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BUS103 VPulouChapter3ReadingOutline

1. The document discusses key concepts in global business including comparative advantage, strategies for entering foreign markets such as licensing and joint ventures, and factors that affect international trade such as culture, regulations and currency exchange rates. 2. It also covers trade topics like exporting, importing, balances of trade and payments, and protectionist policies including tariffs, quotas and common markets like NAFTA and the EU. 3. Several strategies for competing in global markets are outlined such as licensing, exporting, franchising, contract manufacturing, joint ventures, strategic alliances, foreign subsidiaries, and foreign direct investment. Key terms related to international business and trade are also defined.

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10 views

BUS103 VPulouChapter3ReadingOutline

1. The document discusses key concepts in global business including comparative advantage, strategies for entering foreign markets such as licensing and joint ventures, and factors that affect international trade such as culture, regulations and currency exchange rates. 2. It also covers trade topics like exporting, importing, balances of trade and payments, and protectionist policies including tariffs, quotas and common markets like NAFTA and the EU. 3. Several strategies for competing in global markets are outlined such as licensing, exporting, franchising, contract manufacturing, joint ventures, strategic alliances, foreign subsidiaries, and foreign direct investment. Key terms related to international business and trade are also defined.

Uploaded by

victoria
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We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 3: Doing Business in Global Markets

Importance of Global Market/ Roles of Comparative & Absolute Advantage (1)


-Global trade enables a nation to produce what is most capable of producing and buying what it needs from others
-Global market is important because no country can produce all the products its people want and need
-getting started globally is a matter of observing, being determined, and taking risks
-You can sell any good/ service in other countries and the competition isn’t as bad
-Absolute advantage doesn’t last forever, global competition causes it to fade
-Comparative (countries should sell to each other) vs. Absolute (country produces product efficiently than others)
Pros of Free Trade: Cons of Free Trade:
-More customers -domestic workers lose jobs
-Growth in Productivity -Less pay for workers
-Keeps prices down -Loss of service jobs
-Inspires innovation -Increase in white collar jobs
-Keeps interest rates low -lose comparative advantage

Importing/Exporting & Key Terms and Ideas (2)


-Exporting helps economy because it gains more money through world economy & creates more jobs
-Balance of trade & balance of payments are used to measure global trade
-If u have more exports than imports, you have extra money to use on other things
-Good balance of payments has more money coming in than out, bad is less money coming and more going

Strategies for Reaching Global Markets / Multinational Corporations (3)


-8 Key strategies to compete in global markets are licensing, exporting, franchising, contract manufacturing,
international joint ventures, and strategic alliances, foreign subsidiaries, and foreign direct investment
-licensing benefits a firm as it allows them to gain more revenue & it doesn’t use much pocket money as it uses the
licensee's money
-EAC (Exporting Assistance Centers) help ease businesses into global markets
-contract manufacturing allows companies to experiment in new markets without worrying about start up costs
-benefits of joint venture: shared technology & risk, shared marketing & management expertise, and entry into
markets without worrying about producing foreign goods
-drawbacks are joint ventures can end for various reasons, and other companies can learn the other’s tech and use it
to their advantage
-strategic alliances don’t share costs, risk, management, or profits, they only provide access to markets, capital, and
technical expertise
-foreign subsidiaries allows the company to have control over any technology or expertise, but you need to pay for
funds and technology
-only firms that have manufacturing capacity in different nations can be called multinational

Forces That Affect Trading (4)


-cultural, economical & financial, legal & regulatory, and physical & environmental forces makes it hard to trade in
global markets
-culture: religion, culture, sociocultural differences
-financial: income and portion sizes, diff currencies, changes in currency
-legal: diff rules and regulations,
-physical: transportation, storage system, pollution, unclean, slow technology
Trade Protectionism (5) :
-trade protectionism allows domestic companies to grow and produce more jobs
-2 tariffs: protective: raise retail price of imports (competitively prices domestic products)
-revenue: raise money for gov
-non tariff barrier aren’t as specific but they are detrimental
-some common markets: Mercosur, European Union (EU), Association of SouthEast Asian Nations (ASEAN)
-NAFTA’s objectives : (1) eliminate trade barriers & facilitate cross border movement of goods & services, (2)
promote conditions of fair competition, (3) increase investment opportunities, (4) provide effective protection &
enforcement of intellectual property rights, (5) establish framework for further regional trade cooperation, (6)
improve working conditions in North America

Changing Landscapes of Global Market/ Offshore Outsourcing (6)


-China is on the way to becoming the biggest economy because it is the largest exporter and has a lot of FDI
-India has a growing young population, knowledge on technology, and is starting to address difficult trade laws
-Brazil & Russia were projected to be wealthy but have been faced with difficulties
Pros of Outsourcing:
-less- strategic so companies can focus on certain areas
-creates efficiencies, leads to more workers
-consumers benefit, and developing nations grow
Cons:
-low-cost competition
-reduce product quality & cause damage to companies reputation
-communication becomes difficult
-offshore outsourcing leads to a loss of jobs as many companies save costs hiring specific workers offshore
-outsourcing leads to loss of jobs and poor-quality products

Key Terms:
Importing: Buying products from another country (1)
Exporting: Selling products to another country (1)
Free Trade: Movement of goods and services among nations without political or economical barriers (1)
Comparative Advantage Theory: A country should sell to other countries those products it produces most effectively
and efficiently, and buy from other countries those products it cannot produce (1)
Absolute Advantage: a country can produce a specific product more efficiently than all other countries (1)
Balance of Trade: Total value of a nation’s export compared to its imports measured over a particular period (2)
Trade Surplus: Occurs when the value of a country’s exports exceeds that of its imports (2)
Trade Deficit: Occurs when a country’s exports is less than its imports (2)
Balance of Payments: The difference between money coming into a country and money leaving the country plus
money flows coming into or leaving the country from other factors such as tourism, foreign aid, military
expenditures. (2)
Dumping: Selling products into a foreign country at lower prices than those charged in producing country (2)
Licensing: The right to manufacture its product or use its trademark to a foreign country for a fee (3)
Contract Manufacturing: A foreign company produces private-label goods to which a domestic company then
attaches its own brand name or trademark (3)
Joint Venture: partnership in which two or more companies join to undertake a major project (3)
Strategic Alliances: long-term partnership between two or more companies established to help each other build
competitive market advantages (3)
(FID) Foreign Direct Investment: The buying of permanent property and businesses in foreign countries (3)
(FFID) Foreign Subsidiary: A company owned in a foreign country by another company called the parent company
(3)
Multinational Corporation: One that manufactures and markets products in many different countries and has
multinational stock ownership and management (3)
(FFDI) Sovereign Wealth Funds: investment funds controlled by governments holding investment stakes in foreign
countries (3)
Exchange Rate: The value of one currency relative to another country’s currency (4)
Floating Exchange Rates: currencies float in value according to the supply and demand for them in the global
market for currency (4)
Devaluation: Lowers the value of a nation's currency relative to others (4)
Countertrading: complex form of bartering in which several countries trade goods or services for other goods and
services (4)
Trade Protectionism: Use of government regulations to limit the import of goods and services (5)
Tariffs: Taxes on imports (5)
Import Quota: Limits number of products in certain categories that a nation can import (5)
Embargo: Complete ban on the import or export of a certain product or stopping of all trade w a particular country
(5)
General Agreements on Tariffs and Trade (GATT) : Global forum for reducing trade, restrictions on goods, services,
ideas, and cultural programs (5)
World Trade Organization: meditates trade disputes among nations (5)
Common Market: Regional group of countries with a common external tariff & coordinated laws to facilitate
exchange among members (5)
-North American Free Trade Agreement (NAFTA): A free trade area among the US, Canada, and Mexico (5)

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