This document discusses key concepts for doing business in global markets. It covers comparative and absolute advantage in international trade, and why countries benefit from free trade. Import/export terms and metrics like the balance of trade and balance of payments are defined. Various strategies for entering foreign markets are outlined, including licensing, exporting, franchising, contract manufacturing, joint ventures, and foreign direct investment. Forces that companies must consider in global business are also reviewed, such as sociocultural, economic, legal/regulatory, and physical differences between countries.

1. Chapter 3
DOING BUSINESS
IN
GLOBAL MARKETS
Introduction to Business Administration – Instructor: Phuoc Van Hanh

2. LEARNING OBJECTIVES
LO 3-1 Discuss the importance of the global market and the roles of
comparative advantage and absolute advantage in global trade.
LO 3-2 Explain the importance of importing and exporting, and
understand key terms used in global business.
LO 3-3 Illustrate the strategies used in reaching global markets and
explain the role of multinational corporations.
LO 3-4 Evaluate the forces that affect trading in global markets.

3. GETTING TO KNOW
Indra Krishnamurthy Nooyi,
former CEO of PepsiCo

4. GETTING TO KNOW
Indra Krishnamurthy Nooyi,
former CEO of PepsiCo
1. Based on what Nooyi had performed, what do you think are mergers
and acquisitions?
2. As CEO of PepsiCo, she proclaimed a new theme of “Performance
with purpose”, what does that promise mean?
3. From promise to reality, which actions did PepsiCo take?
4. What did she claim as the continuous focus of PepsiCo?
5. What helps Nooyi success in taking PepsiCo adapt to global changes?

5. LEARNING OBJECTIVES
LO 3-1 Discuss the importance of the global market and the roles of
comparative advantage and absolute advantage in global trade.
LO 3-2 Explain the importance of importing and exporting, and
understand key terms used in global business.
LO 3-3 Illustrate the strategies used in reaching global markets and
explain the role of multinational corporations.
LO 3-4 Evaluate the forces that affect trading in global markets.

6. Because the global market is so large, it is important to
understand the language used in global trade.
Importing: Buying products from another country.
Exporting: Selling products to another country.
Competition among exporting nations is intense. The United
States is the largest importing nation in the world and is the
third-largest exporting nation, behind China and Germany.
The Dynamic Global Market

7. No nation, not even a technologically advanced one, can
produce all the products its people want and need.
Global trade enables a nation to produce what it is most
capable of producing and buy what it needs from others in
a mutually beneficial exchange relationship. This happens
through the process called free trade.
Free trade is the movement of goods and services among
nations without political or economic barriers.
Why trade with other nations?

8. Figure 3.2 The pros and cons of freetrade

9. Countries exchange more than goods and services.
They also exchange art, sports, cultural events, medical advances,
space exploration, and labour.
A country has an absolute advantage if it can produce a specific
product more efficiently than all other countries. Absolute
advantage does not last forever; global competition causes
absolute advantages to fade. Today there are very few instances
of absolute advantage in global markets.

10. David Ricardo (1772 – 1823) suggested
comparative advantage theory.

11. Comparative advantage theory 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 or efficiently.

12. Discussion questions:
Q: What can Vietnam produce most
effectively and efficiently?
Q: What do Vietnam buy from other
countries because we cannot produce
as effectively and efficiently?

13. LEARNING OBJECTIVES
LO 3-1 Discuss the importance of the global market and the roles of
comparative advantage and absolute advantage in global trade.
LO 3-2 Explain the importance of importing and exporting, and
understand key terms used in global business.
LO 3-3 Illustrate the strategies used in reaching global markets and
explain the role of multinational corporations.
LO 3-4 Evaluate the forces that affect trading in global markets.

14. Exporting
Selling products to another country.
Importing
Buying products from another country.

15. The balance of trade is the total value of a nation’s exports
compared to its imports measured over a particular period.
Trade surplus, occurs when the value of a country’s exports
exceeds that of its imports.
Trade deficit, occurs when the value of a country’s exports
is less than its imports.
Measuring Global Trade

16. 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
=> What is the goal of a nation on the balance of payments?

17. LEARNING OBJECTIVES
LO 3-1 Discuss the importance of the global market and the roles of
comparative advantage and absolute advantage in global trade.
LO 3-2 Explain the importance of importing and exporting, and
understand key terms used in global business.
LO 3-3 Illustrate the strategies used in reaching global markets and
explain the role of multinational corporations.
LO 3-4 Evaluate the forces that affect trading in global markets.

18. Businesses use different strategies to compete in global markets.
Each provides different economic opportunities, along with specific
commitments and risks.
Figure 3.4 Strategies for reaching global markets

19. 1. Licensing:
A firm (the licensor) allows a foreign company (the licensee) to
produce its product in exchange for a fee (a royalty).
Examples:
Coca-Cola, Disneyland theme parks, Marvel-licensed products, …

20. 2. Exporting:
Selling products to another country.
Example:
An export-trading company not only matches buyers and sellers from
different countries but also deals with foreign customs offices,
documentation, and even weights and measures conversions to ease the
process of entering global markets.

21. 3. Franchising:
A contractual agreement whereby someone with a good idea for
a business sells others the rights to use the business name and
sell a product or service in a given territory in a specified manner.
Examples:
McDonald’s, KFC, Domino’s Pizza, Kumon Math & Reading Centers, …

22. 4. Contract Manufacturing:
A foreign company produces private-label goods to which a
domestic company then attaches its own brand name or trademark.
Examples:
Contract manufacturers make circuit boards and components used in
computers, printers, smartphones, medical products, airplanes, and
consumer electronics for companies such as Dell, Apple, and IBM.

23. 5. International Joint Ventures and Strategic Alliances:
A joint venture is a partnership in which two or more companies
(often from different countries) join to undertake a major project.
A strategic alliance is a long-term partnership between two or
more companies established to help each company build
competitive market advantages.

24. 6. Foreign direct investment (FDI):
The buying of permanent property and businesses in foreign nations.
The most common form of FDI is a foreign subsidiary, a company owned
in a foreign country by another company, called the parent company.
Example:
Swiss-based Nestlé has many foreign subsidiaries.

25. 6. Foreign direct investment (FDI) (cont.):
Multinational corporation manufactures and markets products
in many different countries and has multinational stock ownership
and multinational management.
Example:
Walmart, Nestlé, Royal Dutch Shell, Volkswagen, Toyota Motor, Apple
…

26. Discussion questions:
Q: What are the advantages and problems of
licensing?
Q: What is the key difference between a joint
venture and a strategic alliance?

27. LEARNING OBJECTIVES
LO 3-1 Discuss the importance of the global market and the roles of
comparative advantage and absolute advantage in global trade.
LO 3-2 Explain the importance of importing and exporting, and
understand key terms used in global business.
LO 3-3 Illustrate the strategies used in reaching global markets and
explain the role of multinational corporations.
LO 3-4 Evaluate the forces that affect trading in global markets.

28. The hurdles to success are higher and more complex in global
markets than in domestic markets. Such hurdles include dealing
with differences in:
 Sociocultural forces
 Economic and financial forces
 Legal and regulatory forces
 Physical and environmental forces
Forces Affecting Trading in Global Markets

29. 1. Sociocultural forces:
The word culture refers to the set of values, beliefs, rules, and
institutions held by a specific group of people.
Culture can include social structures, religion, manners and customs,
values and attitudes, language, and personal communication.
Never assume what works in one country will work in another.

30. Fig 3.6 Oops, did we say that?
A global marketing strategy can be very
difficult to implement. Look at the
problems these well-known companies
encountered in global markets.

31. 2. Economic and Financial Forces:
The exchange rate is the value of one nation’s currency relative to the
currencies of other countries.
Global financial markets operate under a system called floating
exchange rates, which means that currencies “float” in value according
to the supply and demand for them in the global market for currency.
Devaluation lowers the value of a nation’s currency relative to others.

32. 3. Legal and Regulatory Forces:
In global markets, different systems of laws and regulations may
apply in different places.
Antitrust rules, labor relations, patents, copyrights, trade practices,
taxes, product liability, child labor, prison labor, and other issues
are governed differently country by country.

33. 3. Legal and Regulatory Forces (cont.):
The cooperation and sponsorship of local businesspeople in a
foreign market can help a company penetrate the market and deal
with laws, regulations, and bureaucratic barriers in their country.
=> Which strategy mentioned in LO 3-3 could help?

34. Q: Research on the 16-year joint venture of Coca-Cola and Nestlé in
distributing ready-to-drink tea and coffee.
Q: Discuss the advantages and disadvantages of trade protectionism.
*Trade protectionism is the use of government regulations to limit the import of goods and services.
Homework for bonus (individual)
(10 points)