1

Chapter 3

Business in Global
Markets
Dr. Alaa TAWFIK

PhD in International Business 2002

MBA in Marketing 1997
M.B.B.Ch. 1986
B.Sc. in Anatomy and Physiology 1982
Associate level trainer certification from the American And Canadian
Training Institute Of (NLP) Neuro Linguistic Programming.
Certified NLP Practitioner
Member in both American and Canadian Training Institute of NLP.
Management & Marketing Instructor in the American City University, New
York Institute of Technology (NYIT) and Missouri State University.
Different Multinational experience in Marketing, Sales and Training & HR
development domains in the region of Africa Middle East and Europe.
 Learning Objectives
1. Define global business.
2. Understand the importance of global trade.
3. Discuss the roles of comparative and absolute
advantage in global trade.
4. Discuss the two indicators for measuring global
trade.
5. Describe different types of trade protections and
trade agreements.
6. Discuss the different strategies for reaching global
markets.
7. Explain the forces affecting the global trade market.
Understanding Globalization
Global business:
Any activity that seeks to provide goods and
services to others across national borders
while operating at a profit.
Globalization refers to the shift towards more
integrated and interdependent world economy.
Cultural changes:
Companies face new cultural challenges when
they engage in international business.
Understanding Globalization
Global Trade
US vs. Global Market:
It is hard to find a major U.S. company that does not
exist globally.
The United States is a market of over 300 million
people, but there are over 6 billion potential customers
in the 193 countries that make up the global market.
Thomas Friedmans Book The World is Flat.
How the competitive field is leveling for all countries,
including those which are still developing.
Understanding Globalization
Global Trade
Exporting and Importing.
U.S is the largest exporting and importing nation in the
world.
Exporting:
Selling products to another country.
Importing
Buying products from another country.
Understanding Globalization
Global Trade
Why Trade Globally?
1.No nation, not even a technologically advanced one,
can produce all of the products that is satisfy people
needs.
2.Even if a country become self-sufficient, other nations
would seek to trade with that country in order to meet
the needs of their own people.
3.Some nations have lot of natural resources & lacking
the technological know-how, while others have
sophisticated technology but few natural resources.
Globalization of Production
e.g. Boeing 777, a commercial jet airliner
8 Japanese suppliers make parts for the
doors and wings
1 supplier in Singapore makes the landing
gear.
3 suppliers in Italy manufactures wing flaps
30% of the Boeing 777, by value,
is built by foreign companies
Suppliers of Components for Chevrolet Malibu
Globalization Debate

PROS CONS

Lower prices for goods and services Local markets differences

Economic growth stimulation Effect on developing countries

Creates jobs and decrease Destroys manufacturing jobs in

unemployment level advanced countries

Countries specialize in goods and

Declines wage rates
services production more efficiently
Understanding Globalization
Global Trade
Why Trade Globally?
Free trade:
Is the movement of goods and services among
nations without political or economic trade barriers.
 Free Trade Zones

The establishment of free trade areas creates

an opportunity for global manufacturing
companies as it minimizes the cost and
barriers to trade
 You dont choose to become global.
The market chooses for you,
it forces your hand.

Alan Gomez
Arizona State University
A company that masters only its
domestic market will eventually lose
it. Strong foreign competitors will
come in and challenge your company.
Its now business without border.

Philip KOTLER
 Comparative Advantage and
Absolute Advantage
Global trade:
Is the exchange of goods and services across national
borders.
David Ricardos comparative advantage theory:
A country should sell to other countries those products
that it produces more effectively and efficiently and buy
from other countries those products it cannot produce as
effectively or efficiently.
Each country has a comparative advantage in
something.
 Comparative Advantage and
Absolute Advantage
Absolute advantage
A country has a monopoly on producing a specific
product or is able to produce more efficiently than
all other countries.
Difficult to sustain. If conditions change or
resources are discovered elsewhere.
Competition in Global Markets

Coca Cola's competing with Pepsi

General Motors and Toyota
Boeing and Airbus
 Measuring Trade
In measuring the effectiveness of global trade Two
key indicators are used:
1. Balance of Trade
Is a nations ratio of exports to imports
a)Favorable Trade surplus or
b)Unfavorable deficit
2. Balance of payments
Difference between money coming
into a country and money leaving
the country.
 Measuring Trade
Unfair Trade Practices
Dumping:
Selling products in a foreign country at lower prices
than the producing country.
Selling product in a country below what it cost to
produce the product.
Gray Market:
Distributing goods via channels other than those
intended by the manufacturer.
Countries enforce laws to prohibit these practices.
Trade Protection and Agreements
Trade protectionism:
Is the use of government regulations to limit the
import of goods and services.
1.Tariff Barriers: (tax on imports)
Two types of tariff:
a) Protective. Designed to raise the retail price of
imported products.
b) Revenue. Designed to raise money for the
government.
Trade Protection and Agreements
2. Non-tariff Barriers:
a) Import quota
limits the number of products in certain categories.
b) Embargo
Complete ban on the import or export of a certain
product or stopping of all trade with a particular
country.
c)Japans Keiretsu
Major companies built corporate families that forged
semi-permanent ties with suppliers, customers, and
distributors with full support of the government.
Trade Protection and Agreements
2. Non-tariff Barriers:
d) Providing preferential treatment to local bidders
than foreign bidders.
e) Foreign-exchange control: A restriction on the
amount of a particular foreign currency that can
be purchased or sold.
f) Currency devaluation: Reduction of the value of a
nation's currency relative to the currencies of
other countries.
g) Language differences.
h) Cultural differences.
 Trade Protection and Agreements
The General Agreement on Tariffs and Trade (GATT) 1948
23 nations established an international forum for negotiating
mutual reductions in trade restrictions. (132)
World Trade Organization (WTO)
Established by Uruguay Round
Headquartered in Geneva, Switzerland
151 members
The primary task is mediating trade disputes.
International Monetary Fund (IMF)

In 1944, it was designed to provide stability for

the international monetary framework and to
provide fixed exchange rates between
countries and to protect them from its
fluctuation.
It obtained funding from its members who
subscribed to a quota based on expected trade
and paid 25% of the quota in Gold or Dollars
and the rest in their local currency.
World Bank
Its official name is International Bank for
Reconstruction and Development
Formed in 1944 to aid countries suffering
from the destruction of war.
Aiding world development
Assisting economies to participate in modern
economic trade framework
Participate with the IMF to resolve the debt
problems of the developing countries
Trade Protection and Agreements
Common Markets: (Economic Bloc, Regional
Alliances )
European Union (EU)
Began late 1950s as an alliance of 6 partners,
reached 27 in 2007.
January,1999 Joint currency, Euro.
More buying power and greater economic stability.
Mercosur (South American Common Market)
In 1999. Brazil, Argentina, Paraguay, Uruguay, and
associate members Chile and Bolivia.
 Trade Protection and Agreements

Organization of the Petroleum Exporting

Countries (OPEC)
12 member organizations
Mission:
Coordinate & unify policies
Ensure price stability
Provide efficient, economic
& regular supply to consuming nations and a fair
return on capital to those investing in the petroleum
industry.
 Trade Protection and Agreements
North American Free Trade Agreement (NAFTA)
Early 1990s
United States, Canada, and Mexico
Objectives
Eliminate trade barriers & facilitate cross-border
movement
Promote conditions of fair competition
Increase investment opportunities
Provide protection & enforcement of intellectual
property rights
Establish framework for further cooperation
Trade Protection and Agreements
GCC. (1981)
Four Tigers: Hong Kong, Singapore, South
Korea and Taiwan. (1960s to 1990s)
The Group of Five: US, Britain, France,
Germany & Japan. (1975)
The Group of Seven: by adding Italy and
Canada. (1976)
The Group of Eight: by adding Russia. (1997)
Strategies for Reaching Global Markets
Strategies for Reaching Global Markets
Licensing
(the licensor) gives right to manufacture its product or
use its trademark to (the licensee) for a fee (royalty).
Additional revenues
Rapid reach
Extended time frame, sometimes 20 years
Firm may lose secrets
Strategies for Reaching Global Markets
Exporting
Selling domestically produced goods and services to
customers in countries abroad
First common step in the international expansion
process for many manufacturing firms.
Later on could be switched to another business
model to serve the foreign market.
Strategies for Reaching Global Markets
Franchising
(the franchisor) with a good idea for a business sells
to (the franchisee) the rights to use the business
name and sell the product or service (the franchise)
in a given territory.
Different from licensing in allowing the use of an
entire concept including the label, how the good is
manufactured, and the look and feel of the business
(in a prescribed manner).
Franchisors, have to be careful to adapt their product
or service to the countries they serve (Product
adaptation)
 Examples of Product Adaptation
Coca-Cola Hi C Soy milk in Hong Kong
Colgate spicy toothpaste in Middle East
McDonald:
In Japan, the character called; Ronald Mc
Donald
In France, menu adjustment, wine
In Germany, menu adjustment, Beer
 Strategies for Reaching Global Markets

Contract Manufacturing
One company produces goods carrying another
countrys company label.
Also known as Outsourcing
Enables a company to test new market without heavy
start-up costs
Major disadvantage: intellectual property and copyright
laws are different in every country
 Strategies for Reaching Global Markets

International Joint Ventures and Strategic

Alliance
A partnership in which two or more companies
undertake a major project.
Benefits
Shared technology, marketing expertise, risk,
market entry cost
Greenfield investment could be an alternative.
company will enter into a country and build factories
and offices on its own.
Strategic alliance. Two companies work together to
achieve competitive market advantage.
Strategic Alliances e.g.

Toyota General Motors

New United Motor Manufacturing, Inc.

NUMMI

Chevrolet Nova
&
Toyota Tercel

This offers
The quality engineering of Japanese cars with
The marketing expertise & market access of General Motors
 Strategies for Reaching Global Markets

Foreign Direct Investment

Is the buying of permanent property and
businesses in foreign nations.
Foreign subsidiary.
A company that is owned in a foreign country by the
home company.
The parent company is committing a large amount
of funds and technology within foreign boundaries.
If relations with the host country falter, the firms
assets could be taken over by the foreign
government, whats called Expropriation
 Strategies for Reaching Global Markets

Foreign Direct Investment

Multinational corporation:
Is an organization that manufacturers and markets
products in many different countries; it has
multinational stockownership and multinational
management.
Forces Affecting Trade in Global Markets

Whatever the operating strategy

and the business entry model, it is
important to be aware of key
market forces that affect a
businesses ability to trade in global
markets
Forces Affecting Trade in Global Markets
Socio-cultural Forces
Culture: values, beliefs, rules.
Ethnocentricity. Attitude that ones own culture is superior to all
others
Language
Non-verbal
Religion: most important of socio-cultural forces
* Human resource management: employee training on culture
differences.
* Communication:
Global marketing strategies
Think global, act local.
Forces Affecting Trade in Global Markets

Economic and Financial Forces

Exchange rate. (stable, devaluation)
Bartering.
exchange of merchandise for other merchandise or
service for service with no money involved.
the only possibility of trade in many developing
nations
Counter-trading
is a complex form of bartering in which several
countries may be involved. (20% of all global exchanges)
Forces Affecting Trade in Global Markets
Legal and Regulatory Forces
No central law in global markets

Physical and Environmental Forces

Technological constraint
The Future of Global Trade

Advanced communication
Changes in technology
Internet and advances in e-commerce
Causes of Companies Failure in the
global markets
1. Failure to get reliable information about the
new market.
2. Failure to take enough time to observe, absorb
and learn the new market.
3. Failure to define the target users.
4. Failure to adapt the product and the marketing
mix.
5. Failure to offer the adequate service.
6. Failure to find good strategic partner.
THANK YOU