The 20th to the 21st Century

First World War

Worldwide economic depression

Second World War

Cold war and divide between communist-socialist-capitalist approaches to economic

development

The Marshall Plan for rebuilding Europe

World Trade and U.S. Multinationals

By Rapid growth of underdeveloped countries and new global marketing opportunities

Rising living standards have created marketing opportunities for U.S. firms

Resistance over domination of U.S. multinationals

Expropriation and domestication of U.S. investments in Latin America

In the Europe, U.S. multinationals were controlled tightly protectionism laws

World Trade and U.S. Multinationals

Resurgence of competition from all over the world challenged the supremacy of American
industry

Newly industrialized countries (NICs) such as Brazil, Mexico, South Korea, Taiwan, Singapore,
and Hong Kong experienced rapid industrialization

Economic power evenly distributed with growth of MNCs from other countries (see Exhibit 2-2)

Establishment of the WTO

Integration of European Union countries

Creation of NAFTA, AFTA, and APEC

21st Century: The First Decade and Beyond

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

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

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

Greater growth in international sales expected by smaller firms.

Globalization of the U.S. economy

America’s involvement in the global economy has passed through two distinct periods:

A development era: during which the United States sought industrial self-sufficiency in the
eighteenth and nineteenth centuries,

A free-trade

In the early and middle twentieth century during which open trade was linked with prosperity.

Now America has entered a third, more dangerous era: an age of global economic
interdependence.

The United States has shifted from relative economic self-sufficiency to global
interdependence.

Differentiate among the current account, balance of trade, and balance of payments

BALANCE OF PAYMENTS

A balance-of-payments statement includes three accounts:

When countries trade, financial transactions among businesses or consumers of different

nations occur. Products and services are exported and imported, monetary gifts are exchanged,
investments are made, cash payments are made and cash receipts received, and vacation and foreign
travel occurs. In short, over a period of time, there is a constant flow of money into and out of a country.
The system of accounts that records a nation’s international financial transactions is called its balance
of payments

“The BP is the difference between receipts and payments”

BP Receipts BP Payments

 Merchandise export sales.  Costs of goods imported.

 Money spent by foreign tourists.  Spending by U.S. tourists overseas.

 Transportation.  New overseas investments.

 Payments of dividends and interest from FDI  Cost of foreign military and economic aid.
abroad.
 New foreign investments in the U.S.

The BP includes three accounts:

Current account

A record of all merchandise exports, imports, and services plus unilateral transfers of funds;

Capital account

A record of direct investment, portfolio investment, and short-term capital movements to and
from countries;

The official reserves account

a record of exports and imports of gold, increases or decreases in foreign exchange, and
increases or decreases in liabilities to foreign central banks;

CURRENT ACCOUNT

The current account deals with the trade of goods and services between two countries.
An export is a good (or service) that is sent from the domestic country and purchased abroad.
An import is a foreign produced good that is imported for domestic consumption

BALANCE OF TRADE

The difference in value between a country's imports and exports.

Balance of Payments and Exchange Rate

If a country’s expenditures consistently exceed its income, its standard of living falls

Its exchange rate vis-à-vis foreign monies declines

When foreign currencies can be traded for more dollars, U.S. products are less expensive for
foreign customers and exports increase

Simultaneously foreign products are more expensive for U.S. buyers and the demand for
imported goods is reduced

Role of price as a free market regulator

The role of price mechanism in a free market economy or capitalism! The price system functions
through prices of both goods and services. They organize production and help in the distribution of
goods and services, ration out the supplies of goods and services and provide for economic growth.

Protectionism

Is the economic policy of restraining trade between states (countries) through methods such as
tariffs on imported goods, restrictive quotas, and a variety of other government regulations.

These are the types of Protectionism:

Tariffs

Typically, tariffs (or taxes) are imposed on imported goods. Tariff rates usually vary according to the
type of goods imported. Import tariffs will increase the cost to importers, and increase the price of
imported goods in the local markets, thus lowering the quantity of goods imported, to favour local
producers.

Import quotas

To reduce the quantity and therefore increase the market price of imported goods. The economic
effects of an import quota are similar to that of a tariff, except that the tax revenue gain from a tariff will
instead be distributed to those who receive import licenses. Economists often suggest that import
licenses be auctioned to the highest bidder, or that import quotas be replaced by an equivalent tariff

Embargoes

This is a total ban on a good, this may be done to stop dangerous substances

Subsidies

If a government subsidies domestic production this gives them an unfair advantage over
competitors.

Domestic subsidies and economic stimuli

Developing countries complained that such subsidies of domestic industries gave companies in
those countries unfair advantages in the marketplace.

Administrative barriers

Making it more difficult to trade, e.g. imposing minimum environmental standards.

Anti-Dumping Tariffs

‘Dumping’ occurs when firms sell goods below a ‘fair market price’ e.g. below cost, because of
excess supply. This can flood a domestic market with cheap imports and make it difficult for domestic
firms to stay in business. In this case, countries may justify tariffs on the grounds they are preventing
this damaging effect of dumping.

Standard

Disputes over national product standards are a major source of tension in international trade
negotiations. The usual pattern is that exporters challenge new product standards as a 'disguised
barrier to trade.' The paper develops a two-country political agency model of standard setting. It is
shown that there exists a political equilibrium in which the importing country on average applies a more
stringent standard than the exporting country.

Monetary Barriers

Another form of protection imposed by govt. there are three methods to it; it blocked currency.
Differential exchange rate and need gov’t approve requirement.

Voluntary Export Restraints (VERs)

A voluntary export restraint is a restriction set by a government on the quantity of goods that
can be exported out of a country during a specified period of time. Often the word voluntary is placed in
quotes because these restraints are typically implemented upon the insistence of the importing nations.

General Agreement on Trade in Services (GATS)

The General Agreement on Trade in Services (GATS) is the first multilateral agreement
covering trade in services. The GATS provides a framework of rules governing services trade,
establishes a mechanism for countries to make commitments to liberalize trade in services and
provides a mechanism for resolving disputes between countries

The GATS Four Modes

The GATS distinguishes between four modes of supplying services: cross-border trade,
consumption abroad, commercial presence, and presence of natural persons. They have been defined
as follows:

Mode 1: Cross-border supply

Cross-border supply is defined to cover services flows from the territory of one Member into the
territory of another Member
 Example: Banking or architectural services transmitted via telecommunications or mail

Mode 2: Consumption abroad

Consumption abroad refers to situations where a service consumer (e.g. tourist or patient)
moves into another Member’s territory to obtain a service

Example: Various kinds of tourism activities

Mode 3: Commercial presence

Commercial presence implies that a service supplier of one Member establishes a territorial
presence, including through ownership or lease of premises, in another Member’s territory to provide a
service

Example: Domestic subsidiaries of foreign insurance companies or hotel chains

Mode 4: Presence of a natural person

Presence of natural persons consists of persons of one Member entering the territory of
another Member to supply a service

Movement of skilled persons such as accountants, doctors or teachers

Trade Related Investment Measures (TRIMS)

The Trade Related Investment Measures is a World Trade Organization (WTO) agreement that
recognizes that measures and regulations impose on investments and investors can reduce or distort
international trade, and may function as disincentives for investor in situations where investment is
needed. The agreement restricts the use of three TRIMS requirements: local content requirements,
trade balancing requirement and foreign exchange balancing requirements.

TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS (TRIPS)

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is

an international legal agreement between all the member nations of the World Trade
Organization (WTO). It sets down minimum standards for the regulation by national governments of
many forms of intellectual property (IP) as applied to nationals of other WTO member nations. TRIPS
was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and
Trade (GATT) in 1994 and is administered by the WTO.

The TRIPS agreement introduced intellectual property law into the international trading system
for the first time and remains the most comprehensive international agreement on intellectual property
to date. In 2001, developing countries, concerned that developed countries were insisting on an overly
narrow reading of TRIPS, initiated a round of talks that resulted in the Doha Declaration. The Doha
declaration is a WTO statement that clarifies the scope of TRIPS, stating for example that TRIPS can
and should be interpreted in light of the goal "to promote access to medicines for all."

Specifically, TRIPS requires WTO members to provide copyright rights, covering content
producers including performers, producers of sound recordings and broadcasting
organizations; geographical indications, including appellations of origin; industrial designs; integrated
circuit layout-designs; patents; new plant varietiesa; trademarks; trade dress; and undisclosed
or confidential information. TRIPS also specifies enforcement procedures, remedies, and dispute
resolution procedures. Protection and enforcement of all intellectual property rights shall meet the
objectives to contribute to the promotion of technological innovation and to the transfer and
dissemination of technology, to the mutual advantage of producers and users of technological
knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and
obligations.

The TRIPs agreement establishes substantially higher standards of protection for a full range
of intellectual property rights (patents, copyrights, trademarks, trade secrets, industrial designs, and
semiconductor chip mask works) than are embodied in current international agreements and it provides
for the effective enforcement of those standards both internally and at the border.

History and Geography–The Foundations of Culture

CULTURE

Culture is a key component in business and has an impact on the strategic direction of
business. Culture influences management, decisions and all business functions from accounting to
production. The culture of each country has its own beliefs, values and activities. In other words culture
can be defined as an evolving set of collective beliefs, values and attitudes.

GEOGRAPHY

Geography is an all-encompassing discipline that seeks an understanding of the Earth and its
human and natural complexities—not merely where objects are, but how they have changed and
come to be.

HISTORY

“History helps define a nation’s “mission,” how it perceives its neighbors, how it sees its place
in the world, and how it sees itself.”

Importance of History
 The history of a country is important in understanding many aspects of a culture. A historical
perspective helps prepare an international marketer for many of the cultural differences that often
cause misunderstandings and in many cases, mistakes. While a marketer may not be able to change a
person’s attitude or behavior, if you have an historical perspective of why they react as they do, you can
gain insights that can possibly make it easier to adapt your strategies for a successful outcome.

Historical Perspective in Global Business

Attitudes about the role of government and business

Relations between Managers and Subordinates
Sources of Management Authority
Attitudes toward Foreign Corporations
History and Contemporary Behavior

Understanding of history: - Helps an international marketer

To understand, explain, and appreciate a people’s image of itself and the fundamental attitudes
and unconscious fears that are often reflected in its view of foreign cultures
An awareness of the history of a country is particularly effective for understanding attitudes
about the role of government and business, the relations between managers and the managed, the
sources of management authority, and attitudes toward foreign MNC’s.
History is what helps define a nation’s “mission,” how it perceives its neighbors, and how it
sees its place in the world.
To understand a country’s attitudes, prejudices, and fears it is necessary to look beyond the
surface or current events to the inner refinement of the country’s entire past for clues.

Geography and International Marketing

“Geography is a study of the physical characteristics of a particular region of the earth. Involved
in this study are climate, topography, and population. The interaction of the physical characteristics is
one of the principal determinants of a country’s customs, products, industries, needs, and methods of
satisfying those needs”.

Study of geography is important in the evaluation of markets

Need to be knowledgeable about the effects of geographic diversity on the economic profiles of
various nations
Climate and topography are examined as facets of the broader and more important elements of
geography
Knowledge about geography, the climate and physical terrain when appraising a market
Influences marketing from product adaptation to more profound influences on the development
of marketing systems
Climatic features affect uses and functions of products and equipment
Geography, Nature, and Economic Growth

Linkage exists between geographic location and economic growth

Association between landlocked countries and level of economic development

Countries with unfriendly climates associated with economic stagnation

Countries that suffer the most from major calamities are among the poorest in the world, which
influences ability to market products

Social Responsibility & Environmental Management

Firms required to be socially responsible especially in foreign markets

Firms should comply regulations against environmental pollution and disposal of hazardous
waste
Economic development and protection for the environment can coexist
Sustainable development guides many governments and multinational companies today

Sustainable Development: Key Propositions

There is a crucial and potentially positive link between economic development and the
environment
The costs of inappropriate economic policies on the environment are very high
Addressing environmental problems requires that poverty be reduced
Economic growth must be guided by prices that incorporate environmental values
Since environment problems pay no respect to borders, global and regional collaboration is
sometimes needed to complement national and regional regions

Natural Resources

Importance of natural resources especially to manufacturing of products

Supply of natural resources not endless
Human labor provides the preponderance of energy in many countries
Importance of oil and gas in world energy consumption

Global Population Trends

Important to know about current population trends because people constitute markets for
various categories of goods
Necessary to know about:
Rural/urban population shifts
Rates of growth
Age levels, and
Population control
Rural-urban migration of world population
Population decline and aging
Worker shortage and immigration

The world population pattern trend is shifting from rural to urban areas: Implications for
international marketer

1. World market is becoming more unified in location.

2. The types of products marketed will also change with this population shift.

3. These shifts will result in greater industrialization in countries with presently low levels of
industrialization.

4. In summary, people living in cities have different needs than those living in the country.

Basis of world trade.

Differences in skills:

The basis for world trade is the differences between countries. One of these differences is the
difference between people. Different heritages have resulted in the development of certain unique skills
in the people of a country.

Differences in economies:

Another difference is the one of differing stages of economic development existing in the world
today. Some countries are highly developed and industrialized.

Differences in national resources:

A third difference in countries serving as a basis for world trade is the availability of natural
resources.
World Trade Routes and Communication Links

Knowledge about trade routes over land, sea, and air important in making marketing decisions

The majority of world trade is among the most industrialized and industrializing countries of
Europe, North America, and Asia

Need to be aware about communication links—the underpinning of all commerce

Impact of the Internet revolution especially for global marketing of products

“World trade routes bind the world together”.

This statement means that the world trade routes serve as avenues of minimizing differences
between countries. Without these routes, countries would stand alone – each different from the rest in
resources, economy, and people. The trade routes allow both people and products to flow, making
more of a unified, balanced world. The physical imbalances overcome, also smooth, cultural and
economic differences through the exchange of ideas as well as products.