mktg international 1

8/3/2019 MKTG International 1

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International Trade

Chapter 4

Global Analysis

Section 4.1 International Trade

Section 4.2 The Global Marketplace


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International Trade

Objectives

Explain the interdependence of nations

Explain the nature of international trade

Discuss the balance of trade

List three types of trade barriers

List three significant trade agreements andalliances that foster worldwide free trade

Key Terms

internationaltrade

imports

exports

balance of trade

free trade

tariff

quota

embargo

protectionism

World Trade

Organization(WTO)

North AmericanFree TradeAgreement(NAFTA)

European Union

(EU)


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Nature of International Trade

International trade is the exchange of goodsand services between nations.

Imports are goods and services purchasedfrom other countries.

Exports are goods and services sold to othercountries.

importsGoods andservicespurchased fromother countries.

exportsGoods andservices sold toother countries.


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Interdependence of Nations

Economic interdependence happens whencountries must rely on each others help toproduce all the goods they need to survive.Different countries can produce specific goodssuch as:

U.S. and Canada: Agriculture

Saudi Arabia and Russia: Oil

India and Japan: Computer science andTechnology


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Absolute Advantage and

Comparative Advantage

There are two types of advantages in internationaltrade:

Absolute

Comparative

Absolute advantage occurs when a country hasnatural resources or talents that allow it toproduce an item at the lowest cost possible. Chinahas an absolute advantage in the production of

silk.


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Benefits of International Trade

Consumers benefit because competitionencourages the production of high-quality goodswith lower prices.

Producers gain higher profit by expanding theiroperations into international markets.

Workers benefit because international trade leadsto higher employment rates.

Nations benefit because foreign investment in acountry often improves the standard of living for

that countrys people.


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Government Involvement in

International Trade

All nations control and monitor their trade withforeign businesses. In the U.S., the customsdivision of the Treasury Department monitors allimports whether carried by individuals or shippedby trading firms.


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Balance of Trade

The difference in value between the exports andimports of a nation is called its balance oftrade. A positive balance happens when a nationexports more than it imports. A negative balance,also called a trade deficit, results when a nation

imports more than it exports.

balance oftrade

The difference invalue between anations exports

and its imports.


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Balance of Trade

A negative balance of trade reduces a nationsrevenue. When more money leaves a country than

comes in, the country is in debt or is a debtornation.

Unemployment can also be another negative resultof a large trade deficit.


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Trade Barriers

Many countries favor and practice free trade, ortrade that is done purely on free market principles,without restrictive regulations.

Other nations impose controls and restrictions to

regulate the flow of goods and services. There arethree main types:

Tariffs

Quotas

Embargoes

free trade

Commercialexchangebetween nationsthat is conducted

on free marketprinciples,without tariffs,import quotas, orother restrictiveregulations.


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Trade Barriers

A tariff is a tax on imports. Tarrifs come in twodifferent types:

Revenue-producing: a source of federal income

Protective: raises the price of imports to

encourage consumers to buy locally madegoods.

An import quotalimits either the quantity or themonetary value of a product that may beimported. These help local business compete with

foreign companies.

tariff

A tax onimports; alsoknown as a duty.

quota

A limit on eitherthe quantity ormonetary valueof a product thatmay beimported.


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Trade Barriers

An embargo is a total ban on specific goodscoming into and leaving a country. An embargocan be imposed for different reasons:

Poisoned or defective goods

Political reasons

Protectionismis a governments establishment ofeconomic policies that systematically restrictimports in order to protect domestic industries. Itis the opposite of free trade.

embargo

A total ban onspecific goodscoming into andleaving a

country.protectionism

A governmentsestablishment ofeconomic policiesthat restrict

imports toprotect domesticindustries.


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Trade Agreements and Alliances

Governments make agreements with each other toestablish guidelines for international trade and toset up trade alliances.

The World Trade Organization (WTO) wasformed in 1995 and is designed to:

Open markets and promote global free trade

Reduce tariffs

Standardize trade rules

Study important trade issues

Evaluate the health of the world economy

World TradeOrganization(WTO)

A global coalitionof more than 140

governmentsthat makes rulesgoverninginternationaltrade.


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The North American Free Trade Agreement(NAFTA) is an international trade agreementamong the United States, Canada, and Mexico.

Founded on January 1, 1994, its goal is to get rid

of all trade barriers between the countries by2009.

NorthAmericanFree TradeAgreement(NAFTA)

An internationaltrade agreementamong theUnited States,Canada, andMexico.


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The European Union (EU) is Europes tradingbloc. It was established to:

Establish free trade among its member nations

Create a single European currency and central

bank

Maintain competitive practices

Maintain environmental and safety standards

Provide security

EuropeanUnion (EU)

European tradingbloc.


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European Union
http://upload.wikimedia.org/wikipedia/commons/c/c3/Euro_symbol_gold.svg


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The Global Marketplace

Objectives

List forms of international trade

Identify political, economic, socio-cultural, andtechnological factors that affect internationalbusiness

Suggest global marketing strategies

Key Terms

licensing

contractmanufacturing

joint venture

foreign directinvestment(FDI)

multinationals

mini-nationals

globalization

adaptation

customization


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Doing Business Internationally

Trade agreements by governments set theguidelines for business to operate in the globalmarketplace. Getting involved in internationaltrade can mean:

Importing Exporting

Licensing

Contract manufacturing

Joint ventures

Foreign direct investment


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Importing

Importing involves purchasing goods from anothercountry. The products must meet the samestandards as domestic products.

The rules governing importing are complex. MostU.S. businesses hire customs brokers to keep the

business within the laws and procedures affectingimports.


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Exporting

A domestic company that wishes to enter into theglobal marketplace with minimal risk and controlmight consider exporting. These companies canget help from the U.S. government in their trade.


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Licensing

Licensing involves letting another company useone of the following for a fee:

Trademark

Patent

Special formula

Company name

Intellectual property

A franchise is a different kind of licensing whereprivate investors can operate under the companyname.

licensing

The process ofletting anothercompany(licensee) use a

trademark,patent, specialformula,company name,or some otherintellectualproperty for a

fee or royalty.


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Contract Manufacturing

Contract manufacturing involves hiring aforeign manufacturer to make your products,according to your specifications. The finishedgoods are sold in that country or exported.

The major benefit of this technique is lower wages,but the risk is that production information can belost or stolen in the production countries.

Ajoint venture is a business enterprise thatcompanies set up together.

contractmanufacturing

The process ofhiring a foreignmanufacturer tomake products

according to certainspecifications.

joint venture

A businessenterprise thatdifferent companiesset up together;often, the ventureinvolves a domesticcompany and aforeign company.


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A foreign direct investment (FDI) is theestablishment of a business in a foreigncountry. This process can include:

Setting up a small office in another country

Constructing manufacturing plants andretail stores abroad

foreign directinvestment(FDI)

Investments infactories, offices,

and otherfacilities inanother countrythat are used fora businesssoperations.


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Multinationals are large corporations that haveoperations in several countries.

Mini-nationals are mid-size or smallercompanies that have operations in foreign

countries.

multinationalsLargecorporations thathave operationsin multiplecountries.

mini-nationalsMidsize orsmallercompanies thathave operationsin multiplecountries.


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Global Environmental Scan

A global environmental scan includes analysis of:

Political factors

Economic factors

Socio-cultural differences Technological levels

This scans acronym is PEST.


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Political Factors

Political factors include:

A governments stability

Its trade regulations and agreements

Any other laws that impact a companysoperation


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Political Factors

Political uprisings can endanger a businesss well-being, and even when the governments are stable,companies must be aware of local trading laws toavoid complications.

For example:

Chile has strengthened its standards for theprotection of intellectual property rights.

Toys cannot be advertised in Greece.


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Economic Factors

Key economic factors relevant to doing business inanother country include:

Infrastructure: The reliability of a nationsroads, communication, and energy plants, etc.

Labor force: The quality, cost, and educationlevel of local workers.

Employee benefits: Some countries havedifferent policies for employees, such as Francewhere the work week is only 35 hours instead

of 40.
http://www.allposters.com/-sp/Madrid-November-7-1936-Posters_i396069_.htm


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Economic Factors

Taxes: Taxes on propertyand profits vary indifferent nations.

Standard of living:

Companies consider thisfactor more when eyeing acountry as a market to seewhat kind of consumersare there, and how many.

Foreign exchange rate:Changes in an exchangerate positively ornegatively affectbusinesses that sellabroad.


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Socio-cultural Factors

Marketers need to conduct a cross-culturalanalysis in order to understand:

Languages and symbols: Businesses takeinto consideration aspects such as the aversionto the number thirteen in the U.S. and thenumber four in China and Japan.

Holidays and religious observances:Companies need to know local religious beliefsif they are to attract customers.

Social and Business Etiquette: Actions suchas gift-giving or receiving can have differentundertones in different cultures.


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Technological Factors

Studying a countrys technology means taking intoconsideration even the most basic factors such as:

Measurement systems

Electric voltage standards


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Global Marketing Strategies

The possibilities for marketing strategies thatinvolve product and promotion decisions rangefrom globalization to customization.


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Globalization

Globalization (one definition, anyway) is sellingthe same product and using the same promotionmethods in all countries.

Examples would be:

Coca-Cola

Nike

globalization

The process ofselling the sameproduct andusing the same

promotionmethods in allcountries.


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Adaptation

Adaptationis a companys use of an existingproduct/promotion to which changes are made tobetter suit the characteristics of a country.

Products and promotions can be changed tobetter fit languages or cultural boundaries.

adaptation

Changing anexisting productand/orpromotion to

better suit thecharacteristics ofa targetedcountry orregion.


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Customization

Customization involves creating products orpromotions for certain countries or regions.

customization

The process ofcreating productsor promotions forcertain countries

or regions.


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Section 4.1

International trade is necessary because of the

interdependence of nations. It benefitsconsumers, producers, workers, and nations indifferent ways.

Governments are involved in international tradethrough monitoring trade between countries and

establishing trade regulations. Currently, theUnited States has a negative balance of trade,also called a trade deficit.

continued


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Section 4.1

Three types of trade barriers are tarrifs, quotas,

and embargoes.

Three significant trade agreements and alliancesthat foster free trade are the World TradeOrganization (WTO), the North American FreeTrade Agreement (NAFTA), and the European

Union (EU).

continued


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Section 4.2

Businesses can get involved in international trade

through importing, exporting, licensing, contractmanufacturing, joint ventures, and foreign directinvestments.

A global environmental scan analyzes political,economic, socio-cultural, and technological

factors. Global marketing strategy options include

globalization, adaptations of product and/orpromotion, and customization.


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This chapter has helped prepare you to meet thefollowing DECA performance indicators:

Explain the nature of international trade

Identify the impact of cultural and socialenvironments on world trade

Explain the principles of supply and demand

Orient new employees

Address people properly

mktg international 1

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