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    Nickels McHugh - Understanding Business-57-87

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    18. Meuthia Maharani Rahman

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    DOING Diemie: _ GLOBAL LEARNING. goals Evalate the forces that affect ‘acing in global markets, eat te sratages and jsadvantages of protectionism. = Discussthechanginglandscape © ofthe global market and the Issue of offshore autsourcing. eh popation of more han 3 billon pel, China fas the words aget rele mare yf Howe, ruc ofthe meda content especaly telewser, remains feotole by sate auth Succedig such an er ronment means wang tet ine between what ines. Ing the abnce ane whats aceptadiet the goverment "ag Lan Oar’ gest eeson personaly stony mana to fours n auch 8 restive nea ut 0 Ue aces ta bul massive mistineia emi no wonder why mang have dubed her the Chinese. Oprah Wie Si even hat Bld cin men be an unceetate: ment Oats daly average of7 millon vewers seen motes Cexpared tothe 200 millon viewers that tune nt each of Uns es The douehter of weatny communist twchnlogy engines: and an English erature peoessor Lan studied Engisn Boling Frlen Sts Unies. Aer ea lege se rst appeared on TV seacoast onthe herg0 Naraty Show in 990. wth few otber opens aualabe to {he Chinese viewing aulencs the show traces en mene folowing that Image Lan a nousehoa name, Bu sucess nthe Pe reeteet SIERRAS te noe che ‘qt the show and ened ot Clima Uist in New “or stg neretos| ars ‘Ar grauate schol, Lan wen back to Chinese se sion with Yang Lan Horan ate eid Yang Lan (One on ve Lansley wth English andthe Ney prtesioal sve of ‘me progam ew a number eer ‘ign guess, cidng 8 and lary Cio, former Beis Prime Manse Tony Bla and Kote Bojan The showalsomade Liane a te mex reccenzable eda personas Ca, sr passed ony yeti Sper Stars ke Yao Ming and Jace Can, “he lte 905 und Lan usre herring eda out t pt hase varous pokctons rasta chee angunge| sates en te cy Seng ret. She fae, were 2000 ‘eth the unc ae on ton ‘ate, Sin TV. Ge ars power rand ane mag, ecto feed to the projec antag aretier neta be sucez torneo caste The ony orb (ina cous wath te netvore th hare tse In He Hor. Sun V was tanned fo ainana ctl rete amg aires soy in Xury hoe Ln event sls te staton 2003, igh Sun TV fale ithe ar, Lan Bourne back sc her eeprenea tens nunbee ‘of other area. Her Sun Meda Group Tow. produces. other teeison Tne and jewelry brand prt- esp wth ene Dn. ‘Aslancontinvesto9.sh the baundies of Oatese red, cashes betwen ter rrp and the tates restricr ‘ors seem unstable. Fr istara, a ee goverment suspended publi of one of ‘ed ark Ln tthe pape down ene in esporse. AS torte tre, Lan conte tat the gon of te Cinese ‘dil every aot 3 ore oan gress. “We se moe ane moron that ule opin wi ve pu pale and five the pvenmens tobe more ansparent naepen. Swe Se theprogesofreacem of spac salgLan. "it ake [Caste grog pase ewe sacle" ‘Yang Lan prine example ofan eveging gal ousnesperion She ha lenne to speak ere guages, understands cultural an econame areca a is wel schooled in tecinloy. This chapter expan the sppertnies ena changes busiesspeople tke Yang Lan {Bee eer ey In ning win Ee mami nvonment ‘gota buses ce ath ea Ve Sg pcr oe hn os ‘ov nen WS Coe 2 Exot,“ pt Yegun spores Tee ph eh, 208 ‘ne Huston Rockets ‘and the Now Jersey ew Guangzhou Internationa! Sports ‘game 2010. The NBA now aay games in round the wor nat eur fctors ‘must US. sports Ironehizes overcome to Therese poponty @e We franchise 37,000 of our KFC Teo Bel, and Pizza Hut restaurants in 109 countries oround the world Iai take us lng to learn that customers around the globe have vey diferent tastes when it comes f thelr ood. We found fn LJgpan that a fovorte pze enjoyed by our patrons was topped with squid and “weet mayonnoise. In Chin its @ must fo seve a “aragon twister” with our worlé-fomous chicken. Nome our company. (Find the answer inthe chapter) Learnine goal 1 Discus the importance ofthe global market and the roles of comparative ‘vantage nd absolute advantage n global trade. THE DYNAMIC GLOBAL MARKET Have you dreamed of traveling to cites lke Pais, London, Rio de Janeiro, or Meccow? Today, over 90 percent of the companies doing business globally below i important for their employees to have experience working in other counties! The reason Is not surprising ~ although the Unite States isa mat Ket of oer 310 milion people, there are over 69 billion potential customers i [Eee the 194 countries that make up the global market? That's too many’ people to ignore! (See Figure 3.1 fora map of the workl and important satstics about work! population ) “Today U.S, consumers buy bilions of dollars’ worth of gonds from Chis United Parcel Service (UPS) has experienced doubledlgit market growth in ts ‘lobal operations and Walmart x planning to expand ino Africa* Major League Baseball opened is 2008 season in Japan and the National Basketball Associaton (NBA) and the National Football League (NFL) play games i Mexico, aly Ehpland and elsewhere. Chinexe-born Yao Ming formey ofthe NBA Houston Rockets was a T-time NBA AllStar and Paul Gasol of Spain belped the L.A Lakers win championships in 2009-2010 US. film stars Johnny Depp, Will ‘Smith, and Julia Roberts draw erosds vo movie theaters around the glabe* Because the global market i so large, Its Important 1o understand the language used in global trade. For example, importing is buying predicts from another country. Exporting fs sling products to another county. AS you might suspect, competition among exporting nations is intense. The United States is the largest importing nation i the wold nd i the third ars ‘st exporting nation, behind China and Germany* ‘This chapter will familiarize you with global business and sts many challenges. AS competition in global markets Inonsifies, the demand for st ‘ents with traning in global business i almost certain to grows Ifyou choose Such'a career, prepare yourself to work hard and always be ready for new challenges. WHY TRADE WITH OTHER NATIONS? No nation, not even a technologically advanced one, can produce ll the prod: ucts its people want and need, Even if a caumtry did bocome slfsuficient other nations would seck 1o trade with it 19 meet the needs oftheir own poo ple. Some nations, like Venervela and Russia, have an abundance of natal Fesources but linited technological know-loss Other counties, such we Japan and Switzerland, have sophisticated technology but few natural resources, Global trade enablos nation to produce what tis most capable of producing and buy shat it needs from others in a mutually beneficial exchange relation ship. This happens through the precess calle free trade figure 3.1 pre dct tom ony exporting Sargon ros. + the gebalmariet contains over 68 bition potenti cistomer for goods and serves, ‘+ rosutvty grows enen countries proauce goods Sn sels in when they have scomporatve ‘vantage, “+ Global competion anales-contyinparte ip prices dun s0intaten docs not eral economic frown ‘+ Free rade inspires inoaton for new roves ‘nd beeps rs compeitvel hanged 1 Uninterrupted ow of apa gives countries fazces to fereign mestment wich help Keep Domestic workers (partubtin manufacturing based bs can lve ther ats due to nefeaea Inger prsuctn shi low wags gb Workers may b forced to accopt pay cuts om Ealoyers who can treater ta move theta tolover-cst global markets. oun operation overseas pecause of rence fompettive pressure ten means he ssf Senice |Rbsend powngrumbers of ite-cotor eb. Domestic compares can se ther conparathe advantage when conpettors bul advanced figure 3.2 ‘Ble or co eee toe aoa Spc pont or esto emer ety Drodtoneneation low-wage eountre Free trade isthe movement of goods nd services among nations without political or economic bariers. It has become a hotly debated concept fact, "any in the United States take the position fur trade not fre trade," Figure 322ollers some othe pros and cons af ree trade, ‘The Theories of Comparative and Absolute Advantage Countries exchange more than goods and services, however, They also fechange art, sports, cultural events, medical advances, space exploration, nd labor: Comparative advantage theory, suggested in he eatly 19th century bby English economist David Ricardo, as the guiding principle that supported the ide of free economic exchange. Comparative advantage theory sates that a country should sll to ther counties those products it produces most ellectvely and efficiently, and buy from other countries those products i cannot produce as effectively or eff ciently. The United States has a comparative advantage in producing goods and services, such as software and engineering services. In contrast, i lacks a Comparative advantage in growing cofee oF making shoes this, we import most of the shoes and coffee ee consume. By specializing and trading, the United Stayes and its trading. parmers can realize mutually beneficial ‘exchanges A country has an absolute advantage iit has a monopoly on producing a specie product of is able to produce it more elfilently than all other coun tres, However, absolute advantage ip natural resources does not last forever; for instance, South Alrca once had an absolute ackantage in diamond pro ‘duction, but that is no longer the ease. Global competition also causes other absolute advantages o fade. Today there are very few instances of absolute ‘advantage in global markets, tearnine goal 2 Explain the importance of importing and exporting and understand key terms used ingot business. GETTING INVOLVED IN GLOBAL TRADE People intrested in a job in global business often think they are limited to firms lke Bocing, Caterpillar, or IBM, which have large_mukination accounts: However, real global job potential may be with small businesses, In the United States, only 1 percent ofthe 29 million small businesses export set they account for about 30 percent of the total US, exports, Presiden! Obama wants small businesses 1 think big and help double exports by 2015, With the support of the U.S. Department of Commerce, is expected that almost half of these businesses will become inelved in global tade." ‘Getting started globally is often a matter of observing, being determined, and taking risks. For example, several years ago a US, traveler in an African Country noticed there was no ie available for drinks or Tor keeping foods fresh. Research showed there was no ie factory for hundreds of miles, yet the market soemed huge. The man retired to the United Slates, found some investors, and returned to Africa to build an ice-making plant, The Job was ‘ough: mach negotiation was necessary with local authorities (nuuch of hich ‘was done by local etizens and businesspeople who knew the system), Bat the plant vas built, an this forward-chinking eteepreneut gained a considerable return on his idea, while the people gained a needed product The nearby Spoilight on Small Business box highlights how small nonprofit business hopes to ring better sight to the word Importing Goods and Services Students altending colleges and universities nbrosd often notice that some products widely available in their countries are unavailable or more expen= Sive elsewhere. By working with producers in tir naive county, tnd some star-up financing, and patting in long hous of hard work, many have become major importers while sill n schoo Howard Schultz, CEO of Sarbuck, found his opportunity while traveling in Maly. Schultz was enthralled with the ambience, the aos and especially the sense of community in the 200,000 Talian neighborkood. cole and espresso bars that stretched across the country He felt sich gathering places ‘would be great in the United States, Schultz bought the orginal Starbucks coffee shop in Seattle and transformed i¢ acording to his vision.* Because the Italian coffe bars caught his attention, U.S. cllee lovers now know what a grande late Exporting Goods and Services Who would think U.S. fiems could sell beer in Germany, home of so many good beers? Wel round the comer from a famous beer hall in Munich you can buy Sainuel Adams Boston Lager 1 this surprises you, imagine salling sand in the “Middle Fast. Meridan Group exports a special Kin ‘of sand used in swimming pool filters that sells well there The facts, you can sel just about any good or service sed inthe United States to. other Countries and sometimes the competition is not neal so intense as its at home. For example, you fan sell snowplows to Saudi Arabians, who Use them to clear sand off their driveways, In China, Things may not nave Sorted off prety” for Ugly Data entre Tounced eimosty ‘eedent but the ‘we -person company has grown noo gle reavets in over 1000 Fores oround the Col hove been fined by book, colencars sxtionngures, and Tshirts Does o concer Inexporting or Importing sound ‘ppecing to you? SPOTLIGHT ON SMALL business a Small Business with a Big Vislo when eptometst Jordan Kassolow made an aié tp to stimulating the aca ecna. So far VisonSping hs sl Nevo, he lemed fsthane haw te eck af les aetted_ 600,000 pais of ase redng gases in seven cours. the cl wore, "Losg eyesight a slene robber eco» Vion sil operates at a Iss, hoes making ran act” sal Kesalow “Hundreds of los of poor chrtale dont 2 necessary part of the companys el lee the load toe prime working years” income. Kaslow smaking ties toward potatos ossalow wanted to help the people he met but he VsonSpring recently opened ts fst store that sels her it ke the eof eying sey on donatlons 0 achieve pled presezton gasses in El Savader A pa of pre his pate So Koslow ar prter andes soning 2 Srpton gasses yes about $4.50 In prof. nc » 8 busess that f part ehanty and pare smal rancisot de® ee to Kasao' local salespeople. The soe mate Kass employs monty worenpeedng addon Income money nits rt yar of peat pute Kssaw ae step to vavel rand ther vages sling gases The woren boy coset fs de ofa sustanabe, rarket-ven stun ses at cost rom Venspng fr 6250 a par ane then fr velo problms nthe devenig wor Sel tem for €4t $7 apece. Ths way Ktzalowf nok OnY Soy Hen ar anton Oey Te Vion The Ere hing sNe those who need TE mont, bt fe lsd Hace aodr a how an Nerf res Pr 20 sales of menis cosmetic product is growing at wie the rate of women's veto {heir desire to project af image of success" Exporting sso proves terrific ‘boost tothe U.S. economy: C. Fred Hergsten, director ofthe Peterson Insitute for international Economics, sates that U.S. exports of SL trillion goods and services create approximately 10 milion wellpaid obs in our economy: He lls estimates that every $1 bilion in adlitional U.S. exports generates over 7000 jobs at home.” Hut selling in glosal markets and adapuing products to label customers are by no means easy tasks, We discuss key forces that affect, lob trading ater in this chapter Ifyou ate interested in exporting, send for “The Basic Gude to Exporting.” ‘brochure from the U.S. Government Printing Office, Superintendent of Documents, Washington, DC 20102, More advice is avalable at websites such ts those sponsored by the U.S Department of Commerce (wwwdoe gov), the baton Bureau of Export Administration (wwwbea gov), the Small. Business Theted vale Tanstens Administration (wwwsba. gov), and the Small Business Exporters Assocation Weemecten, Grruaboo reaps Measuring Global Trade rade auras Tn measuring global trade, nations rely on two key indicators: balance of trade Nawrabessintf nl balance of payments. The balance of trade isthe total vate of a nations a reer mare exports compared to ft imports measured over a particular period, A favor Shscrsereeigt=) able balance of trade, or trade surplus, oceurs when the vale ofa countrys exports exceeds tha of ts imports An unfavorable halanceof trade, or trade deficit, occurs when the value of a coxntry’s export less chan its imports. [teat tanceot Ws easy to understand why countries prefer to export more than they import. icleeuaherthe. | TETsell you $200 worth of goods and buy only $100 worth, Ihave an extra $100, ‘ieaceumtvemperts available to buy other things. Henever, 'm mn an unfavorable postion iT buy ‘seceisinatofRseWots $290 worth of goods from you and sll you only $100, “ leper pasts Irom china-ond so foes the rest of the ‘0 percent o he oye ‘manufactured nthe Sori. The highest U.S. Trade def with China. et products fio you use tho re |, Import rom china? ani noe ‘The balance of payments isthe diference between money coming ito & country (rom exports) and money lesving the couniry (for imports) plus Patageattapments, money owt coming into orleaving «county fom other factors sch as tour taney conn es fm, foreign aid, military expendivares, and foreign investment. The goal ito. Saat em expr ng have more money Rowing into the country than out-—a favorable balance of MEH smmaste country payments. Conversely, an unfavorable balance of payments exists when more poner meg, money is Rowing out ofa country than coming in hate re a Ta the past, the United States exported more goods and services than it ily genus rd (ean etna. imported. However, since 1975 it has baught more goods from other nations than it has sold ancl thus has a trade deficit." Over the pat eve years, the United States ran its highest irae deficits with China.” Stil the United States remains one of the worlds largest exporting nations even though the US. exports a mich lower percentage of its products than other counties, sach 28 (Cina, Japan and Germany. Improving that percentage by expanding exports {a goal the US hopes o achieve by 2015.” (Figure 3.3 lists the malor trading countries in the world an Ue leading U.S. ering partners) figure 3.3 op US. Tracing Partners Worlds Largest exporting Nations na \cnaea Gees Senco ston a nce 3 oermery South Koes oun Nether Bance $65 ana Stowan Sl Unteakngaom 10. raat 599 gumpine unt tue one an ‘hove rgd nit otueng sun finite te comeoy Oe oem feetnrvani In supporting free trade, the United States, like other nations, wants 19 make certain plobal trade is conducted fairly, To ensure a level playing Geld, countries prohibit unfair practices such as dumping. Dumping is selling prodhicts in foreign country at lower prices than those charged in the pro- ‘country. This predatory pricing taetic is somedmes used to reduce surplus products in foreign markets oto gain a foothold in a new marke. ‘Some governments may afer Financial incentives to certain industries ose goad in global markets for less than they sell them at home. China, Brazil, find Russia, for example, have been penalized for dumping steel in the United States." U.S. laws against dumping are specific and require foreign Firms to price cheir products to include 10 percent overhead costs plus an B percent profit margin. ‘Now that you understand some ofthe basi terms use in global business, sve can look a different strategies for entering global markets. First les assess your progress sofa: progress assessment + What are two ofthe main arguments favoring the expansion of US. businesses into global markets? + Whats comparative avantage, and wnat are some examples ofthis, concept at work In global markets? + How ate a nations balance of trade and balance of payments determined? + What meant by the term dumping in global trade? tearnine ZOal 3 Iiustrate the strateges used in reaching global markets and explain the ‘ole of multinational corporations. STRATEGIES FOR REACHING GLOBAL MARKETS Businesses use diferent strategies to compet global markets. The key trate fee include leensing. exporting Iraachising, contract manufacturing interna ional joint ventares and strategic allances, foreign subsidiaries, and foreign lire investment. Each provides different ezonomie opportunites, along with ‘Specie commitments and sks. Figure 34 places the srategies on continaum, showing the amount of commitment, contol isk, and profit potential assoc ted with each Take a few minutes to look over Figure 3.4 before You continue Licensing [A firm (the licensor) may decide to compete i a global markot by Heensting the right to manufacture its product or use is trademark to a foreign company (the leense) fora fe (a royalty). Acompany with an interest fn eens gem tery ends company representatives tothe Foeign company to help set up ‘operations, The licensor may also assist of work weith a Tleensee in such aneas ‘as dsiibution, promotion, and consulting. ‘A licensing agreement can beneic im in several ways. First, the firm ‘an gain revenues it would not otherwise have generate in its home market ‘Also, foreign licensees often must porchase star-up supplies, materials, and j —|—|—| =| |= | oe eee figure 3.4 | consiting services from the licensing firm, Coca Cola has entered into global syaareaesrorRek@we > licensing agreements with over 300 cersces tha have extended ino long. Socket term gence contracts that sal over blon othe companys products eh year" Sericedbased companies are also active in hcensng, For example ‘ines Federico Wallywood resenly emered nto Wossng sparred ! With Emirates Associated Business Group to bud and operate Fredericks of Hollywood stores inthe Mile East ‘final advantage of licensing is that licensors spend litle or no money to produce and market their products, These costs come from the licensee's pocket. Therefore, Hensees generally work hard to succeed. However, licen | ‘ors may also experience problems, Often a frm mist grant licensing rights to its product for an extended period, 20 years or longer. I a product experiences remarkable growth inthe foreign market, the bulk of the revenues belong to the licensee, Perhaps even more threatening is thatthe licensing fim i atu | ally selling its expertise. If foreign licensee learns the company’ technol orproduct secrets, it may break the agreement and begin to produce a similar product on its ow, If egal remedies are not available, the licensing fr may lose its wade secrets, not to mention promised royalties, Licensed hundreds of cenpanie ile Serie fh fim bored ‘nthe best-eting ary roter book, Craps ne zene ‘ftangvoges De you young readers ond Tied of studying and How abot 0 piping het "nzzo Mut pz with mayonnaise? Par Hut to ferent tates, ow cn rncises ‘ore opproprite er slot markets? contract mamaactorng re ‘eg ‘rostono pate sl ecrownnasoncte Saranac are a Exporting ‘To meet increasing global competition, the US. Department of Commerce ere- ated Export Assistance Centers (EAC). EACs provide hands-on exporting ‘assistance and trade-finance support for small and medium-sized businesses that wish co directly export goods and services. An EAC network exists in mare than 109 U.S, cities and 40 countries, with further expansion planned 2* 'US. firms tha are still hesitant can engage in indirect exporting through specialists called exporttrading companies (or export-management compa nies) that sesist in negotiating and establishing trading relationships. An export-trading company nol only matches buyers and sellers from different countries but also deals with foreign customs offices, documentation, and even weights and measures conversions to ease te process of entering global markets Ie also can assist exporters with warehousing, billing, and insuring. IE you are considering @ career in global business, export-rading companies ‘often provide internships or part-time opportunities for students Franchising Franchising is contractual agreement whereby someone witha good idea for a business sells others the rights to use the business name and sell a prick, for sevice ina given territory ina specified manner Franchising i poplar domestically and internation: ally (We discune tin depth in Chapter 5) Major US. franchisors such as Sub, Holiday In, and Dunkin! Donuts have many global nits operated by Foreign franchineen, but global franchising iat limited to large franchisors. For example, Rocky Mountain ‘Chocolate Factory Colorado-based producor of pre inlum chocolates, has franchising agreements with the Al Muhsiry Group of the United Arab Emirates, \where chocolate fs considered a gourmet usury much like caviar in the United States" Foren franchisors ‘ako may Took to expand to the US. market ietnamese entrepreneut Ly Oui Trung hopesto into duce his Pho24 franchises tothe US, by 2012. Franchisors have to be careful t adapt their product or service tothe countries they serve. Yum Brands has 37,000 ofits KFC, Taco Bel, and Pizza Hic restaurants in 109 countries around the work. They leamed quickly that preferences in pizza top. pings differ plohally. Japanese customers, for exam- ple, enjoy squid and sweet mayonnaise pizza. Inthe ‘Company's KFC restaurants ia China, the menu is chicken with Sichuan spicy sauce and rice, exe soup, fand a “dragon twister” (KFCS version of tah Tonal Belfing duck wrap)" Read the nearby [Reaching Reyond Our Borders box that highlights another Franchise cham- pion, MeDonalds Contract Manufacturing In contract manufaturing foreign company produees private-label goods to which a domestic company then alaches is own brand name or trademark, For example, contract manifacturers make circuit hoards and components our borders For decates the undsouted ng of plobal od franchise as been MeDona wth meee than 32000 restaurants 1 counties Mckey Ds serves mere than 60min esto cs eery dy ‘5 how dé MeDena’s become sich 8 lb power house? te certay dwt ge therethrough hamburgers sloe, since it st began expaneng eeress, McDonald's has been carl to nude epnal tates ons menus one th the sia Bg Mac and French tes. Fer tan, “halla pasos cn oder te Smal Brera pitty Sandwich marinated Intra sauce ad opp wn may ‘ontase a e lle. I fh sore your taste, ty Norway salon burger ealed the McLaks,o the Ebi Fl-o simp ‘Sci tem Japan, McDorales & aso caret to adapt ts mens to lca customs and cute nel af met seve nthe chains restaurants 100 percent kasher beet. The crpany also loses many of fs rstaranes onthe Sabbath an els halla. MeDonll’s pays respect 0 retgusserinete in Ina 2 wel by not ing ay Bete pork an Re men the varaus MeDona Inematina ranches webstes, Note now te company Dds the etre ofeach county bes the restaurants nage. eDenalds ma gobl market concern a alte nos been Chin. Sta MeDonals staeay seen tobe workin. In Shanghal the companys Hamburger Unters ates Tope cotege gates tobe trained for management ston. Only about elght out ef every 1000 appeants rakes I Ita the program, an aceptace rate even love than Hanan McDonat'ssa foun abot of pestis in Hong Korg witht o-aled Meare, Maton be el nthe ey, wth many youre people sving for yar oF De deeply nt bt to fd Lavish ceenonies that cost _sroun:2,000 rte averae couple, A MWe on the ther han, starts at 1280 ae neds drinks ane fod fo 50 peop sore with aft and tations. Te aordte wean package even comes wth a "ake" made out of ‘ako! MeDonai sinatire sale = ‘nthat rete MeDonals contest bate conto sles ovr the fat content of feod as wellas the safety oft production metog. 200, etn, te company nt {uted areal of ts proatiorl neo Sek Freer Aer sonar ater repets of cadnkimpesoning seed nthe nd on an ai hope hat Medan’ renin ected 0 ‘uly i¢conthues opting an expending nt the eb are, ‘etsy mCi Seon ny 25208 op er ng, Feonar 9 a Yop Masser anh doe Mean ates Gio pea 200 ane Meenas ener (om sets beh, 2 ‘sed in computers, printers, cell phones, medica products airplanes, and con- sumer electronies for companies sch at Dell, Xerox. and IBM. ‘Nike has ‘more than 700 contract factories around the world that manulactare al is footwear and apparel. The worldwide contract manufacturing business ses mated to bea $250 billion industry thats expected to grow to $225 billion by 2013.8 Contract manufacturing enables 2 company to experiment in new market Without incurring heavy starvup costs such as bullding 4 manufacturing plant Ti the brand name becomes a success, the company has penetrated a new mat et with relatively low risk. A firm can also use contract manufacturing Joint venture ormemcamgane tan itm cones) Jomisurdekes aor ree fey wt rorgnaten Sec aston ‘nos t entrants Sremermets hee Sprasieeen temporarily to meet an unexpected inerease in orders, and, of course, labor ‘cont are offen very lo: Contract manufacturing falls under the broad category ‘of outsourcing sshich we defined in Chapter tnd wil discuss in more depth Toten this chapter International Joint Ventures and Strategic Alliances Joint venture isa partnership in which two or more companies (tet from dlferent countries) join to undertake a major project. Joint ventures are olten| mandated by governments sich as China ss a condition of doing business in their county For example, Disney ard stat-owned Shanglal Shend Group ‘entered joint venture to create a Disneyland theme park in Shanghai that is ‘expected to open in 2015"! ‘font ventures are developed for many’ diferent reasons. Marviott International and AC Hotels in Spain entered a joint venture to create AC Hotes by Marriott to increase their global footprint and future growth, * PepsiCo agreed to.a joint venture with Tata Global Beverages of India to detelop packaged health and wellness beverages forthe mass consumer tar ket in India. Joint yertares can also be ray unique, sach a the University of Pittsburgh's Medical Center and the Halian governments joint venture that brought a neve medical transplant center to Sill. The transplant center in Palermo called ISMETT recently colebratd its iteenth year of operation.” The benclts of international joint ventures are clear 1. Shared technology and risk 2. Shared matketing and management expertise Entry into markets where foreign companies are often not allowed ‘unless goods are produced locals. “The drawbacks of joint ventures are not so obvious bu are important. One partner can learn the other's technology and business practices and then use ‘what it has learned to its own advantage. Also, a shared technology may ‘become obsolete, or the jin! venture may become too large tobe as flexible as needed “The global market i also fueling the growth of statesc alliances. A strategie alliance Isa lonsterm partnership between two or more companies ‘Sstabllshed oelp cach company build competitive market advantages. Unlike joint ventures, strategic alliances dont share costs, risks, management, or even Profits, Such alliances provide broad access to markets, capital, and technical ‘expertise. Thanks to thelr lexibility strategc alliances cn effectively lnk firms from different counties and firms of vastly different sizes. Hewlet-Packard has strategie allinoes with Hitachi and Samaung and Coca-Cola and Neste ave hada aac since carly 1990 to diate read-tnk ta and caffe Foreign Direct Investment Foreign direct investment (FDI) isthe buying of permanent property and) bosinesses im foreign nations. The most common form of FDI is 8 foreign subsidiary, company owned in. foreign county by anesher company, called the parent company: The subsidiary operates lke comestie firm, with pro {uction, distsioution, promotion, pricing, and other busines functions under the contol of the subsidan’s management. The subsidiary also must observe the legal requirements of both the country where the parent firm is locate (called the home county) and the foreign country ‘whore the subsidiary is located (called the host cola ‘The primary advantage of a subsidiary is that the company maintains eomplote control over any technology or expertise it may possess, The major shortcoming fs the need to commit funds ana ech nology within foreign bounderes. Should relation ships with a host country falter, the Grr’ assets ould be expropriated (taken over by the foreign overnment) Swiss based Nestlé has many foreign Subsidiaries. The consumer products glant spent billions of dollars acquiring foreign subsidiaries such as Jenny Crag (weight management), Ralston Purina, Chef America (maker of Hot Pockets) and Dreyer Jee Cream in the United States as well a5 Porrier’in France, Nestlé employs over 280,000 ‘people and has operations in almost every country inthe world * ‘Nesilé isa multinational corporation, one that mntfactares and mar kets products in many different countries andl has multinational stock owner ship and management. Multinational corporations are typically extremely large corporations like Neste, but not all large global businesses are multina tionals. For example, a corporation could export everthing produces, det {ng 10 percent ofits sles and profits globally, and sll not bea multinational Corporation. Only firms that have manufacturing capacity or some oh pie ical presence in different nations can tly be called multinational. Figute 3.5 lists the 10 largest multinational corporations inthe world ‘One ofthe fastest-growing forms foreign direc Investment isthe use of sovereign wealth funds: (SWEs), investment funds controlled by govern= iments holding large stakes In foreign companies, SWEs front Kuwal Singapore, and China have purchased significant portions of US. companies such as Citigroup. The size of SWPs nnd government ownership make some fear they might be used for achieving geopolitical objectives, gaining control of strategie natural reourees, of obiaining sensitive technologies, SWE could also undermine the management of the companies in which they invest. fh ‘contrast, some experts see foreign investment through SWFs as vote of cone Fidence in the U.S. economy and a way to ereate thousands of U.S. obs. You can read more about SWFs in Chapter 18 ey ae 2 Roya tens Nether Secon 5. Bono UntedSttes enim a Brain from 5 Stepae Sina Shopacereup.con Ene Petlnim ina pecan 7 Sete ond rina ‘eescomen 6: tojts Motor stn topo Japan Post Holes Span Jeeempt \G.chewon Uneeasttes —— Shewoncom me Unites States hor Dopulor goba spot for forignarect, Investment. Glbol manufacturers ike Toyota, Honda, ond Mercedes have spent miins of ators buling fois ote Toyota pron Georgetown, Kentucky, Doyou conser Toyota mode in American cor or Jopenese cor? figure 3.5 Entering global business rogues selecting an entry strategy that bes fits your business goals. The different strategies weve discussed reflect different levels of ownership, financial commitment, and risk. However thsi ust Deginning, You should also be aware of market forces that affect a business bity to thrive in global markers, After the Progress Astessment, wel discuss them, Progress assessment + What are the advantages toa frm of using lcensing as 2 method of entry In global markets? What ae the dleaventages? + What services are usually prowed by an export-trading company? + Whatis the key ference between ajoin venture and a strategic allance? + What makes 3 company # multinational corporation? tearnine g0al 4 Evaluate the forces that affect trading in global markets FORCES AFFECTING TRADING IN GLOBAL MARKETS The hurdles to success are higher and more complex in elobal markets than in domestic markets. Sach hurdles include dealing with differences in sociocul tural forces, economic and financial forces, legal and regulatory forces, and physical and environmental forces, Les analyze each ofthese market forces to see hove they challenge even the most established and experienced global businesses, Sociocultural Forces The word culture refers to the set of values, bis rule, and institutions held bya specific group of people, Culture can include socil structures, religion, ‘manners and customs, values and atitdes, language, and personal Communi ‘ation. If you hope to get involved in global trade, is eriical to be aware of the cultural diferences among nations, Unfortunatly while the United States {sa multicultural nation, WS, businesspeople are often accused of efacen: ‘city, an atitude that your own culture is supertor to other cultures 4n contrast, many foreign companies are very good st adapting to US. culture, Think how effectively German, Japanese, and Korean carmakers ‘adapted to U.S. drives’ wants and needs in the at industry.” In contrast. or ‘many years US. auto producers didnt adapt automobiles to dive onthe left side of the road and printed owners manuals only in English. Liberia, “Myanmas, and the United States are the only nations in the word that have ‘ot conformed to the metric system of measurement, Lets look at other hr les U.S, businesses face in adapting to social and cultural differences in tlobal markets. Religion is an important part of any society’ cure and can have a sg nifeant impact on business operations. Consider the violent clashes between religious communities in India, Pakistan, and the Middle East clashes that have wounded these areas’ economies. Even successlil slobal companies sometimes ignore religious implications in making business decisions, For example, in honor of nations competing in the World Cup, both MeDotalds ‘and Coca-Cola decided to reprint the flags ofthe countries patielpating on ‘hele packaging. Muslims were offended by putting the Saal Arabian fag on their packaging because the flag’s design contains a passage from the Koran, and Muslims believe their holy weit should never be wadded up and thrown In another classic story, a U.S. manager in Islamic Pakistan toured a new plant under his control. While th plant was in fll operation, he went to his bffice 19 make some preliminary production forecasts, Suddenly ll the ‘machinery in the plank stopped, The manager rushed ou, suspecting a power failure, only to fine his production workers on their prayer gs. Upon learns Ing that Muslims are required to pray five times aday, he returned to his olice and lowered his production estinates. Understanding sociocultural differences is also important in managing employees In some Latin American countries, workers believe managers ate {in positions of authority to make decisions concerning the well being oF the workers under their control. Consider the U'S. manager in Peru who was unaware of this cultural characteristic and believed workers should parte Pate in managerial functions. He was convinced he could motivate his workers to higher levels of productivity by instituting a more democratie decision making syle. Workers instead began uittng in droves. When asked why, they said the new manager did ot know his job and was asking the workers what ‘odo, all stated they wanted wo ed new Js, sie this company sas doomed duet its incompetent management Many U.S, companies sl fail to dink globally, Even something ke the color of lowers can have diferent meanings in diferent cultures"™ A sound Philosophy is: Never assume what works in one county will work i onthe Intel, Nike, IBM, Apple, Honda, KFC, and Walmart have developed brand. names with widespread global appeal and recognition, but even they often face dificulies,To get an idea of the problems companies have faced with translations of advertising, take a look at Figure 3.6. Pepto atemped s Chinese transition of “ome Ale, Youte in the Peps Generation” tat read to Chinese custonars3¢ "Pepa ngs Your Ancestors Back rom the Ds ‘Coors Brewing company putts gan Turn it Lose" ine Spanish nd found it translated a5 "Sufle fam Darhea” Perdue Chicken used the slogan It Takes Strong Man to Make a Chicken Tender wich was interpreted in Spanish a" Takes on Arused Man to Mae a aeken etonate FCs patented slogan “Free Lc Goce” was understood Japanese 3s "Bie Your Fingers Of ‘On the ote seo the transiton teh, lett, Seannavien vacuum manufacture rie to Sel ts products nthe US market withthe Seger ‘Netting Sucks Uke 9 Becton figure 3.6 00rs, 0 WEEAY Tan? dete marketing ‘rau canbe very sical to plement. teak tthe potiems thee wel ino Companies encountered in soba marks, "foreign goods ‘ond travel oreo bargain for Us. concumers, When the lor trades for ese orci crrency, Ihowever orion tourist ie thes often eck toUS ces 0 nog relotvey cheaper vacation and shopping tips. 09 US. lxparters profit more non tne dolar up or ‘when tle down? SSngaetepomor Economic and Financial Forces eonomic differences can muddy the water in alobal markets Is hard for sto imagine buying ‘hewing gum by the stick. Yet tis behavior s com> ‘manplace in economically depressed nations Ike Hai where customers can alford only smal ttites, You might suspect with exer I billion people each, India and. China wold be dream markets for companies like Pepsi-Cola a Proct & Gamble (P&G). Unfortunately, Indians consume an average of three soft drinks per person a sear And China’ 1,3 billion customers spend just $3 per year on, P&G products due to low per-capita Mexicans shop with pesos, Chinese with yuan, South Koreans with won, Japanese sith yen, ad U.S, consumers with dolla Globally, the US. dollar is considered dominant and stable currency! However, it doosnt always retain the same market value. Ina global transac tion today a dollar may be exchange fr eight pesos tomorrow you may get seven. The exchange rate is the value of one nation’s currency relative to the ‘currencies of other countries, ‘Changes ina nations exchange raes have effects in global markets. A high ‘value ofthe dollar means a dolla is trading for more foreign currency that previously. Therefore, foreign products become cheaper beraise it takes fewer dollars to buy them. However. U.S-produced goods become more expensi because ofthe dollars high value. Conversely afow value ofthe dllar means 3 dollar is trade for les forcign eurrencs-forejan woods become more expen ‘Sive Because it takes more dollars to ba them, but LS. goods become c to foreign buyers because it takes les foreign currency to buy’ them, ‘Global financial markets operate under a system called floating exchange rates, which means that currencies “oa” in valve according to the supply and Aernand for thom inthe global market for currency. Ths supply an demand is created by global currency ders who develop a market fora nation’ cur rency based on the county's perceived trade and investment potential ‘Changes in currency values can case many problems globally" For Instance, labor costs lor multinational corporations like Nestle, General lectic, and Sony can vary considerably as currency values shift, causi them to jugale production from one county to another. The same i true for ‘medium sized companies ike H. B. Fuller of St.Paul, Minnesota, which has 3,100 employees in 38 countries, Like their larger counterparts, HB. Fuller learned 1 use currency fluctuations to thee advantage in dealing with thelr lobal markets. Curzency valuation problems can be espectally harsh on developing eoon- omies* At times nation’s government will intervene and readjust the value Of its currency, often to increase the export potential of its produc, Devaluation lowers the value of a nations currency relative to other Sometimes, due 1 a nations weak currency, the only way to trade is barteri, the exchange of merchandise for merchandise or service Tor service with no money traded. ‘Countertrading isa complex form of bartering in which several counties cach trade goods or services for other goods or services, Lets say developing ‘country such as Jamaica wants to buy vehicles rom Fort Motor Company in exchange for bauxite, a mineral compound that isa source of aluminum or, Ford does not nocd Jamaican bausite, but it does need compressors. In countertrade, Ford may trade vehicles to Jamaica, which «rades bauxite to another county, say India, which exchanges compressors with Ford. All three partis benefit and avoid some ofthe financial problems and currency con straints in global markets. Estimates are that countertrading accounts for over 20 percent ofall global exchanges, especialy with developing countries. Legal and Regulatory Forces Tn any economy, the conduet and the direction of business are firmly ted 10 the legal an regulatory environment. In global markets, no central system of law exists, so diferent systems of laws and regulations may apply in diferent places, This makes conducting global business difficult as businesspeople nat gate a sea of laws and regulations that are often inconsistent. Antitrust rules, Tabor relations, patents, copyrihts, trade practices, taxes, product Kabiliy, ‘hid labor, prison labor, and ether isues are governed dlferenty country By count US businesses must fllow U.S, lass and regulations in conducting bus- ‘ness globally although legislation such asthe Foreign Corrupt Practices Act of 1978 can create competitive disadvantages. This law prohibits “questionable? ‘or “dubious” payments to foreign officials to secure business contracts" That runs contrary to practies in many countries, where corporate or government bribery s not merely acceptable but perhaps the only way to secure lucrative contract. The Organization for Economie Cooperation and Development (OECD) and Transparency International have led a global effort to fight cor ruption and bribery in global business, with limited success. Figure 32 shows a partial lst of countries where bribery or other unethical business Practices re most commen, "The cooperation und sponsorship of lac businesspeople can help a com: ppany penetrate the market and deal with laws, regulations, and bureaucratic barriers in thelr country Physical and Environmental Forces Physical and environmental forces cetainly affect a company’ ability to con ‘duct global business. Some developing counties ave such primitive trans portation and storage systems that international distribution ts ineffective, if not impossible, especialy for perishable food, Add unclean water and lack of effective sewer systems, and you can see the intensity of the problen, ‘Technological differences also influence the features of exportable prod: ets. For example, residential electrical systems in most developing countries do not match those of U.S. homes, in kind or capacity, Computer ad Taernel tse in many developing countries is thin of nonexistent. These facts make for § {ough environment for business in general und for e-commerce in particule After the Progress Assessment, well explore how another fore, irate protec: Vionism, affects plobal business progress assessment ‘+ What are four major hurdles to successful global trade? ‘+ What does ethnocentricity mean, and how ean it affect global success? + How would alow value ofthe daiarafect US, exports? + What does the Foreign Corrupt Practices Act prohibit? figure 3.7 .sonaia 2. Myanmar 3 Afghanistan 4g 5. Ursekitan (6-Takonenstan 7-suaan Scnaa 9. rund 10-Argols mont of ea ances ‘Rte te nanoeot ponent Some workers beneve \ ‘at too mony US. obs hove boon lost det te growing numberof Imported products. Shouts governments protect ter induces by pocing tors on Imported pron? Why or wy net? uearwins goal 5 Debate the advantages and eisaevantages of trade protectionism. TRADE PROTECTIONISM [As we discussed in the previous section, sociocultural, economic and fina cial, legal and regulators, and physical and ensizonmental forces areal ch lenges to global trade, What is often a much greater barrier to global trad, however is trade protectionism. Trade proteetioniam is the use of govern ‘ont regulations to limit the import of goods and services. Advocates of pro- tectionism believe it allows domestic praducers to survive and grow, producing ‘more jobs. Other countries use protectionist measures because they are Wary Of foreign competition in general. To understand how protectionism affects tlohal business, les briefly review abit of global economic histor Business, economics, and politics have always been lonely. linked Beonomics was once referred toa polifical econom indicating the close ies bewoon polities (aovernment) and economics. Inthe 17th and 18th centuries, businesspeople and government leaders endorsed an economic policy called Imereantitsm "The idea was for a nation to sll more goods to other nations than it bought from them, that is, 19 have a favorable balance of trade According to mercantliss, this resuled i a Mow of money to the county that sold the most globally. The philosophy led governments to implement tari, {axes on imports, making imported geode more expensive 10 i “There are two kinds of tariffs: prowctive and revenue. Protective tarifs (ionport taxes) raise the retail price of imported products so that domestic goods are more competitively priced. These taifs are meant t0 save jobs for Somestic workers and keep indusrics—especially infant indusires that have ‘companies in the early stages of growth—from closing down because of fo flan competition. Revenue tars are designed to raise money for the government. ‘An Import quota limits the number of products in certain categories a nation can import. The United States has import ‘quotas on a numberof prodtets, including sugar and shrimp to protect U.S. companies and preserve jobs. Nations also prohibit the export of specific products, Antiterrorism laws and the US. Export Administation Aet of 1979 prohibit exporting. goods such as high-tech weapons that coald endanger national secu- iy. An embargo isa complete ban on the import or export of a contain product, or the stopping ofall rade with a particular country, Political disagreements have caused many countries to establish emlsargoes, such as the U.S. embargo against Cuba, in fect since 1962." ‘Nonstariff harriers are not as specific or formal as tail import quotas, and embargoes ut can be as detrimental to Fre trade, For example, India imposes a number of restretive stan dard like impor licensing, burdensome product vesting require ments, and lengthy customs procedures that inhibit the sale of Imported products China omits many American-made products From its government catalogs that specify what products may be purchased by ts huge goverment sect Other countries deta xa ow a Product must be sold in a country. South Korea ells almost 430,000 cary to the Unite States each ear bat ports fewer han 6000 dues noma bar fers sch asthe sizeof the engine" Hopsully a pending fice ade agrec- tbs nitration ment with South Korea will eliminate sich nontarff barriers and open the SReNecnesetting tmatkt to US. producers ence nee Would-be exporters might ew such trade barvers as good reasons to vd globo trde, but overcoming contains creates bsiness opportunites, Next, well lok at organizations and agreements that attempt eiminate Work a tends barrier Drranzen 0) | a ‘imran ‘The World Trade Organization ‘iim ara aes” | 1 1948, government leaders from 23 nations formed the General Agreement edits tase depts | ‘on Tarifs and Trade (GATT), global forum for reducing trade rsrictions | Svarerstane fon goods, services, ideas, and cultural programs 1 1986, the Uruguay Round of the GATT convened | 10 renegotiate trade aprooments. Aer eight years i fof meetings, 124 nations vole to lower aff an average of 38 pereent worldwide and to expand | new trade rules to areas such as agriculture, ser ees, and the protection of patents “The Uriguay Rouind also established the Word ‘Trade Organization (WTO) to mediate trade dis ‘ites among nations. The WTO, headguartered in Geneva, isan independent entity of 153 member fons whose purpose isto oversce cross-border trade issues and global business practices” Trade ates are presented by member nations with — Gecisions made within a yea, rather than laneish Wa a eh mee {ng for years as inthe past member nations can appeal a decision.” PSL e ‘The WTO has not solved al globe rade problems. Legal and regulatory dif- louse bulbets pu ferences (discussed above) often impede trade expansion. Alsoa wide gap pet their pow, bt hod to sists between developing mations (80 percent of the WTO membership) and sel them becoure the industrialized nations like the United States. The WTO meetings in Doha, Qatar, 0st fo maintain the ‘bum in 2001 to address dsmmanling protection of manufactured goods, elimi animes snow 00 nating subsidies on agricultural prodiets, and overturning temporary protec. igh Do you tink o ‘nist measures have sil not resulted in any significant agroements# eae egordng tori protection woul help Common Markets | here ‘An issue not resolved by the GATT othe WTO is whether common markets = creat egonal alinecs wt the expense of global expansion. Acemmon market {aso called a ding blo) ia regional group of countries witha common ‘external taf, no intemal aril, and coordinated las to Faciate XCM ceymay marae | ‘among members. The European Union (EU), Mercosur, the Association of Seyteugeapet | Southeast Asian Nations (ASEAN) Economic Community, and the Common outa hatha lark for Eastern and Southern Africa fare common markets. sone fo Markt ‘Southern Africa (COMESA) Smart ia “The EU began inthe late 1950s as.an alliance of six trading partners (hen "lta anda knownas the Common Marketandlater the European Economie Community). fenitecesegy es ‘Today its a group of 27 nations (see Figure 3.8) with a population of over Saleeatoany Bes An 500 million and a GDP of $16.4 uillion. France, Germany, Italy, the San@elsbe Ereoem Netherlands, Poland, Spain, and the U.K. account for almost 80 percent of ‘currant £U members ate ghee nar Couns tat ave sreintghe dhe EU GDP The EU sees continued economic integration a the major way to ‘Compete for global business, particularly with the United States, China, and Japan.” xopean unification was not easy but in 1999 the EU took a significant step by adopting the euro as common currency. The euro helped EU busi Inetecs ave billions by eliminating careney conversions It has also proven to bea worthy challenger to the U.S. dollars dominance in global markets In Zo10-2011, the EU faced deb, deficit, and growth problems due t financial difcalties in member nations Greece, Ireland, Porwgal, and Spain. EU off Gals are moving forward with a broad economic-plicy overhaul t0 try 10 ‘ensure the stability ofthe union ** ‘Mercosur unites Bra, Argentina, Paraguoy, Uruguay, and associate ncmbors Bolivia, Chile, Colombia, Eaador, and Peru in a trading bloc that {hcompasacs more than 250 million people. Its economic goals also include thecalgbinhment ofa single currency among member nations. Mercosur has ‘Sxpressed an Interest in joining a Union of South American Nations that would pave the way for an economiefice-rade one spanning South America mich Uke the BU “The ASEAN Economie Community was established in 1967 in Thailand to crwate economic cooperation among is five original members (Indonesia, Malaysia, Philippines, Singapore, and Thailand). ASEAN bas expanded (0 Thue Brunel Cambodia, the Lao People’ Democratic Republic, Myanmar find Vietnam, ereaing a trade association with a population of approximately {S00 lion and a GDP of $1.8 illin*” COMESA isa 1S-member African trad fhe bloc fn 2008, COMESA joined with the Souther Afican Development ‘Community (SADC) and the East Africa Community (EAC) to form anespanded fee trade Zone that has a GDP of §740 bili sd a population of 33 milion The North American and Central American Free Trade Agreements widely debated sue ofthe early 1990s was the North American Free Trade ‘Agreement (NAFTA), which crested a free-trade siva among the United States, Canoda, and Mexico. Opponents warned of the loss of tS, jabs and capital. Supporters predicted NAFTA would open a vast new market for U.S fexports and create jobs and market opportunites inthe long term, NAFTA objectives were to (1) eliminate trade barriers and facilitate cross- border movement of goods and services, 2) promote conditions of fal com patton, (3) increase investment opportunities, (4) provide effective protection And enforcement of intellectual property rights (patents and eopyeishts), (3) ‘stablish framework for forther regional trade cooperation, and (6) improve ‘Working conditions in North America, Today, the three NAFTA counties awe 4 combined population of over 450 million and a gross domestic product (GDP) ot $17 wilion [NAFTA promises remain a hotly debated issue. On the positive side, trade volume in goods and services among the three partners has expanded from §$289 billion in 1994 to over $1 lion todas Oa the downside, almost 750,000 US, jobs have been lst since enacting NAFTA; unfortunately most were inthe high paying manufacturing sector: Mega immigration remains a major prob Jem since annual per capita income in Mexico sill lags considerably behind {hat of the United States.” NABTA erties also argue that working conditions in "NAFTA controversies have not changed the U.S, commitment to free-trade agreements. In 2005, tho Central American Free Trade Agroement (CAFTA) ‘was signed into law, creating a free-trade zone with Costa Rica, the Dominican Republic, EI Sahador, Guatemala, Honduras, and Nicaragua. Again, suppor- ors claimed CAFTA would open new markets, lower tails, and eave regula tions between the member nations, Critics countered the measure would cost USS. jobs, especialy nthe sogar and exile industries. Today, re rade ape ‘ments are being negotiated with South Korca, Colombia, and Panama." The United States is also considering an agreement witha nine-nation free trade ‘loc called the Trans-Pacific Partnership ‘Common markets and frec-rade areas willbe debated far into the future. While some economists resoundingly praise such efforts, others are concerned the world is dividing ito major wading bloes (EU, NAFTA, otc) that will ‘exch poor and developing nations. Aer the Progress Assessment, eT lok atthe future of global trade and the issue of outsourcing progress assessment + What are the advantages and disadvantages of trade protectionism and of tarts? + Wat isthe primary purpose of the WTO? + What sthe key objective of common market tke the EU? + Wat thee nations comprise NAFTA? ‘rade Agreement (APTA) feotde ses aro te (ese ty booming, ond hy ‘sucoted mide close stn maney to spend neraing pea ‘a contie is rpts growth and play @ major role nthe gid econony. Are US. "rms prepared compete? tearnine goal 6 Discuss the changin landscape ofthe global market ang the ieue of ‘offshore outsourcing THE FUTURE OF GLOBAL TRADE Global trade opportunities grow more interesting and more challenging each das. Afterall, 69 billion potential eantomers are atirative®® However, tro {sm, nuclear proliferation, rogue states, and other Issues cast a dark shadow ‘on global markets. Ls conclude this chapter by looking at isues certain (0 Influence global markets, and perhaps your business career: ‘With more than 1.3 billion people and incredible exporting prowess, China has transformed the world cconamie map. However, not long ago, foreign dlireet investment in China was considered! sky and not worth the risk In 2010, China atracted $105 billion in foreign direct investment Today 00 ot the Fortune 500 companies (dhe world’s largest compantes) have lvested in ‘ver 2000 project in China. Chinas dethroned Germany asthe world’ lara fest exporter and surpassed Japan as the second largest economy in the word ‘Acconing to Gokdman Sachs Group economist Jim O'Neill, China could over take the United States asthe words largest economy by 2027." ‘Since 2009 China has been the largest motor vehicle market inthe world with sales and production topping 18 million in 2010, I estimated that the Chinese car market will grow tenfold during the period 2005-2030, which ‘means there could be more carson the wd in China than al the eas in the ‘World today Walmart hogan operations in China in 199% and now has over 200 stores with plans to open more. Newcomers like Imax Corporation are also expanding in this fast-growing market. Imax plans to open 80 movie the aersinthe next few years to get share ofa market that could val the United States by 2016. Many view China a8 free trader's dream, where glial insestment and

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