GB 370- Unit 3

Total portion of the US economy that depends on trade

-21% -That is the fourth lowest of 268 economies and continents Mexico #149, China #28, Canada #114

US is outrageously entrepreneurial

-2nd highest of all developed economies for people starting businesses -The big challenges are getting entrepreneurs to be more globally competitive, and maintaining innovativeness in a global economy.

Letter of Credit

-A letter of credit is issued by a bank at the request of an importer and states the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents -This system is attractive because both parties are likely to trust a reputable bank even if they do not trust each other

The Export Import Bank

-The Export-Import Bank (Eximbank) is an independent agency of the U.S. government (similar institutions lots of places) -Its mission is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the U.S. and other countries

Developing International and Global Strategies

1.Global efficiencies 2.Multimarket flexibility 3.Worldwide learning

Economic arguments for government intervention in international trade include

1.The infant industry argument 2Strategic trade policy

Political arguments for government intervention include

1.protecting jobs 2.protecting industries deemed important for national security 3.retaliating to unfair foreign competition 4.protecting consumers from "dangerous" products 5.furthering the goals of foreign policy 6.protecting the human rights of individuals in exporting countries

Of the world's 500 largest companies,

128 are headquartered in the US

draft

A draft is an order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time

Local Content Requirements

A local content requirement demands that some specific fraction of a good be produced domestically -The requirement can be in physical terms or in value terms -Local content requirements benefit domestic producers and jobs, but consumers face higher prices

tariff

A tariff is a tax levied on imports that effectively raises the cost of imported products relative to domestic products

Administrative Policies

Administrative trade polices are bureaucratic rules that are designed to make it difficult for imports to enter a country .Often product safety standards cause issues These polices hurt consumers by denying access to possibly superior foreign products Often really weird .FedEx had to open every package in Japan

How to be an importer

Alibaba.com You can buy like anything on there You pay with paypal You ship it to your house You're a reseller You sell the stock on eBay or peddle it around town You're a solution provider You talk to the customer in depth about what they want, then you buy it for them (charge a markup) You're Wal-Mart You setup an office there and buy all kinds of stuff

Transnational Strategy

Attempting to combine the benefits of scale efficiencies pursued by a global corporation, with the benefits and advantages of local responsiveness of a multi-domestic corporation.

US export $1.6T a year (2nd in the world)

China is #1 and Germany is #3 - No one else is even close

US imports way more than everyone else $2.4T

China is #2

How to be an exporter

First - find customers

Brexit

Globalization makes people upset Britain has voted to leave the EU All trade deals need to be renegotiated -Britain doesn't have any Not clear how the banking industry survives as it has before without EU Manufacturing might improve -Economies might be too integrated for simplistic answers like in/out

Domestic Policies

Governments can be influenced by special interest Consequently, a government's decision to intervene in a market may appease a certain group, but not necessarily the support the interests of the country as a whole

Strategic Alternatives for International Businesses

Home replication Multi-domestic strategy Global strategy Transnational strategy

Export Credit Insurance

In the U.S., export credit insurance is provided by the Foreign Credit Insurance Association (FICA) FICA provides coverage against commercial risks and political risks

Multimarket flexibility

International businesses may respond to a change in one country by implementing a change in another country.

Bill of Lading

It serves three purposes 1.it is a receipt 2.it is a contract 3.it is a document of title -The bill of lading is issued to the exporter by the common carrier transporting the merchandise

Global efficiencies

Location efficiencies—seeking lower input cost locations Economies of scale—larger facilities result in lower costs Economies of scope—broadening product lines

Multi-Domestic Strategy

Managing a corporation as a collection of independent operating subsidiaries frees a firm to customize its products, its marketing campaigns, and operating techniques to meet local customer needs.

How is payment actually made in an export transaction?

Most export transactions involve a draft, also called a bill of exchange

Problem with trade:

One group hurts a lot while all benefit some

Development of the World Trading System

Since World War II, an international trading framework has evolved to govern world trade In its first fifty years, the framework was known as the General Agreement on Tariffs and Trade (GATT) Since 1995, the framework has been known as the World Trade Organization (WTO)

WTO Experience to Date

Since its establishment, the WTO has emerged as an effective advocate and facilitator of future trade deals, particularly in such areas as services So far, most countries have adopted WTO recommendations for trade disputes The WTO has brokered negotiations to reform the global telecommunications and financial services industries First protests were 1999 in Seattle and have continued apace Agriculture is essentially not covered by WTO

Worldwide learning

The diverse operating environments of multinational corporations (MNCs) contribute to organizational learning that can be transferred to other operating environments.

How do governments intervene in international trade?

There are seven main instruments of trade policy 1.Tariffs 2.Subsidies 3.Import quotas 4.Voluntary export restraints 5.Local content requirements 6.Antidumping policies 7.Administrative policies -Ex: Emission rules on cars (local content too) Ex: Can't import used cars to Chile or old iPhones to India

Trade is not a small thing

Total world trade is about $18.4T Growth running about 7% a year for last 10 years

We are a big fat trading nation that produces a tremendous amount domestically

Trade statistics are huge but understate the importance of trade to the economy.

Canada is the largest trading partner

True

Where can exporters get financing help?

U.S. exporters can draw on two forms of government-backed assistance to help their export programs 1. they can get financing aid from the Export-Import Bank 2. they can get export credit insurance from the Foreign Credit Insurance Association

Home Replication

Utilizing a core competency or a firm-specific advantage developed at home as a main competitive weapon in foreign markets.

Global Strategy

Viewing the world as a single marketplace and having as a primary goal the creation of standardized goods and services that will address the needs of customers worldwide.

Trans Pacific Partnership (US)

Worlds largest free trade agreement Got stuck on copyright (US) and agriculture (Japan) Not ratified Essentially a US-leaning deal for copyrights but not uncontroversial

time draft

allows for a delay in payment - normally 30, 60, 90, or 120 days

Specific tariffs

are levied as a fixed charge for each unit of a good imported

Ad valorem tariffs

are levied as a proportion of the value of the imported good

sight draft

is payable on presentation to the drawee