Chapter 03 – Doing Business in Global Markets
3-1
chapter
Doing Business in
Global Markets
what’s new in this edition 3.2
brief chapter outline and learning objectives 3.3
lecture outline and lecture notes 3.7
PowerPoint slide notes 3.51
lecture enhancers 3.77
lecture enhancer 3-1: FORD GOES GLOBAL WITH NEW SUBCOMPACT CAR 3.77
lecture enhancer 3-2: PEPSI EXPANDS ITS RUSSIAN EMPIRE 3.77
lecture enhancer 3-3: CHIPOTLE STRUGGLES IN THE UK 3.78
lecture enhancer 3-4: THE WORLD CUP’S BIGGEST CORPORATE MATCHUP 3.79
lecture enhancer 3-5: WHO DOES THE U.S. OWE MONEY TO? 3.79
lecture enhancer 3-6: FOREIGN ETIQUETTE TIPS 3.80
critical thinking exercises 3.81
critical thinking exercise 3-1: WHICH COUNTRY? 3.81
critical thinking exercise 3-2: EVALUATING GLOBAL EXPANSION 3.82
critical thinking exercise 3-3: CURRENCY SHIFTS 3.84
bonus case 3.87
bonus case 3-1:MAKING A MINT ON MAKE-BELIEVE 3.87
3
Chapter 03 – Doing Business in Global Markets
3-2
what’s new in
this edition
additions to the 11th edition:
• Getting to know Leila Janah of Samasource
• Name That Company: Nestle
• Spotlight on Small Business: From Setting Picks to Picking Grapes
• Reaching Beyond Our Borders: McDonald’s: Over 100 Cultures Served
• Video Case: Electra Bicycle Company
revisions to the 11th edition:
• Statistical data and examples throughout the chapter were updated to reflect current information.
• Additions to the EU map; Figure 3.8
• Making Ethical Decisions: Make Your Operation Your Vacation
deletions from the 10th edition:
• Getting to Know Yang Lan
• Name That Company: Yum! Brands
• Spotlight on Small Business
• Reaching Beyond Our Borders
• Video Case: CH2M Hill
Chapter 03 – Doing Business in Global Markets
3-3
brief chapter outline
and learning objectives
CHAPTER 3
DOING BUSINESS IN GLOBAL MARKETS
Getting to Know LEILA JANAH
learning objective 1
Discuss the importance of the global market and the roles of compara-
tive advantage and absolute advantage in global trade.
I. THE DYNAMIC GLOBAL MARKET
II. WHY TRADE WITH OTHER NATIONS?
A. The Theories of Comparative and Absolute Advantage
learning objective 2
Explain the importance of importing and exporting, and understand
key terms used in global business.
III. GETTING INVOLVED IN GLOBAL TRADE
A. Importing Goods and Services
B. Exporting Goods and Services
C. Measuring Global Trade
learning objective 3
Illustrate the strategies used in reaching global markets and explain
the role of multinational corporations.
IV. STRATEGIES FOR REACHING GLOBAL MARKETS
A. Licensing
B. Exporting
C. Franchising
D. Contract Manufacturing
E. International Joint Ventures and Strategic Alliances
F. Foreign Direct Investment
Chapter 03 – Doing Business in Global Markets
3-4
learning objective 4
Evaluate the forces that affect trading in global markets.
V. FORCES AFFECTING TRADING IN GLOBAL MARKETS
A. Sociocultural Forces
B. Economic and Financial Forces
C. Legal and Regulatory Forces
D. Physical and Environmental Forces
learning objective 5
Debate the advantages and disadvantages of trade protectionism.
VI. TRADE PROTECTIONISM
A. The World Trade Organization (WTO)
B. Common Markets
C. The North American and Central American Free Trade Agreements
learning objective 6
Discuss the changing landscape of the global market and the issue of
offshore outsourcing.
VII. THE FUTURE OF GLOBAL TRADE
A. The Challenge of Offshore Outsourcing
B. Globalization and Your Future
VIII. SUMMARY
Chapter 03 – Doing Business in Global Markets
3-5
Getting to Know LEILA JANAH of SAMASOURCE
Leilah Janah uses her experience as a globetrotting aid worker to fight world poverty
through her nonprofit company Samasource.
learning objective 1
Discuss the importance of the global market and the roles of comparative ad-
vantage and absolute advantage in global trade.
I. THE DYNAMIC GLOBAL MARKET
A. THE IMPORTANCE OF INTERNATIONAL MAR-
KETS
1. Whereas there are over 317 million people in the
U.S., there are 7.1 billion potential customers in
the world.
2. U.S. customers buy billions of dollars in goods
from China.
3. Companies such as UPS and sports teams in
the NBA, MLB, and NFL operate extensively
overseas.
B. The U.S. is the SECOND LARGEST EXPORTING
NATION in the world; it is the world’s largest import-
er as well.
1. IMPORTING is buying products from another
country.
2. EXPORTING is selling products to another
country.
This Swiss-based company has many foreign subsidiaries including Jenny Craig (weight man-
agement), Ralston Purina, Chef America (maker of Hot Pockets), and Dreyer’s Ice Cream in
the United States as well as Perrier in France. This company employs over 328,000 people
and has operations in almost every country in the world. Name that company.
(Students should read the chapter before guessing the company’s name: Nestle.)
Chapter 03 – Doing Business in Global Markets
3-6
PPT 3-1
Chapter Title
Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
CHAPTER 3
Doing
Business in
Global
Markets
PPT 3-2
Learning Objectives
LEARNING OBJECTIVES
1-2
1. Discuss the importance of the global market and the
roles of comparative advantage and absolute
advantage in global trade.
2. Explain the importance of importing and exporting,
and understand key terms used in global business.
3. Illustrate the strategies used in reaching global
markets and explain the role of multinational
corporations.
PPT 3-3
Learning Objectives
LEARNING OBJECTIVE
1-3
4. Evaluate the forces that affect trading in global
markets.
5. Debate the advantages and disadvantages of trade
protectionism.
6. Discuss the changing landscape of the global
market and the issue of offshore outsourcing.
PPT 3-4
Leila Janah
LEILA JANAH
Samasource
3-4
• Started Samasource to help
people in developing
countries rise out of poverty.
• Janah has been working to
combat world poverty since
she was a teen.
• Employees are carefully
selected and are taught new
skills.
PPT 3-5
Name That Company
NAME that COMPANY
1-5
This Swiss-based company has many foreign
subsidiaries including Jenny Craig (weight
management), Ralston Purina, Chef America
(maker of Hot Pockets) and Dreyer’s Ice Cream
in the United States as well as Perrier in France.
The company employs over 328,000 people and
has operations in almost every country in the
world.
Name that company!
PPT 3-6
Business in the Global Market
BUSINESS in the
GLOBAL MARKET
3-6
LO 3-1
• Over 90% of companies
doing business globally
believe it is important
for employees to have
international
experience.
• U.S. organizations (like
UPS, MLB, the NFL and
the NBA) are also
expanding abroad.
PPT 3-7
World Population by Continent
TEXT FIGURE 3.1
World Population by Continent
WORLD POPULATION
by CONTINENT
3-7
LO 3-1
lecture enhancer 3-1
FORD GOES GLOBAL WITH NEW
SUBCOMPACT CAR
With many untapped markets for U.S. automakers, Ford is
introducing a new car to appeal to lower-income international
consumers. (See the complete lecture enhancer on page 3.77
of this manual.)
PPT 3-8
World Population Growth
WORLD POPULATION
GROWTH
3-8
LO 3-1
Chapter 03 – Doing Business in Global Markets
3-7
3. COMPETITION IS INTENSE: The U.S. must
compete against aggressive global competitors.
C. The purpose of this chapter is to discuss the poten-
tial and challenges of international business.
II. WHY TRADE WITH OTHER NATIONS?
A. Reasons FOR trading with other nations include:
1. No nation can produce all the products that its
people need.
2. Nations seek trade with countries to meet the
needs of their people.
3. MUTUALLY BENEFICIAL EXCHANGE
a. Some nations have abundant natural re-
sources and lack technological know-how.
b. Others have sophisticated technology but
few natural resources.
c. Global trade relations enable countries to
produce what they can and buy the rest in a
mutually beneficial exchange.
4. FREE TRADE is the movement of goods and
services among nations without political or eco-
nomic obstruction.
B. THE THEORIES OF COMPARATIVE AND ABSO-
LUTE ADVANTAGE
1. Nations exchange goods and services, art,
sports, and much more.
2. COMPARATIVE ADVANTAGE THEORY states
that a country should sell to other countries
those products that it produces most effectively
and efficiently and should buy from other coun-
tries those products that it cannot produce as ef-
Chapter 03 – Doing Business in Global Markets
3-8
PPT 3-9
Importing and Exporting
IMPORTING and EXPORTING
3-9
LO 3-1
• Importing — Buying products
from another country.
• Exporting — Selling products
to another country.
• The U.S. is the largest
importing and the second
largest exporting nation in the
world.
PPT 3-10
Pleasure Doing Business
Source:Forbes,www.forbes.com,accessedNovember2014.
PLEASURE DOING BUSINESS
Best Countries for Business
3-10
2013 Rank Country 2012 Rank
1 Ireland –
2 New Zealand –
3 Hong Kong –
4 Denmark –
5Sweden 3
6 Finland 2
7Singapore 1
8 Canada –
9 Norway –
10 Netherlands –
LO 3-1
PPT 3-11
Can You Spare a Dime?
Source:Forbes,www.forbes.com,accessedNovember2014.
CAN YOU SPARE a DIME?
Home Countries for Some of the World’s Billionaires
3-11
LO 3-1
• U.S. – 516 billionaires
• China – 136 billionaires
• Russia – 88 billionaires
• Germany – 82 billionaires
• India – 54 billionaires
• U.K. – 43 billionaires
• Hong Kong – 41 billionaires
PPT 3-12
Trading with Other Nations
TRADING with OTHER NATIONS
3-12
LO 3-1
• Countries with abundant natural resources (like
Venezuela or Russia) need technological
resources from other countries (like Japan).
• Global trade allows countries to produce what
they make best and buy what they need from
others.
• Free Trade — The movement of goods and services
among nations without political or economic barriers.
PPT 3-13
Pros and Cons of Free Trade
TEXT FIGURE 3.2
The Pros and Cons of Free Trade
PROS and CONS of FREE TRADE
3-13
LO 3-1
PPT 3-14
Comparative and Absolute
Advantage
COMPARATIVE and ABSOLUTE
ADVANTAGE
3-14
LO 3-1
• Comparative Advantage — A country should sell the
products it produces most efficiently and buy from other
countries the products it cannot produce as efficiently.
• Absolute Advantage — A country has a monopoly on
producing a specific product or is able to produce it
more efficiently than all other countries.
Chapter 03 – Doing Business in Global Markets
3-9
fectively or efficiently.
a. The U.S. has a COMPARATIVE AD-
VANTAGE in producing goods and services.
b. It lacks a comparative advantage in growing
coffee or making shoes.
3. ABSOLUTE ADVANTAGE is the advantage
that exists when a country is able to produce a
specific product more efficiently than all other
countries.
a. South Africa once had an ABSOLUTE AD-
VANTAGE in diamond production.
b. Today there are very few instances of abso-
lute advantage.
learning objective 2
Explain the importance of importing and exporting, and understand key terms
used in global business.
III. GETTING INVOLVED IN GLOBAL TRADE
A. The real potential in global markets may be with
SMALL BUSINESSES.
1. Small businesses generate about 30% of ex-
ports, yet only 1% of the 30 million small busi-
nesses take part.
2. President Obama challenged small businesses
to double exports by 2015.
3. Getting started in global trade can be through
observation, determination, and risk.
B. IMPORTING GOODS AND SERVICES
1. Foreign students attending U.S. schools often
notice some products widely available in their
Chapter 03 – Doing Business in Global Markets
3-10
PPT 3-15
Going Global with a Small Business
GOING GLOBAL with a
SMALL BUSINESS
3-15
LO 3-2
• Small businesses
may be the key in
global job growth.
• Only 1% of U.S. small
businesses export,
yet they account for
30% of total U.S.
exports.
PPT 3-16
Whom Does the U.S. Owe?
Source:MaxFisher,WashingtonPost,www.washingtonpost.com,accessedNovember2014.
WHOM DOES the U.S. OWE?
Countries that Own the Most U.S. Debt
3-16
LO 3-2
Chapter 03 – Doing Business in Global Markets
3-11
countries are not available here.
2. Importing these goods into the U.S. can be quite
profitable.
3. Howard Schultz brought the idea of neighbor-
hood coffee bars to the U.S. as Starbucks.
C. EXPORTING GOODS AND SERVICES
1. WHAT CAN YOU SELL TO OTHER COUN-
TRIES?
a. Just about anything that is used in the Unit-
ed States can be sold in other countries.
b. Competition abroad is often not as intense
for U.S. producers as it is at home.
c. The text offers the example of snowplows to
Saudi Arabia for sand removal on driveways.
2. Exporting creates GREAT OPPORTUNITIES
and is a terrific boost to the U.S. economy.
3. Selling in global markets, however, involves
many HURDLES.
4. The text supplies several sources of information
about exporting, including a government pam-
phlet, trade magazine, and several websites.
D. MEASURING GLOBAL TRADE
1. BALANCE OF TRADE is the total value of a na-
tion’s exports compared to its imports measured
over a particular period.
a. A favorable balance of trade, or TRADE
SURPLUS, exists when the value of a na-
tion’s exports exceeds its imports measured
Chapter 03 – Doing Business in Global Markets
3-12
PPT 3-17
Getting Involved in Importing
GETTING INVOLVED in
IMPORTING
3-17
LO 3-2
• Students attending schools
abroad tend to notice
products that they’re used
to are unavailable in their
new country.
• By working with producers
in their native country,
some become importers
while still in school.
PPT 3-18
Getting Involved in Exporting
GETTING INVOLVED in
EXPORTING
3-18
LO 3-2
• Exporting provides a
great boost to the U.S.
economy.
• It’s estimated every $1
billion in U.S. exports
generate over 7,000
U.S. jobs.
bonus case 3-1
MAKING A MINT ON MAKE-BELIEVE
The popularity of KidZania, a brand of “edutainment” theme
parks headquartered in Mexico, has taken off with parents and
kids all around the world. (See the complete case on page 3.87
of this manual.)
lecture enhancer 3-2
PEPSI EXPANDS ITS RUSSIAN EM-
PIRE
Pepsi has been long dominant in Russia since 1974. The compa-
ny is now looking to expand into the snack market there. (See
the complete lecture enhancer on page 3.77 of this manual.)
critical thinking
exercise 3-1
WHICH COUNTRY?
This exercise asks students to use Internet research to evaluate a
possible expansion into one of two countries. (See the complete
exercise on page 3.81 of this manual.)
Chapter 03 – Doing Business in Global Markets
3-13
over a particular period.
b. TRADE DEFICIT is an unfavorable balance
of trade; it occurs when the value of a coun-
try’s imports exceeds that of its exports.
2. BALANCE OF PAYMENTS is the difference be-
tween money coming into a country (from ex-
ports) and money leaving the country (for im-
ports) plus money flows from other factors such
as tourism, foreign aid, military expenditures,
and foreign investment.
a. A FAVORABLE BALANCE OF PAYMENTS
means more money is flowing into than flow-
ing out of the country.
b. Likewise, an UNFAVORABLE BALANCE
OF PAYMENTS means more money is leav-
ing than coming into the country.
3. Since 1975 the U.S. has run a trade DEFICIT.
4. The U.S. exports a much LOWER PERCENT-
AGE of its products than other countries do.
5. Like other nations, the U.S. tries to make sure
global trade is conducted fairly.
a. The U.S. has laws to prohibit unfair practices
such as DUMPING, the practice of selling
products in a foreign country at lower prices
than those charged in the producing country.
b. There is also evidence that some govern-
ments subsidize certain industries to sell
goods in global markets for less.
Chapter 03 – Doing Business in Global Markets
3-14
PPT 3-19
How to Measure Global Trade
HOW to MEASURE GLOBAL TRADE
3-19
LO 3-2
• Balance of Trade — The total value of a nation
’
s
exports compared to its imports measured over a
particular period.
• Trade Surplus (Favorable) — When the value of a
country
’
s exports is more than that of its imports.
• Trade Deficit (Unfavorable) — When the value of a
country
’
s exports is less than that of its imports.
PPT 3-20
Balance of Payments
BALANCE of PAYMENTS
3-20
LO 3-2
• Balance of Payments — The difference between
money coming into a country (from exports) and
money leaving the country (from imports) plus other
money flows.
• The goal is to have more money flowing into a
country than out – a favorable balance.
• An unfavorable balance is when more money
flows out of a country.
PPT 3-21
Unfair Trade Practices
UNFAIR TRADE PRACTICES
3-21
LO 3-2
• Dumping — Selling products in a foreign country at
lower prices than those charged in the producing
country.
• Dumping is prohibited.
• China, Brazil and Russia have been penalized for
dumping steel in the U.S.
PPT 3-22
Largest Trading Nations and Trade
Partners
TEXT FIGURE 3.3
The Largest Trading Nations in the
World and Largest U.S. Trade
Partners
LARGEST EXPORTING NATIONS
and TRADE PARTNERS
3-22
LO 3-2
Chapter 03 – Doing Business in Global Markets
3-15
learning objective 3
Illustrate the strategies used in reaching global markets and explain the role of
multinational corporations.
IV. STRATEGIES FOR REACHING GLOBAL
MARKETS
A. The following are some ways an organization can
participate in global trade.
B. LICENSING
1. LICENSING is a global strategy in which a firm
(the licensor) allows a foreign company (the li-
censee) to produce its products in exchange
for a fee (a royalty).
2. The ADVANTAGES of licensing:
a. A company can gain additional revenues
from a product it would not have normally
produced domestically.
b. The firm can sell start-up supplies, compo-
nent materials, and consulting services
(examples: Coca-Cola and Fredrick’s of
Hollywood).
c. The licensor spends little or no money to
produce and market the product; licensees
bear the costs.
3. The PROBLEMS of licensing:
a. Often a firm must grant licensing rights to
its product for an extended period.
b. If a product experiences remarkable growth
in the foreign market, the bulk of the reve-
nues goes to the licensee.