CH (8):

BUSINESS
IN GLOBAL
MARKETS
LEARNING objectives
1. Define global business.
2. Understand the importance of global trade .
3. Discuss the roles of comparative and absolute advantage in global
trade .
4. Discuss the different strategies for reaching global markets.
5. Describe different types of trade protections and trade agreements.
6. Discuss the two indicators for measuring global trade.
7. Explain the forces affecting the global trade market.

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 Section (1 & 2) : Global trade

Section Outline:-
Why Trade Globally

Global business :-Any activity that seeks to provide goods and services to
others across national borders while operating at a profit

Exporting :-Selling products to another country

Importing :-Buying products from another country

Free trade :-The movement of goods and service among nations without
political or economic trade barriers

Global trade :-Exchange of goods and services across national borders

Comparative advantage and absolute advantage

Comparative advantage theory :-The theory that a country should sell to

other countries those products that it produces most effectively and
efficiently and buy from other countries those products it cannot produce as
effectively or efficiently

Absolute advantage:- Occurs when 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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 Section (3) : Measuring trade

A- Balance of Payments and Trade Deficits :-

Balance of trade:-Ratio of country's export to import

Trade surplus:-When a country exports more than imports

Trade deficit:-Occurs when a country imports more than exports

Balance of payments :-The difference between money coming into a country (

from export) and money leaving the country ( for imports ) plus money flows
coming into or leaving a country from other factors such as tourism , foreign
aid ,military expenditures , and foreign investment.
(Export import) + (or -) { (money flows from from tourism ,foreign aid,
foreign investment) }

B- Unfair trade practices:-

Dumping :-The practice of selling products in foreign country at lower prices

than those charged in the producing country

Gray market:-The flow of goods in a distribution channel other than those

intended by the manufacturer

Section (4) : Trade protection and agreements

A- Trade protection and agreements:-

Trade protectionism :-The government regulations to limit the import of

goods and services

Tariff :-A tax on imported goods

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Harmonized tariff schedule:-A publication by the US government that lists the
tariff and quotas for every imported goods.
(Which include tariff costs for every product from every country.)
Import quota:-Limit the number of products in certain categories that a
nation can import .

Embargo:-Complete ban on goods to or from a country .

Non-tariff barriers :-Restrictive standards that detail exactly how a product

must be sold in a country .
Ex. Denmark requires companies to sell butter in cubes not in tubes.

B. General agreement on tariffs and trade:- ( GATT)& WTO

General agreement on tariffs and trade:- ( GATT):- An agreement signed by

many countries to reduce the restrictions on trade with one another. it's
overseen by the WTO " world trade organization".

World trade organization ( WTO ):-An organization that mediates trade

disputes between countries and also sets policies in place to encourage trade

Common market:-Regional group of countries that have a common external

tariff, no internal tariffs, and the coordination of laws to facilitate exchange
among member's countries (also called a trading bloc).

European Union (EU):- An agreement among European member countries to

eventually reduce all barriers to trade and become unified both economically
and politically .

OPEC:-An organization, consisting of 12 oil-producing countries, to work

collectively for oil interests .

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NAFTA (North American Free Trade Agreement) :-An agreement signed by
the USA, Mexico, Canada to reduce or eliminate tariffs on goods and to
encourage trade between the countries.

Section (5) : Strategies for Reaching Global Markets

Strategies for Reaching Global Markets

1- Licensing
2- Exporting
3-franchising
4-contract manufacturing
5-international joint ventures and strategic alliance
6 Foreign direct investment

1 Licensing

Licensing:-Selling the right to manufacture a product or use a trademark to a

foreign company (the licensee) for a fee (a royalty) .

2 Exporting

Exporting :-Selling products to another country

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3 Franchising

Franchising agreement :-An arrangement whereby someone with a good idea

for a business sells the right to use the business name and sell a product or a
service to others in a given territory

Franchisor :-A company that develops a product concept and sells others the
rights to make and sell the product

Franchisee:-A person who buys a franchise.

4 Contract manufacturing

Contract manufacturing (Outsourcing):- When one country produces goods

with another country's company label on it.
Dell Dell
But One of the major disadvantages is that intellectual property and
copyright laws are different in every county.

5 International joint ventures and strategic alliances

Joint venture:-A partnership in which two or more companies (often from

different countries) join to undertake a major project for specific time period

The benefits of international joint venture:-

i. Shared technology
ii. Shared marketing and management expertise
iii. Shared risk
iv. Entry into markets where foreign companies are often not allowed
unless their goods are produced locally

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Greenfield investment:-When a company decided to enter a country and
build New offices and production facilities and new Factories.

Strategic alliance:-An agreement between two or more companies to

work together to achieve competitive market advantages.

6 Foreign direct investment (FDI) :-

(FDI) Foreign direct investment:-The buying of permanent property and

businesses in foreign nation.

Foreign subsidiary: - A company that is owned in a foreign country by another

(called the parent company).the primary advantage of a foreign subsidiary is
that the home company controls the technology or expertise.

Expropriation (disadvantage of foreign subsidiary):- When a host government

takes over a foreign subsidiary in a country

Multinational Corporation:-An organization that manufactures and markets

products in many different countries, it has multinational stocks ownership
and multinational management.

Section (6) : Forces affecting trade in global markets

Forces affecting trade in global markets:-

A. sociocultural forces
B. economic financial forces
C. legal and regulatory forces
D. Physical and environmental forces

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A- Sociocultural forces
Culture:-The set of values ,beliefs rules , and institutions held to by a specific
group of people .

Ethnocentricity: - Attitude that one's own culture is superior to all others.

Global marketing:- The term used to describe selling the same product in
essentially the same way everywhere in the world .

B- Economic and financial forces :-

Exchange rate:-The value of one nation's currency relative to the currencies of

other countries.

Bartering: - The exchange of merchandise for merchandise or service for

service with no money involved.

Countertrading :- A complex form of bartering in which several countries may

be involved, each trading goods for goods or services for services with the
others

C- Legal and regulatory forces:-

D- physical and environmental forces:-

Section (7) : The Future Global Trade