Lecture 04 emad@iqraisb.pk

1. Lecture 04 emad@iqraisb.edu.pk

2. 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.

3. The global village • Single biggest factor that has allowed the growth of international business. • How has increased connectivity allowed global operations for companies? • Ideas?

4. 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.

5. 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.

6. Pros & Cons • Pros • Global 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.

7. Cons • Domestic 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.

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

9. 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?

10. 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.

11. 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 Trade • Movement of goods and services among nations without political or economic trade barriers.

12. 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).

13. 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).

14. Contract Manufacturing • A foreign countries production of private label goods to which a domestic company then attaches. • Joint Venture • A partnership in which two or more companies (often from different countries) join to undertake a major project.

15. 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.

16. 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 of • Socio-cultural forces. • Economic & Financial forces. • Legal and regulatory forces. • Physical & Environmental forces.

17. 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.

18. Supporters of trade protectionism believe it allows domestic producers to survive and grow. • This in turn produces more jobs.