CHAPTER 3

Doing
Business in
Global
Markets

McGraw-Hill/Irwin

Copyright 2015 by the McGraw-Hill Companies, Inc. All rights reserved.

LEARNING OBJECTIVES
1. Discuss the importance of the global market and the
roles of comparative advantage and absolute
advantage in global trade.
2. Explain the importance of importing and exporting,
and understand key terms used in global business.
3. Illustrate the strategies used in reaching global
markets and explain the role of multinational
corporations.
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LEARNING OBJECTIVE

4. Evaluate the forces that affect trading in global

markets.
5. Debate the advantages and disadvantages of trade
protectionism.
6. Discuss the changing landscape of the global
market and the issue of offshore outsourcing.

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LEILA JANAH
Samasource

Started Samasource to help

people in developing
countries rise out of poverty.

Janah has been working to

combat world poverty since
she was a teen.

Employees are carefully

selected and are taught new
skills.
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NAME that COMPANY

This Swiss-based company has many foreign
subsidiaries including Jenny Craig (weight
management), Ralston Purina, Chef America
(maker of Hot Pockets) and Dreyers Ice Cream
in the United States as well as Perrier in France.
The company employs over 328,000 people and
has operations in almost every country in the
world.
Name that company!
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BUSINESS in the
GLOBAL MARKET

LO 3-1

Over 90% of companies

doing business globally
believe it is important
for employees to have
international
experience.
U.S. organizations (like
UPS, MLB, the NFL and
the NBA) are also
expanding abroad.
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WORLD POPULATION
by CONTINENT

LO 3-1

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WORLD POPULATION
GROWTH

LO 3-1

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IMPORTING and EXPORTING

LO 3-1

Importing -- Buying products

from another country.

Exporting -- Selling products

to another country.
The U.S. is the largest
importing and the second
largest exporting nation in the
world.
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PLEASURE DOING BUSINESS

LO 3-1

Best Countries for Business

Source: Forbes, www.forbes.com, accessed November 2014.

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CAN YOU SPARE a DIME?

LO 3-1

Home Countries for Some of the Worlds Billionaires

U.S. 516 billionaires

China 136 billionaires
Russia 88 billionaires
Germany 82 billionaires
India 54 billionaires
U.K. 43 billionaires
Hong Kong 41 billionaires
Source: Forbes, www.forbes.com, accessed November 2014.

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TRADING with OTHER NATIONS

LO 3-1

Countries with abundant natural resources (like

Venezuela or Russia) need technological
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.

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PROS and CONS of FREE TRADE

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COMPARATIVE and ABSOLUTE

ADVANTAGE

LO 3-1

Comparative Advantage -- A country should sell the

products it produces most efficiently and buy from other
countries the products it cannot produce as efficiently.

Absolute Advantage -- A country has a monopoly on

producing a specific product or is able to produce it
more efficiently than all other countries.

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GOING GLOBAL with a

SMALL BUSINESS

LO 3-2

Small businesses
may be the key in
global job growth.
Only 1% of U.S. small
businesses export,
yet they account for
30% of total U.S.
exports.
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WHOM DOES the U.S. OWE?

LO 3-2

Countries that Own the Most U.S. Debt

Source: Max Fisher, Washington Post, www.washingtonpost.com, accessed November 2014.

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GETTING INVOLVED in
IMPORTING

LO 3-2

Students attending schools

abroad tend to notice
products that theyre used
to are unavailable in their
new country.
By working with producers
in their native country,
some become importers
while still in school.
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GETTING INVOLVED in
EXPORTING

LO 3-2

Exporting provides a
great boost to the U.S.
economy.
Its estimated every $1
billion in U.S. exports
generate over 7,000 U.S.
jobs.

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HOW to MEASURE GLOBAL TRADE

LO 3-2

Balance of Trade -- The total value of a nations

exports compared to its imports measured over a
particular period.

Trade Surplus (Favorable) -- When the value of a

countrys exports is more than that of its imports.

Trade Deficit (Unfavorable) -- When the value of a

countrys exports is less than that of its imports.

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BALANCE of PAYMENTS

LO 3-2

Balance of Payments -- The difference between

money coming into a country (from exports) and

money leaving the country (from imports) plus other
money flows.

The goal is to have more money flowing into a

country than out a favorable balance.
An unfavorable balance is when more money
flows out of a country.
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UNFAIR TRADE PRACTICES

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Dumping -- Selling products in a foreign country at

lower prices than those charged in the producing
country.

Dumping is prohibited.
China, Brazil and Russia have been penalized for
dumping steel in the U.S.

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LARGEST EXPORTING NATIONS

and TRADE PARTNERS

LO 3-2

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TEST PREP
What are two of the main arguments favoring the
expansion of U.S. businesses into global
markets?
What is comparative advantage, and what are
some examples of this concept at work in the
United States?
How are a nations balance of trade and balance
of payments determined?
What is meant by dumping in global trade?
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KEY STRATEGIES for REACHING

GLOBAL MARKETS

Licensing

Least

LO 3-3

International
joint ventures
and strategic
alliances

Foreign
direct
investment

Amount of commitment, control, risk and profit potential

Most

Exporting

Franchising

Contract
Manufacturing

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LICENSING

LO 3-3

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EXPORT ASSISTANCE CENTERS

and EXPORT TRADING CENTERS

LO 3-3

EACs provide hands-on exporting assistance and

trade-finance support for small and medium-sized
businesses that wish to directly export goods and
services.
ETCs help companies engage in indirect
exporting by:
- Matching buyers and sellers.
- Dealing with foreign customs offices,
documentation, and conversions.
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FRANCHISING

LO 3-3

Franchising -- A contractual agreement whereby

someone with a good idea for a business sells others

the rights to use the name and sell a product/service
in a given area.

Franchisors need to be careful to adapt their

product to the countries they serve.
Yum! Brands, home of KFC, Taco Bell and
Pizza Hut, learned that food preferences differ all
around the world.
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TIME to MAKE the DONUTS

LO 3-3

Dunkin Donuts Flavors in Taiwan

Sweet Potato
Honeydew Melon
Green Apple
Kiwi Fruit
Mango
Pineapple

Photo Credit: Dennis Yang

Strawberry
Corn Crumb Soft Rice Cake
Source: World Features Syndicate.

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MCDONALDS:
OVER 100 CULTURES SERVED
McDonalds has more than 34,000 restaurants in
over 118 countries.
Maintains varying menus around the world due to
the different preferences of its customers.
Attracts top-level college
graduates to be trained
for management spots.
Only 8 of every 1,000
applicants actually makes
it into the program!
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THATS at MCDONALDS?
Malaysia: Bubur Ayam McD Chicken strips in porridge
with onions, ginger, and shallots.
Egypt: Mcarabia Grilled chicken with tehina sauces,
lettuce, tomato and onion on Arabic bread.
Japan: Teritama Teriyaki burger topped with an egg.
Germany: Want a beer with your burger? You can order
one in the German stores.
Israel: Operates using Kosher kitchens.
Source: McDonalds, www.mcdonalds.com, accessed November 2014.

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CONTRACT MANUFACTURING

LO 3-3

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JOINT VENTURES

LO 3-3

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STRATEGIC ALLIANCES

LO 3-3

Strategic Alliance -- A long-term partnership

between two or more companies established to help

each company build competitive market advantages.

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FOREIGN DIRECT INVESTMENT

LO 3-3

Foreign Direct Investment (FDI) -- The buying of

permanent property and businesses in foreign nations.

Foreign Subsidiary -- A company owned in a foreign

country by another company called the parent company.
The most common form of FDI.

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BUYING AMERICAN?

LO 3-3

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MULTINATIONAL CORPORATIONS

LO 3-3

Multinational Corporation -- A company that

manufactures and markets products in many different

countries and has multinational stock ownership and
management.

Not all large global businesses are multinational.

Only firms that have manufacturing capacity or
some other physical presence in different nations
can truly be multinational.
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LARGEST MULTINATIONAL
CORPORATIONS

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SOVEREIGN WEALTH FUNDS

LO 3-3

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TEST PREP
What are the advantages of using licensing as a
method of entry in global markets? What are the
disadvantages?
What services are usually provided by an exporttrading company?
What is the key difference between a joint venture
and a strategic alliance?
What makes a company a multinational
corporation?
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LO 3-4

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CULTURAL DIFFERENCES

LO 3-4

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LOST in TRANSLATION

LO 3-4

Advertisements Gone Wrong

Braniff Airlines slogan "Fly in leather translated

in Spanish as "Fly naked.
Siri, Apples digital assistant on iPhone, is a
common slang term for butt in Japanese.

In Italy, Schweppes Tonic Water was mistaken

as Schweppes Toilet Water.
Nokias line of Lumia phones is Spanish for
prostitute.
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FROM SETTING PICKS to

PICKING GRAPES

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READY to TRAVEL ABROAD?

LO 3-4

Know Your Cultural Differences

In Turkey, its rude to cross your arms while facing

someone.
In many Middle Eastern countries, you shouldnt eat
or shake hands with the left hand because it is
considered unclean.
In India, you should never pat anyones head. Its
where ones soul is kept.
In Brazil, your meeting may not start on time because
punctuality isnt important to the culture.
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DO as the GERMANS

LO 3-4

How to Not Embarrass Yourself in Germany

Always use titles like Doctor, Frau, or Herr.

Always provide food and drinks for your birthday.
Dont remove your jacket until your host does.
Wear conservative business attire, anything else is
considered sloppy.
Never jaywalk.
Always keep your hands on the table when eating.
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EXCHANGE RATES

LO 3-4

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DEVALUATION and
COUNTERTRADING

LO 3-4

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LEGAL and
REGULATORY FORCES

LO 3-4

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ENVIRONMENTAL FORCES

LO 3-4

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TEST PREP
What are four major hurdles to successful global
trade?
What does ethnocentricity mean and how can it
affect global success?
How would a low value of the dollar affect U.S.
exports?
What does the Foreign Corrupt Practices Act
prohibit?
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TRADE PROTECTIONISM

LO 3-5

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TARIFFS

LO 3-5

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IMPORT QUOTAS and EMBARGOS

LO 3-5

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WORLD TRADE ORGANIZATION

LO 3-5

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COMMON MARKETS

LO 3-5

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EU MEMBERS

LO 3-5

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NAFTA and CAFTA

LO 3-5

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NAFTA OBJECTIVES

LO 3-5

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NEW FREE
TRADE AGREEMENTS

LO 3-5

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TEST PREP
What are the advantages and disadvantages of
trade protectionism and of tariffs?
What is the primary purpose of the WTO?
What is the key objective of a common market like
the EU?
Which three nations comprise NAFTA?
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FUTURE of GLOBAL TRADE

LO 3-6

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OUTSOURCING

LO 3-6

Photo Credit: Vitor Lima

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OFFSHORE OUTSOURCING

LO 3-6

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LO 3-6

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MAKING YOUR OPERATION

YOUR VACATION
Some insurance companies
encourage patients to seek
medical care in foreign
countries.
Procedures are cheaper and
involve top-flight doctors at
state-of-the-art facilities.
Would it be ethical to force
patients to travel to other
countries to save money?
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COSTS of MEDICAL
PROCEDURES ABROAD

Source: AARP Magazine, November 2014.

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TEST PREP
What are the major threats to doing business in
global markets?
What key challenges must India and Russia face
before becoming global economic leaders?
What does the acronym BRIC stand for?
What are the two primary concerns about offshore
outsourcing?
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