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How to Measure Global Trade
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Balance of Payments
Since 1975, the U.S. has bought more goods from other
nations than it has sold and thus has a trade deficit.
PPT 3-24
Unfair Trade Practices
Chapter 03 – Doing Business in Global Markets
PPT 3-25
Progress Assessment
1. One major argument favoring the expansion of
U.S. business is that the sheer size of the global
market (6.9 billion people) is too large to ignore.
Plus it’s difficult for an economy, even one as
large as the U.S. economy, to produce all the goods
and services its citizens desire.
2. Comparative advantage theory was proposed by
David Ricardo and simply states that a country
should sell to other countries those products it pro-
duces most effectively and efficiently, and buy
from other countries those products it cannot pro-
duce as effectively and efficiently. Examples in-
clude the U.S. producing goods and services such
as software and engineering services and buying
goods, such as coffee and shoes, from other na-
tions.
3. The balance of trade is the difference in the total
value of a nation’s exports compared to its imports.
The balance of payments is the difference between
money coming into a country (from exports) and
money leaving the country (for imports) plus mon-
ey flows coming into or leaving a country from
other factors such as tourism, foreign aid, military
expenditures, and foreign investment.
venture in China, and Toyota’s foreign direct investment in
the United States.
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PPT 3-27
Licensing
Coca-Cola has entered into licensing agreements with
over 300 licensees that have extended into long-term ser-
vice contracts that sell over $1 billion of the company’s
products each year.
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Export Assistance Centers and Export
Trading Centers
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Franchising
Links on the slide take you to KFC–Japan, Taco Bell–
India, and Pizza Hut–Hong Kong.
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PPT 3-30
Time to Make the Donuts …
1. Students should enjoy this slide. It shows the cul-
tural influence with donuts preferences.
2. Ask the students: What type of donuts do you en-
joy? Would your prefer sweet potato, or green ap-
ple, or mango in your donuts?
3. Ask the students: What modifications do companies
need to make when you go to different countries
like the ones shown in this slide? (Students should
point out the need to understand and research the
market and cultural/customer preferences and then
offer what the customers want.)
PPT 3-31
Golden Arches Glowing Across the
Globe
Students may find it interesting that McDonald’s Ham-
burger University is more selective than Harvard (62 out of
1,000 applicants make it in).
PPT 3-32
That’s at McDonalds?
1. McDonald’s is a leader in franchising and the com-
pany operates in 117 different countries.
2. This slide gives students an insight into some of the
changes McDonald’s has made to its menu when
operating in the world market.
3. Ask the students, Why does the leading provider of
American-style fast-food adopt different menu
Chapter 03 – Doing Business in Global Markets
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PPT 3-33
Joint Ventures
Joint ventures can also have drawbacks: (1) One partner
can learn the other’s practices and then use the knowledge
to its own advantage; (2) a shared technology may become
obsolete; and (3) the joint venture may become too large to
be as flexible as needed.
PPT 3-34
Joint Ventures
Joint ventures can also have drawbacks: (1) One partner
can learn the other’s practices and then use the knowledge
to its own advantage; (2) a shared technology may become
obsolete; and (3) the joint venture may become too large to
be as flexible as needed.
PPT 3-35
Strategic Alliances
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Foreign Direct Investment
PPT 3-37
Multinational Corporations
PPT 3-38
Sovereign Wealth Funds
Chapter 03 – Doing Business in Global Markets
PPT 3-39
Progress Assessment
1. The key advantages of using licensing as a method
of entry into global markets are (a) a firm can often
gain revenues in a market it would not have gener-
ated in its home market; (b) licensees must pur-
chase start-up supplies and consulting services from
the licensing firm; and (c) licensors spend little or
no money to produce and market their products.
Disadvantages to licensing include (a) if a product
is extremely successful in another market, the licen-
sor does not receive the bulk of the revenues; and
(b) if the foreign licensee learns the company’s
technology and product secrets, it may break the
agreement and begin producing similar products on
its own.
2. Export trading companies provide such services as
assistance in associating and establishing the de-
sired trading relationships, matching buyers and
sellers from different countries, and help dealing
with foreign customs offices, documentation, and
weights and measures.
vantages.
4. A multinational corporation manufactures and mar-
called multinational.
Chapter 03 – Doing Business in Global Markets
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Forces Affecting Global Trade
What makes operating in the international environment
more complex than operating only in the domestic market is
the addition of new uncontrollable forces. Examples of
these forces include sociocultural, economic, financial, le-
gal, regulatory, physical, and environmental.
PPT 3-41
Cultural Differences
A lack of cultural understanding can create problems
with working in the international market; even the color or
type of flower can have a different meaning. One book that
provides numerous examples to share with students is titled
Kiss, Bow or Shake Hands: How to Do Business in Sixty
Countries. Never assume what works in one country will
work in another.
PPT 3-42
Lost in Translation
1. Culture refers to the set of values, beliefs, rules, and
institutions held by a specific group of people.
2. One of the basic elements of culture is language
and language delineates cultures.
3. To operate successfully in the international market-
place, a company must never assume what works in
one country will work in another.
4. To avoid the funny and sometimes disastrous ad-
vertisements listed above, shrewd marketers must
Chapter 03 – Doing Business in Global Markets
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PPT 3-43
Ready to Travel Abroad?
1. Some fascinating cultural and social differences ex-
ist in other nations.
2. Discuss the following interesting points:
• A smile in Japan can mean that a person is
uncomfortable or sad.
• When traveling to Sweden, make appoint-
ments two weeks in advance.
• Lack of punctuality is a fact of life in Bra-
zil. Become accustomed to waiting.
3. Review the following helpful hints when dealing
globally:
• Be culturally savvy. Learn about the cul-
ture, language, and dress code.
• Recognize the importance of dealing with
cultural differences and consequences of
taking no action.
• Manage and learn to appreciate various cul-
tures.
4. Build a database of information about each country
where you have business relationships.
PPT 3-44
Do as the Germans…
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Chapter 03 – Doing Business in Global Markets
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Environmental Forces
PPT 3-49
Progress Assessment
1. Four major hurdles to successful global trade are
sociocultural forces, economic and financial forces,
legal and regulatory forces, and physical and envi-
ronmental forces.
2. Ethnocentricity is an attitude that your nation’s cul-
ture is superior to other cultures. It can affect global
trade because all nations are proud of their cultures
and do not aspire to be like other countries. Thus
it’s easy to offend potential customers by being
ethnocentric.
3. A low value of the dollar would make U.S. exports
cheaper in foreign markets and may lead to higher
demand for U.S. products.
4. The Foreign Corrupt Practices Act prohibits “ques-
tionable” or “dubious” payments to foreign officials
to secure business contracts. Other nations do not
have to follow this law, causing some disad-
vantages for U.S. businesses.
Chapter 03 – Doing Business in Global Markets
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Trade Protectionism
The Great Depression was exacerbated by the passage of
the Glass-Steagall Act. The Glass-Steagall Act of 1933
raised the tariff rates on thousand of products imported into
the United States. This led to other nations enacting similar
protectionist measures, effectively shutting down world
trade. Many fear that the economic contraction the world is
currently experiencing will lead to similar laws.
PPT 3-51
Tariffs
While a tariff may end up raising revenue for the gov-
ernment, it ultimately costs consumers more money in the
long run. Due to tariff rates on the importation of sugar,
consumers in the United States end up paying close to 50%
more for sugar than the rest of the world.
PPT 3-52
Import Quotas and Embargos
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World Trade Organization
PPT 3-54
Common Markets
PPT 3-55
EU Members
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NAFTA
PPT 3-57
CAFTA
Free traders hope CAFTA will lead to the creation of a
Free Trade Area of the Americas (FTAA).
PPT 3-58
New Free Trade Agreements
Chapter 03 – Doing Business in Global Markets
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Progress Assessment
1. Trade protectionism is the use of government regu-
lations to limit the import of goods and services. It
can be a barrier to global trade. Trade protectionism
often involves the use of tariffs or taxes on import-
ed goods that makes them more expensive to buy.
Protective tariffs can be an advantage to workers in
certain industries since it makes the products they
produce more cost competitive with imported prod-
ucts. American labor unions have sought certain
protective tariffs. Revenue tariffs are designed as a
source of revenue for the government. Most econ-
omists do not favor the use of tariffs; instead they
are in favor of free trade.
2. The World Trade Organization (WTO) was estab-
lished to mediate trade disputes among nations.
3. The purpose of a common market like the EU is to
have common external tariffs, no internal tariff, and
coordinated laws to facilitate exchange between
member nations. This enables smaller nations to
compete as a group against large economies like the
United States, China, and Japan.
4. NAFTA is comprised of the United States, Canada
and Mexico.
PPT 3-60
Future of Global Trade
BRIC has been an acronym for these countries. However,
BRIC nations are not the only areas of opportunity. Other
countries to look at include Indonesia, Thailand, Singapore,
the Philippines, South Korea, Malaysia, and Vietnam.
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Outsourcing
PPT 3-62
See the Sights, Meet the Doctors
Chapter 03 – Doing Business in Global Markets
PPT 3-63
Plan for Your Global Career
PPT 3-64
Progress Assessment
1. The major threats to doing business in global mar-
kets are terrorism, nuclear proliferation, rogue
states, and other issues.
2. India must relax its difficult trade laws and inflexi-
ble bureaucracy. Russia is plagued by political, cur-
rency, corruption, and social problems.
3. BRIC stands for Brazil, Russia, India, and China.
4. The key concern surrounding offshore outsourcing
is the loss of jobs. Today such loss includes profes-
sional services as well as production jobs. Ques-
tions also linger about outsourcing sensitive prod-
ucts like airline maintenance and medical devices.
Consumers’ fears about quality and product safety
keep the issue center stage.
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lecture
links
“The new electronic interdependence recreates the world in the image of a global
took Germany as the world’s largest exporter, and in 2011 it is predicted to surpass Japan as the world’s
second largest economy. As China’s economic clout has increased, so has its growing population of mid-
dle-class urbanites’ demand for Western goods. Recently experts even went so far as to predict that this
demand could result in China topping the United States in auto sales by 2020. As it turns out, the experts
were right, only they underestimated the date by about a decade. In 2009 total vehicle sales in China
become a major boon for American auto companies. As domestic demand for cars has waned, U.S. com-
panies have found new growth opportunities with the Chinese urban elite. In 2009 GM saw sales in China
grow by 67% while Ford sales increased by 44%. American automakers aren’t the only ones benefiting
from this surge in Chinese car buying; German car company Volkswagen claimed that China is currently
its biggest market as well. Foreign-made cars remain superior in quality and safety than Chinese cars, en-
Chapter 03 – Doing Business in Global Markets
2005. Wal-Mart adopted a similar strategy when it expanded into Germany, only to give up on the ven-
ture entirely in 2006.
Urban Outfitters, on the other hand, used a vastly different method when it came to Europe. Be-
fore the company cut the ribbon on its first European location in 1998, Urban Outfitters created a separate
design department in London so its clothes could cater more to local European tastes. While designing
lecture link 3-3
DISNEY’S SECOND TRY IN CHINA
When Disney opened up Disneyland Hong Kong in 2005 executives thought the project was a
guaranteed slam-dunk. After all, more than 260 million Chinese viewers tune in to TV shows featuring
the company’s iconic characters each week. But poor planning led to a disastrous debut. Disney underes-
timated just how many people would visit the park, leading to a lack of enough sitting space and food at
restaurants. Although the park is expanding with attendance climbing 13% last year, it lost $92.3 million
in 2010.