Importing: Buying products from another country

Exporting: Selling products to another country

Whereas there are 280 million people in the U.S., there are 6 billion potential customers in the world.

Of these, approximately 75% live in developing areas.

The global market contains over 6.9b potential
customers for goods and services.

• Productivity grows when countries produce goods
and services in which they have a comparative markets.

• Global competition and less-costly imports keep
prices down, so inflation does not curtail economic to growth.

• Free trade inspires innovation for new products
and keeps firms competitively challenged.

• Uninterrupted flow of capital gives countries access to foreign investments, which help keep interest rates low.

• Domestic workers (particularly in manufacturing based jobs) can lose their jobs due to increased imports or production shifts to low-wage global markets.
• Workers may be forced to accept pay cuts from employers, who can threaten to move their jobs lower-cost global markets.
• Moving operations overseas because of intense competitive pressure often means the loss of service jobs and growing numbers of white-collar jobs.

• Domestic companies can lose their comparative advantage when competitors build advanced production operations in low-wage countries.

a.   Some nations have abundant natural resources and lack technological know-how.

b.   Others have sophisticated technology but few natural resources.

c.   Trade relations enable countries to produce what they can and buy the rest in a MUTUALLY BENEFICIAL EXCHANGE.

Small businesses generate about half of the private-sector commerce, but account for only 20% of exports.

Favorable balance of payments

vs.

Unfavorable balance of payments

favorable balance of payment: have more money flowing into the country than out

unfavorable balance of payments: more money is flowing out of a country than coming in

require foreign firms to price their products to include:

10% overhead costs

&

8% profit margin.

key strategies for global markets

Ranked form least to most amount of control

licensing,

exporting,

franchising,

contract manufacturing,

international joint ventures and strategic alliances, foreign subsidiaries,

foreign direct investment

gain revenues it would not otherwise have generated in its home market

licensors spend little or no money to produce and market their products

If a product experiences remarkable growth in the foreign market, the bulk of the revenues belong to the licensee.

foreign licensee learns the company's technology or product secrets, it may break the agreement and begin to produce a similar product on its own.

Define:

FOREIGN DIRECT INVESTMENT

Trend in the US?

buying of permanent property and businesses in foreign nations.

Increase foreign direct investment in the US

Define:

EXPORT ASSISTANCE CENTERS

created by the U.S. government to provide hands-on exporting assistance and trade-finance support for small and medium-sized businesses.

assist in negotiating and establishing trading relationships by matching buyers and sellers from different
countries and deals with issues with tradeing in foreign markets

such as foreign customs offices, documentation, and even weights and measures conversions to ease the process of entering global markets.

 enables a company to experiment in a new market w/o heavy start-up costs

temporarily used to meet an unexpected increase in orders.

One partner can learn the other's technology and business practices and then use what it has learned to its own advantage.

a shared technology may become obsolete,

the joint venture may become too large to be as flexible as needed

 costs

risks

management

profits

 broad access to markets

capital

technical expertise

Flexibility

CONTRACT MANUFACTURING is a form of ___

An organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management.

Only firms that have manufacturing capacity or some other physical presence in different nations can truly be called multinational.

The subsidiary operates like a domestic firm, with production, distribution, promotion, pricing, and other business functions under the control of the subsidiary's management.

observe the legal requirements of both the country where the parent firm is located and the foreign country
where the subsidiary is located

the need to commit funds and technology within foreign boundaries.

the firm's assets could be expropriated, should the host country decide to do so

government ownership might be used for achieving geopolitical objectives, gaining control
of strategic natural resources, or obtaining sensitive technologies.

govts. could undermine the management of the companies in which they invest.

sociocultural forces

economic forces

legalforces

regulatory forces
physical forces

environmental forces.

 dollar is trading for more foreign currency

Therefore, foreign products become cheaper because it takes fewer dollars to buy them

U.S.-produced goods become more expensive
because of the dollar's high value.

dollar is traded for less foreign currency

foreign goods become more expensive because it takes more dollars to buy them

U.S. goods become cheaper to foreign buyers because it takes less foreign currency to buy them.

currencies float according to supply and demand in the global market for currency.

primitive transportation and storage systems

 unclean water and lack of effective sewer systems

selling more goods to other nations than you bought from them; that is, to have a favorable balance of trade.

Barriers put in place to indirectly inhibit import of products

Ex: engine size restrictions that prevent import of most cars

Define: common market

3 Examples?

A regional group of countries that have a
common external tariff, no internal tariffs, and a
coordination of laws to facilitate exchange; also called a trading bloc.

European Union, North American Free Trade Agreement (NAFTA), and Mercosur

objectives of NAFTA

Eliminate trade barriers

Promote conditions of fair competition

Increase investment opportunities

Provide protection of intellectual property rights

Establish a framework for further regional trade cooperation.

I. Less-strategic tasks can be outsourced globa lly so that companies can focus on areas in which they can excel and grow.

2. Outsourced work allows companies to create efficiencies that in fact let them hire more workers.

3. Consumers benefit from lower prices generated by effective use of global
resources and developing nations grow, thus fueling global economic growth.

1. Jobs may be lost permanently and wages fa ll due to low-cost competition offshore

2. Offshore outsourcing may reduce product qua lity and can therefore cause permanent damage to a company's reputation

3. Communication among company members, with suppliers, and with customers becomes much more difficult