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PART ONE:TODAY’S BUSINESS ENVIRONMENT Chapter Four – Globalization
The Global Workplace & E-Commerce • Globalization: The results • Development of the global workplace and electronic commerce • Consolidation of many national markets into one big world market • Development of two opposite kinds of international business: huge firms and quick, Internet-enabled small firms. • E-commerce
One Big Market • Free Trade & the Global Economy • Imports • Exports • Positive Effects • Negative Effects • Types of Businesses that Succeed • Big • Quick
Conducting International Trade • Trading with other countries • No country is self-sufficient • Some countries have natural resources other countries do not have • Some countries have technology that other countries want
Balance of Trade, Payments & Countertrading • Balance of Trade: Comparing exports & imports • Trade surplus • Trade deficit • Balance of Payments: Comparing money in & money out • Balance-of-payments surplus • Balance-of-payments deficit
The World Economy—An Overview • In the early 20th century economic integration was at 10%; today it is 50%
The World Economy—An Overview The new realities, continued: • 75-year struggle between capitalism and socialism has almost ended • E-Commerce diminishes the importance of national barriers and forces companies to re-evaluate business models
Market Capitalism • Individuals and firms allocate resources • Production resources are privately owned • Driven by consumers • Government’s role is to promote competition among firms and ensure consumer protection
Western Market Systems Type of System Key Characteristics Countries Anglo-Saxon Private ownership US, Canada, free enterprise Great Britain Minimal social safety net Social Market Private ownership France, Germany, Economy Model Inflexible employment Italy policies, “social partners” Nordic Model Mix of state and private Sweden, Norway ownership, large safety net High taxes
Low-Income Countries • GNP per capita of $996 or less • Characteristics • Limited industrialization • High percentage of population in farming • High birth rates • Low literacy rates • Heavy reliance on foreign aid • Political instability and unrest • Concentrated in Sub-Saharan Africa • Uzbekistan and Turmenistan
Lower-Middle-Income Countries • GNI per capita: $996 to $3,945 • Characteristics • Rapidly expanding consumer markets • Cheap labor • Mature, standardized, labor-intensive industries like footwear, textiles and toys • BRIC nations are India, China
Upper-Middle-Income Countries • GNP per capita: $3,946 to $12,195 • Characteristics: • Rapidly industrializing, less agricultural employment • Increasing urbanization • Rising wages • High literacy rates and advanced education • Lower wage costs than advanced countries • Also called newly industrializing economies (NIEs) • Examples: Brazil, Russia, Malaysia, Chile, Venezuela, Hungary, Mexico Chilean copper mine
Marketing Opportunities in LDCs • Characterized by a shortage of goods and services • Long-term opportunities must be nurtured in these countries • Look beyond per capita GNP • Consider the LDCs collectively rather than individually • Consider first mover advantage • Set realistic deadlines
Mistaken Assumptions about LDCs • The poor have no money. • The poor will not “waste” money on non-essential goods. • Entering developing markets is fruitless because goods there are too cheap to make a profit. • People in BOP (bottom of the pyramid) countries cannot use technology. • Global companies doing business in BOP countries will be seen as exploiting the poor.
Microfinancing • Concept pioneered in 1976 by Muhammad Yunus. • Grameen Bank was first to provide Microloans. • Grameen Foundation (US) and Kiva International are leading microloan organizations.
Microfinancing • Providing small loans to individuals who traditionally would not have access to credit. • Poverty reduction method via enterprise-building • Not traditional aid. Borrowers have to repay the loan with interest. • Loans are given without collateral. • Borrowers are organized in groups. Members of the group together guarantee the loans.
Microfinancing • http://www.youtube.com/watch?v=67sobWLgY4A&feature=player_embedded#! • http://www.youtube.com/watch?v=t5KNDvA0k4k • http://www.kiva.org/lend#/?&sortBy=random
Bottom of the Pyramid http://www.youtube.com/watch?v=U7F7NzCS2cU&feature=related
“The Fortune at the Bottom of the Pyramid” • C.K. Prahalad • http://www.youtube.com/watch?v=VJUjzT--HUk
Barriers to International Trade Three Kinds of Trade Protectionism: • Tariffs – taxes on imports • Import Quotas – limits on how many products are allowed in • Embargoes – bans on certain import or export products
Recent History of Trade • 1947: GATT • 1995: WTO
Levels: Preferential Trade Agreement • Regional cooperation (technically violates WTO, but haven’t been disallowed)
Levels: Free Trade Area • No tariffs between member countries
Levels: Customs Union • No tariffs between member countries • Common EXTERNAL tariffs (to outside)
Levels: Common Markets • No tariffs between member countries • Common EXTERNAL tariffs (to outside) • Free movement of factors of production
Levels: Economic Union • No tariffs between member countries • Common EXTERNAL tariffs (to outside) • Free movement of factors of production • Coordinate economic and social policy (example: EU Dr. licensing)
Organizations & Common Markets • Organizations Facilitating International Trade: • The World Trade Organization (WTO) • The World Bank • The International Monetary Fund (IMF) • Common Markets • NAFTA • EU • Mercosur • APEC
Conditions Affecting International Trade • Cultural Conditions • Verbal & nonverbal communication • Time orientation • Religion • Economic Conditions • Infrastructure, resources & development • Currency exchange rates
Conditions Affecting International Trade • Political & Legal Conditions • Political System: Democratic or Totalitarian? • Political Stability: What’s the Risk? • Approach to Corruption & Enforcement