Chapter 4 Global Analysis

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Chapter 4Global Analysis
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International Trade

• Section 4.1

3
International Trade

• The exchange of goods and services among nations
• Imports- goods and services purchased from other
  countries
• Exports-goods and services sold to other countries

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Advantages

• Absolute Advantage- occurs when a country has
  natural resources or talents that allow it to
  produce an item at the lowest cost possible
• Ex. China produces 80 of all of the silk in the
  worldit has an absolute advantage in the silk
  market
• Comparative Advantage- the value that a nation
  gains by selling what it produces most
  efficiently
• Ex. The U.S. has a comparative advantage in
  high-tech goods (ex. Airplanes)

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Benefits of International Trade

• Consumers
• Competition
• Encourages the production of high quality goods
  with lower prices
• Better variety of goods
• Producers
• Expansion of business
• Operations overseas
• Workers
• Higher employment rates
• Nations
• Increased foreign investment
• Increased standard of living

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Government Involvement

• Balance of Trade-Difference in value between
  exports and imports
• Trade Deficit
• Negative balance of trade
• Imports exceed exports
• Trade Surplus
• Positive balance of trade
• Exports exceed imports

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Trade Barriers

• Free Trade is based on free market principles,
  without restrictive regulations
• Three ways to limit trade
• Tariffs
• Quotas
• Embargoes

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Trade Barriers

• Tariff
• Tax on imports
• Produces revenue for the country
• Protective tariffs increase the price of imported
  goods so domestic products can compete with them
• Protects domestic jobs
• Ex. Imported Cars (Mercedes is more expensive
  than Ford.)

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Trade Barriers

• Quotas
• Limits the amount that can be imported
• Quantity
• Dollar Value
• Ex. The government could limit the number of
  Mercedes vehicles imported per year.

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Trade Barriers

• Embargo
• Total ban on specific goods coming into and
  leaving a country
• Health reasons
• Ex. Tainted grapes in 1989
• Political reasons
• Ex. U.S. embargo against Cuba since 1960

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Protectionism

• Protectionism is the governments establishment
  of economic policies especially designed to
  protect domestic industries
• Opposite of Free Trade
• Ex. Subsidies to Farmers

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Trade Agreements and Alliances

• World Trade Organization (WTO)
• Coalition of nations that makes rules governing
  international trade
• Formed in 1995 to open markets and promote free
  trade
• Reduced tariffs and created a common set of
  trading rules
• Serves to police the agreement and resolve
  disputes among nations
• Many supporters and critics
• Where do you fall?

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Trade Alliances

• North American Free Trade Agreement (NAFTA)
• Agreement between U.S., Canada, Mexico
• Created in 1994 to dissolve trade barriers
  between the three countries by 2009
• Lifted tariffs immediately

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Trade Alliances

• European Union (EU)
• Created in 1992 to establish free trade among
  member nations
• Created a single currency (Euro)
• Created a central bank
• In order to be admitted to the EU the country
  must conform to EU political, economic, and legal
  standards

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Doing Business Internationally

• Section 4.2

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International Trade

• Trade agreements by governments set the
  guidelines for business to operate in the global
  marketplace. Getting involved in international
  trade can mean
• Importing
• Exporting
• Licensing
• Contract manufacturing
• Joint ventures
• Foreign direct investment
• Multinationals and Mini-nationals

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Importing Exporting

• Importing - Purchasing goods from a foreign
  country
• Must meet same standards as domestic products
• Quotas limit entry of certain goods
• Exist on cotton, peanuts, and sugar
• Once quota is reaches for a certain item, no more
  of that item may enter!
• Exporting Selling domestic goods/services to
  other countries

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Licensing

• Lets another company use a trademark, patent,
  special formula, company name, or some other
  intellectual property for a fee or royalty.
• A foreign company makes the product using info or
  guidelines provided by the licensor
• Franchising grants rights to operate under the
  company name
• McDonalds

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Contract Manufacturing

• Hire a foreign manufacturer to make your products
  according to your specifications
• Finished goods are sold in that country or
  exported
• U.S. companies do this with clothing, toys, and
  computers
• The major benefit of this technique is lower
  wages, but the risk is that production
  information can be lost or stolen in the
  production countries.

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Joint Ventures

• A business enterprise that companies set up
  together
• In some countries, foreign investors are not
  permitted to own 100 of a business
• If you want to conduct business in those
  countries, you must find a local business partner
  and create a joint venture
• Example Viacom Inc. (owns CBS, Nickelodeon, and
  MTV) has a joint venture with Shanghai Media Group

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Foreign Direct Investment

• The establishment of a business in a foreign
  country
• Setting up a small office in another country
• Constructing manufacturing plants and retail
  stores abroad
• Sony has many manufacturing facilities in the
  U.S.!

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Multinationals Mini Nationals

• Multi large corporations that have operations
  in several countries
• Nike and Coca-Cola
• Mini midsize or smaller companies that have
  operations in foreign countries

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Global Environmental Scan

• A global environmental scan includes analysis of
• Political factors
• Economic factors
• Socio-cultural differences
• Technological levels
• This scans acronym is PEST.

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Political Factors

• A governments stability
• Its trade regulations and agreements
• Any other laws that impact a companys operation

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Economic Factors

• Key economic factors relevant to doing business
  in another country include
• Infrastructure The reliability of a nations
  roads, communication, and energy plants, etc.
• Labor force The quality, cost, and education
  level of local workers.
• Employee benefits Some countries have different
  policies for employees, such as France where the
  work week is only 35 hours instead of 40.

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Economic Factors

• Taxes Taxes on property and profits vary in
  different nations.
• Standard of living Companies consider this
  factor more when eyeing a country as a market to
  see what kind of consumers are there, and how
  many.
• Foreign exchange rate Changes in an exchange
  rate positively or negatively affect businesses
  that sell abroad.

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Socio-cultural Factors

• Marketers need to conduct a cross-cultural
  analysis in order to understand
• Languages and symbols Businesses take into
  consideration aspects such as the aversion to the
  number thirteen in the U.S. and the number four
  in China and Japan.
• Holidays and religious observances Companies
  need to know local religious beliefs if they are
  to attract customers.
• Social and Business Etiquette Actions such as
  gift-giving or receiving can have different
  undertones in different cultures.

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Technological Factors

• Studying a countrys technology means taking into
  consideration even the most basic factors such as
  the use of
• Computers, faxes, voice mail, cell phones, and
  the Internet.

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Global Marketing Strategies

• In planning and making decisions about the 4 Ps
  of the marketing mix, global marketers need to
  consider all the factors analyzed for the
  environmental scan!!
• The possibilities for marketing strategies that
  involve product and promotion decisions range
  from globalization to customization.

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Global Marketing Strategies

• Globalization is selling the same product and
  using the same promotion methods in all
  countries.
• Adaptation is a companys use of an existing
  product/promotion to which changes are made to
  better suit the characteristics of a country.
• Products and promotions can be changed to better
  fit languages or cultural boundaries.
• Customization involves creating products or
  promotions for certain countries or regions.