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Understanding business 10th chapter 3b doing business in global market

Chapter 03

0

Doing Business
in
Global Markets

McGraw-Hill/Irwin

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.


3-2


Why Trade With Other Nations?



Global trade allows countries to produce what they

make best and buy what they need from others.
not used

3-3


3-4


TRADING with OTHER NATIONS



Countries with abundant natural resources (like Venezuela or Russia) need
technological resources from other countries (like Japan).

3-5


HOW FREE TRADE
BENEFITS the WORLD

Global trade has led the world in a new direction:



Literacy rates worldwide have increased from 56% in 1950 to 99% in 2012.



Life expectancy in less developed areas rose from 40.9 years in 1950 to 70.5 years
in 2012.

Source: The World Bank, June 2014

3-6


Company % of
Earnings From Outside U.S.


Company

Total Assets Reinvested Overseas in 2011

Total Assets Reinvested Overseas in 2012

Total Added in 2012

GENERAL ELECTRIC CO

$102,000

$108,000

$6,000

PFIZER INC

$63,000

$73,000

$10,000

MICROSOFT CORP

$44,800

$60,800

$16,000

MEREC CO

$44,300

$53,400

$9,100

JOHNSON & JOHNSON

$41,600

$49,000

$7,400

INTL BUSINESS

$37,900

$44,400

$6,500

EXXON MOBIL CORP

$47,000

$43,000

-$4,000

CITIGROUP INC

$35,900

$42,600

$6,700

CISCO SYSTEMS INC

$36,700

$41,300

$4,600

APPLE INC

$23,400

$40,400

$17,000

MACHINES CORP

http://online.wsj.com/news/interactive/FORCASH20130311?ref=SB10001424127887324034804578348131432634740

3-7


PLEASURE DOING BUSINESS
Best Countries for Business out of 183 Countries

Economy

Ease of Doing Business Rank Starting a Business Paying Taxes

Trading Across
Borders

Singapore

1

3

5

1

Hong Kong SAR, China

2

5

4

2

New Zealand

3

1

23

21

United States

4

20

64

22

Denmark

5

40

12

8

Malaysia

6

16

36

5

Korea, Rep.

7

34

25

3

Georgia

8

8

29

43

Norway

9

53

17

26

United Kingdom

10

28

14

16

  

.

© 2013 The World Bank, All Rights Reserved
3-8


3-9


CAN YOU SPARE A DIME?
Rank

Name

Net Worth

Age

Source

Country of Citizenship

1

Carlos Slim Helu & family

$73 B

74

telecom

Mexico

2

Bill Gates

$67 B

58

Microsof

United States

3

Amancio Ortega

$57 B

77

Zara

Spain

4

Warren Buffet

$53.5 B

83

Berkshire Hathaway

United States

5

Larry Ellison

$43 B

69

Oracle

United States

6

Charles Koch

$34 B

78

diversified

United States

6

David Koch

$34 B

73

diversified

United States

8

Li Ka-shing

$31 B

85

diversified

Hong Kong

9

Liliane Betencourt & fami

$30 B

91

L'Oreal

France

64

LVMH

France

ly

10

Bernard Arnault & family

$29 B

3-10

Forbes 2014


Why Trade with
Other Nations?
LG1

TRADING with OTHER NATIONS

  



Countries with abundant natural resources (like Venezuela or
Russia) need technical 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.

3-11


TRADING with OTHER NATIONS

Theories of Advantage
Comparative
Absolute

3-12


COMPARATIVE 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.

3-13


Theories of Advantage
Comparative
U. S.

China

China
U. S.

Software
3-14

Clothing


ABSOLUTE ADVANTAGE



Absolute Advantage -- A country has a monopoly on producing a
specific product or is able to produce it more efficiently than all other
countries.

3-15


Theories of Advantage
Absolute

= Virtual Monopoly
South Africa

The Rest of the
World

Diamond Production
3-16


IMPORTING and EXPORTING



Importing -- Buying products from another country.



Exporting -- Selling products to another country.



The U.S. is the largest importing nation in the
world.

3-17


I
N
G

G
L
O
B
A
L
3-18


U
R
E



G

Balance of Trade -- The total value of a nation’s exports compared to its imports

L

measured over time.

O




Trade
B Surplus -- When the value of a country’s exports is more than that of its imports.

A
Trade Deficit -- When the value of a country’s exports is less than that of its imports.

L

T
R
A
D

3-19


Rising U.S. Trade Deficit

http://www.americaneconomicalert.org/ticker_home.asp

Source: US Dept of Commerce, Bureau of Economic Analysis

3-20


GETTING INVOLVED in
EXPORTING



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



It is estimated, every $1 billion in U.S.
dollars exported generates over 7,000
U.S. jobs.

3-21


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.

3-22


UNFAIR TRADE PRACTICES



Dumping -- Selling products in a foreign country at lower prices than those charged in
the producing country.



Dumping is prohibited in the U.S.



China, Brazil and Russia have been penalized for dumping steel in the U.S.

3-23


KEY STRATEGIES for REACHING GLOBAL MARKETS

International joint ventures

Licensing

Least

Contract

Exporting

Franchising

Manufacturing

Amount of commitment, control, risk and profit potential

and strategic alliances

Foreign direct
investment

Most

3-24


E
N
S



Licensing
-- When a firm (licensor) provides the right to manufacture its product or use
I
its trademark to a foreign company (licensee) for a fee (royalty).

N



G
Licensing can benefit a firm by:

-

Gaining revenues it wouldn’t have otherwise generated.

-

Spending little or no money to produce or market their products.

3-25


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