CHAPTER 3

Doing
Business in
Global
Markets

McGraw-Hill/Irwin Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved.
 LEARNING OBJECTIVES

1. Discuss the importance of the global market and the

roles of comparative advantage and absolute
advantage in global trade.

2. Explain the importance of importing and exporting,

and understand key terms used in global business.

3. Illustrate the strategies used in reaching global

markets and explain the role of multinational
corporations.

1-2
 LEARNING OBJECTIVE

4. Evaluate the forces that affect trading in global

markets.

5. Debate the advantages and disadvantages of trade

protectionism.

6. Discuss the changing landscape of the global

market and the issue of offshore outsourcing.

1-3
 LEILA JANAH
Samasource

• Started Samasource to help

people in developing
countries rise out of poverty.

• Janah has been working to

combat world poverty since
she was a teen.

• Employees are carefully

selected and are taught new
skills.
3-4
 NAME that COMPANY

This Swiss-based company has many foreign

subsidiaries including Jenny Craig (weight
management), Ralston Purina, Chef America
(maker of Hot Pockets) and Dreyer’s Ice Cream
in the United States as well as Perrier in France.
The company employs over 328,000 people and
has operations in almost every country in the
world.

Name that company!

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 BUSINESS in the LO 3-1

GLOBAL MARKET

• Over 90% of companies

doing business globally
believe it is important
for employees to have
international
experience.
• U.S. organizations (like
UPS, MLB, the NFL and
the NBA) are also
expanding abroad.
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WORLD POPULATION LO 3-1

by CONTINENT

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WORLD POPULATION LO 3-1

GROWTH

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 LO 3-1
IMPORTING and EXPORTING

• Importing -- Buying products

from another country.

• Exporting -- Selling products

to another country.

• The U.S. is the largest

importing and the second
largest exporting nation in
the world.

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PLEASURE DOING BUSINESS LO 3-1

Best Countries for Business

Source: Forbes, www.forbes.com, accessed November 2014. 3-10

 CAN YOU SPARE a DIME? LO 3-1

Home Countries for Some of the World’s Billionaires

• U.S. – 516 billionaires

• China – 136 billionaires
• Russia – 88 billionaires
• Germany – 82 billionaires
• India – 54 billionaires
• U.K. – 43 billionaires
• Hong Kong – 41 billionaires

Source: Forbes, www.forbes.com, accessed November 2014. 3-11

 LO 3-1
TRADING with OTHER NATIONS

• Countries with abundant natural resources (like

Venezuela or Russia) need technological
resources from other countries (like Japan).

• Global trade allows countries to produce what

they make best and buy what they need from
others.

• Free Trade -- The movement of goods and services

among nations without political or economic barriers.

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 LO 3-1
PROS and CONS of FREE TRADE

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 COMPARATIVE and ABSOLUTE LO 3-1

ADVANTAGE

• Comparative Advantage -- A country should sell the

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

• Absolute Advantage -- A country has a monopoly on

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

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 GOING GLOBAL with a LO 3-2

SMALL BUSINESS

• Small businesses
may be the key in
global job growth.

• Only 1% of U.S. small

businesses export,
yet they account for
30% of total U.S.
exports.

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 WHOM DOES the U.S. OWE? LO 3-2

Countries that Own the Most U.S. Debt

Source: Max Fisher, Washington Post, www.washingtonpost.com, accessed November 2014. 3-16
 GETTING INVOLVED in LO 3-2

IMPORTING

• Students attending schools

abroad tend to notice
products that they’re used
to are unavailable in their
new country.

• By working with producers

in their native country,
some become importers
while still in school.

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GETTING INVOLVED in LO 3-2

EXPORTING

• Exporting provides a
great boost to the U.S.
economy.

• It’s estimated every $1

billion in U.S. exports
generate over 7,000
U.S. jobs.

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 LO 3-2
HOW to MEASURE GLOBAL TRADE

• Balance of Trade -- The total value of a nation’s

exports compared to its imports measured over a
particular period.

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

country’s exports is more than that of its imports.

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

country’s exports is less than that of its imports.

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 LO 3-2
BALANCE of PAYMENTS

• Balance of Payments -- The difference between

money coming into a country (from exports) and
money leaving the country (from imports) plus other
money flows.

• The goal is to have more money flowing into a

country than out – a favorable balance.

• An unfavorable balance is when more money

flows out of a country.

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 LO 3-2
UNFAIR TRADE PRACTICES

• Dumping -- Selling products in a foreign country at

lower prices than those charged in the producing
country.

• Dumping is prohibited.

• China, Brazil and Russia have been penalized for

dumping steel in the U.S.

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LARGEST EXPORTING NATIONS LO 3-2

and TRADE PARTNERS

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 TEST PREP

• What are two of the main arguments favoring the

expansion of U.S. businesses into global
markets?

• What is comparative advantage, and what are

some examples of this concept at work in the
United States?

• How are a nation’s balance of trade and balance

of payments determined?

• What is meant by dumping in global trade?

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KEY STRATEGIES for REACHING LO 3-3

GLOBAL MARKETS

International
Contract Foreign
Licensing Exporting Franchising joint ventures
Manufacturing direct
and strategic
investment
alliances

Least Amount of commitment, control, risk and profit potential Most

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 LO 3-3
LICENSING

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EXPORT ASSISTANCE CENTERS LO 3-3

and EXPORT TRADING CENTERS

• EACs provide hands-on exporting assistance and

trade-finance support for small and medium-sized
businesses that wish to directly export goods and
services.

• ETCs help companies engage in indirect

exporting by:
- Matching buyers and sellers.
- Dealing with foreign customs offices,
documentation, and conversions.
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 LO 3-3
FRANCHISING

• Franchising -- A contractual agreement whereby

someone with a good idea for a business sells others
the rights to use the name and sell a product/service
in a given area.

• Franchisors need to be careful to adapt their

product to the countries they serve.

• Yum! Brands, home of KFC, Taco Bell and Pizza

Hut, learned that food preferences differ all
around the world.
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 TIME to MAKE the DONUTS… LO 3-3

Dunkin’ Donuts Flavors in Taiwan

• Sweet Potato
• Honeydew Melon
• Green Apple
• Kiwi Fruit
• Mango
• Pineapple Photo Credit: Dennis Yang

• Strawberry
• Corn Crumb Soft Rice Cake
Source: World Features Syndicate. 3-28
 MCDONALD’S:
OVER 100 CULTURES SERVED

• McDonald’s has more than 34,000 restaurants in

over 118 countries.
• Maintains varying menus around the world due to
the different preferences of its customers.
• Attracts top-level college
graduates to be trained
for management spots.
• Only 8 of every 1,000
applicants actually makes
it into the program!

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 THAT’S at MCDONALD’S?

• Malaysia: Bubur Ayam McD – Chicken strips in porridge

with onions, ginger, and shallots.

• Egypt: Mcarabia – Grilled chicken with tehina sauces,

lettuce, tomato and onion on Arabic bread.

• Japan: Teritama – Teriyaki burger topped with an egg.

• Germany: Want a beer with your burger? You can order

one in the German stores.

• Israel: Operates using Kosher kitchens.

Source: McDonalds, www.mcdonalds.com, accessed November 2014. 3-30
 LO 3-3
CONTRACT MANUFACTURING

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 LO 3-3
JOINT VENTURES

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 LO 3-3
STRATEGIC ALLIANCES

• Strategic Alliance -- A long-term partnership

between two or more companies established to help
each company build competitive market advantages.

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 LO 3-3
FOREIGN DIRECT INVESTMENT

• Foreign Direct Investment (FDI) -- The buying of

permanent property and businesses in foreign nations.

• Foreign Subsidiary -- A company owned in a foreign

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

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 LO 3-3
BUYING AMERICAN?

3-35
 LO 3-3
MULTINATIONAL CORPORATIONS

• Multinational Corporation -- A company that

manufactures and markets products in many different
countries and has multinational stock ownership and
management.

• Not all large global businesses are multinational.

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

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LARGEST MULTINATIONAL LO 3-3

CORPORATIONS

3-37
 LO 3-3
SOVEREIGN WEALTH FUNDS

3-38
 TEST PREP

• What are the advantages of using licensing as a

method of entry in global markets? What are the
disadvantages?

• What services are usually provided by an export-

trading company?

• What is the key difference between a joint venture

and a strategic alliance?

• What makes a company a multinational

corporation?
3-39
LO 3-4

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 LO 3-4
CULTURAL DIFFERENCES

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 LOST in TRANSLATION LO 3-4

Advertisements Gone Wrong

• Braniff Airlines’ slogan "Fly in leather” translated

in Spanish as "Fly naked.”

• Siri, Apple’s digital assistant on iPhone, is a

common slang term for “butt” in Japanese.

• In Italy, Schweppes Tonic Water was mistaken

as Schweppes Toilet Water.

• Nokia’s line of Lumia phones is Spanish for

“prostitute.”
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FROM SETTING PICKS to
PICKING GRAPES

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 READY to TRAVEL ABROAD? LO 3-4

Know Your Cultural Differences

• In Turkey, it’s rude to cross your arms while facing

someone.

• In many Middle Eastern countries, you shouldn’t eat

or shake hands with the left hand because it is
considered unclean.

• In India, you should never pat anyone’s head. It’s

where one’s soul is kept.

• In Brazil, your meeting may not start on time because

punctuality isn’t important to the culture.
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 DO as the GERMANS… LO 3-4

How to Not Embarrass Yourself in Germany

• Always use titles like Doctor, Frau, or Herr.

• Always provide food and drinks for your birthday.

• Don’t remove your jacket until your host does.

• Wear conservative business attire, anything else is

considered sloppy.

• Never jaywalk.

• Always keep your hands on the table when eating.

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 LO 3-4
EXCHANGE RATES

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DEVALUATION and LO 3-4

COUNTERTRADING

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 LEGAL and LO 3-4

REGULATORY FORCES

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 LO 3-4
ENVIRONMENTAL FORCES

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 TEST PREP

• What are four major hurdles to successful global

trade?

• What does ethnocentricity mean and how can it

affect global success?

• How would a low value of the dollar affect U.S.

exports?

• What does the Foreign Corrupt Practices Act

prohibit?
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 LO 3-5
TRADE PROTECTIONISM

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 LO 3-5
TARIFFS

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 LO 3-5
IMPORT QUOTAS and EMBARGOS

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 LO 3-5
WORLD TRADE ORGANIZATION

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 LO 3-5
COMMON MARKETS

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 LO 3-5
EU MEMBERS

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 LO 3-5
NAFTA and CAFTA

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 LO 3-5
NAFTA OBJECTIVES

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 NEW FREE LO 3-5

TRADE AGREEMENTS

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 TEST PREP

• What are the advantages and disadvantages of

trade protectionism and of tariffs?

• What is the primary purpose of the WTO?

• What is the key objective of a common market

like the EU?

• Which three nations comprise NAFTA?

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 LO 3-6
FUTURE of GLOBAL TRADE

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 LO 3-6
OUTSOURCING

Photo Credit: Vitor Lima

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 LO 3-6
OFFSHORE OUTSOURCING

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LO 3-6

3-64
 MAKING YOUR OPERATION
YOUR VACATION

• Some insurance companies

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

Source: AARP Magazine, November 2014. 3-66

 TEST PREP

• What are the major threats to doing business in

global markets?

• What key challenges must India and Russia face

before becoming global economic leaders?

• What does the acronym BRIC stand for?

• What are the two primary concerns about offshore

outsourcing?

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