n Chapter 6 International Trade

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Marketing Essentials
n Chapter 6 International Trade
Section 6.1 The Global Marketplace
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SECTION 6.1
The Global Marketplace
What You'll Learn

• The interdependence of nations
• The benefits of international trade
• Government involvement in international trade
• Balance of trade
• Trade barriers
• Trade agreements and alliances

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SECTION 6.1
The Global Marketplace
Why It's Important
The global marketplace makes all the people and
businesses in the world potential customers, as
well as potential employees or employers. Many
familiar products are produced by foreign-owned
companies that have operations in the United
States. In this chapter you will explore the key
concepts that govern international trade and help
create the global marketplace.
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SECTION 6.1
The Global Marketplace
Key Terms

• international trade
• imports
• exports
• absolute advantage
• comparative advantage
• balance of trade
• tariff

• quota
• embargo
• World Trade Organization (WTO)
• North American Free Trade Agreement (NAFTA)
• European Union (EU)

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SECTION 6.1
The Global Marketplace
Defining International Trade
International trade involves the exchange of
goods and services between nations. Imports are
goods and services purchased from other
countries. Conversely, exports are goods and
services sold to other countries. These exchanges
occur between businesses but are controlled by
the governments of the countries involved.
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SECTION 6.1
The Global Marketplace
Interdependence of Nations

• Most countries need to get some of their goods
  and services from other nations. This is called
  economic interdependence. There are two types of
  advantages in international trade
• absolute
• comparative

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SECTION 6.1
The Global Marketplace
Absolute Advantage
Absolute advantage occurs when a country has
special natural resources or talents that allow
it to produce an item at the lowest cost possible.

• Example China produces close to 80 percent of
  all the silk in the world, which gives them
  absolute advantage.

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SECTION 6.1
The Global Marketplace
Comparative Advantage
Comparative advantage is the value that a nation
gains by selling the goods that it produces most
efficiently.

• Example U.S. businesses have a comparative
  advantage in producing technology relatedgoods
  and services.

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SECTION 6.1
The Global Marketplace
Benefits of International Trade

• Consumers benefit from foreign competition that
  encourages the production of high-quality goods
  with lower prices.
• Producers can expand their businesses by
  conducting operations in other countries.
• Workers benefit from higher employment rates both
  at home and abroad.

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SECTION 6.1
The Global Marketplace
Government Involvement in International Trade
All nations control and monitor their trade with
foreign businesses. The U.S. government monitors
imports through the customs division of the U.S.
Treasury Department.
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SECTION 6.1
The Global Marketplace
Balance of Trade
Balance of trade is the difference in value
between a nation's exports and imports. A trade
surplus occurs when a nation exports more than it
imports. A trade deficit occurs when a nation
imports more than it exports.
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SECTION 6.1
The Global Marketplace
Trade Deficit
The U.S. trade gap in August 2000 was 29
billion. One effect of a trade deficit is a
weaker dollar. Should that help or hurt U.S.
exporters? Why?
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SECTION 6.1
The Global Marketplace
Trade Barriers
A nation's government may impose trade barriers
or restrictions when it wants to limit trade.
There are three main types of trade barriers

• tariffs
• quotas
• embargoes

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SECTION 6.1
The Global Marketplace
Tariffs
A tariff (sometimes called a duty) is a tax on
imports. Tariffs may be used to produce revenue
for a country. Another type of tariff is a
protective tariff, which is generally high. Its
purpose is to increase the price of imported
goods so that domestic products can compete with
them.
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SECTION 6.1
The Global Marketplace
Quotas
An import quota limits either the quantity or
monetary value of a product that may be imported.

• Example Japan placed a quota on its auto
  exports to the U.S. to improve trade relations.

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SECTION 6.1
The Global Marketplace
Embargoes
An embargo is a total ban on specific goods
coming into and leaving a country. Embargoes are
usually used for political reasons.

• Example The United Nations imposed an embargo
  on Iraq during the Persian Gulf War.

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SECTION 6.1
The Global Marketplace
Trade Agreements and Alliances
Governments make agreements with each other to
set up trade alliances that establish guidelines
for international trade. Some alliances in the
interest of worldwide free trade are

• World Trade Organization
• North American Free Trade Agreement
• European Union

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SECTION 6.1
The Global Marketplace
World Trade Organization (WTO)
The WTO is a global coalition of 135 governments
that makes the rules governing international
trade. The WTO was formed in 1995 as the
successor to the General Agreement on Tariffs and
Trade (GATT).
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SECTION 6.1
The Global Marketplace
North American Free Trade Agreement (NAFTA)
NAFTA is an international trade agreement among
the United States, Canada, and Mexico. It went
into effect on January 1, 1994.
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SECTION 6.1
The Global Marketplace
European Union (EU)
The EU is Europe's trading bloc. It was
established by the Maastricht Treaty, which
called not only for free trade among member
nations, but also for a single European currency
and a central European bank.
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SECTION 6.1
The Global Marketplace
International Trade Agreements and Alliances
Depicted on this map are two major trading blocks
or marketsNAFTA and the EU. How do these trade
alliances foster free trade?
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6.1
Graphic Organizer
How Exchange Rates Affect the Balance of Trade
WeakCurrency
More Exports
FavorableBalanceof Trade
Strong Currency
Fewer Exports
NegativeBalance of Trade
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Marketing Essentials
End of Section 6.1
24
Marketing Essentials
n Chapter 6 International Trade
Section 6.2 International Business
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SECTION 6.2
International Business
What You'll Learn

• How businesses can get involved in international
  trade
• The standard business practices involved in
  importing and exporting
• The cultural, economic, and political factors
  that should be considered when deciding whether
  to do business abroad

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SECTION 6.2
International Business
Why It's Important
Doing business in a foreign country can be very
different than doing business in the United
States. Besides language barriers, there are many
other factors that must be considered in
international business. Costly problems may arise
without this understanding.
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SECTION 6.2
International Business
Key Terms

• customs brokers
• freight forwarders
• multinationals
• mini-nationals
• joint ventures
• nationalize

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SECTION 6.2
International Business
Business Involvement in International Trade

• While governments make trade agreements, it is
  businesses that actually trade with one another.
  There are three basic means of getting involved
  in international trade
• importing
• exporting
• setting up shop abroad

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SECTION 6.2
International Business
Imports
Imports are subject to the requirements of the
U.S. Customs service, as well as domestic
standards such as those imposed by the Food and
Drug Administration. Businesses often hire
customs brokers, licensed specialists who know
the laws, procedures, and tariffs required for
importation.
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SECTION 6.2
International Business
Exports
Other nations have similar means of controlling
and documenting imports. U.S. businesses must
follow certain rules when exporting their goods.
Most businesses hire international freight
forwarders licensed by the U.S. Maritime
Commission to handle export details.
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SECTION 6.2
International Business
Setting Up Shop in a Foreign Country
Multinationals are large corporations that have
operations in several countries. Mini-nationals
are midsize and smaller companies that have
operations in foreign countries. Joint ventures
are partnerships with domestic companies in other
countries.
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SECTION 6.2
International Business
Largest Global Public Corporations
All these companies have operations in many
countries. How many of these companies do you
recognize?
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SECTION 6.2
International Business
Special Considerations in International Business

• Businesspeople must keep in mind special
  considerations when doing business abroad
• cultural factors
• economic factors
• political and legal factors
• technical factors

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SECTION 6.2
International Business
Cultural Factors
Differences in language and culture make
international trade more challenging than doing
business at home. What is common practice in one
country may take on a different meaning elsewhere.

• Example Gift giving is considered part of
  business etiquette in the Asia, but may seem like
  an illegal bribe in the U.S.

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SECTION 6.2
International Business
Economic Factors
Consider the following key economic factors when
doing business in another country

• infrastructure
• cost and quality of labor
• taxes
• standard of living

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SECTION 6.2
International Business
Political and Legal Factors
A government's stability is an important factor
when considering international business
operations. When a country nationalizes private
property, the government takes ownership, and the
owners generally get nothing in return. Bolivia,
for example, nationalized all of its businesses
in the early 1950s.
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SECTION 6.2
International Business
Technological Factors
Technology is changing the ways that businesses
can get involved in international trade.
Companies of all sizes can create Web sites and
begin doing business abroad through e-commerce.
When studying a country's technology, you need to
look at the use of computers, faxes, voice mail,
cellular phones, and the Internet.
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SECTION 6.2
International Business
U.S. Contracts with China
U.S. companies have been cutting down on their
investments in China. With China being one of the
largest potential markets in the world, why do
you think companies are reluctant to invest?
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SECTION 6.2
International Business
Household Technology
As you can see by this graph, not many homes in
China have standard telephones. One reason is
because China doesn't have adequate
infrastructure, which makes the cost of telephone
service very high. What type of phone is selling
like hotcakes in China because of this? Do you
think it would be worthwhile for the Chinese
government to install traditional telephone lines
throughout China?
Households in China
Television
89
Radio
57
Telephone
25
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SECTION 6.2
International Business
Customization vs. Globalization
When marketing products in foreign countries,
companies must make product and promotion
decisions. Customization means creating
completely new products for specific
countries. Globalization occurs when a company
does not change anything about its product or
promotion. Product Adaptation is changing a
product to make it more appropriate for a
country's preferences. Promotion Adaptation
involves changing the promotion to meet foreign
customers' way of thinking.
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Marketing Essentials
End of Section 6.2