Chapter 3

Doing business in global markets

 Indra Krishnamurthy
Nooyi, CEO of PepsiCo

GETTING TO KNOW
 Chapter
Structure
1. The dynamic global market
2. Getting involved in global trade
3. Strategies for reaching global markets
4. Forces affecting trading in global markets
3.1. The dynamic global market

 Why trade with other nations

 The theories of comparative and absolute
advantage
Some definitions

• Importing is buying products from another

country.
• Exporting is selling products to another country.
3.1. The dynamic global market

Global trade enables a nation

to produce what it is most
capable of producing and buy
what it needs from others in
a mutually beneficial Free trade is the movement
exchange relationship. of goods and services among
nations without political or
economic barriers.

Why trade with other nations?

 3.1. The dynamic global market
Why trade with other nations

Some definitions
 3.1. The dynamic global market
The theories of comparative and absolutely advantage

Comparative advantage Absolute theory states

theory states that a that the advantages exists
country should sell to when a country has a
other countries those monopoly on producing a
products it cannot specific product or is able
produce most effectively to produce it more
and efficiently. efficiently than all other
countries.
 3.2. Getting involved in global trade

Importing Goods and

Services

Exporting Goods and

Services
 3.2. Getting involved in global trade

Take the examples of

importing and
exporting goods and
services in Vietnam?
 3.2. Getting involved in global trade
Measuring global trade
The balance of trade is the total Dumping: selling products in a
value of a nation’s exports foreign country at lower prices
compared to its imports measured than those charged in the
over a particular period producing country.

Trade surplus: a favorable

balance of trade; occurs Balance of payments: The
when the value of a difference between money
country’s exports exceeds coming into a country and money
that of its imports. leaving the country plus money
flows from other factors such as
Trade deficit: a unfavorable balance of tourism, foreign aids, military
trade; occurs when the value of a expenditures and foreign
country’s imports exceeds that of its investment.
exports.
3.3. Strategies for reaching global market
 3.3. Strategies for reaching global market

Licensing
A global strategy in which a firm (the
licensor) allows a foreign company (the
licensee) to produce its product in
exchange for a fee (a royalty).
 3.3. Strategies for reaching global market
Exporting
Businesses that sell their goods and
services to customers in other countries
are exporting them – they are producing
them in one country and shipping them to
another. Exporting is one way that
businesses can rapidly expand their
potential market.
 3.3. Strategies for reaching global market
Franchising
Franchising is a contractual agreement
whereby someone with a good idea for a
business sells others the rights to use the
business name and sell a product or
service in a given territory in a specified
manner.
Franchising is a popular domestically and
globally.
 3.3. Strategies for reaching global market

Contract manufacturing
A foreign company’s production of private-
label goods to which a domestic company
then attaches its brand name or
trademark; part of the broad category of
outsourcing.
 3.3. Strategies for reaching global market
International joint ventures and
strategic alliances
• Joint ventures: a partnership in which
two or more companies (often from
different countries) join to undertake a
major project.
• Strategic alliance: a long-term
partnership between two or more
companies established to help each
company build competitive market
advantages.
 3.3. Strategies for reaching global market
Foreign direct investment Multinational corporation
The buying of permanent An organization that
property and businesses in manufactures and markets
foreign nations. products in many different
countries and has multinational
stock ownership and
multinational management

A foreign subsidiary Sovereign wealth funds

A company owned in a foreign Investment funds controlled by
country by another company governments holding large
called the parent company stakes in foreign companies.
3.4. Forces affecting trading in global markets

Physical and
Sociocultural forces environment forces

Legal and regulatory

Economic and financial
forces
forces
3.4. Forces affecting trading in global markets
SOCIOCULTURAL FORCES

• The world culture refers to the set of

values, beliefs, rules and institutions
held by a specific group of people.
• Culture can include social structures,
religion, manners and customs, values
and attitudes, language and personal
communication.
3.4. Forces affecting trading in global markets
ECONOMIC AND FINACIAL FORCES
• Exchange rate: the value of one nation’s
currency relative to the currencies of
other countries.
• Devaluation: lowering the value of a
nation’s currency relative to other
currencies.
• Countertrading: a complex form of
bartering in which several countries may
be involved, each trading goods for goods
or services for services.
3.4. Forces affecting trading in global markets
LEGAL AND REGULATORY FORCES
• The conduct and the direction of business
are firmly tied to the legal and regulatory
environment.
• In global markets, no central system of
law exists, so different systems of laws
and regulations may apply in different
places.
3.4. Forces affecting trading in global markets
PHYSICAL AND ENVIRONMENT FACTORS
• They affect a company’s ability to conduct
global business.
• Some developing countries have such
primitive transportation and storage
systems that international distribution is
ineffective, if not impossible, especially
for perishable food.
• Technological differences also influence
the features and feasibility of exportable
products.
1. What are the advantages and
disadvantages of global trade?
2. What do you think about the future
of global trade?
The end …
Doing business in global markets