Chapter 2: The Dynamic

Environment of International Trade

 The International Marketing Environment
Foreign Environment
(Uncontrollables)
7. Structure of 1. Competition
Distribution Domestic environment Environmental
(Uncontrollables) uncontrollables
country market A
(Controllables) 1. Competition
Price Product 2. Technology
5. Political- Target Environmental
7
6. Geography and Legal Market uncontrollables
Infrastructure Promotion Place or 2 .Technology country
Distribution market B
4.
Culture Environmental
3. Economy
uncontrollables
5. Political- 3. ECONOMY country
Legal market C
4. Culture
 Introduction

Proliferation
Proliferation of
of trade
trade and
and emergence
emergence of
of the
the global
global economy
economy

Intensification
Intensification of
of global
global competition
competition

More
More emerging
emerging markets
markets

Developments
Developments in
in technology
technology allow
allow communications
communications with
with
global
global consumers
consumers and
and movement
movement ofof goods
goods
21st Century: The First Decade and Beyond

With
With exception
exception of
of China,
China, slower
slower economic
economic growth
growth
in
in U.S.
U.S. and
and other
other countries
countries isis currently
currently evident.
evident.

Faster
Faster growth
growth rates
rates expected
expected in
in developing
developing
countries
countries such
such as
as Brazil,
Brazil, China,
China, India,
India, Indonesia,
Indonesia,
and
and Russia.
Russia.
More
More trade
trade expected
expected within
within emerging
emerging markets,
markets,
regional
regional trade
trade areas,
areas, and
and the
the established
established markets
markets
in
in Europe,
Europe, Japan,
Japan, and
and U.S.
U.S.

Companies
Companies need
need to
to be
be more
more efficient,
efficient, improve
improve
productivity,
productivity, expand
expand global
global reach,
reach, and
and respond
respond
quickly.
quickly.

Greater
Greater growth
growth in
in international
international sales
sales expected
expected by
by
smaller
smaller firms.
firms.
 Balance of Payments
1. When countries trade money flows into and out of
each country
2. The accounts that record a nation’s international
financial transactions are called its balance of
payments (BP)
3. Records all financial transactions between a country
and the rest of the world over a year
4. The BP is maintained on a double-entry bookkeeping
system
 Balance of Payments
The difference between receipts and payments

BP Receipts
BP Payments
• costs of goods exported.
• money spent by foreign
• costs of goods imported.
tourists.
• spending by tourists abroad
• transportation.
• new overseas investments.
• payments of dividends and
interest from FDI abroad. • cost of foreign aid.
• new foreign investments
 Balance of Payments
The Balance of Payments includes three accounts:

(1)
(1) current
current account
account (2)
(2) the
the capital
capital account
account

(3)
(3) the
the official
official reserves
reserves account
account
 Balance of Trade

(1)
(1) current
current account
account (2)
(2) the
the capital
capital account
account

• If exports exceed imports, The Balance of

Trade is positive
• If imports exceed exports, the Balance of
Trade is negative
• Is a(3)
negative
(3) the balance
the official
official bad? account
reserves
reserves account
 Balance of Payments and Exchange Rate

• The Exchange Rate is

determined by Supply and
Demand
• To buy Canadian goods,
Canadian currency is
demanded
• More exports or direct
investment will increase
the exchange rate
• As the value of the dollar
increases, the price of
exports increases.
 Protectionism: Logic and Illogic
Countries
Countries use
use protectionist
protectionist measures
measures to
to shield
shield aa country’s
country’s
markets
markets from
from intrusion
intrusion by
by foreign
foreign competition
competition and
and imports.
imports.

Arguments
Arguments for
for Protectionism
Protectionism include:
include:
1.
1. Maintain
Maintain employment
employment and and reduce
reduce unemployment
unemployment
2.
2. Increase
Increase of
of business
business size
size
3.
3. Retaliation
Retaliation and
and bargaining
bargaining
4.
4. Protection
Protection of
of the
the home
home market
market
5.
5. Need
Need to
to keep
keep money
money atat home
home
6.
6. Encouragement
Encouragement of of capital
capital accumulation
accumulation
 Protectionism: Logic and Illogic

Arguments
Arguments for
for Protectionism
Protectionism include:
include:
7.
7. Maintenance
Maintenance of of the
the standard
standard of
of living
living and
and real
real
wages
wages
8.
8. Conservation
Conservation of of natural
natural resources
resources
9.
9. Protection
Protection of
of an
an infant
infant industry
industry
10.
10. Industrialization
Industrialization of of aa low-wage
low-wage nation
nation
11.
11. National
National defense
defense
 Protectionism: Logic and Illogic

In general, protectionism
contributes to industrial
inefficiency and makes a nation
uncompetitive

Protectionism is implemented
through the imposition of trade
barriers, which include tariff
barriers and non-tariff barriers
 The Impact of Tariff (Tax) Barriers

Tariff Barriers tend to Weaken:

1. Balance-of-payments positions
2. Supply-and-demand patterns
3. International relations (they can start
trade wars)
 The Impact of Tariff (Tax) Barriers

Tariff Barriers tend to Restrict:

1. Manufacturer’ supply sources
2. Choices available to consumers
3. Competition
 Six Types of Non-Tariff Barriers

(1)
(1) Specific
Specific Limitations
Limitations on on Trade:
Trade:
1.
1. Quotas
Quotas
2.
2. Import
Import Licensing
Licensing requirements
requirements
3.
3. Proportion
Proportion restrictions
restrictions of
of foreign
foreign to
to
domestic
domestic goods
goods (local
(local content
content requirements)
requirements)
4.
4. Minimum
Minimum import
import price
price limits
limits
5.
5. Embargoes
Embargoes

(2)
(2) Customs
Customs andand Administrative
Administrative Entry
Entry Procedures:
Procedures:
1.
1. Valuation
Valuation systems
systems
2.
2. Antidumping
Antidumping practices
practices
3.
3. Tariff
Tariff classifications
classifications
4.
4. Documentation
Documentation requirements
requirements
5.
5. Fees
Fees
 Six Types of Non-Tariff Barriers

(3)
(3) Standards:
Standards:
1.
1. Standard
Standard disparities
disparities
2.
2. Intergovernmental
Intergovernmental acceptances
acceptances of
of testing
testing
methods
methods and
and standards
standards
3.
3. Packaging,
Packaging, labeling,
labeling, and
and marking
marking

(4)
(4) Government
Government Participation
Participation in
in Trade:
Trade:
1.
1. Government
Government procurement
procurement policies
policies
2.
2. Export
Export subsidies
subsidies
3.
3. Countervailing
Countervailing duties
duties
4.
4. Domestic
Domestic assistance
assistance programs
programs
 Six Types of Non-Tariff Barriers
(5)
(5) Charges
Charges on on imports:
imports:
1.
1. Prior
Prior import
import deposit
deposit subsidies
subsidies
2.
2. Administrative
Administrative feesfees
3.
3. Special
Special supplementary
supplementary duties
duties
4.
4. Import
Import credit
credit discriminations
discriminations
5.
5. Variable
Variable levies
levies
6.
6. Border
Border taxes
taxes

(6)
(6) Others:
Others:
1.
1. Voluntary
Voluntary export
export restraints
restraints
2.
2. Orderly
Orderly marketing
marketing agreements
agreements
 Monetary Barriers

In
In addition
addition to
to the
the Six
Six Types
Types of
of Non-Tariff
Non-Tariff Barriers,
Barriers,
monetary
monetary barriers
barriers are
are also
also used
used by
by countries
countries

Three
Three types
types of
of monetary
monetary barriers
barriers
include:
include:

1.
1.Blocked
Blocked currency
currency

2.
2.Differential
Differential exchange
exchange rates
rates

3.
3.Government
Government approval
approval
 World Trade Organization (WTO)

Unlike
Unlike GATT,
GATT, isis an
an institution,
institution, not
not an
an agreement
agreement

1. It sets many rules governing trade between its 132

members

2. WTO provides a panel of experts to hear and rule on

trade disputes between members, and, unlike GATT,
issues binding decisions
 The International Monetary Fund (IMF)

1. IMF was created to assist nations in becoming and remaining

economically viable
2. It assists countries that seek capital for economic development
and restructuring
3. IMF loans come with stipulations that borrowing countries slash
spending and impose controls to curb inflation
4. It helps maintain stability in the world financial markets

Objectives
Objectives ofof the
the IMF
IMF include:
include:
1.
1. stabilization
stabilization ofof foreign
foreign exchange
exchange rates
rates
2.
2. establish
establish convertible
convertible currencies
currencies to
to
facilitate
facilitate international
international trade
trade
3.
3. lend
lend money
money to to members
members inin financial
financial
trouble
trouble
 World Bank Group (WBG)
The
The goal
goal of
of WBG
WBG isis to
to reduce
reduce poverty
poverty and
and the
the improvement
improvement ofof
living
living standards
standards by
by promoting
promoting sustainable
sustainable growth
growth and
and investment
investment
in
in people.
people.

The
The functions
functions of
of the
the WBG
WBG include:
include:
1. lending money to countries to finance development projects in
education, health, and infrastructure;
2. providing assistance for projects to the poorest developing countries;
3. lending directly to the private sector in developing countries with
long-term loans, equity investments, and other financial assistance;
4. provide investors with investment guarantees against
“noncommercial risk,” so developing countries will attract FDI; and
5. provide conciliation and arbitration of disputes between governments
and foreign investors
 Protests Against Global Institutions

In
In 1999
1999 “anti-capitalist
“anti-capitalist protestors”
protestors” complained
complained
against
against the
the WTO
WTO and and IMF,
IMF, over
over the
the unintended
unintended
consequences
consequences ofof globalization
globalization that
that include:
include:
1. environmental concerns
2. worker exploitation and
domestic job losses
3. cultural extinction
4. higher oil prices, and
5. diminished sovereignty of
nations