Transcript Chap002

International Marketing
14th Edition
P h i l i p R. C a t e o r a
M a r y C. G i l l y
John L. Graham
The Dynamic
Environment
of International
Trade
Chapter 2
McGraw-Hill/Irwin
International Marketing 14/e
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
What Should You Learn?
• The basis for the reestablishment of world trade
following World War II
• The importance of balance-of-payment figures to
a country’s economy
• The effects of protectionism on world trade
• The seven types of trade barriers
2-2
What Should You Learn?
• The provisions of the Omnibus Trade and
Competitiveness Act
• The importance of GATT and the World Trade
Organization
• The emergence of the International Monetary
Fund and the World Bank Group
2-3
Global Perspective
Trade Barriers – An International Marketer’s Minefield
• Countries take advantage of U.S. open markets
while putting barriers in the way of U.S. exports
• Tariff and nontariff barriers to trade are major
issues confronting international marketers
• To realize the benefits of the social, political, and
economic changes, free trade must prevail
throughout the global marketplace
– WTO (World Trade Organization)
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Top Ten 2007 U.S. Trading Partners
($ billions, merchandise trade)
Exhibit 2.1
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The 20th to the 21st Century
• First Half of the Twentieth Century
– Depression
– WW I and WW II
• Marshall Plan
• Move toward international cooperation among
trading nations
– General Agreement on Tariffs an Trade, (GATT)
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The 20th to the 21st Century
• Last half of the 20th century marred by
competing approaches to economic
development
– Socialist Marxist
– Democratic capitalist
• Rapid growth of war-torn economies and
previously underdeveloped countries
• Large-scale economic cooperation and
assistance
• Rising standards of living
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World Trade
and U.S. Multinationals
• New global marketing opportunities
• 1950s – U.S. companies began to export and
make significant investments in overseas
marketing and production facilities
• 1960s – U.S. multinational corporations (MNCs)
faced major challenges on two fronts
– Resistance to direct investment
– Increasing competition in export markets
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World Trade
and U.S. Multinationals
• American MNCs confronted by a resurgence of
competition from all over the world
– NIC (Newly Industrialized Countries)
– SOE (State-Owned Enterprises)
• The balance of merchandise trade
– U.S. trade deficit
• U.S. dilemma of how to encourage trading partners
to reciprocate with open access to their markets
without provoking increased protectionism
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WTO (World Trade Organization)
NAFTA
AFTA (American Free Trade Area)
APEC (Asia-Pacific Economic Cooperation Conference)
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World’s 100 Largest Industrial
Corporations (Annual Revenues)
Exhibit 2.2
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Beyond the First Decade
of the 21st Century
• U.S. economy has slowed dramatically
• World growth (except China) also slowed
– The Organization for Economic Cooperation and Development
(OECD) estimates 3% average annual growth for next 25 years
• Developing countries will grow faster
– From an annual rate of 4% in the past quarter to a rate of 6% for
the next 25 years
– Share of world output will range from one-sixth to one-third
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Beyond the First Decade
of the 21st Century
• Level of intensity of competition will change as
companies focus on gaining entry or maintaining
their position
– Emerging markets
– Regional trade areas
– Established markets in Europe, Japan, and the U.S.
• Smaller companies also seeking new markets
– Novel approaches
– Technological expertise
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Balance of Payments
• Balance of payments – the system of accounts
that records a nation’s international finance
transactions
• Transactions recorded annually
• Must always be in balance
• A record of condition, not determinant of
condition
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Balance of Payments
• A balance of payments statement includes three
accounts
– Current account
– Capital account
– Reserves account
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U.S. Current Account
by Major Components, 2007 ($ billions)
Exhibit 2.3
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U.S. Current Account Balance
(% of GDP)
Exhibit 2.4
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What Would One U.S. Dollar Buy?
Exhibit 2.5
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Protectionism
• Tariffs, quotas, and nontariff barriers are
designed to protect markets from intrusions by
foreign countries
• Nations utilize barriers to restrain entry of
unwanted goods
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Legal
Exchange
Psychological
Private market
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Protection Logic and Illogic
• Arguments concerning protectionism on trade
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Protection of infant industry
Protection of the home market
Need to keep money at home
Encouragement of capital accumulation
Maintenance of the standard of living and real wages
Conservation of natural resources
Industrialization of a low-wage nation
Maintenance of employment and reduction of unemployment
National defense
Increase of business size
Retaliation and bargaining
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Trade Barriers
• Tariffs
• Quotas
• Voluntary Export Restraints (VER)
• Boycotts and embargoes
• Monetary barriers
– Blocked currency
– Differential exchange
– Government approval
• Standards
• Antidumping penalties
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Types of Nontariff Barriers
Exhibit 2.6
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The Omnibus Trade
and Competitiveness Act
• Designed to deal with trade deficits, protectionism,
and overall fairness of our trading partners
• Covers three critical areas in improving U.S. trade
– Market access
– Export expansion
– Import relief
• Four ongoing activities to support the growth of
international trade
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GATT
The associated World Trade Organization (WTO)
International Monetary Fund (IMF)
The World Bank Group
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General Agreement
on Tariffs and Trade
• Paved way for first effective worldwide tariff agreement
• Basic elements of the GATT
– Trade shall be conducted on a nondiscriminatory basis
– Protection shall be afforded domestic industries through customs tariffs, not
through such commercial measures as import quotas
– Consultation shall be the primary method used to solve global trade
problems
• Eliminating international trade barriers – Uruguay
Round
– The General Agreement on Trade in Services (GATS)
– Trade-Related Investment Measures (TRIMs)
– Trade-Related aspects of Intellectual Property Rights (TRIPs)
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World Trade Organization
• WTO is an institution – not an agreement
– Sets many rules governing trade between its 148 members
– Provides a panel exports to hear and rule on trade disputes between
members
– Issues binding decisions
– All member countries will have equal representation
– Member countries have open their markets and to be bound by the rules
of the multilateral trading system
• U.S. ratification concerns
– Possible loss of sovereignty over its trade laws to WTO
– Lack of veto power
– Role U.S. would assume when a conflict arises over an individual
state’s laws that might be challenged by a WTO member
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Skirting the Spirit of GATT and WTO
• Loopholes
– Reducing tariffs while at the same time increasing number and
scope of technical standards and inspection requirements
• Imposing antidumping duties
• Negotiating bilateral trade agreements
– May lead to multinational concessions
– Not necessarily consistent with WTO goals and aspirations
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The International Monetary Fund
• Created to assist nations in becoming and
remaining economically viable
• Objectives of the IMF
– Stabilization of foreign exchange rates
– Establishment of freely convertible currencies to facilitate the
expansion and balanced growth of international trade
• Special Drawing Rights (SDRs)
– “Paper gold”
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The World Bank Group
• Institution created to reduce poverty and improve
standard of living
– By promoting sustainable growth and investment in people
• The World Bank has five institutions which
perform the following services:
– Lending money to the governments of developing countries
– Providing assistance to governments for developmental projects
to the poorest developing countries
– Lending directly to the private sector
– Providing investors with guarantees against “noncommercial risk”
– Promoting increased flows of international investment
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Protests against Global Institutions
• The basic complaint against the WTO, IMF and
others is the amalgam of unintended
consequences of globalizing
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Environmental concerns
Worker exploitation and domestic job losses
Cultural extinction
Higher oil prices
Diminished sovereignty of nations
• Terrorism in London (2005)
• “Antisweatshop” campaigns
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Summary
• The benefits from absolute or comparative
advantage clearly can accrue to any nation
• Increased pressure for protectionism from every
region of the globe
• The consumer seldom benefits from such
protection
• Free international markets help underdeveloped
countries become self-sufficient
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Summary
• Freer trade will always be partially threatened by
various governmental and market barriers that
exist or are created for the protection of local
businesses
• The future of open global markets lies with the
controlled and equitable reduction of trade
barriers
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