International Trade

INTENATIONAL TRADE
• International trade is the exchange of goods and
services between countries
• Trading globally gives consumers and countries
the opportunity to be exposed to goods and
services not available in their own countries, or
which would be more expensive domestically.
Index of Openness
• Index of Openness—a measure of how much a
country participates in international trade;
defined as the ratio of a country’s exports to its
GDP (or GNP).
• Open Economy—a country with a high value of
the index of openness.
• Closed Economy—a country with a relatively
low index of openness.
Nature of International trade
• International Trade – is the exchange of goods
and services among nations.

• Imports – are goods and services purchased

from other countries.

• Exports – are goods and services sold to other

countries.
Nature of International Trade

International Trade

The principle of economic

interdependence is fundamental
to marketing in a global
environment.
 Interdependence of Nations
• Absolute Advantage - a country has natural
resources or talents that allow it to produce an item
at the lowest possible cost.
China = 80 % silk worm.
Africa= diamonds
Saudi Arabia = oil
• Comparative Advantage – is the value that a nation
gains by selling what it produces most efficiently.
Better infrastructure, raw materials, and educated
labor force.
 Benefits of International Trade
• Consumers, workers, producers, and nations benefit
from international trade in different ways.
• COMPETITION = lower prices, better products,
variety of products.

• Workers benefit from higher employment rates

Nature of International Trade
International Trade
The Benefits of International Trade
 Government Involvement in
International Trade
• Balance of Trade – the difference between exports and
imports.
• Trade Surplus = nation exports more than imports.
• Trade Deficit = nation imports more than exports.
• Negative Consequences of Trade Deficit = reduces a
nations revenue. More money leaves the country.
Government Involvement in International
Trade
Trade Barriers
• Free Trade = commercial exchange
between nations that is conducted on
free market principles, without
restrictive regulations.
However, to limit trade, countries
impose barriers
 Trade Barriers
1) Tariffs

• Tariffs – (sometimes called a duty) is a tax on

imports. Revenue producing tariffs first used
around 1913 before income taxes..
• Discourage trade or make
prices/competition
fairer = protective tariff.
Trade Barriers
2) Quotas
• Quotas – limits either the quantity or the
monetary value of a product that may be
imported.
• Sometimes a country may try to improve
relations with another country by placing a
quota on itself.
 Trade Barriers
3) Embargos
• Embargos – a total ban on specific goods coming
into and leaving a country. Can impose an
embargo for health reasons.
• Grapes in 1989 due to poisoned fruit found during
inspection.
• Mad Cow disease
• Political = CUBA
Trade Barriers
Political & Economic Consequences
• Protectionism – economic policies
to protect domestic industries.
▫ Protectionism is the opposite of free trade.
▫ Imposing tariffs and quotas is one method
of practicing protectionism.
• Subsidies – subsidizing domestic
companies allowing them to be
more competitive
Government Involvement in International Trade
International Trade
Trade
Agreements and World Trade Organization
Alliances (WTO)
A global coalition of nations that
makes the rules governing
World Trade Organization international trade.
(WTO)
North American Free Trade
Agreement (NAFTA)
North American Free
Trade Agreement An international trade agreement
among the United States, Canada,
(NAFTA)
and Mexico.

European Union (EU)

European Union (EU)
Europe’s trading bloc.
 Trade Agreement and Alliances
Governments make agreements with each other.
1. WORLD TRADE ORGANIZATION (WTO) - 148
members
• Reduce tariffs and have a common set of trade rules.
• Creates a borderless economy.
• Set of rules that are universally accepted
• Critics of WTO raise concerns about democracy labor
rights and the environment.
 Trade Agreement and Alliances
2. NORTH AMERICAN FREE TRADE
AGREEMENT(NAFTA) - 1994 Trade agreement
between USA, Canada, and Mexico. To eliminate
trade barriers and investment restrictions by
2009.
▫ Immediately tariffs were eliminated on 1000’s of
goods.
Trade Agreement and Alliances
3. EUROPEAN UNION (EU) – 1992 Europe’s
trading bloc. 1992 Maastrricht Treaty created
the EU to establish free trade among the
member nations.
• Establish and conform to the political,
economical, and legal standards.
• ten new members joined including Poland,
Hungary, the Czech Republic, and the Slovak
Republic.
The Global Marketplace
Factors That Affect International Business
 DOING BUSINESS INTERNATIONALLY
a. Importing: purchasing goods from a
foreign country
b. Exporting: selling goods to a foreign
country
c. Licensing – letting another company use a
trademark, patent, special formula, company
name for a fee or royalty.
d. Contract manufacturing – hiring a
foreign manufacturer to make your products,
according to your specifications.
DOING BUSINESS INTERNATIONALLY
e. Joint ventures – a business
enterprise that companies set
up together
 Foreign Direct Investment –
establishment of a business in a foreign
country
 Multinationals – large corporations that
have several operations in several
countries
 Mini-nationals – smaller companies
that have operations in foreign countries.
 The Global Marketplace
Doing Business Internationally

Level of Risk and Control

 GLOBAL MARKETING STRATEGIES

Globalization – selling
the same product
and using the
same promotion
methods in all
countries.
(Product is sold
as is)
How Globalization Works
• Offer the same version of the product
• Find a common need that transcends
to different cultures
 GLOBAL MARKETING STRATEGIES
a. Globalization – selling the same
product and using the same promotion
methods in all countries. (Product is sold as
is)

b. Adaptation – the company’s use of

an existing product and/or promotion
to which changes are made to better
suit the characteristics of a country or
region.
GLOBAL MARKETING STRATEGIES
c. Customization – Creating of an
entirely new product for a
specific foreign market. e.g.
Coca-Cola developed the Smart
brand specifically for the
Chinese market.
Global Environmental Scan
The Global Marketplace

globalization adaptation customization

Selling the same A company’s use of an existing Creating specifically
product and using the product or promotion from designed products or
same promotion which changes are made to promotions for
methods in all better suit the characteristics certain countries or
countries. of a country or region. regions.
REASONS FOR TRADE
1. Differences in Technology
2. Differences in Resource Endowments
3. Differences in Demand
4. Existence of Economies of Scale in
Production
5. Existence of Government Policies