Transcript Lecture 10
Lecture 10 Chapter 5 Understanding The Global Context Of Business Contemporary Global Economy • Globalization • Benefits of globalization – General Agreement On Tariffs and Trade – Bigger markets – Diversification of risk – Impact of technology – Utilization of other country resources – Producing things efficiently World Marketplaces • World bank, an agency of UN uses per capita income (average income per person) as a measure to divide countries in to one of three group High Income Marketplaces • Per capita income greater than $9,386 – U.S. & Canada – Europe – Australia & New Zealand – Japan, South Korea, Singapore, Taiwan, & Hong Kong – Kuwait, United Arab Emirates, Israel Middle Income-Marketplaces• Per capita income less than $9386 but more than $765 – Czech Republic, Greece, & Hungary, Poland – Turkey – Mexico, Argentina, & Uruguay Low Income Marketplaces • Per capita less than $765 (developing countries – China – India (huge population, seen as attractive markets) – Somalia – Pakistan (low literacy rate, weak infrastructure and unstable governments)s World Marketplaces • World bank, an agency of UN uses per capita income (average income per person) as a measure to divide countries in to one of three group Competitive Advantage •Absolute: when a country can produce something that is cheaper and or of higher quality than any other country •Comparative: the ability to produce some products more efficiently and better than others Competitive Advantage AbsoluteDiamonds Comparative Produce Efficiently High Grain DVDs Export Low South Africa Rest of World US South Korea National Competitive Advantage Import-Export Balances • Balance Of Trade • Trade Deficits/Surpluses • Balance Of Payments Exchange Rates (currency of one country can be exchanged for that of another • Rates & Competition – Fixed rates – Floating rates (depending upon conditions) – Cost of chocolate • Rs. 18 (Rs. 3*60) • Rs. 270 (Rs. 3*90) – Currency fluctuation effects demands • Dollar Exports • Dollar Exports International Business Management • Going International • Gauging Demand • Adapting To Customer Needs Going International Levels Of International Involvement • Exporters/Importers – Makes product in one country and sells in another – Buys products at foreign markets and brings them for resale at home – Lowest level of involvement – Good way to lean international trade Levels Of International Involvement • International Firms – Conduct business abroad – Maintain manufacturing facilities abroad • Multinational Firms – Design, produces and markets products in many nations – Decision making are geared for international markets International Business Structures High Foreign Direct Investment Branch Offices Licensing Arrangements Commitment/Risk Strategic Alliances Independent Agents Low International Business Structures •Independent agent: •foreign individual that represents an exporter in foreign markets •Act as sale representative •Sell export products, collect payments, satisfy customer •Represent several firms •Do not specialize in a particular product •Licensing agreement •Firms give foreign companies right to manufacture its product •Exporter receives a free and royalties (calculated as a percentage of sales) •E.g Franchise International Business Structures •Strategic alliance •Finds a partner in the country in which it wants to do business •Each party invests resources and capital •Alliance is owned by the partners who divide profits •Called as joint ventures •FDI •Buying or establishing tangible assets in another country Barriers To International Trade • Social/Cultural Differences – language • Economic Differences • Legal/Political Differences – Quota (restricts the no. of products of a certain type that can be imported) – Embargo (fobids exportation and importation of a particular product) – Tariffs (taxes on imported products) • Revenue (raise money for the government)) • Protectionist (discourage particular products) Barriers To International Trade – Subsidy (government payment to help domestic government to compete with foreign firms – Protectionism (protects domestic business against foreign competition – Business Practice Laws – Cartels & Dumping • Cartel is an association of producers who control supply and prices • Dumping is practice of selling a product abroad for less than the cost of production