Chapter 03 – Doing Business in Global Markets
3-46
test
prep
PPT 3-60
Test Prep
TEST PREP
3-60
• What are the advantages and disadvantages of
trade protectionism and of tariffs?
• What is the primary purpose of the WTO?
• What is the key objective of a common market like
the EU?
• Which three nations comprise NAFTA?
PPT 3-61
Future of Global Trade
FUTURE of GLOBAL TRADE
3-61
LO 3-6
• Brazil is expected to be one of the wealthier
economies by 2030.
• Russia is a large oil producing country with many
multinationals interested in developing there.
• India has seen huge growth in information
technology, pharmaceuticals and biotechnology.
• With over 1.3 billion people, China has
transformed the world economic map. Many
multinationals invest heavily in China.
Chapter 03 – Doing Business in Global Markets
3-47
f. China is becoming a key driver of the world
economy.
2. OTHER POTENTIAL MARKETS and BRIC
a. INDIA’S 1.2 billion population and RUSSIA’S
150 million potential customers are prized by
global traders.
b. RUSSIA is receiving much attention from mul-
tinationals like Chevron, ExxonMobil, and BP
because of Russia’s rich oil reserves.
c. The term BRIC refers to Brazil, Russia, In-
dia, and China—four major up-and-coming
economies.
d. OTHER POTENTIAL MARKETS include In-
donesia, Thailand, Singapore, the Philippines,
Korea, Malaysia, and Vietnam.
B. THE CHALLENGE OF OFFSHORE OUTSOURCING
1. OUTSOURCING is the purchase of goods and
services from sources outside a firm rather than
providing them within the company.
a. U.S. companies have outsourced functions
such as payroll and manufacturing.
b. OFFSHORE OUTSOURCING, shifting func-
tions to markets outside the U.S., is more
controversial.
2. The first phase was outsourcing simplified manu-
facturing overseas.
3. The “second wave” of offshore outsourcing in-
volves more skilled, well-educated workers in
service-sector jobs.
Chapter 03 – Doing Business in Global Markets
3-48
PPT 3-62
Outsourcing
OUTSOURCING
3-62
• With the growth of global
markets, companies have
been shifting to offshore
outsourcing – outsourcing
with other countries.
PhotoCredit:VitorLima
LO 3-6
• Outsourcing — Process by which a firm contracts
with other companies to do some or all of its
functions.
• U.S. firms have outsourced payroll functions,
accounting and manufacturing for years.
PPT 3-63
Offshore Outsourcing
TEXT FIGURE 3.9
The Pros and Cons of Offshore
Outsourcing
OFFSHORE OUTSOURCING
3-63
LO 3-6
Chapter 03 – Doing Business in Global Markets
3-49
4. The two major outsource markets are China and
India.
5. Outsourcing will impact the future of many U.S.
businesses.
C. GLOBALIZATION AND YOUR FUTURE
1. Students are encouraged to study foreign lan-
guages, foreign cultures, and international busi-
nesses.
2. Small and medium-sized businesses are often
better prepared to enter global markets.
VIII. SUMMARY
Chapter 03 – Doing Business in Global Markets
3-50
MAKING
ethical
decisions
PPT 3-65
Making Your Oper-
ation Your Vacation
MAKING YOUR OPERATION
YOUR VACATION
3-65
• Some insurance companies
encourage patients to seek
medical care in foreign
countries.
• Procedures are cheaper and
involve top-flight doctors at
state-of-the-art facilities.
• Would it be ethical to force
patients to travel to other
countries to save money?
PPT 3-66
Costs of Medical Procedure Abroad
Source:AARPMagazine,November2014.
COSTS of MEDICAL
PROCEDURES ABROAD
3-66
Angioplasty Gastric
Bypass
Heart
Bypass
Hip
Replacement
Nose
Job
Tummy
Tuck
United
States $47,000 $18,000 $88,000 $33,000 $6,200 $6,400
United
Kingdom $8,000 $16,500 $13,921 $23,500 $3,500 $4,810
Mexico $15,000 $13,800 $37,800 $11,500 $2,800 $3,000
India $11,000 $6,800 $14,400 $8,000 $2,800 $2,900
Costa
Rica $13,000 $11,200 $31,500 $14,500 $3,400 $5,300
test
prep
PPT 3-67
Test Prep
TEST PREP
3-67
• What are the major threats to doing business in
global markets?
• What key challenges must India and Russia face
before becoming global economic leaders?
• What does the acronym BRIC stand for?
• What are the two primary concerns about offshore
outsourcing?
PPT 3-64
Plan for Your Global Career
PLAN for YOUR GLOBAL CAREER
3-64
LO 3-6
• Study foreign
languages.
• Learn about
foreign cultures.
• Take global
business courses.
Chapter 03 – Doing Business in Global Markets
3-51
PowerPoint slide notes
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.
Chapter 03 – Doing Business in Global Markets
3-52
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!
Answer: Yum! Brands
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.
1. The U.S. is a market of over 317 million potential cus-
tomers, but the world market is over 7 billion.
2. 2. It is easy for students in the United States to lose
sight of the importance of the global market. This slide
helps them see that the international marketplace of-
fers businesses opportunities due to the size of the
market. Companies like Procter & Gamble and Wal-
Mart have found the international market offers oppor-
tunities for additional revenue growth.
Chapter 03 – Doing Business in Global Markets
3-53
PPT 3-7
World Population by Continent
WORLD POPULATION
by CONTINENT
3-7
LO 3-1
PPT 3-8
World Population Growth
WORLD POPULATION
GROWTH
3-8
LO 3-1
1. The world population is expected to grow to 9.22 bil-
lion by 2050.
2. That’s around 75 million more people a year and 2
billion more than our current population.
3. Ask students: How will this growth affect the world?
(Answers to this question will vary but may include:
demand for food, increase in pollution, increased
needs for basic items, etc.)
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.
The United States follows China in exports.
Chapter 03 – Doing Business in Global Markets
3-54
PPT 3-10
Pleasure Doing Business
Source:Forbes,www.forbes.com,accessedNovember2014.
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
Forbes’s ranking was determined by the business climate, red
tape, corruption, property rights, and innovation of 128 na-
tions. There was great change between 2012 and 2013; only
three countries made it back into the top ten. In 2012, coun-
tries like Israel, Austria, Switzerland, Germany, South Korea
were highly rated. The United States dropped from #10 in
2012 to #14 in 2013.
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
1. The United States has the most billionaires in the
world.
2. Ask students: Why does the United States have more
billionaires than any other country in the world?
(There are many reasons why this is true. We have a
larger population than some of the other countries
on the slide, so it would stand to reason that we
would have more billionaires than those countries.
However, some of the countries listed have a larger
population than the United States, namely India and
China. In the United States there is less regulation
on businesses and wages/salaries are much higher.)
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.
No nation can produce all the products its people want and
need.
Chapter 03 – Doing Business in Global Markets
3-55
PPT 3-13
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.
David Ricardo expanded on Adam Smith’s theory of abso-
lute advantage with the theory of comparative advantage.
This theory can be difficult for students to grasp. A country
should produce only what it can produce efficiently, buying
what it cannot produce as efficiently. This theory of inter-
national trade, along with Adam Smith’s Theory of Abso-
lute Advantage, has been a guiding tenet of international
trade since the late 1700s.
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.
Chapter 03 – Doing Business in Global Markets
3-56
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
1. As the world’s largest debtor nation the United
States relies on other countries purchasing its debt
as an investment.
2. OPEC Nations include: Algeria, Angola, Ecuador,
Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qa-
tar, Saudi Arabia, U.A.E., Venezuela.
3. Ask students: What are the ramifications of U.S.
indebtedness on its population? (Answers to this
question will vary but may include: lost sovereign-
ty, weakening of the U.S. dollar and a loss of pur-
chasing power as import prices rise, inflation and
an increase in taxes.)
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.
Starbucks CEO, Howard Shultz, found his importing op-
portunity in Italy. He transformed a coffee shop in Seattle
to mimic the European cafes.
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.
One website that can enliven a lecture on exporting
tse.export.gov. The TradeStats Express website is presented
by the U.S. Commerce Department and gives students a
look at any number of statistics on exporting. One example
that may surprise students is that snow plows/blowers have
been sold in Middle Eastern countries, like Saudi Arabia.
They are used to clear sand from driveways.
Chapter 03 – Doing Business in Global Markets
3-57
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.
Since 1975, the U.S. has bought more goods from other
nations than it has sold and thus has a trade deficit.
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.
Chapter 03 – Doing Business in Global Markets
3-58
PPT 3-22
Largest Exporting Nations and Trade
Partners
LARGEST EXPORTING NATIONS
and TRADE PARTNERS
3-22
LO 3-2
PPT 3-23
Test Prep
TEST PREP
3-23
• What are two of the main arguments favoring the
expansion of U.S. businesses into global
markets?
• What is comparative advantage, and what are
some examples of this concept at work in the
United States?
• How are a nation’s balance of trade and balance
of payments determined?
• What is meant by dumping in global trade?
1. One major argument favoring the expansion of
U.S. business is that the sheer size of the global
market (7 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. 2) Comparative advantage theory was proposed by
David Ricardo and simply states that a country
should sell to other countries those products it
produces 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. 3) The balance of trade is the difference in the to-
tal value of a nation’s exports compared to its im-
ports. The balance of payments is the difference
between money coming into a country (from ex-
ports) and money leaving the country (for imports)
plus money flows coming into or leaving a coun-
try from other factors such as tourism, foreign aid,
military expenditures, and foreign investment.
4. 4) Dumping is the selling of products in foreign
countries at lower prices than those charged in the
producing country. This tactic is sometimes used
to reduce surplus products in foreign markets or
gain a foothold in a new market.
Chapter 03 – Doing Business in Global Markets
3-59
PPT 3-24
Key Strategies for Reaching Global
Markets
Least Amount of commitment, control, risk and profit potential Most
Licensing Exporting Franchising Contract
Manufacturing
International
joint ventures
and strategic
alliances
Foreign
direct
investment
KEY STRATEGIES for REACHING
GLOBAL MARKETS
3-24
LO 3-3
When senior management elects to expand internationally,
they have a wide range of options available to them. Such
options range from licensing with the least risk all the way
to foreign direct investment with the most risk. A few ex-
amples to be shared during this portion of the lecture in-
clude: Coca-Cola’s use of licensing, McDonald’s use of
franchising, Nike’s use of contract manufacturing,
Volkswagen’s joint venture in China and Toyota’s foreign
direct investment in the United States.
PPT 3–25
Licensing
LICENSING
3-25
LO 3-3
• Licensing — When a firm (licensor) provides the
right to manufacture its product or use its trademark to
a foreign company (licensee) for a fee (royalty).
• Licensing can benefit a firm by:
– Gaining revenues it wouldn’t have otherwise
generated.
– Spending little or no money to produce or market
their products.
Coca-Cola has entered into licensing agreements with over
300 licensees that have extended into long-term service
contracts that sell over $1 billion of the company’s prod-
ucts each year.
PPT 3-26
Export Assistance Centers and Export
Trading Centers
EXPORT ASSISTANCE CENTERS
and EXPORT TRADING CENTERS
3-26
LO 3-3
• EACs provide hands-on exporting assistance and
trade-finance support for small and medium-sized
businesses that wish to directly export goods and
services.
• ETCs help companies engage in indirect
exporting by:
– Matching buyers and sellers.
– Dealing with foreign customs offices,
documentation, and conversions.
Chapter 03 – Doing Business in Global Markets
3-60
PPT 3-27
Franchising
FRANCHISING
3-27
LO 3-3
• Franchising — A contractual agreement whereby
someone with a good idea for a business sells others
the rights to use the name and sell a product/service
in a given area.
• Franchisors need to be careful to adapt their
product to the countries they serve.
• Yum! Brands, home of KFC, Taco Bell and
Pizza Hut, learned that food preferences differ all
around the world.
PPT 3-29
Time to Make the Donuts . . .
Source:WorldFeaturesSyndicate.
TIME to MAKE the DONUTS…
Dunkin’ Donuts Flavors in Taiwan
3-28
PhotoCredit:DennisYang
LO 3-3
• Sweet Potato
• Honeydew Melon
• Green Apple
• Kiwi Fruit
• Mango
• Pineapple
• Strawberry
• Corn Crumb Soft Rice Cake
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 compa-
nies need to make when you go to different coun-
tries like the ones shown in this slide? (Students
should point out the need to understand and re-
search the market and cultural/customer prefer-
ences and then offer what the customers want.)
PPT 3-30
McDonald’s: Over 100 Cultures Served
• McDonald’s has more than 34,000 restaurants in
over 118 countries.
• Maintains varying menus around the world due to
the different preferences of its customers.
MCDONALD’S:
OVER 100 CULTURES SERVED
3-29
• Attracts top-level college
graduates to be trained
for management spots.
• Only 8 of every 1,000
applicants actually makes
it into the program!
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).