Chapter 4 Dynamic Global Market 90 of companies do biz globally Importing buying products from another country Exporting selling products to another country Why trade with other nations No nation can produce all the a country wants and needs Some have abundant resources and limited technology or vice versa Obtaining what one needs from a mutually beneficial exchange is called free trade the movement of goods and services among nations without political or economic barriers Theories of comparative and absolute advantage Comparative advantage theory states that a country should sell to other counties those products it produces most effectively and efficiently and buy from other countries those products it cannot produce effectively and efficiently America has a comparative advantage is software and engineering but lacks coffee growing and shoemaking Absolute advantage is when a country has a monopoly on producing a product or is able to produce it more efficiently than all other countries Very few cases of this South Africa used to be one of them with diamonds Importing goods and services Some things widely available and cheap here and scarce and expensive abroad Example of bringing the aroma of little coffee shops in Italy to the US example Starbucks and transformed it according to his vision Exporting goods and services Easy to sell almost anything Boosts US economy Measuring global trade Two key indicators balance of trade and balance of payments Balance of trade total value of a nation s exports compared to its imports measured over Favorable balance of trade trade surplus is when the value of a country s exports a particular period of time exceeds the value of its imports Trade deficit occurs when the value of exports is less than imports Balance of payments the difference between money coming into a country and leaving the country Unfavorable more money out than in Favorable more money in than out Dumping selling products in a foreign country at lower prices than those charged in the producing country prohibited practice Licensing A global strategy in which a firm licensor allows a foreign company licensee to produce its product in a exchange for a fee royalty Benefit by gaining revenues that would have otherwise not generated from home market makes money on start up and licensors spend little money to produce market their products Problems must grant permission for long periods of time bulk revenues belong to the licensee may break agreement and produce a similar product of its own Exporting
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