Intro to Bus 110 MW - Chap003

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  • See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
  • See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade. Germany is the largest exporting nation. China is barely behind the U.S.
  • See Learning Goal 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.
  • See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade. How Free Trade Benefits the World Often it is difficult for students to see how world trade has improved the living conditions of millions of the world’s poorest individuals. This slide shows some of the improvement in literacy rates and life expectancy since 1950. These improvements in the standard of living can be somewhat attributed to free trade. From The Economist January 26, 2008 print edition: twenty-five years ago two-thirds of the population or 600 million people were living in extreme poverty (on less than $1 a day). Now, the number living on $1 a day is below 180 million and yet the world’s population has increased. To start a discussion ask the students: Why has China been able to improve the living conditions of so many of its citizens in the last twenty-five years? ( More liberal economic policies have led to greater economic growth and an increase in the standard of living for individuals)
  • See Learning Goal 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 have been guiding tenets of international trade since the late 1700s.
  • See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.
  • See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade. Where Do Foreigners Invest? Foreign Direct Investment in the process in which a company in one country buys the assets located in another country. This table shows students the leading destinations for foreign investors. Ask students: How is foreign direct investment in China a sign of investor confidence ? (Foreign direct investment in China is a sign of confidence in the Chinese political and economic structure. When investors make an investment they careful weigh the risk and reward.)
  • See Learning Goal 1: Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade. Who Does the U.S. Owe 1. As the world’s largest debtor nation the United States relies on other countries purchasing 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 ramification 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.)
  • See Learning Goal 2: Explain the importance of importing and exporting, and understand key terms used in global business. One Web site that can be bring a lecture on exporting alive is http://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.
  • See Learning Goal 2: Explain the importance of importing and exporting, and understand key terms used in global business. Currently, the United States maintains the largest trade deficit in the world.
  • See Learning Goal 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.
  • See Learning Goal 2: Explain the importance of importing and exporting, and understand key terms used in global business.
  • See Learning Goal 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.
  • See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
  • See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
  • See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets. The next few slides offer specific examples of how franchisors have adapted their products for various countries.
  • See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets. What’s on Your Donuts Students should enjoy this slide. It shows the cultural influence with donuts preferences. Ask the students: What type of donuts do they enjoy? Would they prefer sweet potato, or green apple, or mango on their donuts? Ask the students: What modifications do companies need to make when they 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.)
  • See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
  • See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets. McDonald’s Items Worldwide Per the company’s website. McDonald’s is a leader in franchising and the company operates in 118 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 the leading provider of American style fast-food adopted different menu items? (Like all successful companies, McDonald’s has adapted its menu to meet the different needs of its customers worldwide.)
  • See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
  • See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
  • See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
  • See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
  • See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
  • See Learning Goal 3: Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.
  • See Learning Goal 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.
  • See Learning Goal 4: Evaluate the forces that affect trading in global markets. A lack of cultural understanding can create problems with working in the international market. One book that provides numerous examples to share with students entitled Kiss, Bow or Shake Hands: How to Do Business in Sixty Countries . Never assume what works in one country will work in another.
  • See Learning Goal 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.
  • See Learning Goal 4: Evaluate the forces that affect trading in global markets. 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.
  • See Learning Goal 4: Evaluate the forces that affect trading in global markets.
  • See Learning Goal 4: Evaluate the forces that affect trading in global markets.
  • See Learning Goal 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.
  • See Learning Goal 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.
  • See Learning Goal 5: Debate the advantages and disadvantages of trade protectionism. The United States also maintains an embargo against Iran and North Korea.
  • See Learning Goal 5: Debate the advantages and disadvantages of trade protectionism.
  • See Learning Goal 5: Debate the advantages and disadvantages of trade protectionism.
  • See Learning Goal 5: Debate the advantages and disadvantages of trade protectionism.
  • See Learning Goal 5: Debate the advantages and disadvantages of trade protectionism.
  • See Learning Goal 6: Discuss the changing landscape of the global market and the issue of offshore outsourcing.
  • See Learning Goal 6: Discuss the changing landscape of the global market and the issue of offshore outsourcing.
  • See Learning Goal 6: Discuss the changing landscape of the global market and the issue of offshore outsourcing. Electronics Manufacturing Around the World Electronics manufacturing has spread around the world. Students will be familiar with different types of electronics and the companies that manufacture these electronics. Ask students why a large percentage of electronics are made in Asia? (Comparative advantage is the obvious answer) This question can be followed up with the question of why does Asia have this comparative advantage? (Labor cost, favorable trade policies and lack of regulation)
  • Intro to Bus 110 MW - Chap003

    1. 1. * * Doing Business in Global Markets Chapter Three Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin
    2. 2. WORLD POPULATION by CONTINENT * * The Dynamic Global Market LG1 3-
    3. 3. IMPORTING and EXPORTING * * The Dynamic Global Market <ul><li>Importing -- Buying products from another country. </li></ul><ul><li>Exporting -- Selling products to another country. </li></ul><ul><ul><li>The U.S. is the largest importing and the second largest exporting nation in the world. </li></ul></ul>LG1 3-
    4. 4. TRADING with OTHER NATIONS * * Why Trade With Other Nations? <ul><li>Countries with abundant natural resources (like Venezuela or Russia) need technological resources from other countries (like Japan). </li></ul><ul><li>Global trade allows countries to produce what they make best and buy what they need from others. </li></ul><ul><li>Free Trade -- The movement of goods and services among nations without political or economic barriers. </li></ul>LG1 3-
    5. 5. HOW FREE TRADE BENEFITS the WORLD * * Source: The Progressive Policy Institute, World Health Organization . <ul><li>Global trade has led the world in a new direction: </li></ul><ul><li>Literacy rates worldwide have increased from 56% in 1950 to 84% in 2006. </li></ul><ul><li>Life expectancy in less developed areas rose from 40.9 years in 1950 to 70.1 years in 2006. </li></ul>LG1 Why Trade With Other Nations? 3-
    6. 6. COMPARATIVE and ABSOLUTE ADVANTAGE * * The Theories of Comparative and Absolute Advantage <ul><li>Comparative Advantage -- A country should sell the products it produces most efficiently and buy from other countries the products it cannot produce as efficiently. </li></ul><ul><ul><li>Absolute Advantage -- A country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries. </li></ul></ul>LG1 3-
    7. 7. GOING GLOBAL with a SMALL BUSINESS * * Getting Involved in Global Trade <ul><ul><ul><li>Small businesses may be the key in global job growth. </li></ul></ul></ul><ul><ul><ul><li>They make up almost half of the private sector. </li></ul></ul></ul><ul><ul><ul><li>Only 30% of small businesses export. </li></ul></ul></ul><ul><ul><ul><li>By 2018, it’s expected half of small businesses will export. </li></ul></ul></ul>LG2 3-
    8. 8. WHERE DO THEY INVEST? Leading Destinations for Foreign Investors * * Source: Investor’s Business Daily, www.investors.com , June 30, 2008. Getting Involved in Global Trade LG2 3-
    9. 9. WHO DOES the U.S. OWE? Countries that Own the Most U.S. Debt * * Source: U.S. Dept. of Treasury, www.treas.gov , January 31, 2009. Getting Involved in Global Trade LG2 3-
    10. 10. GETTING INVOLVED in EXPORTING * * Exporting Goods and Services <ul><ul><ul><li>Exporting provides a great boost to the U.S. economy. </li></ul></ul></ul><ul><ul><ul><li>It’s estimated every $1 billion in U.S. exports generate over 20,000 U.S. jobs. </li></ul></ul></ul>LG2 3-
    11. 11. HOW DO WE MEASURE GLOBAL TRADE <ul><li>I. BALANCE OF TRADE </li></ul><ul><li>II. BALANCE OF PAYMENTS </li></ul>
    12. 12. HOW to MEASURE GLOBAL TRADE * * Measuring Global Trade <ul><ul><ul><li>Balance of Trade -- The total value of a nation’s exports compared to its imports measured over time. </li></ul></ul></ul><ul><ul><ul><ul><li>Trade Surplus -- When the value of a country’s exports is more than that of its imports. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Trade Deficit -- When the value of a country’s exports is less than that of its imports. </li></ul></ul></ul></ul>LG2 3-
    13. 13. BALANCE of PAYMENTS * * Measuring Global Trade <ul><ul><ul><li>Balance of Payments -- The difference between money coming into a country (from exports) and money leaving the country (from imports) plus other money flows. </li></ul></ul></ul><ul><ul><ul><ul><li>The goal is to have more money flowing into a country than out – a favorable balance. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>An unfavorable balance is when more money flows out of a country. </li></ul></ul></ul></ul>LG2 3-
    14. 14. UNFAIR TRADE PRACTICES * * Measuring Global Trade <ul><ul><ul><li>Dumping -- Selling products in a foreign country at lower prices than those charged in the producing country. </li></ul></ul></ul><ul><ul><ul><ul><li>Dumping is prohibited. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>China, Brazil and Russia have been penalized for dumping steel in the U.S. </li></ul></ul></ul></ul>LG2 3-
    15. 15. KEY STRATEGIES for REACHING GLOBAL MARKETS * * Strategies for Reaching Global Markets Least Amount of commitment, control, risk and profit potential Most Licensing Exporting Franchising Contract Manufacturing International joint ventures and strategic alliances Foreign direct investment LG3 3-
    16. 16. LICENSING * * Licensing LG3 3-
    17. 17. EXPORT ASSISTANCE CENTERS and EXPORT TRADING CENTERS * * Exporting <ul><ul><ul><ul><li>EACs provide hands-on exporting assistance and trade-finance support for small and medium-sized businesses that wish to directly export goods and services. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>ETCs help companies engage in indirect exporting by: </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Matching buyers and sellers. </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Dealing with foreign customs offices, documentation, and conversions. </li></ul></ul></ul></ul></ul>LG3 3-
    18. 18. FRANCHISING * * Franchising <ul><ul><ul><ul><li>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. </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Franchisors need to be careful to adapt their product to the countries they serve. </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Pizza Hut and Dominos learned that pizza topping preferences differ all around the world. </li></ul></ul></ul></ul></ul>LG3 3-
    19. 19. TIME to MAKE the DONUTS… Dunkin’ Donuts Flavors in Taiwan * * Franchising Source: World Features Syndicate. <ul><li>Sweet Potato </li></ul><ul><li>Honeydew Melon </li></ul><ul><li>Corn Crumb Soft Rice Cake </li></ul><ul><li>Green Apple </li></ul><ul><li>Kiwi Fruit </li></ul><ul><li>Mango </li></ul><ul><li>Pineapple </li></ul><ul><li>Strawberry </li></ul>LG3 3-
    20. 20. The SUN NEVER SETS on MICKEY D’S (Reaching Beyond Our Borders) * * <ul><ul><ul><li>McDonald’s has more than 31,000 restaurants in over 118 countries. </li></ul></ul></ul><ul><ul><ul><li>Maintains varying menus around the world due to the different preferences of its customers. </li></ul></ul></ul><ul><ul><ul><li>Responds to challenges by funding research and adding healthier options. </li></ul></ul></ul>3-
    21. 21. THAT’S at MCDONALD’S? * * Franchising Source: McDonalds, www.mcdonalds.com , March 2009. <ul><li>Malaysia : Bubur Ayam McD – Chicken strips in porridge with onions, ginger, and shallots. </li></ul><ul><li>Egypt : Mcarabia – Grilled chicken with tehina sauces, lettuce, tomato and onion on Arabic bread. </li></ul><ul><li>Japan : Teritama – Teriyaki burger topped with an egg. </li></ul><ul><li>Germany : Want a beer with your burger? You can order one in the German stores. </li></ul><ul><li>Israel : Operates using Kosher kitchens. </li></ul>LG3 3-
    22. 22. CONTRACT MANUFACTURING * * Contract Manufacturing LG3 3-
    23. 23. JOINT VENTURES * * International Joint Ventures and Strategic Alliance LG3 3-
    24. 24. STRATEGIC ALLIANCES * * International Joint Ventures and Strategic Alliance LG3 3-
    25. 25. FOREIGN DIRECT INVESTMENT * * Foreign Direct Investment LG3 3-
    26. 26. MULTINATIONAL CORPORATIONS * * Foreign Direct Investment <ul><ul><ul><ul><li>Multinational Corporation -- A company that manufactures and markets products in many different countries and has multinational stock ownership and management. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Not all large global businesses are multinational. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Only firms that have manufacturing capacity or some other physical presence in different nations can truly be multinational. </li></ul></ul></ul></ul>LG3 3-
    27. 27. SOVEREIGN WEALTH FUNDS * * Foreign Direct Investment LG3 3-
    28. 28. * * Forces Affecting Trading in Global Markets LG4 3-
    29. 29. CULTURAL DIFFERENCES * * Socio-cultural Forces LG4 3-
    30. 30. EXCHANGE RATES * * Economic and Financial Forces LG4 3-
    31. 31. DEVALUATION and COUNTERTRADING * * Economic and Financial Forces LG4 3-
    32. 32. LEGAL CONCERNS OVERSEAS * * Legal and Regulatory Forces LG4 3-
    33. 33. ENVIRONMENTAL FORCES * * Physical and Environmental Forces LG4 3-
    34. 34. TRADE PROTECTIONISM * * Trade Protectionism LG5 3-
    35. 35. TARIFFS * * Trade Protectionism LG5 3-
    36. 36. IMPORT QUOTAS and EMBARGOS * * Trade Protectionism LG5 3-
    37. 37. WORLD TRADE ORGANIZATION * * The World Trade Organization LG5 3-
    38. 38. COMMON MARKETS * * Common Markets LG5 3-
    39. 39. NAFTA * * The North American and Central American Free Trade Agreements LG5 3-
    40. 40. CAFTA * * The North American and Central American Free Trade Agreements LG5 3-
    41. 41. FUTURE of GLOBAL TRADE * * The Future of Global Trade LG6 3-
    42. 42. OUTSOURCING * * The Challenge of Offshore Outsourcing LG6 3-
    43. 43. ELECTRONICS MANUFACTURING AROUND the WORLD * * Source: Investor’s Business Daily, www.ibd.com , December 1, 2008. The Challenge of Offshore Outsourcing LG6 3-

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