Jessica Hirschberg BMGT110 Quiz 5 Study Guide Chapter 3 Competing in Global Markets The United States is the largest importing nation in the world The world has approximately 7 billion inhabitants Comparative advantage a company should sell the products or services it produces most efficiently and buy from other firms the products or services it cannot produce as efficiently Absolute advantage a company has a monopoly on producing a specific product or service or is able to produce or service more efficiently than others Why should companies trade globally Better resource utilization great efficiency more choices for consumers lower prices for goods and services Creation of wealth Expansion to greater potential markets Catalyst for democracy Greater attention to human rights Enriched life i e more ideas culture etc People against global trade say Export of jobs Decline of incomes Growing income inequality Loss of national sovereignty Americanization of the world Environmental destruction Spread of disease Sweat shops and child labor Why do Firms Globalize Market seeking emerging markets are where growth is going to happen Efficiency seeking Innovation seeking Defensive reasons Global trade sell Goods services importing exporting Measuring trade balance of trade payments trade deficit dumping Balance of trade total value of a nation s exports compared to its imports measured over a set period of time Trade deficit value of exports is less than value of imports buying more than we Dumping selling products in a foreign country to lower prices than charge in the originating producing country United States leader in imports in 2005 Germany leader in exports in 2005 Strategies for reaching global markets Licensing when a firm licensor provides the right to manufacture its product or use its trademarks to a foreign company licensee for a fee royalty ex Disney Coca Cola Exporting when a firm exporter manufacturers its products or services in one country and sells the products in another country Franchising a contractual agreement whereby one company sells others the rights to use the name and sell a product service in a given area ex Dunking Donuts Holiday Inn Contract Manufacturing a foreign company produces private label goods to which a domestic company then attaches its own brand name or trademark form of outsourcing Joint Venture a partnership in which two or more companies join to undertake a major project Strategic alliance a long term partnership between two or more companies established to help each company build competitive market advantages Foreign Direct Investment FDI the buying of permanent property and business in foreign nations Companies invest in other nations to increase in merger activity results in investments whereby nations acquire existing companies strategy to reduce competition and enter into new markets If a company succeeds in the domestic market it can expand in other countries The industry dictates where and how quickly a company can go to other countries MNC an organization that manufactures and markets in many different countries Forces Affecting Trading in Global Markets Socio cultural set of values beliefs rules and institutions held by a specific group of people ex different slogans can mean different things once translated in other languages Economic Financial forces such as economically depressed nations the strength of an exchange rate etc all affect global business Legal Regulatory there is no central regulatory environment so there are different systems of laws that apply in different places ex things being banned in other countries affect the exports of other countries Physical Environmental some countries have primitive infrastructure and storage so international distribution is ineffective Cultural Differences in Global Markets language religion values attitudes personal communication social structure aesthetics Be culturally savvy learn about the culture language and dress code Recognize the importance of dealing with cultural differences and consequences of taking no action Manage and learn to appreciate various cultures Economic Financial Forces affecting trade in global markets No worldwide currency Currency fluctuations Floating exchange rates Bartering countertrading Legal Regulatory Forces affecting global markets Inconsistent laws regulations Foreign Corrupt Practices Act of 1978 Local Business Contact required How do we protect our trade Trade agreements Tariffs taxes on imports making buying imported goods more expensive to buy protected domestic goods making them competitively priced meant to save domestic jobs and save industries revenue tariffs designed to raise money for the government Import quota limits the number of products in certain categories a nation can import used to protect domestic US companies Embargo complete ban on the import or export of certain products or the stopping of all trade with particular country Nontariff barriers not specific or formal as tariffs quotas or embargoes but can still be detrimental to free trade General Agreement on Tariffs Trade 1948 Uruguay Round of GATT 1986 World Trade Organization 1995 mediates disputes Common markets regional group of countries with a common external tariff no internal tariffs and coordinated trade laws amongst themselves North American Free Trade Agreement 1994 free trade areas of the Americas Central America Free Trade Agreement 2005 Costa Rica Dominican Republic El Salvador Guatemala Honduras and Nicaragua Opening up free trade increases investment opportunities World is dividing into major trading blocs that will exclude poor and developing nations Pros of Offshore Outsourcing More focus on areas where they can excel and grow Outsourced work creates efficiencies resulting in hiring more workers Fuels global market growth Cons of Offshore Outsourcing Jobs lost wages fall Reduces product quality Communication becomes much more difficult Inefficient time wise Rising levels of world trade have been driven by Declining barriers to trade and investment Opening up of previously closed national markets economic liberalization Information and communications technologies Availability of new supply sources Reduced transaction costs Licensing when a firm licensor provides the right to manufacture its product or use its trademarks to a foreign company licensee for a fee royalty ex Coca Cola Licensing can benefit a firm by Gaining revenues it wouldn t have otherwise generated
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