Chapter 3

Competing in Global Markets

The Global Market Globalization means that

companies manufacture, finance, and market worldwide

Canada represents a potential market of only 32 million customers

There are over 6 billion potential customers in 193 countries globally.

The Global Market

Importing: buying products from another country.

Exporting: selling products to another country.

Free trade is the movement of goods and services among nations without political or economic trade barriers.

Why Countries TradeWe trade to get goods that are not

available locallyIn Canada, we do not produce citrus

fruit, so we trade for itWe produce other goods, like lumber,

beyond our ability to consume, so we export these goods

Some countries have an abundance of natural resources but lack the technological know- how to retrieve them

Other countries have the technology but lack natural resources.

The Theory of Comparative Advantage

Countries export those goods and services that they produce most effectively and efficiently

Countries import those goods and services where they do not have this comparative advantage

In practice, many countries ignore this economic principle. They inhibit the free flow of goods using duties and tariffs

They attempt to give their producers a competitive advantage

Theories of Advantage

Output per Output per Unit of Unit of InputInput

ComparativComparativee

U. S.U. S.

ChinaChina

SoftwarSoftwaree

U. S.U. S.

ChinaChina

ClothinClothingg

Theories of Advantage

AbsolutAbsolutee

Output Output per Unit of per Unit of

InputInput

Copper ProductionCopper Production

ZambiaZambia

The Rest of The Rest of the Worldthe World

= Virtual = Virtual Monopoly Monopoly

International Trade - Terminology

Balance of Trade: a country’s ratio of exports to imports.

Trade Surplus: occurs when the value of the country’s exports exceeds that of its imports (a favourable balance of trade).

Trade Deficit: occurs when the value of the country’s imports exceeds that of its exports (an unfavourable balance of trade)

Balance of Payments: the difference between money coming into the country and money leaving the country

International Trade - Terminology

Dumping - selling cheaper in foreign markets than at home

Protectionism - using government regulations to keep foreign goods out

Exchange rate - the value of our currency compared to other countries’ currency

Exporting

Licensing

Franchising

Contract Manufacturing

Strategies for Reaching Global Markets

International

Joint Ventures Strategic Alliances Foreign Direct

Investment

Hurdles of Trading in the World Market

Socio-cultural forces

-customs Economic forces-money, wealth/poverty

Legal and regulatory forces-laws,taxes, copyright, patents: require local expertise

Technological forces-voltages, video standards, internet

Trade Protectionism The use of government regulations to

limit the import of goods and services in order to protect domestic producers• Dumping• Tariffs• Import quotas• Embargos

Protectionism Practices

Tariffs and quotas to limit imports

Revenue tariffs to generate funds for the government

Regulatory trade barriers - labeling, health, safety, emission standards can be used as trade embargoes

Restrictive paper work or port facilities can act as non-tariff barriers

Protectionism in Use

The 1980s saw Canada and the U.S. pass laws to protect the auto industry from Japanese competition with negative results for North American consumers

Trade embargoes are used for political purposes, i.e., Iraq, Cuba, South Africa, etc.

During the Great Depression the U.S. acted to restrict imports and others retaliated, thus worsening the Depression