Chapter 03 Doing  Business  in  Global  Markets McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc All rights reserved 3-2 Why Trade With Other Nations? • Global trade allows countries  to produce what they make  best and buy what they need  from others 3-3 3-4 TRADING with OTHER NATIONS • Countries with abundant natural resources (like  Venezuela or Russia) need technological  resources from other countries (like Japan) 3-5 HOW FREE TRADE  BENEFITS the WORLD Global trade has led the world in a new direction: • Literacy rates worldwide have increased from  56% in 1950 to 99% in 2012 • Life expectancy in less developed areas rose  from 40.9 years in 1950 to 70.5 years in 2012 Source: The World Bank, June 2014 3-6 % of Company Earnings From Outside U.S Company Total Assets Reinvested Overseas in 2011 Total Assets Reinvested Overseas in 2012 Total Added in 2012 GENERAL ELECTRIC CO $102,000 $108,000 $6,000 PFIZER INC $63,000 $73,000 $10,000 MICROSOFT CORP $44,800 $60,800 $16,000 MEREC CO $44,300 $53,400 $9,100 JOHNSON & JOHNSON $41,600 $49,000 $7,400 INTL BUSINESS MACHINES CORP $37,900 $44,400 $6,500 EXXON MOBIL CORP $47,000 $43,000 -$4,000 CITIGROUP INC $35,900 $42,600 $6,700 CISCO SYSTEMS INC $36,700 $41,300 $4,600 APPLE INC $23,400 $40,400 $17,000 http://online.wsj.com/news/interactive/FORCASH20130311? ref=SB10001424127887324034804578348131432634740 3-7 PLEASURE DOING BUSINESS Best Countries for Business out of 183 Countries Economy    Singapore Hong Kong SAR, China New Zealand United States Denmark Malaysia Korea, Rep Georgia Norway United Kingdom Ease of Doing Starting a Paying Trading Across Business Rank Business Taxes Borders 10 © 2013 The World Bank, All Rights Reserved 20 40 16 34 53 28 23 64 12 36 25 29 17 14 21 22 43 26 16 3-8 TOP 10 COUNTRIES - BILLIONARIES Country Number Person Networth $73 B Source United States 492 Bill Gates Telecom China 152 Wang Jianlin $14.6 B Investment Property Russia 111 Alisher Usmanov $19.6 B Metal & Mining Germany 85 Karl Albrecht $25.4 B Aldi - Discount Superchains Brazil 65 Jorge Paulo Lemann $21.9 B Banker India 56 Mukesh Ambani $19.6 B Petrochemicals United Kingdom 47 Gerald Cavendish Grosvenor & Family $8.5 Duke of Westminister - Land Owner Hong Kong 45 Li Ka-shing $31 B Diversified France 43 Liliane Bettencourt & Family $30 B L’Oreal Italy 35 Michele Ferrero & Family $26 B Chocolate Manufacturing 3-9 Why    Trade with Other Nations? LG1 TRADING with OTHER NATIONS • Countries with abundant natural resources (like Venezuela or Russia) need technical resources from other countries (like Japan) • Global trade allows countries to produce what they make best and buy what they need from others • Free Trade – The movement of goods and services among nations without political or economic barriers 3-10 ENVIRONMENTAL FORCES • Developing countries  have transportation and  storage systems that  make international  distribution difficult or  impossible • Often, technological  capabilities are far from  those in the U.S. which  make for a tough  business environment 3-43 TRADING with OTHER NATIONS • Free Trade ­­ The movement of goods and  services among nations without political or  economic barriers 3-44 TRADE PROTECTIONISM • Trade Protectionism ­­  The use of government  regulations to limit the  import of goods and  services • Advocates of  protectionism believe it  allows domestic  producers to survive,  grow and produce jobs 3-45 TARIFFS • Tariffs ­­ Taxes on imports - Revenue – Raise money  for governments.  Protective – Raise the  retail price of imports so  domestic goods are  competitively priced 3-46 IMPORT QUOTAS and EMBARGOS • Import Quota ­­ Limits the number of products in  certain categories a nation can import • Embargo ­­ A complete ban on the import or export  of a certain product or the stopping of all trade with a  particular country • Political disagreements can lead to embargos,  like the U.S. embargo against Cuba 3-47 WORLD TRADE ORGANIZATION • General Agreement on Tariffs and Trade ­­     A global forum for reducing trade restrictions on  goods, services, ideas and cultural problems • World Trade Organization (WTO) ­­  Headquartered in Geneva, the WTO is an  independent entity of 152 member nations whose  purpose is to oversee cross­border trade issues and  global business practices 3-48 COMMON MARKETS • Common Market ­­ A regional group of countries  with a common external tariff, no internal tariffs and  coordinated laws to facilitate exchange among  members • The European Union (EU), Mercosur and the  ASEAN  and COMESA are common markets 3-49 EU MEMBERS 3-50  NAFTA • North American Free Trade Agreement ­­  Ratified in 1994, created a free­trade area among  the United States, Canada and Mexico • NAFTA’s objectives are: - Eliminate trade barriers and facilitate cross­border  movement of goods and services Promote conditions of fair competition Increase investment opportunities Provide effective protection and enforcement of  intellectual property rights Establish a framework for further regional trade  cooperation Improve working conditions in North America 3-51 CAFTA Central American Free Trade Agreement ­­  Passed in 2005, created a free­trade zone with Costa  Rica, Dominican Republic, El Salvador, Guatemala,  Honduras and Nicaragua • Free traders hope CAFTA will lead to the creation  of a Free Trade Area of the Americas (FTAA) 3-52 NEW FREE  TRADE AGREEMENTS • Today, free trade  agreements are being  negotiated with South  Korea, Colombia and  Panama • The U.S. is considering  an agreement with a  nine­nation free trade  bloc called the Trans­ Pacific Partnership 3-53 FUTURE of GLOBAL TRADE • With over 1.3 billion people, China has  transformed the world economic map. Many  multinationals invest heavily in China • India has seen huge growth in information  technology, pharmaceuticals and biotechnology • Russia is a large oil producing country with many  multinationals interested in developing there • Brazil is expected to be one of the wealthier  economies by 2030 3-54 OUTSOURCING • Outsourcing ­­ Process by which a firm contracts  with other companies to do some or all of its  functions • U.S. firms have outsourced payroll functions,  accounting and manufacturing for years • With the growth of global  markets, companies have  been shifting to offshore  outsourcing – outsourcing  with other countries Photo Courtesy of: Vitor Lima 3-55 3-56 3-57 ... http://online.wsj.com/news/interactive/FORCASH20 130 311? ref=SB1000142412788 732 4 034 80457 834 8 131 432 634 740 3- 7 PLEASURE DOING BUSINESS Best Countries for Business out of 1 83 Countries Economy    Singapore... $7,400 INTL BUSINESS MACHINES CORP $37 ,900 $44,400 $6,500 EXXON MOBIL CORP $47,000 $ 43, 000 -$4,000 CITIGROUP INC $35 ,900 $42,600 $6,700 CISCO SYSTEMS INC $36 ,700 $41 ,30 0 $4,600 APPLE INC $ 23, 400... 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