CHAPTER 8

1- Understanding Globalization

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

Global trade
The exchange of gods and services across national
borders.
Exporting
Selling products to another country.
Importing
Buying products from another country.
Why trade globally
a- No nation can produce all of products that its people want and
need.
b- Even if a country did self-sufficient, other nations would seek
to trade with it to meet the needs of their own people.
c- Trade relations enable each nation to produce what it is most
capable of producing and to buy what it needs in a mutually
beneficial exchange relationship.

Free trade
The movements of goods and services among nations
without political or economic trade barriers.

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3- Comparative advantage and absolute advantage

Comparative advantage theory

The theory that 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.
4- Measuring trade
a- Balance of payments and trade deficits
Balance of trade

Ratio of a country's exports to imports.

- Trade surplus(favorable balance of trade)
When a country exports more than it imports.
- Trade deficit(unfavorable balance of trade)
Occurs when a country imports more than it
exports.
Balance of payments
The difference between money coming into a
country (from exports) and money leaving the
country (for imports) plus or minus money flows
coming into or leaving a country from other
factors such as tourism, foreign aid, military
expenditures, and foreign investments.
b- Unfair trade practices

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 Dumping
The practice of selling products in a 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.
5- Trade protection and agreements
Trade protectionism

The use of government regulations to limit the

import of goods and services.
a- Tariff
A tax on imported goods thus making them more
expensive to buy.
1. Protective tariffs
Designed to raise the retail price of imported
products so that domestic goods will be more
competitively priced.
2. Revenue tariffs
designed to raise money for the government.

Harmonized tariff schedule

A publication by the U.S. government
that lists the tariffs and quotas for every
imported good.
b- Import quota
Limits the number of products in certain
categories that a nation can import.
c- Embargo
Complete ban on goods to or from a country.

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d- Nontariff barriers

Restrictive standards that detail exactly how

a product must be sold in a country.
E.g. Japan's keiretsu.
Despite these barriers to trade, there are many policies
in place that are limiting, if not eliminating barriers to
trade:
The general agreement on tariffs and trade and the WTO

General Agreement on Tariffs and Trade (GATT)

An agreement signed by many countries to
reduce the restrictions on trade with one
another. It is overseen by the WTO.
World Trade Organization (WTO)
An organization that mediates trade disputes
between countries and also sets policies in place
to encourage trade.
Common market (trading bloc)
Regional group of countries that have a common
external tariff, no internal tariffs, and the
coordination of laws to facilitate exchange
among member countries.
- European Union (EU)
An agreement among European member
countries to eventually reduce all barriers to
trade and become unified both economically
and politically.
- Mercosur
the south American common market was formed
using an agreement called the treaty of asunsion.

Ayman.shokry@telecomegypt.com

Organization of the Petroleum Exporting Countries

(OPEC_

OPEC
An organization, consisting of 12 oil-producing
countries, to work collectively for oil interests.
The North America Free Trade Agreement (NAFTA)

NAFTA
An agreement signed by the United States,
Mexico, and Canada to reduce or eliminate
tariffs on goods and to encourage trade
between the countries.
6- Strategies for reaching global markets
a- Licensing

Selling the right to manufacture a product or use a

trademark to a foreign company (the licensee) for a
fee (a royalty).
Advantages of a licensing agreement for the licensor:
- Gain additional revenues.
- Foreign licensees often must purchase start-up
supplies, component materials, and consulting
services from licensors.
Disadvantages of a licensing agreement for the licensor:
- Grant licensing rights to its product for an extended
period.
- Foreign licensees can learn the company's technology
or product secrets.

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b- Exporting
Exporting Assistance Center (EAC):
Created by U.S. government to provide hands-on exporting
assistance and trade-finance support for small and mediumsize businesses that choose to directly export goods and
services.
Export-trading companies (export management companies):
Available to step in to negotiate and establish the trading
relationships desired.
c- Franchising

Franchising agreement (franchise agreement)

An arrangement whereby someone with a good idea
for a business sells the rights to use the business name
and sell 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 buy a franchise.
Hint:
Franchising is different from licensing in that where licensing
might be for a single product, franchising allows the use of an
entire concept including the label, how the good is
manufactured or made, and the look and feel of the business.

Ayman.shokry@telecomegypt.com

d- Contract manufacturing (outsourcing)

When one country produces goods with another

country's company label on it.
e- 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 a specified time period.
Benefits of international joint ventures:
1. Shared technology.
2. Shared marketing and management expertise.
3. Entry into markets where foreign companies are often not
allowed unless their goods are produced locally.
4. Shared risk.
An alternative to a joint venture is

Greenfield investment
When a company decides to enter a country and build
offices and production facilities.
Disadvantage: lack of knowledge of the country's ways of doing
business.

Strategic alliance
An agreement between two or more companies to
work together to achieve competitive market
advantages.
f- Foreign direct investment (FDI)
The buying of permanent property and businesses in
foreign nations.
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Foreign subsidiary (parent company)

A company that is owned in a foreign country by
another company.
Hint:
Country of parent company is home country.
Country where the subsidiary is located called host country.
Advantage:
Foreign subsidiary is that the home company maintains
complete control over any technology or expertise it may
possess.
Disadvantage:

Expropriation
When a host government takes over a foreign
subsidiary in a country.
Hint:
Creating a subsidiary might not be the best course of action for
a smaller business.

Multinational corporation
An organization that manufactures and markets
products in many different countries; it has
multinational stock ownership and multinational
management.
All multinational corporations are large corporations.
Not all large firms are multinational corporations.
Only firms that have manufacturing capacity or some other
physical presence in different nations can be called
multinational.

Ayman.shokry@telecomegypt.com

7- Forces affecting trade in global markets

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.
- Religion.
- Human resource management.
- Communication.

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.

Ayman.shokry@telecomegypt.com

c- Legal and Regulatory Forces

The Organization for Economic Cooperation and Development
(OECD):
Leading a global effort to fight corruption and bribery in
foreign markets.
d- Physical and environment forces

Ayman.shokry@telecomegypt.com