International Trade

1
International Trade
1
2
Chapter Details

• International Trade
• Interdependence of Nations
• Benefits of International Trade
• Government Involvement

• Balance of Trade
• Trade Barriers
• Trade Alliances
• International Business
• Political and Legal
• Technology

2
3
International Trade

• Exchange of goods services between nations
• Imports purchased from other countries
• Exports sold to other countries
• Occurs between businesses, regulated by
  governments

3
4
Interdependence of Nations

• Different countries have different needs and
  resources
• Resources rarely meet the needs of the citizens
• Trade is necessary

4
5
Advantages

• Absolute Advantage
• When a country has a special natural resource or
  talent that allows it to produce an item at the
  lowest possible price
• Comparative Advantage
• When a nation gains value by producing items in
  the most efficient way
• U.S. well suited for high tech goods
• Developing nations have advantage in labor
  intensive goods

5
6
Benefits of International Trade

• Consumers benefit from increased competition
• Producers benefit by having a larger sales market
• Workers benefit from increased wages and
  employment
• Nations benefit from foreign investment and
  standard of living increase
• Economic alliances typically lead to political
  agreements

6
7
Government Involvement

• Government regulates everything that enters the
  borders
• All people goods that enter the United States
  are subject to search
• Same is true of most other nations

7
8
Balance of Trade

• Positive balance
• Trade surplus exports are greater than imports
• Negative balance
• Trade deficit imports out value exports
• Unfavorable balance reduces a nations revenue as
  it becomes a debtor nation

8
9
Balance, cont.

• Negative value may lead to increased unemployment
• Deficit can actually help a country
• As currency value weakens overseas, prices of
  exported good become cheaper and increase sales

9
10
Rank of countries - Exports
10
Information from the CIA website
11
Ranks of countries - Imports
11
Information from the CIA website
12
Trade Barriers

• Three types of limits to trade
• Tariffs duty tax on imports
• Revenue producing prime means of revenue prior
  to income tax in 1913
• Protective usually very high, used to shield
  domestic trade from foreign competition
• Quotas
• Limit quantity or value of imported products
• Can be done voluntarily to improve relations

12
13
Trade barriers

• Embargoes
• Total ban on a country
• Can be used for health reasons, i.e. Mad cow
  disease
• More often used as a political pressure tactic
• Cuba, North Korea, Iran
• Does not permit for imports from country or
  exports to country

13
14
Trade Alliances

• World Trade Organization (WTO)
• Formed under the General Agreement on Tariffs
  Trade (GATT) in 1995
• Coalition of 151 governments to regulate trade
  unanimous decisions only
• Studies economies to resolve disputes and
  regulate service and intellectual property
• Has both critics and supporters

14
15
Trade Alliances

• North American Free Trade Agreement (NAFTA)
• Goal is to rid North America of trade
  restrictions
• U.S. hoped to increase trade with Mexico
• All restrictions to be lifted by 2009

15
16
Trade Alliances

• European Union (EU)
• Established economic integration over all of
  Europe
• Created single currency
• European market rivals U.S. in terms of market
  size

16
17
International Business

• Three ways
• Importing
• Imports must meet same standards as U.S. products
• If met, most can enter with the exception of
  prescription drugs and alcohol
• Some products have reduced duties or fees
• Companies often employ customs brokers (licensed
  by CBP) because of the complex laws involved with
  importing

17
18
International Business

• Exporting
• Other nations have similar means, but different
  laws
• Companies will hire freight forwarders (licensed
  by Intl Air Transport Assoc.) to handle exports
• Or just Set up Shop

18
19
Setting up Shop

• Multinationals corporations with operations in
  other countries
• Mini Nationals midsize and small companies
• Investments in other countries referred to as
  foreign direct investment (FDI)
• Only possible through a joint venture
• Joint ventures is the involvement of a domestic
  partner in a foreign investment
• Beneficial due to partners knowledge of domestic
  market

19
20
Special Considerations

• Cultural
• Differences in language is main challenge
• Chevy Nova had poor sales in Latin America
• Social business etiquette changes across the
  globe
• Crossing your legs is seen as rude in Japan
• Gifts are a normal business practice in Far East,
  but seen as bribes in U.S.

20
21
Japan

• DO
• Bow slightly when introduced or leaving a
  meeting.
• Be introduced through a trusted customer, client,
  employer, etc.
• Provide a dinner meeting at some point.
• DONT
• Toss business cards across a table or write on
  them.
• Press too hard for a commitment or be too
  aggressive when closing a deal.

21
22
Japan

• Decisions tend to take longer, along a prescribed
  step-by-step process.
• More consensus is typically sought in Japan
  because of the high number of people and business
  entities involved in transactions.
• Patience is very important.
• There is stronger loyalty, so companies do not
  change business partners or vendors/suppliers
  very often.

22
23
Japan

• Business in Japan is often organized in large
  conglomerates with many family companies, so it
  can be difficult to become a qualified vendor.
  The process can take one year or more.
• If you do not have an established presence in
  Japan it is easy to be passed over as a new
  business partner.
• Contracts can take up to a year to be negotiated.
  
• Payment terms tend to be longer.

23
24
Considerations, cont.

• Economic Cost
• Infrastructure, labor, taxes, and exchange rates
• If infrastructure is inadequate, it could prevent
  some companies from investing, while attracting
  others
• Quality, cost and educational levels of labor
• Taxes are often negotiable
• Currency exchange hurts countries with poor
  economies

24
25
Political and Legal

• Government Stability is crucial
• Unlikely to invest in tumultuous nation
• In reverse to privatization, a country could
  nationalize all business and take control
• Actually happened in Bolivia in the 1950s
• Currently happening in Venezuela
• Not only bad for company but workers as well
• Executives become pawns in corrupt countries
• Payoffs become normal business practice

25
26
Political and Legal

• As countries wish to become more internationally
  involved, they become more stable
• Privatization occurs
• Tariffs reduced
• New laws to protect property, physical and
  intellectual

26
27
Technology

• Need to compare computer use, phone (wired and
  cell) and internet availability
• U.S. and Finland are well connected
• Technology is the basis for a strong economy
• More advanced, profitable businesses at home in
  more sophisticated nations

27