afm 131 chpt summaries - Chapter 3 Competing in Global...

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Chapter 3: Competing in Global Markets The Dynamic Global Market Exporting is selling products to another country Importing is buying products from another country Trading with other countries are beneficial for these reasons: o No country is self-sufficient – can produce all of the products needed o Other countries produce at a cheaper price due to abundance / technological advances o Global trade allows a nation to produce what it is most capable of and buying from others Free Trade is the movement of goods and services among nations without political or economic trade barriers Comparative Advantage Theory states that a country should sell to other countries those products that produces most effectively and efficiently, and buy from other countries those products it cannot product as effectively/efficiently Absolute Advantage exists when a country has a monopoly on producing a certain product or can do so more effectively/efficiently than other countries Getting Involved in Global Trade Small businesses account for 49% of the total private labour force but only 16% of exports Balance of trade is the nation’s ratio of exports to imports – a favourable ratio is when exports exceed imports (trade surplus) Trade Deficit is when there is an unfavourable balance of trade – imports exceed exports Balance of Payments is the difference between inflow of money and outflow of money | inflow > outflow = favourable balance of payments Strategies for Reaching Global Markets Key strategies include: exporting, licensing, franchising, contract manufacturing, creating international joint ventures and strategic alliances, creating foreign subsidiaries, and engaging in foreign direct investment (listed in increasing amount of commitment, control, risk and profit potential) Licensing is the a global strategy in which a firm allows a foreign company to produce its product in exchange for a fee Through licensing, company gains additional revenues Licensors spend little or no money to produce and market their products
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Franchising is an arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell a product or service to others in a given territory (ie. Tim Hortons) Contract Manufacturing – a foreign country’s production of private-label goods to which a domestic company then attaches its brand name or trademark (also called outsourcing) Joint Venture – a partnership in which two companies join to undertake a major project or to form a new company; benefits include: o shared technology and risk, shared marketing and management expertise, entry into markets of foreign companies, shared knowledge of local markets Strategic Alliance – a long-term partnership between two or more companies established to help each company build competitive market advantages Foreign Direct Investment – the buying of permanent property and business in foreign nations Foreign Subsidiary
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