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 not used 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 Company % of 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 $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 MACHINES CORP http://online.wsj.com/news/interactive/FORCASH20130311?ref=SB10001424127887324034804578348131432634740 3-7 PLEASURE DOING BUSINESS Best Countries for Business out of 183 Countries Economy Ease of Doing Business Rank Starting a Business Paying Taxes Trading Across Borders Singapore Hong Kong SAR, China New Zealand 23 21 United States 20 64 22 Denmark 40 12 Malaysia 16 36 Korea, Rep 34 25 Georgia 8 29 43 Norway 53 17 26 United Kingdom 10 28 14 16    © 2013 The World Bank, All Rights Reserved 3-8 3-9 CAN YOU SPARE A DIME? Rank Name Net Worth Age Source Country of Citizenship Carlos Slim Helu & family $73 B 74 telecom Mexico Bill Gates $67 B 58 Microsof United States Amancio Ortega $57 B 77 Zara Spain Warren Buffet $53.5 B 83 Berkshire Hathaway United States Larry Ellison $43 B 69 Oracle United States Charles Koch $34 B 78 diversified United States David Koch $34 B 73 diversified United States Li Ka-shing $31 B 85 diversified Hong Kong Liliane Betencourt & fami $30 B 91 L'Oreal France 64 LVMH France ly 10 Bernard Arnault & family $29 B 3-10 Forbes 2014 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 3-50 TRADING with OTHER NATIONS • Free Trade The movement of goods and services among nations without political or economic barriers 3-51 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 3-52 TARIFFS • Tariffs Taxes on imports • Two kinds of tariffs: - Revenue – Raise money for governments Protective – Raise the retail price of imports so domestic goods are competitively priced 3-53 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 3-54 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 cross-border trade issues and global business practices 3-55 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 3-56 EU MEMBERS 3-57 NAFTA • North American Free Trade Agreement Ratified in 1994, created a free-trade area among the United States, Canada and Mexico • NAFTA’s objectives are: - Eliminate trade barriers and facilitate cross-border 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 3-58 CAFTA Central American Free Trade Agreement Passed in 2005, created a free-trade 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) 3-59 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 nine-nation free trade bloc called the Trans-Pacific Partnership 3-60 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 3-61 OUTSOURCING • Outsourcing Process by which a firm contracts with other companies to 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 3-62 3-63 3-64 ... PLEASURE DOING BUSINESS Best Countries for Business out of 183 Countries Economy Ease of Doing Business Rank Starting a Business Paying Taxes Trading Across Borders Singapore Hong Kong SAR, China... charged in the producing country • Dumping is prohibited in the U.S • China, Brazil and Russia have been penalized for dumping steel in the U.S 3-23 KEY STRATEGIES for REACHING GLOBAL MARKETS International... Bloomberg Businessweek, November 22, 2011 3-28 HOW EXPORTS AFFECT the GDP Source: Bloomberg Businessweek, November 22, 2011 3-29 GOING GLOBAL with a SMALL BUSINESS • Small businesses may be the key in