Transcript What are the barriers to international trade?

Chapter 3: THE WORLD MARKETPLACE
Business without Borders
© 2009 South-Western, a division of Cengage Learning
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LOOKING AHEAD
• Why should today’s managers think globally?
• What opportunities exist in the world economy
for businesses?
• Why do nations trade?
• How do we measure trade?
• How do companies reach global markets?
• What are the barriers to international trade?
• What are the benefits and criticisms of the free
trade movement?
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AN UNPRECEDENTED
OPPORTUNITY
With technology and
telecommunications
booming, and trade
barriers falling, the
economic boundaries
between nations have
begun to blur.
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TRADITIONAL CAPITALISM
• You have two cows. You sell one and buy a bull. Your herd multiplies,
and the economy grows. You sell them and retire on the income.
AN AMERICAN CORPORATION
• You have two cows. You sell one, and force the other to produce the
milk of four cows. You are surprised when the cow drops dead.
A FRENCH CORPORATION
• You have two cows. You go on strike because you want three cows.
A JAPANESE CORPORATION
• You have no cows. You create clever cow cartoon images called
Cowkimon and market them worldwide.
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A GERMAN CORPORATION
• You have two cows. You reengineer them so they live for 100 years,
eat once a month, and milk themselves.
AN ITALIAN CORPORATION
• You have two cows, but you don’t know where they are. You break for
lunch.
A RUSSIAN CORPORATION
• You have 2 cows. You count them and learn you have 5 cows. You
count them again and learn you have 42 cows. You count them again
and learn you have 12 cows. You stop counting cows and open
another bottle of vodka.
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WORLDWIDE ECONOMIC
GROWTH
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GLOBAL TRADE: TAKING
MEASURE
• Balance of Trade
– Trade Deficit
– Trade Surplus
• Balance of Payments
– Balance of Payments Deficit
– Balance of Payments Surplus
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FREE TRADE: THE MOVEMENT
GAINS MOMENTUM
There has been a global move
toward free trade – the
unrestricted movement of
good and services across
borders.
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MULTINATIONAL FIRMS
Do you know where the firm that ultimately owns each brand is headquartered?
Nestle Quick
Switzerland
Nokia Cell Phones
Finland
Jaguar Automobiles
United States
Michelin Tires
France
Shell Oil
Netherlands/England
Columbia Records
Japan/Germany
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GATT AND WORLD TRADE
ORGANIZATION (WTO)
• General Agreement on Tariffs & Trade
(GATT)
– Established in 1948
– Now encompasses 125 nations
– Slashed tariffs by about 30%
• World Trade Organization (WTO)
– Promote International Trade
– Settle Trade Disputes
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FREE TRADE
• The World Bank
–
–
–
–
184 Member Countries
Reduce World Poverty in Developing World
Influence Global Economy
Provide Financial Assistance
• Low interest loans
• The International Monetary Fund
–
–
–
–
Support Stable Exchange Rates
Facilitate International Payments
Adopt Economic Policies
Promote Trade
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TRADING BLOCS/COMMON
MARKETS
• Groups of Countries
promoting the free flow of
goods and services
• The North American Free
Trade Agreement (NAFTA)
– The largest trading bloc
– US, Canada, Mexico
• European Union (EU)
– The largest common market
© 2009 South-Western, a division of Cengage Learning
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KEY REASONS FOR
INTERNATIONAL TRADE
• Access to Factors of
Production
• Reduced Economic Risk
• Innovation
• Competitive Advantage
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COMPETITIVE ADVANTAGE
Opportunity cost –The cost of giving up the second-best
choice when making a
decision.
Comparative
A country has an
advantage - the
absolute advantage when
benefit a country
It can produce more of a
has in a given industry if
good than other nations,
it can make products at a
using the same amount
lower opportunity
of resources.
Cost.
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Melora
Typing – better than anyone else in her
village
- $20 per hour produces 100 pages
Surgery – better than anyone else in her
village
- $150 per hour
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STRATEGIES FOR FINDING
GLOBAL SUPPLIERS
Foreign Outsourcing/Contract
Manufacturing – contracting with
Foreign suppliers to produce
products, usually at a fraction of
the domestic cost.
Importing – buying products that
have been produced or grown in
foreign nations.
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FOREIGN INVESTMENT RISK
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STRATEGIES FOR REACHING
GLOBAL MARKETS
• Licensing
– Authority given by domestic firm for rights
to produce/market its product and use
trademarks/patents.
• Franchising
– Offering businesses in other countries the
right to produce and market products
under its operating requirements.
• Direct Investment
– Firms acquire businesses or develop new
facilities in foreign countries.
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BARRIERS TO
INTERNATIONAL TRADE
• Sociocultural Differences
• Economic Differences
• Political & Legal Differences
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SOCIAL/CULTURAL
DIFFERENCES
Think beyond the obvious
differences.
Social/cultural differences
can rapidly undermine • Nonverbal Communication
business relationships. • Forms of Address
• Attitudes toward punctuality
• Religious Celebrations
• Business Practice/Gifts
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OOPS: TRANSLATION GAFFS
• “It takes a virile man to make a chicken affectionate”
– Perdue Farms slogan “It takes a tough man to make a chicken
tender” translation in Mexico.
• Irish Manure Liquor, Silver Dung Rolls Royce?
– Several foreign companies have introduced products in
Germany with the word “mist” which roughly translates into
“dung” or “manure”
• “Nothing sucks like an Electrolux”
– Electrolux, a Swedish maker vacuum cleaners, introduced their
vacuums in the U.S. with a literal translation of their slogan.
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What do women want?
• American women want
convenience
• Italian women want cleaning
strength
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ECONOMIC DIFFERENCES
•
•
•
•
Exchange Rates
Population
Can you profitably
Per Capita Income
provide your product or
Infrastructure
service to meet the
– Transportation
– Communication
– Energy Finance
© 2009 South-Western, a division of Cengage Learning
needs of the market?
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THE MANY NAMES OF MONEY
China
Yuan
England
Pound
European Union
Euro
India
Rupee
Iran
Rial
Israel
Shekel
Japan
Yen
Mexico
Peso
South Africa
Rand
South Korea
Won
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Exchange rates as of
9/10/2008 - 8:44:39 AM
Currency
In US Dollar (Per one
Per US Dollar
foreign currency unit)
Brazilian Real
0.56117
1.78200
Japanese Yen
0.00927
107.84000
Mexican Peso
0.09452
10.57970
Canadian Dollar
0.93197
1.07300
Chinese Yuan
0.14632
6.83450
Euro
1.40331
0.71260
Indian Rupee
0.02206
45.32800
Swiss Franc
0.88051
1.13570
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EXCHANGE RATES: WHO
BENEFITS?
STRONG DOLLAR VS EURO:
(Example: $1.00 = 1.20 euros)
WEAK DOLLAR VS. EURO:
(Example: $1.00 = .60 euros)
U.S. travelers to Europe
European travelers to U.S.
American firms with
European operations
European firms with
American operations
European exporters
American exporters
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POLITICAL & LEGAL
DIFFERENCES
• Political regimes differ around the world
• Legal Differences
– Lack of Enforcement
– Bribery
• Political Climate
– Stability
– Violence
• Piracy and intellectual property is a problem
in several foreign nations
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PROTECTIONISM
Reasons to Create Trade
Restrictions
Reasons to Eliminate Trade
Restrictions
Protect domestic industry
Reduce prices and increase
choices for consumers
Protect domestic jobs in key
industries
Increase domestic jobs
Retaliate against countries who
have engaged in unfair trade
practices
Build exporting opportunities
Pressure other countries
Use world resources more
efficiently
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TRADE RESTRICTIONS
•
•
•
•
Tariffs
Quotas
Voluntary Export Restrictions
Embargo
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THE SLEEPING DRAGON
AWAKES
After years closed off from the world, China is experiencing
economic growth of approximately 10% per year
• In one generation, per capita income in China has tripled
• 300 million have been pulled from poverty
• China ranks 3rd in international commerce
• China will play a pivotal role in
shaping the world economy
• video
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• http://www.pbs.org/newshour/bb/asia/ja
n-june07/china_06-25.html
• Video
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GLOBAL EMPLOYMENT
“
A new study suggests that 2.3 million service
jobs will have moved from the
United States to other countries
by 2008, up from 900,000 as of 2003.
“
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LOOKING BACK
• What barriers and opportunities are fueling the
growth of the global economy?
• What are strategies for reaching global markets?
• How do we measure trade?
• Discuss barriers to international trade?
• What are strategies for promoting free trade?
• What are the benefits and criticisms of free
trade?
© 2009 South-Western, a division of Cengage Learning
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REVERSE BRAIN DRAIN
• Many talented immigrants are moving
home to take advantage of new
economic opportunities.
• US companies can cut costs by
sourcing employees from overseas.
• But is America losing potential
innovators such as Sergey Brin,
founder of Google?
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