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Chapter Chapter ThreeThree

Competing in Competing in Global Global

MarketsMarkets

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Growing World Growing World PopulationPopulation

5.36.0 6.5

8.5

10.8

0

2

4

6

8

10

12

1990 1998 2010 2030 2060

In In BillionsBillions

Source: Source: Population Reference Bureau

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3-3McGraw-Hill/ Irwin

U. S. Trade inU. S. Trade in Goods & Services ($ Goods & Services ($

Billions) Billions)

0

500

1000

1500

2000

2500

1975 1980 1985 1990 1995 1998

ImportsExports

Source: St. Louis Business Monthly, Oct. 1999

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3-4McGraw-Hill/ Irwin

Company % of EarningsCompany % of EarningsFrom Outside U.S.From Outside U.S.

0% 20% 40% 60% 80% 100%

AIG

Coca-Cola

Gillette

Intel

Microsoft

Pfizer

Source: Source: Investment AdvisorInvestment Advisor, August 2000, August 2000

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3-5McGraw-Hill/ Irwin

Why Trade With Other Why Trade With Other Nations?Nations?

ReasonsReasons No nation can produce all No nation can produce all

its needsits needs Mutually beneficial Mutually beneficial

exchangeexchange Natural Resources or Natural Resources or

Technology- Produce or Technology- Produce or Buy?Buy?

Free TradeFree Trade Theories of AdvantageTheories of Advantage

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Theories of Theories of AdvantageAdvantage

AbsolutAbsolutee

Output Output per Unit of per Unit of

InputInput

Diamond Diamond ProductionProduction

South South AfricaAfrica

The Rest of The Rest of the Worldthe World

= Virtual = Virtual MonopolyMonopoly

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Theories of Theories of AdvantageAdvantage

Output per Output per Unit of Unit of InputInput

ComparativComparativeeU. S.U. S.

ChinaChina

SoftwarSoftwaree

U. S.U. S.

ChinaChina

ClothinClothingg

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3-8McGraw-Hill/ Irwin

Specialize & TradeSpecialize & Trade

SoftwareSoftware

ClothingClothing

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Checklist for Checklist for ExportersExporters

Analyze your capabilitiesAnalyze your capabilities Define export potential of productDefine export potential of product ID best foreign markets for ID best foreign markets for

productproduct Use available government Use available government

assistanceassistance Study entry strategies/export Study entry strategies/export

proceduresprocedures

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Developing Countries Developing Countries NeedNeed

1.2 billion people lack clean drinking 1.2 billion people lack clean drinking waterwater

2 billion people lack electricity2 billion people lack electricity 3 billion people lack adequate 3 billion people lack adequate

sanitationsanitation

InfrastructureInfrastructure

Corporate investment in Corporate investment in infrastructure rose 10-fold in 1990’sinfrastructure rose 10-fold in 1990’s

Source: Business Week, May 3, 1999

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3-11McGraw-Hill/ Irwin

Percentage of Percentage of Households With:Households With:

0% 20% 40% 60% 80% 100%

Telephones

Refrigerators

Running Water

Color TV

Automobile

Electricity

U.S.ChinaIndia

Source: Gallup India PVT, LTD.

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China’s Telecom China’s Telecom GrowthGrowth

020406080

100120140160180200

1996 1997 1998 1999 2000

Internet HostsBusiness LinesResidential Lines

Users in Users in millionsmillions

Source: Source: WiredWired, September 2000., September 2000.

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3-13McGraw-Hill/ Irwin

Import Goods- Money Import Goods- Money Goes Out of CountryGoes Out of Country

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Export Goods- Money Export Goods- Money Comes Into the CountryComes Into the Country

Trade Trade Deficits/Surpluses- Deficits/Surpluses-

Balance of Trade(1999)Balance of Trade(1999) U. S. Exports to JapanU. S. Exports to Japan

Food/BeveragesFood/Beverages Raw MaterialsRaw Materials Chemicals & PharmaceuticalsChemicals & Pharmaceuticals

$58.6 Billion$58.6 Billion

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Balance of Trade Balance of Trade 1999 (cont’d)1999 (cont’d)

Japan Exports to U.S.Japan Exports to U.S. Computers & Computers &

TelecommunicationsTelecommunications Cars/TrucksCars/Trucks Consumer ProductsConsumer Products Semi-Finished GoodsSemi-Finished Goods

$113.9 B$113.9 B

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1999 Balance of 1999 Balance of TradeTrade

$113.9 B$113.9 BGoods Goods FromFrom JapanJapan

$58.6 B$58.6 BGoods Goods ToTo Japan Japan

Dollars Dollars toto JapanJapan

Yen Yen toto U.S. U.S. $55.3 $55.3 BB

U.S. Balance of U.S. Balance of Payments = UnfavorablePayments = Unfavorable

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Trading in Global Trading in Global Markets:Markets:

The U. S. ExperienceThe U. S. Experience U. S. Never Been Aggressive at U. S. Never Been Aggressive at

Exporting- intense competitionExporting- intense competition U. S. Is World’s Largest U. S. Is World’s Largest

ExporterExporter U. S. = Debtor NationU. S. = Debtor Nation Foreign Direct InvestmentForeign Direct Investment

– Sign of StrengthSign of Strength– ““Selling of America”Selling of America”

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Modes of Entry into Modes of Entry into the Global Marketsthe Global Markets

(Figure 3.4)(Figure 3.4)

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LicensingLicensing

ExportingExporting

FranchisingFranchising

Contract Manu.Contract Manu.

Strategies for Strategies for Reaching Global Reaching Global

MarketsMarkets Joint Ventures & Joint Ventures &

Strategic Strategic AlliancesAlliances

SubsidiariesSubsidiaries

Foreign Direct Foreign Direct InvestmentInvestment

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Forces Affecting Forces Affecting Trading Trading

in Global Marketsin Global Markets SocioculturalSociocultural Economic/Currency ShiftsEconomic/Currency Shifts Legal/RegulatoryLegal/Regulatory Physical/EnvironmentalPhysical/Environmental ProtectionismProtectionism Global E-CommerceGlobal E-Commerce

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Foreign Legal Foreign Legal StandardsStandards

Foreign Corrupt Foreign Corrupt Practices Act of Practices Act of 1978- U.S. 1978- U.S. businesses businesses MUSTMUST follow U.S. law in follow U.S. law in conducting conducting business globallybusiness globally

No bribes to No bribes to secure contractsecure contract

Legal questionsLegal questionsAntitrustAntitrustLabor RelationsLabor RelationsPatents, copyrightsPatents, copyrightsTrade PracticesTrade PracticesTaxesTaxesProduct LiabilityProduct LiabilityChild LaborChild LaborPrison LaborPrison Labor

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Cultural Differences in Cultural Differences in Global MarketsGlobal Markets

LanguageLanguage

ReligionReligion

Values & Values & AttitudesAttitudes

AestheticsAesthetics

MaterialismMaterialism

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Did You Did You KnowKnow??

In Turkey it’s In Turkey it’s ruderude to cross your to cross your arms while you are facing someone.arms while you are facing someone.

In the Arab world the left hand is In the Arab world the left hand is considered unclean; considered unclean; don’t eat with don’t eat with it!it!

In India never pat someone’s head, In India never pat someone’s head, it’s the it’s the seat of the soul.seat of the soul.

The Chinese associate gifts such as The Chinese associate gifts such as straw sandals, clocks and straw sandals, clocks and handkerchiefs with handkerchiefs with funerals.funerals.

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Favorite Campbell Favorite Campbell Soups Around the Soups Around the

WorldWorld Britain - TomatoBritain - Tomato

Japan - CornJapan - Corn

South America - South America - Cream of Cream of AsparagusAsparagus

Australia- Cream of Australia- Cream of PumpkinPumpkin

Hong Kong - Hong Kong - Watercress & Duck Watercress & Duck GizzardGizzard

United States - United States - Chicken Noodle, Chicken Noodle, Cream of MushroomCream of Mushroom

© 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved.

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Nations That Have Not Nations That Have Not Converted to the Metric Converted to the Metric

SystemSystem

United United StatesStates

LiberiLiberiaa

YemeYemenn

MyanmMyanmar ar

(Burma(Burma))

BruneiBrunei

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What’ the 2What’ the 2ndnd Most Most Valuable Valuable Global Business Global Business

LanguageLanguageOther

6%German

4%Chinese

11%

Japanese16%

Spanish63%

Source: Accountemps Poll

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3-28McGraw-Hill/ Irwin

ProtectionisProtectionismm

MercantilismMercantilism

TariffsTariffs– ProtectiveProtective– RevenueRevenue

Import Quota & Import Quota & EmbargoEmbargo

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Trade Trade Agreements/UnionsAgreements/Unions

General Agreement on Tariffs and General Agreement on Tariffs and Trade (GATT)- WTOTrade (GATT)- WTO

Common Markets/European UnionCommon Markets/European Union

North American Free Trade North American Free Trade Agreement (NAFTA)Agreement (NAFTA)

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Exchange Rates- U. S. Exchange Rates- U. S. Dollars to Other Dollars to Other

CurrenciesCurrencies $ Goes Down- $ Goes Down-

Increases Demand Increases Demand for U. S. Productsfor U. S. Products– Balance of Trade Balance of Trade

ImprovesImproves

$ Goes Up- $ Goes Up- Decreases Demand Decreases Demand for U. S. Productsfor U. S. Products– Balance of Trade Balance of Trade

WidensWidens

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Sources of Foreign Sources of Foreign DirectDirect

Investments In the U.S.Investments In the U.S.Other

4%

Japan5%

Canada11%

Asia13%

Latin America

17%Britain

18%

Europe32%

Source: U.S. Commerce Dept.

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Survey ofSurvey of Country CorruptionCountry Corruption

1 2 3 4 5 6 7 8 9 10

Denmark

Canada

Germany

Hong Kong

U.S.

China

Russia

Colombia

Indonesia

Nigeria

Most Corrupt = 1.0Most Corrupt = 1.0 Least Corrupt = Least Corrupt = 10.010.0

Source: Business Week, June 14, 1999