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- 1. The Global Economic Environment 1 Interesting TheGuardian story about Italy that combines Culture (population) + Political (govt business subsidies) + Economic environments https://www.theguardian.com/world/2019/sep/11/underpopulate d-italian-region-molise Global Economic Environment 1 of 2 International Trade Theory firms expanding internationally must appreciate how their international activities match with a country’s goals for international trade Balance of Payments a leading indicator of the international economic health of a country and may directly influence a firm’s expansion decisions https://tradingeconomics.com/united-states/balance-of-trade Government Policy and Trade firms are directly impacted by government policies in areas such as tariffs and non-tariff barriers
- 2. 3 Global Economic Environment 2of 2 Institutions in the World Economy institutions such as the World Trade Organization and the World Bank greatly influence trade policies, and ultimately can influence a firm’s global strategy Regional Economic Integration firms generally benefit from economic integration through lower costs of doing business. However it can also lead to stronger competitors 4 International Trade Theory Why do nations trade? Key international trade theories: Absolute Advantage and Comparative Advantage Product Life Cycle – Trade patterns and production over time 5 Comparative Advantage “Different countries have dissimilar prices and costs on goods because different goods require a different mix of factors in
- 3. their production andbecause countries differ in their supply of these factors.” (Ohlin) e.g., Can you grow salmon in Texas? 6 Product Life Cycle Four Phases of the Product Life Cycle: Phase 1: the U.S. exports the product Phase 2: foreign production starts Phase 3: foreign production becomes competitive in export markets Phase 4: import competition begins The Product Life Cycle may not explain trade and production patterns as well anymore due to: Short gap between phases “Born globals” may skip some phases 7 Product Life Cycle 1 of 3 Developed Nation (strong economy) Produces more than consumes at the beginning, then a switch 8 Product Life Cycle
- 4. 2 of 3 EmergingNation Consumes more than produces at the beginning, then a switch 9 The Consumer PLC Extending a Product in Other Markets Balance of Payments 1 of 2 The Balance of Payments (BOP) is a summary of a country's economic transactions w/the world, for a specified period of time. Current Account Goods (Merchandise) Services Unilateral Transfers http://www.bea.gov/newsreleases/glance.htm http://tse.export.gov/TSE/ https://economictimes.indiatimes.com/markets/forex/indian- rupee-hits-an-all-time-low-of-72-69-versus-us- dollar/videoshow/65769296.cms 11 U.S. Imports
- 5. vs. Exports https://tradingeconomics.com/united-states/balance-of-trade Financial considerations Reflectsa country’s solvency/economic health Steady loss of foreign exchange reserves may lead to trade restrictions such as exchange controls A firm’s pricing policies and profit repatriation may also be impacted by a country’s BoP Impact on marketing decisions Can help the marketing manager identify competitors’ and consumers’ locations Balance of Payments 2 of 2 13 Government Policy and Trade 1 of 3 Commercial Policy Government regulations affecting foreign trade Primary tools of commercial policy are tariffs, quotas, exchange controls, and non-tariff barriers Tariffs A tax placed on products imported from other countries Earns revenue and makes foreign goods more expensive Firms may use tariff engineering to minimize the impact of tariffs on their products Trade agreements and the GATT/WTO have significantly reduced tariffs over the past 50 years http://online.wsj.com/article/SB125357990638429655.html
- 6. 14 Government Policy andTrade 2 of 3 Quotas Quantitative restrictions on imported products Fewer options for firms to ‘work around’ quotas Exchange Controls Government monopoly on foreign trade Foreign trade is administered through a central office Non-tariff Barriers Includes customs documentation, food and drug laws, safety requirements, “buy national” policies, etc. 15 Government Policy and Trade 3 of 3 PROs: Cost of unemployment is high. Provides time to start up (or retool an industry). Long term: increased competition and associated benefits. Vital to defense. Diversification of economy. CONs: Ineffective allocation of resources. Reduces incentive to reinvest. Increases costs to consumers in short run and long run, to all. Leads to over capacity. Possible (negative) reciprocity. Pros and Cons of government intervention in international trade
- 7. 16 International Financial System Exchangerate instability Currencies frequently change in value with regard to each other in unpredictable ways Foreign exchange rate The domestic price of a foreign currency In other words, the amount of US$1 it will cost to buy (or exchange for) foreign currency Changes in the exchange rate change the cost of imported goods (into the home country) and exported goods (into a firm’s international markets) http://www.x-rates.com/ 17 Institutions in the World Economy 1 of 3 World Trade Organization (WTO) Promotes the reduction of trade barriers Originally called the GATT, there have been 8 major rounds of trade negotiations since 1947 Calls for nondiscrimination – that each WTO member must grant each other WTO member ‘most favored nation’ status Provides forums for consultation, mediation, and rulings on trade disputes between members http://wto.org/ http://www.wto.org/english/thewto_e/countries_e/thailand_e.ht m
- 8. 18 Institutions in theWorld Economy 2 of 3 International Monetary Fund (IMF) provides: A forum for global monetary and fiscal discussions Financial assistance (loans) to countries with BoP issues Technical assistance and economic consultants to countries to help them design and implement sound economic policies http://www.imf.org/external/index.htm http://www.imf.org/external/country/pry/index.htm 19 Institutions in the World Economy 3 of 3 The World Bank Group Originally called the International Bank for Reconstruction and Development (IBRD), its primary mission was to help rebuild infrastructure after World War II The World Bank still provides loans for infrastructure development, mostly in developing economies http://www.worldbank.org/ http://www.worldbank.org/en/country 20 Regional Economic Integration 1 of 2 Regional economic integration is when nations agree to work
- 9. together to pursuecommon economic gains There has been tremendous growth in regional economic integration in the last 50 years The five major levels of integration are: 21 Regional Economic Integration 2 of 2 USMCA (BREXIT) 22 ECONOMIC Blogpost Write an economic profile of your country, include information on How large is the economy? PPP and nominal per capita incomes? How “connected” are they (phone/internet usage and infrastructure – include cellphones, broadband, social media)? Who do they trade with? How much? Balance of trade? How is this economy doing (inflation, unemployment, interest rates, etc.)? Any recent, important stories about the country at WTO, IMF, Worldbank sites? https://www.cia.gov/library/publications/the-world-factbook/ http://www.internetworldstats.com/
- 10. http://databank.worldbank.org http://www.tradingeconomics.com/index-list-by-country AND OTHERS MENTIONEDON PREVIOUS SLIDES Nope, by noon tomorrow http://www.worldbank.org/en/country http://www.imf.org/external/country/pry/index.htm http://wto.org/ Economy Size Israel's GDP per capita is $36,400. This means that Israel has a spending power of $36,400 in a year. This spending power is 55th compared to the rest of the countries in the world. Israel experienced a 3.3% real GDP growth rate after 2016. Israel's nominal GDP is approximately $42,000. This number is the average amount of money an Israeli makes a year. Connection Israel has a population of approximately 8.6 million people. Of those 8.6 million, 5.8 million are subscribed to Facebook. This means that 68% of the Israeli citizens are active on social media. Israeli's are quite active internet users. 79% of the Israel population uses the internet. Israel does have a very competitive mobile telecommunications market because their mobile broadband penetration crossed over the 100% mark with 10.5 million total mobile celluar subscriptions. This ranks them 82nd in the world and concludes that Israeli's all own celluar devices. 4G coverage is very sigificant in Israel, however, there are several phone companies who provide 3G service. As far as
- 11. broadcasting media, Israel'sbroadcast channels in two languages: Hebrew and Arabic. The Israel's have access to foreign channels, 7 commercial channels, 8 radio networks, and about 15 privately owned radio stations. Trade Israel's Balance of Trade is -1713 USD million. This number has gotten decreased almost 50% from the previous year which is a good sign that Israel is getting better at becoming more balanced with their trading. Israel brings in almost $2000 million more imports than their exported items. Israel's major imports are oil, other mineral fuels, and uncut diamonds. The main exports are cut diamonds, pearls, precious metals, electrial and mechanical machinery, and electronics. Israel's main trading partner is the United States. Israel supplies the U.S. with 28% of their exports and receives 12% of their imports from Israel. Other countries that Israel participates in trade with is Hong Kong, China, Belgium, Netherlands, Germany, and the United Kingdom. Their weapon sales total 707 USD million. Israel's terms of trade are at an all time low: 106.4 index points. Economic Performance Israel's unemployment rate is 4.2% which is a .6% decrease from the previous year. This unemployment rate is 55th in the world, which is the same ranking as their GDP. Despite only 4.2% of the population being unemployed, 22% of Israeli's population are below the poverty line. Someone is considered to be below Israel's poverty line if they make less than $7.30 per day. Israel's inflation rate is .2%, ranking them 17th in the world,
- 12. which is verygood for citizens. This means that the general level of prices of goods and services in the Israel economy have only risen .2% from 2018. Comparably, the United States' inflation rate in 2.1% and ranked 110th. This can be because of the standard of living and minimum wage has increased. Jose Alvarez Honduras Economy Economy: - Honduran economy is not large at all; the economy basically depends on The United States and Canada. Honduras depends on the exportation of goods such as coffee, bananas, and shrimp. These are the main exportations the country does. Honduras has a PPP of $5,500 and a nominal of $2,480 as of 2017. Connections: - Honduras has an easy connection to internet. As found in the Honduran travel page it is said that tourists have an easy time connecting to the internet. However, it is not the highest internet in South America. It is said that the average cost of 20 hours of Internet access is twenty-two dollars with fifty cents. It is very cheap compared to the United States. The senior IT education administrator in Honduras quoted, “The future depends on technology, and if we don’t lead our students toward it, we would be failing”. Honduras does a great job on trying to promote technology and try to innovate through the years. Trade: - Honduras is known to trade with the United States and Canada they export 9 billion dollars and import 9.9 billion dollars. They export T-shirts, insulated wire, coffee, bananas, melons, gold, soap and paper containers for the most part. The import Broadcasting equipment, packaged medicaments, non-retail synthetic staple fibers yarn, delivery trucks, toilet paper, pig meat, corn, and rubber along other materials that are not found
- 13. in Honduras. Inflation: - Hondurashas experienced a rough time after the turbulent years of 2008 after they experienced the global financial crisis. Not only did they suffer economically but also politically. The minimum wage in Honduras is $7,915 dollar per year. It is in the 23rd place out of 197, meaning that there are 23 other countries that have a higher minimum wage. Size and Income: Argentina have a really big size when it comes to population with over 45 million people. That number should also increase for their projections have it that more people are being born then those that are dieing. Argentina's PPP currently is 19000 and for the past five years it actually has been jumping around from 19000 and 21000. For their nominal per capita it is currently 14400 which is good because it has been going up every year for Argentina so that number will only be going up with how its been for the past 10 years. Argentina Economy Internet Usage: Argentina have lots of Internet users with a total of 42 million. Out of those, 30 million have a Face book account which would calculate to 66% of the population dealing with Face book. When it comes to broadband they have one of the biggest penetration rates in Latin America, With the countries political and economic difficulties it has made it more difficult but recently their have been stead improvements. Argentina Internet Usage Trade: When it comes to trade Argentina trades with every one but the countries they trade with the most are Brazil, United States, and China. With a total of 60 billion in exports and 54 billion in imports just from this last year. There balance of trade is really good recently, the last time they were negative was in
- 14. 2017 and fromthen they have stayed positive when it comes to the balance of power. Argentina Trade Inflation/Unemployment: The inflation rate in Argentina is 54.4 which has gone down from 57.3 but you still would like for it to be lower then it is now. When it comes to unemployment it is at 10.1 and from 2002 to 2018 it was a average of 9.41 so for 2019 it has gone up slightly but with projections it is said to go back down slightly again.