Chapter 3 Bom 120

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Chapter 3 Bom 120

  1. 1. Chapter 3 Competing in Global Markets
  2. 2. The Global Market <ul><li>Globalization means that companies manufacture, finance, and market worldwide </li></ul><ul><li>Canada represents a potential market of only 32 million customers </li></ul><ul><li>There are over 6 billion potential customers in 193 countries globally. </li></ul>
  3. 3. The Global Market <ul><li>Importing: buying products from another country. </li></ul><ul><li>Exporting: selling products to another country. </li></ul><ul><li>Free trade is the movement of goods and services among nations without political or economic trade barriers . </li></ul>
  4. 4. Why Countries Trade <ul><li>We trade to get goods that are not available locally </li></ul><ul><li>In Canada, we do not produce citrus fruit, so we trade for it </li></ul><ul><li>We produce other goods, like lumber, beyond our ability to consume, so we export these goods </li></ul><ul><li>Some countries have an abundance of natural resources but lack the technological know- how to retrieve them </li></ul><ul><li>Other countries have the technology but lack natural resources. </li></ul>
  5. 5. The Theory of Comparative Advantage <ul><li>Countries export those goods and services that they produce most effectively and efficiently </li></ul><ul><li>Countries import those goods and services where they do not have this comparative advantage </li></ul><ul><li>In practice, many countries ignore this economic principle. They inhibit the free flow of goods using duties and tariffs </li></ul><ul><li>They attempt to give their producers a competitive advantage </li></ul>
  6. 6. Theories of Advantage Output per Unit of Input Comparative U. S. China Software U. S. China Clothing
  7. 7. Theories of Advantage Absolute Output per Unit of Input Copper Production Zambia The Rest of the World = Virtual Monopoly
  8. 8. International Trade - Terminology <ul><li>Balance of Trade: a country’s ratio of exports to imports. </li></ul><ul><li>Trade Surplus: occurs when the value of the country’s exports exceeds that of its imports ( a favourable balance of trade ). </li></ul><ul><li>Trade Deficit: occurs when the value of the country’s imports exceeds that of its exports ( an unfavourable balance of trade ) </li></ul><ul><li>Balance of Payments: the difference between money coming into the country and money leaving the country </li></ul>
  9. 9. International Trade - Terminology <ul><li>Dumping - selling cheaper in foreign markets than at home </li></ul><ul><li>Protectionism - using government regulations to keep foreign goods out </li></ul><ul><li>Exchange rate - the value of our currency compared to other countries’ currency </li></ul>
  10. 10. <ul><li>Exporting </li></ul><ul><li>Licensing </li></ul><ul><li>Franchising </li></ul><ul><li>Contract Manufacturing </li></ul>Strategies for Reaching Global Markets <ul><li>International </li></ul><ul><li>Joint Ventures </li></ul><ul><li>Strategic Alliances </li></ul><ul><li>Foreign Direct Investment </li></ul>
  11. 11. Hurdles of Trading in the World Market <ul><li>Socio-cultural forces </li></ul><ul><li>-customs </li></ul><ul><li>Economic forces </li></ul><ul><li>-money, wealth/poverty </li></ul><ul><li>Legal and regulatory forces </li></ul><ul><li>-laws,taxes, copyright, patents: require local expertise </li></ul><ul><li>Technological forces </li></ul><ul><li>-voltages, video standards, internet </li></ul>
  12. 12. Trade Protectionism <ul><li>The use of government regulations to limit the import of goods and services in order to protect domestic producers </li></ul><ul><ul><li>Dumping </li></ul></ul><ul><ul><li>Tariffs </li></ul></ul><ul><ul><li>Import quotas </li></ul></ul><ul><ul><li>Embargos </li></ul></ul>
  13. 13. Protectionism Practices <ul><li>Tariffs and quotas to limit imports </li></ul><ul><li>Revenue tariffs to generate funds for the government </li></ul><ul><li>Regulatory trade barriers - labeling, health, safety, emission standards can be used as trade embargoes </li></ul><ul><li>Restrictive paper work or port facilities can act as non-tariff barriers </li></ul>
  14. 14. Protectionism in Use <ul><li>The 1980s saw Canada and the U.S. pass laws to protect the auto industry from Japanese competition with negative results for North American consumers </li></ul><ul><li>Trade embargoes are used for political purposes, i.e., Iraq, Cuba, South Africa, etc. </li></ul><ul><li>During the Great Depression the U.S. acted to restrict imports and others retaliated, thus worsening the Depression </li></ul>

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