Chapter 2 The Dynamic Environment of International Trade

Chapter 2: The Dynamic Environment of International Trade

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

Introduction Proliferation of trade and emergence of the global economy Intensification of global competition More emerging markets Developments in technology allow communications with global consumers and movement of goods

21 st 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 within 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.

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

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

Balance of Payments The Balance of Payments includes three accounts: (1) current account (2) the capital account (3) the official reserves account

Balance of Trade (1) current account (2) the capital account • If exports exceed imports, The Balance of Trade is positive • If imports exceed exports, the Balance of Trade is negative • Is a negative balance bad? account (3) the official reserves

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 use protectionist measures to shield a country’s markets from intrusion by foreign competition and imports. Arguments for Protectionism include: 1. 2. 3. 4. 5. 6. Maintain employment and reduce unemployment Increase of business size Retaliation and bargaining Protection of the home market Need to keep money at home Encouragement of capital accumulation

Protectionism: Logic and Illogic Arguments for Protectionism include: 7. Maintenance of the standard of living and real wages 8. Conservation of natural resources 9. Protection of an infant industry 10. Industrialization of a low-wage nation 11. National 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) Specific Limitations on Trade: 1. Quotas 2. Import Licensing requirements 3. Proportion restrictions of foreign to domestic goods (local content requirements) 4. Minimum import price limits 5. Embargoes (2) Customs and Administrative Entry Procedures: 1. Valuation systems 2. Antidumping practices 3. Tariff classifications 4. Documentation requirements 5. Fees

Six Types of Non-Tariff Barriers (3) Standards: 1. Standard disparities 2. Intergovernmental acceptances of testing methods and standards 3. Packaging, labeling, and marking (4) Government Participation in Trade: 1. Government procurement policies 2. Export subsidies 3. Countervailing duties 4. Domestic assistance programs

Six Types of Non-Tariff Barriers (5) Charges on imports: 1. Prior import deposit subsidies 2. Administrative fees 3. Special supplementary duties 4. Import credit discriminations 5. Variable levies 6. Border taxes (6) Others: 1. Voluntary export restraints 2. Orderly marketing agreements

Monetary Barriers In addition to the Six Types of Non-Tariff Barriers, monetary barriers are also used by countries Three types of monetary barriers include: 1. Blocked currency 2. Differential exchange rates 3. Government approval

World Trade Organization (WTO) Unlike GATT, is an institution, not an 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. 2. 3. 4. IMF was created to assist nations in becoming and remaining economically viable It assists countries that seek capital for economic development and restructuring IMF loans come with stipulations that borrowing countries slash spending and impose controls to curb inflation It helps maintain stability in the world financial markets Objectives of the IMF include: 1. stabilization of foreign exchange rates 2. establish convertible currencies to facilitate international trade 3. lend money to members in financial trouble

World Bank Group (WBG) The goal of WBG is to reduce poverty and the improvement of living standards by promoting sustainable growth and investment in people. The functions of the WBG include: 1. 2. 3. 4. 5. lending money to countries to finance development projects in education, health, and infrastructure; providing assistance for projects to the poorest developing countries; lending directly to the private sector in developing countries with long -term loans, equity investments, and other financial assistance; provide investors with investment guarantees against “noncommercial risk, ” so developing countries will attract FDI; and provide conciliation and arbitration of disputes between governments and foreign investors

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