Lecture 04emad@iqraisb.edu.pk

Global Markets.

• Objectives– Understand the importance of

importing & exporting and other international business concepts.

– Be familiar with strategies for reaching global markets used by multinational companies.

– Understand the forces that affect global trading.

– Explain how e-commerce is affecting global business.

The global village

• Single biggest factor that has allowed the growth of international business.

• How has increased connectivity allowed global operations for companies?– Ideas?

Why should nations trade with other nations?No country is entirely self sufficient.Resources are not evenly distributed.

Examples of relevant resources?Countries need the produce of other

countries that they lack.Imports.

Comparative Advantage.

A country should make and sell those products it produces most efficiently but buy those that it cannot produce efficiently.

Theory of comparative advantage states the need for efficiency in the production of goods and services.

& the idea that trade is a beneficial enterprise i.e./ free trade.

Pros & Cons

ProsGlobal market offers a huge number of potential

consumers.Productivity increases when nations trade in

goods with comparative advantage.Global trade keeps costs down and helps avoid

inflation curtailing economic growth.Free trace inspires innovation and competition

between a wider range of competitors.Nations gain access to foreign investment

which helps keep inflation low.

ConsDomestic workers can lose work and

experience pay cuts.Moving operations abroad causes loss of

service related white collar jobs.Domestic companies can lose comparative

advantage when competitors build advanced production operations in low wage countries.

Largest Traders.

Countries that trade the most : United States.Germany.Japan.France. Britain.China/Hong Kong.Canada.Italy.Netherlands.

Absolute advantage.

When a country has a monopoly on a certain product or can produce the product more efficiently than any other country.

Relatively rare to have absolute advantage.Examples?What is absolute advantage based on?

Business Terms

Exporting is selling products/services to other

countries.Importing

is buying products/services from other countries.

The balance of trade is the relationship of imports to exports.

The balance of payments is the balance of trade plus other money

flows such as foreign aid and tourism.

Dumping is selling products for less in a foreign

country than in your own.Trade protectionism

is the use of government regulations to limit the import of products.

Free TradeMovement of goods and services among

nations without political or economic trade barriers.

Strategies.

Strategies aimed at entering foreign markets include the following: Licensing, Exporting, Franchising, Contract Manufacturing, Joint ventures, Strategic Alliances, Foreign Subsidiaries, Foreign Direct Investment.

» Homework > Look up real life examples (not the ones given in class).

A Trade Deficit is an unfavorable balance of trade, i.e. when

imports are greater than exports.Foreign Direct Investment

The buying of permanent property and businesses in foreign nations.

Licensing A global strategy in which a firm (the licensor)

allows a foreign company (the licensee) to produce its product in exchange for a fee (royalty).

Contract ManufacturingA foreign countries production of private

label goods to which a domestic company then attaches.

Joint VentureA partnership in which two or more

companies (often from different countries) join to undertake a major project.

Strategic Alliance A long-term partnership between two or more

companies established to help each company build comparative advantages.

Foreign Subsidiary A company owned in a foreign country by another

(called the parent company).Multinational Corporation

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

Multinational companies are different in that they have manufacturing facilities in many different countries.

A large problem for multinationals is trade restrictions in the form ofSocio-cultural forces.Economic & Financial forces.Legal and regulatory forces.Physical & Environmental forces.

Biggest restriction on global trade is political difference.

The use of government regulations to limit the import of goods and services is known as Trade _____________? Ideas?

Hint ~ it uses Tariffs, Import Quotas &Embargoes.

Supporters of trade protectionism believe it allows domestic producers to survive and grow.

This in turn produces more jobs.