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ub11e_chap003.ppt
Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
CHAPTER 3
Doing Business in Global Markets
LEARNING OBJECTIVES
1-*
- Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
- Explain the importance of importing and exporting, and understand key terms used in global business.
- Illustrate the strategies used in reaching global markets and explain the role of multinational corporations.
*
LEARNING OBJECTIVE
1-*
- Evaluate the forces that affect trading in global markets.
- Debate the advantages and disadvantages of trade protectionism.
- Discuss the changing landscape of the global market and the issue of offshore outsourcing.
*
LEILA JANAH
Samasource
3-*
- Started Samasource to help people in developing countries rise out of poverty.
- Janah has been working to combat world poverty since she was a teen.
- Employees are carefully selected and are taught new skills.
NAME that COMPANY
1-*
This Swiss-based company has many foreign subsidiaries including Jenny Craig (weight management), Ralston Purina, Chef America (maker of Hot Pockets) and Dreyer’s Ice Cream in the United States as well as Perrier in France. The company employs over 328,000 people and has operations in almost every country in the world.
Name that company!
Company: Nestle
*
BUSINESS in the
GLOBAL MARKET
3-*
LO 3-1
See Learning Objective 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
1. The U.S. is a market of over 317 million potential customers, but the world market is over 7 billion.
2. It is easy for students in the United States to lose sight of the importance of the global market. This slide helps them see that the international marketplace offers businesses opportunities due to the size of the market. Companies like Procter & Gamble and Wal-Mart have found the international market offers opportunities for additional revenue growth.
*
WORLD POPULATION
by CONTINENT
3-*
LO 3-1
See Learning Objective 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
*
WORLD POPULATION
GROWTH
3-*
LO 3-1
See Learning Objective 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
1. The world population is expected to grow to 9.22 billion by 2050.
2. That’s around 75 million more people a year and 2 billion more than our current population.
3. Ask students: How will this growth affect the world? (Answers to this question will vary but may include: demand for food, increase in pollution, increased needs for basic items, etc.)
*
Chart1
| 2015 |
| 2030 |
| 2040 |
| 2050 |
Sheet1
| World Population in Billions | Series 2 | Series 3 | |
| 2015 | 7.28 | 2.4 | 2 |
| 2030 | 8.26 | 4.4 | 2 |
| 2040 | 8.77 | 1.8 | 3 |
| 2050 | 9.22 | 2.8 | 5 |
| To update the chart, enter data into this table. The data is automatically saved in the chart. |
IMPORTING and EXPORTING
3-*
LO 3-1
- Importing -- Buying products from another country.
- Exporting -- Selling products to another country.
- The U.S. is the largest importing and the second largest exporting nation in the world.
See Learning Objective 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
The U.S. follows China in exports.
*
Source: Forbes, www.forbes.com, accessed November 2014.
PLEASURE DOING BUSINESS
Best Countries for Business
3-*
LO 3-1
See Learning Objective 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
Forbes’s ranking was determined by the business climate, red tape, corruption, property rights, and innovation of 128 nations. There was great change between 2012 and 2013; only three countries made it back into the top ten. In 2012, countries like Israel, Austria, Switzerland, Germany, South Korea were highly rated. The United States dropped from #10 in 2012 to #14 in 2013.
*
Source: Forbes, www.forbes.com, accessed November 2014.
CAN YOU SPARE a DIME?
Home Countries for Some of the World’s Billionaires
3-*
LO 3-1
- U.S. – 516 billionaires
- China – 136 billionaires
- Russia – 88 billionaires
- Germany – 82 billionaires
- India – 54 billionaires
- U.K. – 43 billionaires
- Hong Kong – 41 billionaires
See Learning Objective 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
- The United States has the most billionaires in the world.
- Ask students: Why does the United States have more billionaires than any other country in the world? (There are many reasons why this is true. We have a larger population than some of the other countries on the slide, so it would stand to reason that we would have more billionaires than those countries. However, some of the countries listed have a larger population than the United States, namely India and China. In the United States there is less regulation on businesses and wages/salaries are much higher.)
TRADING with OTHER NATIONS
3-*
LO 3-1
- Countries with abundant natural resources (like Venezuela or Russia) 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.
See Learning Objective 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
No nation can produce all the products its people want and need.
*
PROS and CONS of FREE TRADE
3-*
LO 3-1
See Learning Objective 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
*
COMPARATIVE and ABSOLUTE
ADVANTAGE
3-*
LO 3-1
- Comparative Advantage -- A country should sell the products it produces most efficiently and buy from other countries the products it cannot produce as efficiently.
- Absolute Advantage -- A country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries.
See Learning Objective 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
David Ricardo expanded on Adam Smith’s theory of absolute advantage with the theory of comparative advantage. This theory can be difficult for students to grasp. A country should produce only what it can produce efficiently, buying what it cannot produce as efficiently. This theory of international trade, along with Adam Smith’s Theory of Absolute Advantage, has been a guiding tenet of international trade since the late 1700s.
*
GOING GLOBAL with a
SMALL BUSINESS
3-*
LO 3-2
- Small businesses may be the key in global job growth.
- Only 1% of U.S. small businesses export, yet they account for 30% of total U.S. exports.
See Learning Objective 2: Explain the importance of importing and exporting, and understand key terms used in global business.
*
Source: Max Fisher, Washington Post, www.washingtonpost.com, accessed November 2014.
WHOM DOES the U.S. OWE?
Countries that Own the Most U.S. Debt
3-*
LO 3-2
See Learning Objective 2: Explain the importance of importing and exporting, and understand key terms used in global business.
1. As the world’s largest debtor nation the United States relies on other countries purchasing its debt as an investment.
2. OPEC Nations include: Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, U.A.E., Venezuela.
3. Ask students: What are the ramifications of U.S. indebtedness on its population? (Answers to this question will vary but may include: lost sovereignty, weakening of the U.S. dollar and a loss of purchasing power as import prices rise, inflation and an increase in taxes.)
*
Chart1
| China |
| Japan |
| OPEC Nations |
| Brazil |
| U.K. |
Sheet1
| In $ Billions | Series 2 | Series 3 | |
| China | 1,300 | 2.4 | 2 |
| Japan | 1,100 | 4.4 | 2 |
| OPEC Nations | 257.7 | 1.8 | 3 |
| Brazil | 256 | 2.8 | 5 |
| U.K. | 156.9 | ||
| To resize chart data range, drag lower right corner of range. |
GETTING INVOLVED in
IMPORTING
3-*
LO 3-2
- 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.
See Learning Objective 2: Explain the importance of importing and exporting, and understand key terms used in global business.
Starbucks CEO, Howard Shultz, found his importing opportunity in Italy. He transformed a coffee shop in Seattle to mimic the European cafes.
*
GETTING INVOLVED in
EXPORTING
3-*
LO 3-2
- Exporting provides a great boost to the U.S. economy.
- It’s estimated every $1 billion in U.S. exports generate over 7,000 U.S. jobs.
See Learning Objective 2: Explain the importance of importing and exporting, and understand key terms used in global business.
One website that can enliven a lecture on exporting tse.export.gov. The TradeStats Express website is presented by the U.S. Commerce Department and gives students a look at any number of statistics on exporting. One example that may surprise students is that snow plows/blowers have been sold in Middle Eastern countries, like Saudi Arabia. They are used to clear sand from driveways.
*
HOW to MEASURE GLOBAL TRADE
3-*
LO 3-2
- Balance of Trade -- The total value of a nation’s exports compared to its imports measured over a particular period.
- Trade Surplus (Favorable) -- When the value of a country’s exports is more than that of its imports.
- Trade Deficit (Unfavorable) -- When the value of a country’s exports is less than that of its imports.
See Learning Objective 2: Explain the importance of importing and exporting, and understand key terms used in global business.
*
BALANCE of PAYMENTS
3-*
LO 3-2
- Balance of Payments -- The difference between money coming into a country (from exports) and money leaving the country (from imports) plus other money flows.
- 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.
See Learning Objective 2: Explain the importance of importing and exporting, and understand key terms used in global business.
Since 1975, the U.S. has bought more goods from other nations than it has sold and thus has a trade deficit.
*
UNFAIR TRADE PRACTICES
3-*
LO 3-2
- Dumping -- Selling products in a foreign country at lower prices than those charged in the producing country.
- Dumping is prohibited.
- China, Brazil and Russia have been penalized for dumping steel in the U.S.
See Learning Objective 2: Explain the importance of importing and exporting, and understand key terms used in global business.
*
LARGEST EXPORTING NATIONS
and TRADE PARTNERS
3-*
LO 3-2
See Learning Objective 2: Explain the importance of importing and exporting, and understand key terms used in global business.
*
TEST PREP
3-*
- What are two of the main arguments favoring the expansion of U.S. businesses into global markets?
- What is comparative advantage, and what are some examples of this concept at work in the United States?
- How are a nation’s balance of trade and balance of payments determined?
- What is meant by dumping in global trade?
- One major argument favoring the expansion of U.S. business is that the sheer size of the global market (7 billion people) is too large to ignore. Plus it’s difficult for an economy, even one as large as the U.S. economy, to produce all the goods and services its citizens desire.
2) Comparative advantage theory was proposed by David Ricardo and simply states that a country should sell to other countries those products it produces most effectively and efficiently, and buy from other countries those products it cannot produce as effectively and efficiently. Examples include the U.S. producing goods and services such as software and engineering services and buying goods, such as coffee and shoes, from other nations.
3) The balance of trade is the difference in the total value of a nation’s exports compared to its imports. The balance of payments is the difference between money coming into a country (from exports) and money leaving the country (for imports) plus money flows coming into or leaving a country from other factors such as tourism, foreign aid, military expenditures, and foreign investment.
4) Dumping is the selling of products in foreign countries at lower prices than those charged in the producing country. This tactic is sometimes used to reduce surplus products in foreign markets or gain a foothold in a new market.
*
Least
Amount of commitment, control, risk and profit potential
Most
Licensing
Exporting
Franchising
Contract
Manufacturing
International joint ventures and strategic alliances
Foreign direct investment
KEY STRATEGIES for REACHING GLOBAL MARKETS
3-*
LO 3-3
See Learning Objective 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
When senior management elects to expand internationally, they have a wide range of options available to them. Such options range from licensing with the least risk all the way to foreign direct investment with the most risk. A few examples to be shared during this portion of the lecture include: Coca-Cola’s use of licensing, McDonald’s use of franchising, Nike’s use of contract manufacturing, Volkswagen’s joint venture in China and Toyota’s foreign direct investment in the United States.
*
LICENSING
3-*
LO 3-3
See Learning Objective 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
Coca-Cola has entered into licensing agreements with over 300 licensees that have extended into long-term service contracts that sell over $1 billion of the company’s products each year.
*
EXPORT ASSISTANCE CENTERS
and EXPORT TRADING CENTERS
3-*
LO 3-3
- EACs provide hands-on exporting assistance and trade-finance support for small and medium-sized businesses that wish to directly export goods and services.
- ETCs help companies engage in indirect exporting by:
- Matching buyers and sellers.
- Dealing with foreign customs offices, documentation, and conversions.
See Learning Objective 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
*
FRANCHISING
3-*
LO 3-3
- 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/service in a given area.
- Franchisors need to be careful to adapt their product to the countries they serve.
- Yum! Brands, home of KFC, Taco Bell and Pizza Hut, learned that food preferences differ all around the world.
See Learning Objective 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
Links on the slide take you to KFC-Japan, Taco Bell-India and Pizza Hut-Hong Kong.
The next few slides offer specific examples of how franchisors have adapted their products for various countries.
*
Source: World Features Syndicate.
TIME to MAKE the DONUTS…
Dunkin’ Donuts Flavors in Taiwan
3-*
Photo Credit: Dennis Yang
LO 3-3
- Sweet Potato
- Honeydew Melon
- Green Apple
- Kiwi Fruit
- Mango
- Pineapple
- Strawberry
- Corn Crumb Soft Rice Cake
See Learning Objective 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
- Students should enjoy this slide. It shows the cultural influence with donuts preferences.
- Ask the students: What type of donuts do you enjoy? Would your prefer sweet potato, or green apple, or mango in your donuts?
- Ask the students: What modifications do companies need to make when you go to different countries like the ones shown in this slide? (Students should point out the need to understand and research the market and cultural/customer preferences and then offer what the customers want.)
*
- McDonald ’ s has more than 34,000 restaurants in over 118 countries.
- Maintains varying menus around the world due to the different preferences of its customers.
MCDONALD’S:
OVER 100 CULTURES SERVED
3-*
- Attracts top-level college graduates to be trained for management spots.
- Only 8 of every 1,000 applicants actually makes it into the program!
See Learning Objective 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
Students may find it interesting that McDonald’s Hamburger University is more selective than Harvard (62 out of 1,000 applicants make it in).
*
Source: McDonalds, www.mcdonalds.com, accessed November 2014.
THAT’S at MCDONALD’S?
3-*
- Malaysia: Bubur Ayam McD – Chicken strips in porridge with onions, ginger, and shallots.
- Egypt: Mcarabia – Grilled chicken with tehina sauces, lettuce, tomato and onion on Arabic bread.
- Japan: Teritama – Teriyaki burger topped with an egg.
- Germany: Want a beer with your burger? You can order one in the German stores.
- Israel: Operates using Kosher kitchens.
See Learning Objective 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
- McDonald’s is a leader in franchising and the company operates in 117 different countries.
- This slide gives students an insight into some of the changes McDonald’s has made to its menu when operating in the world market.
- Ask students: Why does the leading provider of American style fast-food adopt different menu items? (Like all successful companies, McDonald’s adapts its menu to meet the different needs of its customers worldwide.)
*
CONTRACT MANUFACTURING
3-*
LO 3-3
See Learning Objective 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
The worldwide contract manufacturing business is estimated to be a $250 billion industry that’s expected to grow to $325 billion by 2013.
*
JOINT VENTURES
3-*
LO 3-3
See Learning Objective 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
Joint ventures can also have drawbacks: (1) One partner can learn the other’s practices then use the knowledge to its own advantage; (2) A shared technology may become obsolete; (3) The joint venture may become too large to be as flexible as needed.
*
- Strategic Alliance -- A long-term partnership between two or more companies established to help each company build competitive market advantages.
STRATEGIC ALLIANCES
3-*
LO 3-3
See Learning Objective 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
*
FOREIGN DIRECT INVESTMENT
3-*
LO 3-3
- Foreign Direct Investment (FDI) -- The buying of permanent property and businesses in foreign nations.
- Foreign Subsidiary -- A company owned in a foreign country by another company called the parent company. The most common form of FDI.
See Learning Objective 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
*
BUYING AMERICAN?
3-*
LO 3-3
See Learning Objective 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
- Not all American cars are “American” and not all foreign cars are “foreign.”
- Students may be surprised to find out in addition to not using mostly American parts, the Ford Fusion is also partly assembled in Mexico.
*
MULTINATIONAL CORPORATIONS
3-*
LO 3-3
- Multinational Corporation -- A company that manufactures and markets products in many different countries and has multinational stock ownership and management.
- Not all large global businesses are multinational.
- Only firms that have manufacturing capacity or some other physical presence in different nations can truly be multinational.
See Learning Objective 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
*
LARGEST MULTINATIONAL CORPORATIONS
3-*
LO 3-3
See Learning Objective 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
*
SOVEREIGN WEALTH FUNDS
3-*
LO 3-3
See Learning Objective 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
*
TEST PREP
3-*
- What are the advantages of using licensing as a method of entry in global markets? What are the disadvantages?
- What services are usually provided by an export-trading company?
- What is the key difference between a joint venture and a strategic alliance?
- What makes a company a multinational corporation?
- The key advantages of using licensing as a method of entry into global markets are: (a) a firm can often gain revenues in a market it would not have generated in its home market; (b) licensees must purchase start-up supplies and consulting services from the licensing firm; and c) licensors spend little or no money to produce and market their products. Disadvantages to licensing include: (a) if a product is extremely successful in another market, the licensor does not receive the bulk of the revenues and (b) if the foreign licensee learns the company’s technology and product secrets, it may break the agreement and begin producing similar products on its own.
2) Export trading companies provide such services as assistance in associating and establishing the desired trading relationships, matching buyers and sellers from different countries, and help dealing with foreign customs offices, documentation, and weights and measures.
3) A joint venture is a partnership between two or more companies whereby they undertake a major project. Joint ventures generally involve: (a) sharing technology and risk; (b) sharing marketing and management expertise; (c) entry into markets where foreign companies are often not allowed unless goods are produced locally. In a strategic alliance partners do not share costs, risks, management, or even profits. The purpose is to gain advantages in building competitive market advantages.
4) A multinational corporation manufactures and markets products in many different countries and has multinational stock ownership and management. Only firms that have manufacturing capacity or other physical presence in other countries can be called multinational.
*
3-*
LO 3-4
See Learning Objective 4: Evaluate the forces that affect trading in global markets.
What makes operating in the international environment more complex than operating only in the domestic market is the addition of new uncontrollable forces. Examples of these forces include: sociocultural, economic, financial, legal, regulatory, physical and environmental.
*
CULTURAL DIFFERENCES
3-*
LO 3-4
See Learning Objective 4: Evaluate the forces that affect trading in global markets.
A lack of cultural understanding can create problems when working in the international market. Even the color or type of flower can have a different meaning. One book that provides numerous examples to share with students is entitled Kiss, Bow or Shake Hands: How to Do Business in Sixty Countries. Never assume what works in one country will work in another.
*
LOST in TRANSLATION
Advertisements Gone Wrong
3-*
LO 3-4
- Braniff Airlines’ slogan "Fly in leather” translated in Spanish as "Fly naked.”
- Siri, Apple’s digital assistant on iPhone, is a common slang term for “butt” in Japanese.
- In Italy, Schweppes Tonic Water was mistaken as Schweppes Toilet Water.
- Nokia’s line of Lumia phones is Spanish for “prostitute.”
See Learning Objective 4: Evaluate the forces that affect trading in global markets.
Lost In Translation
1. Culture refers to the set of values, beliefs, rules, and institutions held by a specific group of people.
2. One of the basic elements of culture is language and language delineates cultures.
- To operate successfully in the international marketplace, a company must never assume what works in one country will work in another.
- To avoid the funny and sometimes disastrous advertisements listed above, shrewd marketers must use back translations. Back translation is a process in which the first translation is made by a bilingual native, after which the work will then be translated back by a bilingual foreigner to see how it compares with the original.
*
FROM SETTING PICKS to
PICKING GRAPES
3-*
See Learning Objective 4: Evaluate the forces that affect trading in global markets.
A lack of cultural understanding can create problems when working in the international market. Even the color or type of flower can have a different meaning. One book that provides numerous examples to share with students is entitled Kiss, Bow or Shake Hands: How to Do Business in Sixty Countries. Never assume what works in one country will work in another.
*
READY to TRAVEL ABROAD?
Know Your Cultural Differences
3-*
LO 3-4
- In Turkey, it’s rude to cross your arms while facing someone.
- In many Middle Eastern countries, you shouldn’t eat or shake hands with the left hand because it is considered unclean.
- In India, you should never pat anyone’s head. It’s where one’s soul is kept.
- In Brazil, your meeting may not start on time because punctuality isn’t important to the culture.
See Learning Objective 4: Evaluate the forces that affect trading in global markets.
Ready to Travel Abroad?
1. Some very fascinating cultural and social differences exist in other nations.
2. Discuss the following interesting points:
- A smile in Japan can mean that a person is uncomfortable or sad.
- When traveling to Sweden, make appointments two weeks in advance.
- Lack of punctuality is a fact of life in Brazil. Become accustomed to waiting.
3. Review the following helpful hints when dealing globally:
a. Be culturally savvy. Learn about the culture, language, and dress code.
b. Recognize the importance of dealing with cultural differences and consequences of taking no action.
c. Manage and learn to appreciate various cultures.
d. Build a database of information about each country where you have business relationships.
*
DO as the GERMANS…
How to Not Embarrass Yourself in Germany
3-*
LO 3-4
- Always use titles like Doctor, Frau, or Herr.
- Always provide food and drinks for your birthday.
- Don’t remove your jacket until your host does.
- Wear conservative business attire, anything else is considered sloppy.
- Never jaywalk.
- Always keep your hands on the table when eating.
See Learning Objective 4: Evaluate the forces that affect trading in global markets.
*
EXCHANGE RATES
3-*
LO 3-4
See Learning Objective 4: Evaluate the forces that affect trading in global markets.
The floating exchange rate system creates transaction risk. If the U.S. dollar is trading for more foreign currency, it is said to be getting stronger. When the U.S. dollar is trading for less foreign currency, it is said to be getting weaker. Since the breakdown of the Bretton Woods agreement in 1971, the value of the U.S. currency has generally trended downward versus major world currencies.
*
DEVALUATION and COUNTERTRADING
3-*
LO 3-4
See Learning Objective 4: Evaluate the forces that affect trading in global markets.
It’s estimated that countertrading accounts for over 20% of all global exchanges, especially in developing countries. One famous example of countertrading involved Pepsi and Russian vodka. Pepsi received the right to market Russian vodka in the United States as payment for Pepsi sold in Russia. More information on countertrading can be found at www.londoncountertrade.org.
*
LEGAL and
REGULATORY FORCES
3-*
LO 3-4
See Learning Objective 4: Evaluate the forces that affect trading in global markets.
*
ENVIRONMENTAL FORCES
3-*
LO 3-4
See Learning Objective 4: Evaluate the forces that affect trading in global markets.
*
TEST PREP
3-*
- What are four major hurdles to successful global trade?
- What does ethnocentricity mean and how can it affect global success?
- How would a low value of the dollar affect U.S. exports?
- What does the Foreign Corrupt Practices Act prohibit?
- Four major hurdles to successful global trade are: sociocultural forces, economic and financial forces, legal and regulatory forces, and physical and environmental forces.
2) Ethnocentricity is an attitude that your nation’s culture is superior to other cultures. It can affect global trade because all nations are proud of their cultures and do not aspire to be like other countries. Thus it’s easy to offend potential customers by being ethnocentric.
3) A low value of the dollar would make U.S. exports cheaper in foreign markets and may lead to higher demand for U.S. products.
4) The Foreign Corrupt Practices Act prohibits “questionable” or “dubious” payments to foreign officials to secure business contracts. Other nations do not have to follow this law causing some disadvantages for U.S. businesses.
*
TRADE PROTECTIONISM
3-*
LO 3-5
See Learning Objective 5: Debate the advantages and disadvantages of trade protectionism.
The Great Depression was exacerbated by the passage of the Glass-Steagall Act. The Glass-Steagall Act of 1933 raised the tariff rates on thousand of products imported into the United States. This led to other nations enacting similar protectionist measures effectively shutting down world trade. Many fear that the economic contraction the world is currently experiencing will lead to similar laws.
*
TARIFFS
3-*
LO 3-5
See Learning Objective 5: Debate the advantages and disadvantages of trade protectionism.
While a tariff may end up raising revenue for the government, it ultimately costs consumers more money in the long run. Due to tariff rates on the importation of sugar, consumers in the United States end up paying close to 50 percent more for sugar than the rest of the world.
*
IMPORT QUOTAS and EMBARGOS
3-*
LO 3-5
See Learning Objective 5: Debate the advantages and disadvantages of trade protectionism.
*
WORLD TRADE ORGANIZATION
3-*
LO 3-5
See Learning Objective 5: Debate the advantages and disadvantages of trade protectionism.
*
COMMON MARKETS
3-*
LO 3-5
See Learning Objective 5: Debate the advantages and disadvantages of trade protectionism.
*
EU MEMBERS
3-*
LO 3-5
See Learning Objective 5: Debate the advantages and disadvantages of trade protectionism.
*
NAFTA and CAFTA
3-*
LO 3-5
See Learning Objective 5: Debate the advantages and disadvantages of trade protectionism.
*
NAFTA OBJECTIVES
3-*
LO 3-5
See Learning Objective 5: Debate the advantages and disadvantages of trade protectionism.
*
NEW FREE
TRADE AGREEMENTS
3-*
LO 3-5
See Learning Objective 5: Debate the advantages and disadvantages of trade protectionism.
*
TEST PREP
3-*
- What are the advantages and disadvantages of trade protectionism and of tariffs?
- What is the primary purpose of the WTO?
- What is the key objective of a common market like the EU?
- Which three nations comprise NAFTA?
- Trade protectionism is the use of government regulations to limit the import of goods and services. It can be a barrier to global trade. Trade protectionism often involves the use of tariffs or taxes on imported goods that makes them more expensive to buy. Protective tariffs can be an advantage to workers in certain industries since it makes the products they produce more cost competitive with imported products. American labor unions have sought certain protective tariffs. Revenue tariffs are designed as a source of revenue for the government. Most economists do not favor the use of tariffs; instead they are in favor of free trade.
2) The World Trade Organization (WTO) was established to mediate trade disputes among nations.
3) The purpose of a common market like the EU is to have common external tariffs, no internal tariff, and coordinated laws to facilitate exchange between member nations. This enables smaller nations to compete as a group against large economies like the United States, China, and Japan.
4) NAFTA is comprised of the United States, Canada and Mexico.
*
FUTURE of GLOBAL TRADE
3-*
LO 3-6
See Learning Objective 6: Discuss the changing landscape of the global market and the issue of offshore outsourcing.
BRIC has been an acronym for these countries. However, BRIC nations are not the only areas of opportunity. Other countries to look at include: Indonesia, Thailand, Singapore, the Philippines, South Korea, Malaysia and Vietnam.
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OUTSOURCING
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Photo Credit: Vitor Lima
LO 3-6
See Learning Objective 6: Discuss the changing landscape of the global market and the issue of offshore outsourcing.
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OFFSHORE OUTSOURCING
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LO 3-6
See Learning Objective 6: Discuss the changing landscape of the global market and the issue of offshore outsourcing.
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LO 3-6
See Learning Objective 6: Discuss the changing landscape of the global market and the issue of offshore outsourcing.
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MAKING YOUR OPERATION
YOUR VACATION
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- Some insurance companies encourage patients to seek medical care in foreign countries.
- Procedures are cheaper and involve top-flight doctors at state-of-the-art facilities.
- Would it be ethical to force patients to travel to other countries to save money?
See Learning Objective 6: Discuss the changing landscape of the global market and the issue of offshore outsourcing.
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Source: AARP Magazine, November 2014.
COSTS of MEDICAL
PROCEDURES ABROAD
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See Learning Objective 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
Costs of Medical Procedures Abroad
- The cost of medial procedures around the world differ greatly to ours in the U.S.
- As we read in the Making Ethical Decisions box, many employers are starting to encourage medical tourism to save money for their employees and themselves.
- Ask students: Would you go abroad for a procedure listed in the slide? Why or why not? (Answers will differ.)
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TEST PREP
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- What are the major threats to doing business in global markets?
- What key challenges must India and Russia face before becoming global economic leaders?
- What does the acronym BRIC stand for?
- What are the two primary concerns about offshore outsourcing?
- The major threats to doing business in global markets are: terrorism, nuclear proliferation, rogue states, and other issues.
2) India must relax its difficult trade laws and inflexible bureaucracy. Russia is plagued by political, currency, corruption, and social problems.
3) BRIC stands for Brazil, Russia, India, and China.
4) The key concern about offshore outsourcing is the loss of jobs. Today such loss includes professional services as well as production jobs. Questions also linger about outsourcing sensitive products like airline maintenance and medical devices. Consumers’ fears about quality and product safety keep the issue center stage.
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