Ass. Prof. Dr. Özgür KÖKALAN
İstanbul Sabahattin Zaim University
Chapter Objectives
1.
2.
3.
4.
5.
Define
what
the
meaning
of
trade
and
internationalization are.
Discuss the absolute and comparative advantage of a
country
Define the ways to be global
Compare these ways based on profit, risk and control
Explain the barriers a company can face when it wants to
be global
5-2
Why Do Countries Trade?
 Countries trade with other countries is because
 Countries are capable of answering various demands of
their citizens in efficient way using their resources.
Absolute & Comparative Advantage
 Absolute advantage; some countries efficiently
produce goods and services at lower costs than other
countries. In this case these countries more control
over the prices.
 The Republic of South Africa has a monopoly in
diamond mining . China has a absolute advantage in silk
production.
 Comparative advantage; some countries produce
specific products comparatively efficiently and at a
lower cost than the other countries. These countries
has comparative advantage
What is the meaning of Internationlization?
The Ways to Be Global
 There are many ways to be global. These are,
 Importing / Exporting
 Franchising
 Licensing
 Subcontracting
 Joint venture
 Overseas Marketing
 International Merger & Aqusition
 Overseas Production ( Foreign Direct Investment)
Importing & Exporting
 Importing; local businesses buy foreign goods and
services from other countries to be sold in the the local
market.
 Exporting; local businesses sell domestically
produced goods and services to foreign countries.
 Direct export; selling the finished products to the
foreign countries . Ex. Car
 Indirect export; selling the components as an input for
finished product. Ex. Tires
Balance of Trade
 The relationship between a country’s export and
import
 If a country’s export is more than its import, this
situation is called as trade surplus.
 If a country’s export is less than its import, this situation
is called as trade deficit.
Balance of Payments
 The relationship between inflow and outflow money.
 If inflow money into the country is more than outflow
money from the country, this situation is called as
balance of payment surplus.
 If inflow money into the country is less than outflow
money from the country, this situation is called as
balance of payment deficit.
Exchange Rates
Exchange rate; is a value of a nation’s local currency in
relation to the currencies of the other countries.
Fixed exchange rate; The exchange rate is
determined by the government
Floating exchange rate; The exchange rate
is determined by demand
Devaluation; sometimes goverments reduce
the value of their local currency to other
currencies.
Contractual Agreements: Franchising, Foreign
Licensing, Subcontracting
 Franchising; Manufacturers give a local business the
right to sell their products under the their globally
registered brandname.
 Foreign Licensing; Under the contracted licensing
agreement, the manufacturer allows the local business
to use its intellectual property in return for
compensation in form of royalities.
 Subcontracting; The foreign companies hire local
companies to produce, sell or distribute goods and
services.
International Investments: Joint Ventures,
Overseas Marketing, Overseas Production,
International Merger and Acqusition
 Joint Ventures; The companies in different countries
share the risks, costs, profits and management
responsibility by utilizing their resources and
capabilities to serve in any one of the international
market.
 Overseas Marketing; sellers or manufacturers opens
and owns a sales office or division in foreign countries.
They imports goods from home countries and sell
them in foreign countries.
 Overseas Production (Wholly Owned Facilities);
The sellers or manufacturers make production in the
overseas countries where they want to sell their
product
 International Merger & Acquisition;
 Merger; A merger occurs when two companies combine
to form a single company.


Vertical merger; A vertical merger is one in which a firm or
company combines with a supplier or distributor
Horizantal Merger; A horizontal merger is when two
companies competing in the same market merge or join
together
 An
acquisition or takeover (Foreign Direct
Investment); is the purchase of one business or
company by another company or other business entity
 In international merger & acqusition; Foreign company
purchases a local company or combines with local
company to opreate its business in the area where it
wants to enter.
Stages of Global Business Involvement
Import / Export
Contractual
Agreements
 Importing
 Franchising
 Exporting
 Foreign Licensing
 Subcontracting
•
•
•
•
 Risk &Profit
 Control
International
Investment
International Joint
Ventures
Overseas
Marketing
Overseas
Production
International
Merger &
Acqusitions
Barriers in Global Business
 When a business decides to be global, it will face to
face many risks. These risks are divided into two
groups:
 Natural barriers (Natural risks),


Physical barriers: one important physical barrier is the
location of trading companies that affects the amount of
business.
Social and Cultural Barriers; people of the world have
different beliefs, attitudes, values, languages. What is
considered right for a person in one nation may not be
welcomed by others in different nations.
 Man – Made / Artifical Barriers
Manmade barriers are artifical barriers to prevent
international trading. Because of different reasons,
countries create different obstacles to prevent their
economy. There are mainly two types of artifical barriers.
These are;
 Economical Barriers
 Political and Legal Barriers
Economical Barriers
 Tariffs: Customs taxes, duties or charges on imported
goods are called tariffs. Tariffs make the imports more
expensive for local customers and usually lead them to
purchase less expensive domestix products.
 Trade restrictions: These are non –tariff barriers that
restrict imports by setting adminstrative regulations
and rules.
 Quotas: they restrict the amount of the particular
important commodities into a country for a specific
period of time. Limits may be put on quatities and
value.
 Embargo: Stopping trade with a particular country.
 Custom administrative regulations: In this barrier,
setting unnecessary and irrational bureaucratic rules
for imported products.
Political and Legal Barriers
Governments may also restrict the free international
trade by creating difficulties in entry regulations for
some countries, while facilitating the same for others.
A company should investigate the legal structure of a
country where it wants to enter. It will never enter the
country which does not accepts international law and
decisions of international courts
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