Group Assignment

INTRODUCTION TO BUSINESS

Competing in Global Market

Barriers to international trade

Major world market places

Names of Group members.

Hafiz Waqar Akhtar 026

Moin-u-din Siddique 034

Usman younas 0

Ahsan 08

Saif 0

Competing in global marketsCompetition

Competition is the battle between businesses to win consumer acceptance and loyalty. The free-enterprise system ensures that businesses make decisions about what to produce, how to produce it, and what price to charge for the product or service. Competition is a basic premise of the free-enterprise system because it is believed that having more than one business competing for the same consumers will cause the products and/or services to be provided at a better quality and a lower cost than if there were no competitors. In other words, competition should provide the consumers with the best value for their hard-earned money.

Global MarketThe world global market is used in wider means in economics. The term market is not only a place in which things are bought and sold but, whole of the world or region in which buyers and sellers are in free contact, with one another. It is not necessary that the buyers and sellers have direct personal contacts. The contacts may be by means of telephone, telegraph, postal service, newspapers, radio, TV, internet or any other means.

In the era when thousands of products, ideas, goods, services flow through all around the world and cross national boundaries.The information about produces products and services is easily available. The multinational companies are moving their production units to countries where production costs are lower this leads to global competition.

USA, Western Europe, and Japan are major players in global market almost 90% companies who are doing business globally relates to these countries. However china and India and Malaysia are the examples of emerging economic powers who are trying to get share from global markets.Chains has brought a revelation in the Global market by offering low price products because of low manufacturing cost and cheep labor in china.

Major World MarketsFollowing are the world major markets regions:-

1. North America 2. Western Europe 3. Pacific Rim 4. Latin America

North America:-With a population of about 400 millions this region represent world most attractive markets only USA whose population is less then 5% of the world population is single largest market in the world, USA’s GDP (Gross, Domestic,

Production) is $8 trillion dollars about one fifth(20%) of would output. US exports exceed $925 billions each year. Which annual import are $1.3 trillion each year. Hence it is a most important market in the world.

Western Europe:-The important countries of the western Europe (i.e) Germany, UK, France and Italy is powerful industrial region with the GDP almost equal to USA. In 1992 an economic community in the name of European Union created very heavy investments from around the world are flowing into European nations. Foreign manufacturers are establishing their businesses in UK. Japan’s automobiles industry is an example so is the case of France, Italy and Germany. After the fall of communism the former Russian Bloc Countries have opened their borders to international trade there are also changing their legal, political and economic enjoinment to improve conditions for development rate exceeds 6% per year making it fastest-growing economic of Europe.

The Pacific Rim:-China, Australia, Japan, Malaysia, South Korea, Taiwan are the major

nations of this large and growing region. China is most important and remarkable amount the Pacific Rim nations. Today china is challenging both the US and Japan with its capabilities for low cast production of high-tech production its exports of high-tech goods have increased up to 75% over the last 5-year. China is world’s second fastest growing economy. It is a significant market for goods and services.

Latin America:-Latin America is a big market for high-technology products. For example the sells of Microsoft software are more then of $500 million and increasing by 40 percent per year. The most important countries Brazil and Argentina of Latin America are attracting an unprecedented flow of foreign direct investment. Government of Argentina,Brazil, Piragua, and Uruguay are slipping away trade barriers to encourage international investment and trade.

Absolute and Comparative Advantage

A nation can develop a comparative advantage in a certain product if it can supply it more efficiently and at a lower price then other goods compared to the output of other countries.Example: China has a comparative advantage in producing toys and clothing due to very low labor costs. On the other hand Japan has advantage in producing electronics by preserving efficiency and technological expertise.

Measuring trade between Nations

To measure global business activity an understanding of the concept of the balance of trade and, balance of payment is necessary.

Balance of trade: A country’s balance of trade is the relationship between its export and import. If a country exports more then its imports, it achieves a favorable balance of trade, called a surplus. If its imports more then its exports, it produces an unfavorable balance of trade, called a trade deficit.

A country’s balance of trade plays a central role in determining its balance of payments.

Balance of payments:The overall flow of money into or out of a country is called balance of payments. Other factors also affect the balance of payments, including overseas loans and borrowing, international investments, profit from such investments and foreign air payments.

Barriers to international tradeThe difficulties, differences hurdles to a business in international trading are called barriers to international trade. These difficulties can be described into three major portions.

1- Social and Cultural Barriers. 2- Economic Barriers 3- Legal and Political Barriers

To successfully compete in global market companies and their managers must understand

how these barriers affect international trade and how to overcome them.1-Social and cultural differences :

Each region and country has their own, traditions, educational backgrounds religion, language and Social values which are of great importance.The understanding of these aspects is very useful for competing in global market.

(1)LanguageLocal language is a critical factor in international business. Companies and their representatives should chose correct and suitable words for the promotion of their products to convey the intended meanings. Mistranslation may put wrong message. Companies may need to rename products or rewrite slogans for different foreign markets.

Example:In Japan, Ronald McDonald’s name changed to Donald McDonald to make it easier to pronounce.

(2) Values and Religious AttitudeToday’s world is shrinking in many ways even then peoples in different countries do not have the same values or religious attitudes.

Example:

Business people in Europe shake hands each time even after apart for short periods such as lunch breaks.

The French and Japanese expect one firm shake hand. Arab business people favor lighter and lengthier hand shake ending, the

handshake too soon could be understood as a rejection.

Religion places an important role in every society. Understanding religious cycles and the timing of major holidays is very important for doing business in a country.

Example:Friday is the most important day for pray in Muslim countries and in some Muslim countries Friday is holiday.

If a company does not have knowledge about values and religious customs it can unknowingly offend religious group.

(2)Economic Differences: A country’s size, per-capita income and stage of economic development along with countries infrastructure are important economic factors which are studied by companies for international venture. These economic factors are more critical in developing countries. People in Japan enjoy a high stander of living. They have well established infrastructure and a per capita income of about $24,000 as compared to China where the per capita GDP is only $3200.The economic conditions are much poor in other Asian countries like, India, Pakistan, Bangladesh.

(1)-Currency Shift: Across the borders there are different currencies Although many countries trade in US dollars internationally but, some prefer to trade in other currencies.For example Chinese Yuan, Indonesian Rupee, Japanese Yen, English Pound and European Euro. Foreign currency fluctuations may cause problems for global business and very important example in recent era is of Asian countries where exchange rates badly affect economic environment. The people who owned US$ were able to buy more then they could have before the changes this development brought an advantage to US residents who dreamed of relaxing on vacations to Bally as well as business importing clothing made in china and Korea

Legal and Political Barriers/Differences

Similar to social culture and economic differences legal and political differences in countries are also barriers to international trade (e.g) Indonesian laws prohibit foreign firms form creating their own whole scale and retail distribution channels forcing out side companies to work through local distributors.

Brazilian and Pakistan law requires foreign manufactures to buy most of their supplies from local Vendors. Some countries impose general trade restrictions,

others have established detailed rules to regulate how foreign companies can do business.

Political Climate:- An important factor in any international business investment is the political climate. The political structure of many nations promote stability while many countries have ever changing atmosphere which is not favorable for foreign investment during the past decades the political structure eastern European countries like Poland have seen dramatic changes another example in Hong Kong.

Legal Environment:- For conducting business internationally the management of the company must have knowledge of legal environment of its own country, international regulations and laws of the countries where they plan to trade.The growth of e-commerce has introduced new elements to the legal climate of international business.Ideas,Patents, Brand names, Copyrights and other intellectual property are very important aspects.

International regulations:-Many countries have signed agreements and made treaties for regulation of business and protect some of its activities. Many type of regulations affect the actions of companies doing business in international market.Software piracy offers an example of huge problems that can result from the lack of international regulations. China illegally produces US software as well as music and movies, costing American firms billions of dollars in lost revenue.

Types of Trade RestrictionsThere are many types of trade restrictions:

Import duties Import licenses Export licenses Quotas Tariffs Subsidies Non-tariff barriers to trade

Among above three are important which are described as under.

Tariff

1. Tax on imports or exports, most often calculated as a percent of the price charged for the good by the foreign supplier. The money collected is duty. A tariff may be imposed as a source of revenue for the government. A more common purpose of tariffs is protection against foreign competition. By raising prices of imported goods relative to the prices of domestic goods, tariffs encourage consumers to buy domestic rather than foreign products.

Non-tariff barriers to trade can be:

State subsidies, procurement, trading, and ownership. National regulations on health, safety, employment. Product classification. Quotas . Foreign Exchange: controls and multiplicity. Over elaborate or inadequate infrastructure. 'Buy national' policy. Intellectual property laws (patents and copyrights). Bribery and corruption. Unfair customs procedures. restrictive licenses import bans seasonal import regimes

Quota

In the context of international trade, this is a limit put on the amount of a specific good that can be imported.

1. Predetermined goal in a sales program established as a total dollar amount, as a percentage of increase over sales from a previous time, or in quantities of merchandise sold.

Reducing Barriers to International Trade

Economists generally agree that trade barriers are detrimental and decrease overall economic efficiency, this can be explained by the theory of comparative advantage. In theory, free trade involves the removal of all such barriers, except perhaps those considered necessary for health or national security. In practice, however, even those countries promoting free trade heavily subsidize certain industries, such as agriculture and steel. Examples of free trade areas are: North American Free Trade Agreement (NAFTA), European Free Trade Association, European Union (EU), South American Community of Nations, ASEAN(Association of South East Asian Nations), GATT(General Agreement of Tariff and Trade)and WTO(World Trade Organization) It is pertinent to mention here that on 24-11-2006 Pakistan signed a free trade agreement with china on the occasion of visit of Chinas president to Pakistan.