-Benz, Mitsubishi-Fuso, Setra |
| Chang’an | 1,447,000 | Chang’an,Chana |
| Mazda Motors | 1,328,000 | Mazda |
| DongFeng Motors | 1,302,000 | Dongfeng, Fengshen |
| Mitsubishi | 1,262,000 | Mitsubishi |
| Beijing Automotive Group | 1,116,000 | BAIC, BAW, Foton |
| Rest of the World | 9,958,000 | Tata, Jaguar, Land Rover, Geely, Emgrand, Englon, Gleagle, Subaru, Great Wall, Haval, FAW, Besturn, Hong Qi, Jilin, IKCO |
Vehicle Production Countries (2015)
| Country | Vehicles Produced |
| China | 24,503,000 |
| United States | 12,100,000 |
| Japan | 9,278,000 |
| Germany | 6,033,000 |
| South Korea | 4,556,000 |
| India | 4,126,000 |
| Mexico | 3,565,000 |
| Spain | 2,733,000 |
| Brazil | 2,429,000 |
| Canada | 2,283,000 |
| France | 1,970,000 |
| Thailand | 1,915,000 |
| United Kingdom | 1,464,000 |
| Russia | 1,458,000 |
| Turkey | 1,359,000 |
| Rest of the World | 10,862,000 |
| Total | 90,781,000 |
Competition Drivers
Companies that see themselves as global players seek to counter their competitors’ international moves in order to retain global market share.
Every move by one of the players is met with some retaliatory measure:
When Benetton—an Italian company—, entered the U.S. market, The Gap—an American company—, retaliated by entering the Italian market.
When Carrefour—a French retailer—enters a market, Walmart enters another. And when Walmart enters a market, Carrefour does as well.
Competition Drivers
| The way Carrefour and Walmart split the world (2017) | |
| Countries in which both are present | Argentina, Brazil, China, India, Japan, Kenya, United Kingdom. |
| Countries in which only Carrefour is present | Albania, Armenia, Austria, Bahrain, Belgium, Bulgaria, Cyprus, Egypt, France, Georgia, Greece, Indonesia, Iran, Iraq, Italy, Jordan, Kazakhstan, Kuwait, Lebanon, Macedonia, Monaco, Malaysia, Morocco, Oman, Pakistan, Poland, Portugal ,Qatar, Romania, Saudi Arabia, Spain, Slovakia, Slovenia, Syria, Taiwan, Tunisia, Turkey, United Arab Emirates. |
| Countries in which only Walmart is present | Botswana, Canada, Chile, Costa Rica, Ghana, Guatemala, Honduras, Lesotho, Malawi, Mexico, Mozambique, Namibia, Nicaragua, Nigeria, South Africa, Tanzania, Uganda, United States, Zambia. |
Market Drivers
Companies in industries where customers travel will follow these customers internationally:
Hotel chains were first to offer a standardized experience worldwide.
Fast-food restaurants followed their customers abroad (McDonald’s first foreign ventures followed U.S. military personnel in Germany and Japan).
Market Drivers
| Number of countries in which selected companies are present* | |
| McDonald’s Restaurants | 121 |
| Hilton Hotels | 91 |
| Benetton Stores | 120 |
| Cartier Jewelry Stores | 125 |
| Accor Hotels | 92 |
| Exxon-Mobil Gas Stations | 100+ |
* Some companies have a very “broad” definition of countries, counting
Puerto Rico, Martinique, and Jersey as separate countries. The tallies in
this table are self reported.
International Trade Theories
Adam Smith’s Theory of Absolute Advantage
David Ricardo’s Theory of Comparative Advantage
Eli Hecksher and Bertil Ohlin’s Factor Endowment Theory
Raymond Vernon’s International Product Life Cycle Theory
Michael Porter’s Cluster Theory
Yossi Sheffi’s Logistics Cluster Theory
Theory of Absolute Advantage
If a country can produce a certain good more efficiently than other countries, it will trade with countries that produce other goods more efficiently.
In this case, both countries are using the same amount of labor to produce these alternatives. France will specialize in making wine, and Germany will specialize in making machinery.
| Wine | Machinery | |
| France | 20,000 | 2 |
| Germany | 15,000 | 3 |
Theory of Comparative Advantage
Nations will trade with one another as long as they can produce certain goods relatively more efficiently than one another
The UK has an absolute advantage in both machinery and wheat. However, in the UK, the relative price of 1 unit of machinery is 5 tons of wheat, and in Brazil, it is 7 tons of wheat.
The nations will trade: If the UK sells 1 unit of machinery to Brazil for 6 units of wheat, both the UK and Brazil are better off. The UK has a comparative advantage in producing machinery, Brazil in growing wheat.
| Tons of Wheat | Units of Machinery | |
| UK | 25 | 5 |
| Brazil | 21 | 3 |
Factor Endowment Theory
A country will enjoy a comparative advantage over other countries if it is naturally endowed with a greater abundance of one of the factors of economic production.
| Country | Abundance | Advantage |
| Argentina | Grazing Land | Beef |
| India | Educated Labor | Call centers |
| USA | Economic system where entrepreneurship is rewarded | Innovation & development of intellectual property |
| Factors of Economic Production |
| 1. Land |
| 2. Labor |
| 3. Capital |
| 4. Entrepreneurship |
International Product Life Cycle Theory
Over its life, a product will be manufactured in different types of countries, in stages, generating trade between these countries.
Stage 1
Product is created in developed country, using new technology and serving a market need.
Stage 2
As sales grow, competitors start to make similar products in other developed countries, responding to local needs.
Stage 3
Manufacturing of product has become routine and costs need to be reduced, and production moves to developing countries.
Cluster Theory
Competitive clusters form when companies in the same industry, as well as their suppliers, concentrate in one geographic area. When this happens, the companies “feed” on each other’s know-how, pushing them to innovate faster. They become so efficient and innovative that they become world-class suppliers.
| Cluster Examples |
| Silicon Valley, California, U.S. – Information technology |
| Sassuolo, Italy – Ceramic tiles |
| Genève, Switzerland – Watches |
| Yiwu, China – Socks & hosiery |
Logistics Cluster Theory
Logistics clusters form when logistics companies concentrate in one geographic area. When this happens, the companies allow manufacturers to operate more efficiently, since all the services they need to ship are located in one area. The logistics suppliers, even though they are competitors, actually help each other attract new customers.
| Logistics Cluster Examples |
| Singapore |
| Memphis, United States |
| Rotterdam, The Netherlands |
| Zaragoza, Spain |
International Business Environment
To be successful in international logistics, not only is it important to have an understanding of logistics, but it is also fundamental to understand the international environment.
This can be achieved by learning a foreign language, taking classes in international economics, international finance, intercultural communication, and international marketing, but also by traveling frequently, meeting foreign nationals, and making an effort to understand what is happening in foreign countries.
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