Adeyl Khan, Faculty, BBA, NSU

Chapter 4Competing in Global Markets

Products I used today!

Adeyl Khan, Faculty, BBA, NSU

People’s Car

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Adeyl Khan, Faculty, BBA, NSU

Why Nations Trade

Boosts economic growth Import: Required resources Export: Expands markets, Growth

More efficient production systemsLess reliance on economies of home nations

Exports: Domestically produced goods and services sold in markets in other countries.

Imports: Foreign-made products and services purchased by domestic consumers.

Bangladeshi Organizations

Trading Internationally

Adeyl Khan, Faculty, BBA, NSU

International Sources of Factors of ProductionDecisions to operate abroad depend upon

availability, price, and quality of: Labor Natural resources Capital Entrepreneurship

Companies can spread risk throughout nations

Adeyl Khan, Faculty, BBA, NSU

Size of the InternationalMarketplaceAs developing nations expand into the

global marketplace, opportunities grow

Many developing countries have posted high growth rates of annual GDP United States 4.4% China 11.1% India 9.4%

Adeyl Khan, Faculty, BBA, NSU

Though developing nations generally have lower per capita income, many have strong GDP growth rates and their huge populations

can be lucrative markets.

Population Size and Prosperity

Adeyl Khan, Faculty, BBA, NSU

Top Ten Trading Partners With the United States

Adeyl Khan, Faculty, BBA, NSU

Absolute and Comparative AdvantageAbsolute advantage: Country can maintain

a monopoly or produce at a lower cost than any competitor. Example: China’s domination of silk

production for centuries.Comparative advantage: Country can

supply a product more efficiently and at lower cost than it can supply other goods, compared with other countries. Example: India’s combination of a highly

educated workforce and low wage scale.

Adeyl Khan, Faculty, BBA, NSU

Measuring Trade Between NationsBalance of trade

Difference between a nation’s imports and exports.

Balance of payments Overall flow of money into or out of a

country. Balance of payments surplus = more money

into country than out Balance of payments deficit = more money

out of country than in

Adeyl Khan, Faculty, BBA, NSU

• U.S. demand for imported goods is partly a reflection of the nation’s prosperity and diversity.

• U.S. imports more goods than it exports, but exports more services than it imports.

Major US Exports and Imports

Adeyl Khan, Faculty, BBA, NSU

AssignmentG-C4

Due 6th June

Left side: Prepare a graph similar to Figure 4.1 (Top Ten Trading Partners With Bangladesh)

Right Side: Prepare a table similar to Table 4.2 of the textbook in the context of Bangladesh(Major BD Exports and Imports)

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Adeyl Khan, Faculty, BBA, NSU

Exchange RatesCurrency Rates are influenced by:

Domestic economic and political conditions Central bank intervention Balance-of-payments position Speculation over future currency values

Values fluctuate, or “float,” depending on supply and demand.

National governments can deliberately influence exchange rates.

Business transactions are usually conducted in currency of the region where they happen.

Rates can quickly create or wipe out competitive advantage.

Adeyl Khan, Faculty, BBA, NSU

Barriers to International Trade

Green-tea flavored

Hershey Kisses

Adeyl Khan, Faculty, BBA, NSU

Social and Cultural DifferencesLanguage: Potential problems include

mistranslation, inappropriate messaging, lack of understanding of local customs and differences in taste.

Values and Religious Attitudes: Differing values about business efficiency, employment levels, importance of regional differences, and religious practices, holidays, and values about issues such as interest-bearing loans.

Adeyl Khan, Faculty, BBA, NSU

Economic DifferencesInfrastructure: Basic systems of

communication, transportation, energy facilities, and financial systems.

Currency Conversion and Shifts: Fluctuating values can make pricing in local currencies difficult and affect decisions about market desirability and investment opportunities.

Adeyl Khan, Faculty, BBA, NSU

Political and Legal Differences• Political Climate

– Stability is a key consideration.

• Legal Environment – U.S. law

– International regulations

– Country’s law

– Climate of corruption. Foreign Corrupt Practices Act forbids U.S. companies from bribing foreign officials, candidates, or government representatives.

• International Regulations – Treaties between U.S. and other nations.

– Tariffs are taxes charged on imported goods.

– Enforcement problems, as with piracy

Adeyl Khan, Faculty, BBA, NSU

Government Corruption

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Types of Trade Restrictions Tariffs - taxes, surcharges, or duties on foreign

products. – Tariffs generate income for the government.

– Protective tariffs raise prices of imported goods to level the playing field for domestic competitors.

Nontariff Barriers - also called administrative trade barriers– Quotas limit the amount of a product that can be imported

over a specified time period.

– Dumping is the act of selling a product abroad at a very low price.

– An embargo imposes a total ban on importing a specified product or all

– Exchange controls through central banks or government agencies regulate the buying and selling of currency to shape foreign exchange in accordance with national policy.

Adeyl Khan, Faculty, BBA, NSU

Reducing Barriers to International Trade

The world is moving toward more free trade.There are many communities and groups that monitor and promote tradeInternational Economic Communities reduce trade barriers and promote regional economic cooperation.

Free-trade area: Members trade freely among selves without tariffs or trade restrictions. Customs union: Establishes a uniform tariff structure for members’ trade with nonmembers. Common market: Members bring all trade rules into agreement.

Adeyl Khan, Faculty, BBA, NSU

Organizations Promoting Intl Trade

General Agreement on Tariffs and Trade (GATT) Most industrialized nations found organization in 1947 to reduce tariffs and relax quotas

The World Trade Organization succeeded GATT Representatives from 151 countries Reduce tariffs and promote trade

World Bank Funds projects to build and expand infrastructure in developing countries

International Monetary Fund (IMF) Operates as lender to troubled nations in an effort to promote trade

Adeyl Khan, Faculty, BBA, NSU

North American Free Trade Agreement (NAFTA)

• World’s largest free-trade zone: United States, Canada, Mexico.• U.S. and Canada are each other’s biggest trading partners.

Central America-Dominican Republic Free Trade Agreement (CAFTA)

• Free-trade zone among United States, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua.

• $33 billion traded annually between U.S. and these countries.

European Union

• Best-known example of a common market.• Goals include promoting economic and social progress, introducing

European citizenship as complement to national citizenship, and giving EU a significant role in international affairs.

International Economic Communities

Adeyl Khan, Faculty, BBA, NSU22

South Asian Free Trade Area (SAFTA)The Agreement on South Asian Free Trade

Area (SAFTA) is an agreement reached on January 6, 2004 at the 12th SAARC summit in Islamabad, Pakistan

The Agreement on SAARC Preferential Trading Arrangement (SAPTA)[2] was signed on 11 April 1993 and entered into force on 7 December 1995, with the desire of the Member States of SAARC (India, Pakistan, Nepal, Sri Lanka, Bangladesh, Bhutan and the Maldives) to promote and sustain mutual trade and economic cooperation within the SAARC region through the exchange of concessions.

Adeyl Khan, Faculty, BBA, NSU

What foreign market(s) will the company enter?

Analysis of local demand, availability of resources

Existing and potential competition, tariff rates, currency stability, investment barriers

What expenditures are required to enter a new market?

What is the best way to organize overseas operations?

Good starting point for research: CIA’s World Factbook

Going Global

Adeyl Khan, Faculty, BBA, NSU24

Adeyl Khan, Faculty, BBA, NSU

International Trade Research

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Levels of InvolvementRisk increases with the

level of involvement Many companies

employ multiple strategies

Exporting and Importing are entry-level strategies Importing is the

process of bringing in goods produced abroad

Exporting is the act of selling your goods overseas.

Adeyl Khan, Faculty, BBA, NSU

Countertrade & Franchising

Countertrade – international transactions that do not involve currency payments but use bartering.Franchising – a contractual agreement where a local entity gains rights to sell the franchisor’s product in the foreign market.A foreign licensing agreement allows a firm to produce or sell its productSubcontracting involves hiring local firms to distribute, produce or sell goods and services.

Adeyl Khan, Faculty, BBA, NSU

Offshoring & Direct Investment

The relocation of business processes to a lower-cost overseas location is offshoring Not initiating business but gaining cost savings Extremely controversial

The ultimate level of global involvement is direct investment Directly operating production and marketing in foreign country. Acquisition Joint Ventures Overseas Division

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Multinational corporation (MNC) An organization with significant foreign operations and marketing activities outside its home country.

Multinational Corporations

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Global Business Strategies

• Firm sells same product in essentially the same manner throughout the world.

• Works well for products with nearly universal appeal.

Multidomestic Business Strategies

• Firm develops products and marketing strategies that appeal to customs, tastes, and buying habits of particular national markets.

• Example: Spinach, egg, and tomato soup on the menu in KFC’s menu in China.

Developing a Strategy for Intl. Business

Adeyl Khan, Faculty, BBA, NSU

AssignmentIOA- Chapter 2,4, 5 (Revised)

Duration- 11th June to 17th June

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Adeyl Khan, Faculty, BBA, NSU

Explain international business and why nations trade.

Discuss types of advantage in international trade.

Describe measurements of international trade and exchange rates.

Identify the major barriers that confront global businesses.

Explain how international trade organizations and economic communities reduce barriers to international trade.

Compare the different levels of involvement used by businesses when entering global markets.

Distinguish between a global business strategy and a multidomestic business strategy.

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Learning Goals