Chapter 03 – Doing Business in Global Markets
3-31
regulations may apply.
a. Global markets are governed by a myriad of
LAWS AND REGULATIONS that are often
INCONSISTENT.
b. Important legal questions are interpreted dif-
ferently country to country.
2. American businesspeople are bound to follow
U.S. LAWS AND REGULATIONS in conducting
business globally.
a. The FOREIGN CORRUPT PRACTICES
ACT OF 1978 prohibits “questionable” or
“dubious” payments to foreign officials to se-
cure business contracts.
b. This law runs contrary to beliefs and practic-
es in many countries.
c. The ORGANIZATION FOR ECONOMIC
COOPERATION AND DEVELOPMENT
(OECD) and TRANSPARENCY INTERNA-
TIONAL have led the effort to fight corrup-
tion and bribery in foreign markets.
3. To be successful in global markets it is often im-
portant to CONTACT LOCAL BUSINESSPEO-
PLE and gain their cooperation.
E. PHYSICAL AND ENVIRONMENTAL FORCES
1. Technological constraints may make it difficult to
build a large global market.
2. Some developing nations have PRIMITIVE
TRANSPORTATION AND STORAGE SYS-
TEMS that make distribution ineffective.
Chapter 03 – Doing Business in Global Markets
3-32
PPT 3-48
Legal and Regulatory Forces
LEGAL and
REGULATORY FORCES
3-48
LO 3-4
• There’s no global system of laws.
• Laws may be inconsistent.
• U.S. businesses must follow U.S. laws while
conducting global business.
• Organization for Economic Cooperation and
Development and Transparency International fight
to end corruption and bribery in foreign markets
and have had limited success.
TEXT FIGURE 3.7
Countries Rated Highest on Corrupt
Business
This text figure lists the 10 countries rated highest on corrupt
business practices.
PPT 3-49
Environmental Forces
ENVIRONMENTAL FORCES
3-49
LO 3-4
• Developing countries have
transportation and storage
systems that make
international distribution
difficult or impossible.
• Often, technological
capabilities are far from
those in the U.S. which
make for a tough business
environment.
Chapter 03 – Doing Business in Global Markets
3-33
3. Certain TECHNOLOGICAL DIFFERENCES af-
fect exportable products (such as the difference
between 110 and 220 voltage electricity).
learning objective 5
Debate the advantages and disadvantages of trade protectionism.
VI. TRADE PROTECTIONISM
A. TRADE PROTECTIONISM is the use of government
regulations to limit the import of goods and services.
1. ADVOCATES believe that trade protectionism
allows domestic producers to survive and grow,
producing more jobs.
a. Countries often use trade protectionism
measures to PROTECT THEIR INDUS-
TRIES against dumping and foreign compe-
tition.
b. Some are wary of foreign competition in
general.
2. Business, economics, and politics have always
been closely linked.
a. For centuries businesspeople advocated an
economic principle called MERCANTILISM,
selling more goods to other nations than you
bought from them; that is, to have a favora-
ble balance of trade.
b. The expected result was a flow of money to
the country that sold the most globally.
c. Governments charged a TARIFF, a tax on
imports, making imported goods more ex-
Chapter 03 – Doing Business in Global Markets
3-34
test
prep
PPT 3-50
Test Prep
TEST PREP
3-50
• What are four major hurdles to successful global
trade?
• What does ethnocentricity mean and how can it
affect global success?
• How would a low value of the dollar affect U.S.
exports?
• What does the Foreign Corrupt Practices Act
prohibit?
PPT 3-51
Trade Protectionism
TRADE PROTECTIONISM
3-51
LO 3-5
• Trade Protectionism — The use of government
regulations to limit the import of goods and services.
• Advocates of protectionism believe it allows
domestic producers to survive, grow and produce
jobs.
Chapter 03 – Doing Business in Global Markets
3-35
pensive.
3. There are two kinds of TARIFFS:
a. PROTECTIVE TARIFFS are import taxes
designed to raise the price of imported prod-
ucts so that domestic products can be more
competitively priced.
b. Tariffs are intended to save jobs and protect
the country’s infant industries.
c. REVENUE TARIFFS are designed to raise
money for the government.
4. QUOTAS are more restrictive.
a. An IMPORT QUOTA is a limit on the number
of products in certain categories that a na-
tion can import.
b. Nations also PROHIBIT the export of specif-
ic products.
c. ANTITERRORISM LAWS and the U.S. EX-
PORT ADMINISTRATION ACT OF 1979
prohibit exporting goods like high–tech
weapons.
d. An EMBARGO is a complete ban on the im-
port or export of a certain product or stop-
ping all trade with a particular country (ex-
ample: the U.S. embargo against trade with
Cuba since 1962).
5. NONTARIFF BARRIERS
a. NONTARIFF BARRIERS are not as specific
or formal as tariffs but can still be detri-
mental to free trade.
Chapter 03 – Doing Business in Global Markets
3-36
PPT 3-52
Tariffs
TARIFFS
3-52
LO 3-5
• Tariffs — Taxes on imports,
making imported goods more
expensive.
• Two kinds of tariffs:
– Protective – Raise the
retail price of imports so
domestic goods are
competitively priced.
– Revenue – Raise money
for governments.
PPT 3-53
Import Quotas and Embargos
IMPORT QUOTAS and EMBARGOS
3-53
LO 3-5
• Import Quota — Limits the number of products in
certain categories a nation can import.
• Embargo — A complete ban on the import or export
of a certain product or the stopping of all trade with a
particular country.
• Political disagreements can lead to embargos, like
the U.S. embargos against Cuba, Iran and North
Korea.
Chapter 03 – Doing Business in Global Markets
3-37
b. India imposes a number of restrictive stand-
ards to inhibit the sale of imported products.
c. China omits many American-made products
from government catalogs.
d. An impending free trade agreement with
South Korea will open the market to U.S.
producers.
6. Overcoming trade constraints creates business
opportunities.
B. THE WORLD TRADE ORGANIZATION (WTO)
1. Leaders from 23 countries formed the General
Agreement on Tariffs and Trade (GATT).
2. The GENERAL AGREEMENT ON TARIFFS
AND TRADE (GATT) is a 1948 agreement that
established a forum for negotiating mutual re-
ductions in trade restrictions.
3. The 1986 URUGUAY ROUND OF GATT
TALKS were convened to deal with the renego-
tiation of trade agreements.
a. After eight years, 124 nations agreed to a
new GATT agreement.
b. The agreement LOWERS TARIFFS on av-
erage by 38% worldwide.
4. Created by the Uruguay Round on January 1,
1995, the WORLD TRADE ORGANIZATION
(WTO) is the international organization that re-
placed the General Agreement of Tariffs and
Trade and was assigned the duty of mediating
trade disputes.
5. WTO acts as an independent player that over-
Chapter 03 – Doing Business in Global Markets
3-38
PPT 3-54
World Trade Organization
WORLD TRADE ORGANIZATION
3-54
LO 3-5
• General Agreement on Tariffs and Trade
(GATT) —
A global forum for reducing trade restrictions on
goods, services, ideas and cultural problems.
• World Trade Organization (WTO) —
Headquartered in Geneva, the WTO is an
independent entity of 159 member nations whose
purpose is to oversee cross-border trade issues and
global business practices.
Chapter 03 – Doing Business in Global Markets
3-39
sees key cross-border issues and global busi-
ness practices.
6. The formation of the WTO did not totally elimi-
nate national laws that IMPEDE TRADE EX-
PANSION.
a. The 2001 WTO Round addressed many un-
resolved issues.
b. The Doha Round ended in 2008 with no sig-
nificant agreements.
C. COMMON MARKETS
1. A COMMON MARKET is a regional group of
countries that have a common external tariff, no
internal tariffs, and the coordination of laws to
facilitate exchange among member countries
(also called a TRADING BLOC).
2. The EUROPEAN UNION (EU) is a group of 28
nations in Western Europe.
a. When combined, the European Union na-
tions have a population of over 500 million
and GDP of $17.2 trillion.
b. The objective was to make Europe an even
stronger competitor in global commerce.
3. The PATH TO UNIFICATION has been slow
and difficult, yet significant progress has been
made.
a. In 1999, the EU officially launched its JOINT
CURRENCY, the EURO.
b. The adoption of the euro eliminated currency
conversion problems and saved billions of
Chapter 03 – Doing Business in Global Markets
3-40
PPT 3-55
Common Markets
COMMON MARKETS
3-55
LO 3-5
• Common Market — A regional group of countries
with a common external tariff, no internal tariffs and
coordinated laws to facilitate exchange among
members.
• The European Union (EU), Mercosur, the ASEAN
and the COMESA are common markets.
PPT 3-56
EU Members
TEXT FIGURE 3.8
Members of the European Unions
EU MEMBERS
3-56
LO 3-5
Chapter 03 – Doing Business in Global Markets
3-41
dollars.
c. In 2013, the EU faced DEBT, DEFICIT, AND
GROWTH PROBLEMS due to financial diffi-
culties in Greece, Italy, Portugal, and Spain.
4. Another common market is MERCOSUR, a
group that includes Brazil, Argentina, Paraguay,
Uruguay, Chile, Bolivia, Columbia, Ecuador, and
Peru.
a. Ambitious economic goals included single
currency.
5. The ASSOCIATION OF SOUTHEAST ASIAN
NATIONS (ASEAN) was established in 1967.
a. ASEAN creates economic cooperation
among its five original members (Indonesia,
Malaysia, Philippines, Singapore, and Thai-
land).
b. ASEAN has expanded to include Brunei,
Cambodia, Lao PDR, Myanmar, and Vi-
etnam.
6. COMESA is a 19-member African trading bloc
with a GDP of $624 billion and population of
527 million.
D. THE NORTH AMERICAN AND CENTRAL AMERI-
CAN FREE TRADE AGREEMENTS
1. The NORTH AMERICAN FREE TRADE
AGREEMENT (NAFTA) is the agreement that
created a free-trade area among the United
States, Canada, and Mexico, signed in 1994.
2. NAFTA OPPONENTS believe the agreement
Chapter 03 – Doing Business in Global Markets
3-42
PPT 3-57
NAFTA and CAFTA
NAFTA and CAFTA
3-57
LO 3-5
• North American Free Trade Agreement —
Ratified in 1994, created a free-trade area among the
United States, Canada and Mexico.
• Central American Free Trade Agreement —
Passed in 2005, created a free-trade zone with Costa
Rica, Dominican Republic, El Salvador, Guatemala,
Honduras and Nicaragua.
Chapter 03 – Doing Business in Global Markets
3-43
caused loss of U.S. jobs and capital.
3. The OBJECTIVES OF NAFTA were to:
a. Eliminate trade barriers
b. Promote conditions of fair competition
c. Increase investment opportunities
d. Provide effective protection of intellectual
property rights
e. Establish a framework for further regional
trade cooperation
f. Improve working conditions in North America
4. The combination of the United States, Canada,
and Mexico created a MARKET OF OVER 460
MILLION PEOPLE with a gross domestic prod-
uct of over $18 trillion.
5. NAFTA has experienced both SUCCESS and
DIFFICULTIES.
a. U.S. exports to NAFTA partners have in-
creased from $289 billion to $1.2 trillion
since the agreement was signed.
b. However, the U.S. has lost about 680,000
jobs since signing NAFTA.
c. INEQUITIES still exist between Mexico and
the U.S. in income and working conditions.
6. The CENTRAL AMERICAN FREE TRADE
AGREEMENT seeks to create a free–trade zone
with the Central American nations of Costa Rica,
the Dominican Republic, El Salvador, Guatema-
la, Honduras, and Nicaragua.
Chapter 03 – Doing Business in Global Markets
3-44
PPT 3-58
NAFTA Objectives
NAFTA OBJECTIVES
3-58
LO 3-5
1) Eliminate trade barriers and facilitate cross-
border movement of goods and services.
2) Promote conditions of fair competition.
3) Increase investment opportunities.
4) Provide effective protection and enforcement of
intellectual property rights.
5) Establish a framework for further regional trade
cooperation.
6) Improve working conditions in North America.
PPT 3-59
New Free Trade Agreements
NEW FREE
TRADE AGREEMENTS
3-59
LO 3-5
• Today, free trade
agreements are being
negotiated Colombia
and Panama.
• The U.S. is considering
an agreement with a
nine-nation free trade
bloc called the Trans-
Pacific Partnership.
Chapter 03 – Doing Business in Global Markets
3-45
a. CRITICS again warned of lost jobs.
b. SUPPORTERS hope that it will open mar-
kets and reduce trade regulations.
c. This agreement remains stalled due to U.S.
political considerations.
7. Some economists praise such unions, while
others feel that the world is DIVIDING ITSELF
INTO MAJOR TRADING BLOCKS.
learning objective 6
Discuss the changing landscape of the global market and the issue of offshore
outsourcing.
VII. THE FUTURE OF GLOBAL TRADE
A. New markets present new opportunities for trade
and development.
1. ADVANCED COMMUNICATIONS have made
distant markets instantly accessible, particularly
China.
a. China’s 1.3 billion population represents a
tremendous business opportunity.
b. The risk of foreign direct investment in China
has been significantly reduced.
c. 400 of the Fortune 500 companies have in-
vested in China.
d. CONCERNS still remain about China’s one–
party political system, trade imbalances, and
human rights policies.
e. China has significant problems with product
piracy and counterfeiting.