International Marketing

15th edition

McGraw-Hill/Irwin

Philip R. Cateora, Mary C. Gilly, and John L. Graham

Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Introduction
History of world trade:
Stock market crash of 1929; U.S. gave up on free
trade
Other countries retaliated and world trade
collapsed into a global depression
After World War II, the U.S. and the
industrialized nations wanted free trade
World trade increased 22-fold since 1950
General Agreement on Tariffs and Trade (GATT)
was formed in 1944 to help reduce tariffs
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Overview

Transition of the world trade from the 20th to

the 21st century
Balance of payments
Protectionism Logic and illogic
Trade barriers
Easing trade restrictions GATT, WTO, IMF,
and the World Bank Group
Anti-globalization protests

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Global Perspective
Trade Barriers: An International
Marketers Minefield
Many countries take advantage of U.S. open markets
while putting barriers in the way of U.S. exports
Japan (snow skis, rice, baseballs, and beef)
France (American movies and songs)
Britain (taxing of P&Gs Pringle potato chips)
Trade barriers not only limit how much U.S. companies
can sell, they also raise prices for imported products much
higher than they sell for in the U. S.
Since the birth of the WTO (World Trade Organization),
efforts have been made by many countries to reduce trade
barriers, benefiting the world socially, politically, and
economic ally
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The International
Trade Environment

Yesterdays competitive market battles were

fought in western Europe, Japan, and the United
states; now these battles have expanded to Latin
America, eastern Europe, Russia, China, India,
Asia, and Africa.
This emerging global economy brings significant
advantages to both marketers and consumers:
Marketers benefit from new markets that give
them viable business opportunities
Consumers benefit from a wide array of goods at
the lowest prices.
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Top Ten 2009 U.S. Trading Partners

($ billions, merchandise trade)
Exhibit 2.1

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Twentieth to the
Twenty-First Century (1 of 2)
First Half of the Twentieth Century
The Depression era (1930s) between two world wars WW I (1914-1919) and WW II (1939-1945)

Capitalism was promoted by the U.S. through the

Marshall Plan:
Economically rebuilding Europe and Japan
Fostering economic growth in the underdeveloped
world

In short, the United States helped make the worlds

economies stronger, which enable them to buy more
from us.
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Twentieth to the
Twenty-First Century (2 of 2)
GATT (General Agreement on Tariffs and Trade)
was created in 1986 by world leaders to help
negotiate reductions in tariffs and other trade
barriers.
WTO (World Trade Organization) was created in
1995 to reinforce GATT rules and legislate trade
disputes.
Last half of the 20th century marred by competing
approaches to economic development between the
Socialist Marxist and Democratic capitalist.
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World Trade and

U.S. Multinationals (1 of 2)
21st century ushered in the era of new global
marketing opportunities
1950s U.S. companies began to export and
make significant investments in overseas
marketing and production facilities
1960s U.S. multinational corporations (MNCs)
faced major challenges on two fronts
Resistance to direct investment
Increasing competition in export markets

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World Trade and

U.S. Multinationals (2 of 2)
American MNCs were confronted by a resurgence of
competition from all over the world
Japan, Germany, NIC (Newly Industrialized Countries Brazil,
Mexico, India, South Korea, Taiwan, Singapore , Hong Kong),
developing countries such as Venezuela, Chile, Bangladesh
established SOE (State-Owned Enterprises)

The U.S. role as an economic powerhouse was challenged on

two fronts:
U.S. position in world trade (see chart on the next slide)
U.S. trade deficit (as high as $700 billion in 2007)

Last decade of the 20th century saw profound changes in the

way world trade would be done
Free trade zones developed such as NAFTA, AFTA, and APEC
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Worlds 100 Largest Industrial

Corporations (Annual Revenues)
Exhibit 2.2

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Beyond the First Decade

st
of the 21 Century (1 of 2)

Growth of the U.S. economy slowed dramatically in

the last few years especially in 2009
Economies of the developed world expected on
average to grow annually at 3% for the next 25 years
(OECD)
Economies of the developing world expected on
average to grow annually at 6% for the next 25 years
(OECD)
As a result, economic power and influence will move
away from industrialized nations to developing nations
(Latin America, Asia, Eastern Europe, and Africa)
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Beyond the First Decade

st
of the 21 Century (2 of 2)
Companies are looking for ways to become more
efficient, improve productivity, and expand their
global reach while maintaining an ability to
respond quickly and deliver products that the
markets demand.
Nestle, Samsung, Whirlpool

Smaller companies also using novel approaches

to target global markets
Nochar Inc. (fire retardant)
Buztronics Inc. (promotional lapel buttons)
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Balance of Payments
(1 of 2)

Balance of payments is defined as the system of

accounts that records a nations international
finance transactions.
Transactions recorded annually
Must always be in balance
A record of condition, not determinant of condition

Balance of payments include three accounts:

Current account (exports, imports, services, funds)
Capital account (investments and short-term capital)
Reserves account (gold, foreign exchange, and
liabilities)
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Balance of Payments
(2 of 2)
Receipts (+)

Payments (-)

Export sales
Money spent by foreign
tourists
Transportation
Insurance to the U.S.
government
Dividend and interest on
investments abroad
Foreign government
payments to the U.S.

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U.S. Current Account

by Major Components, 2009 ($ billions)
Exhibit 2.3

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U.S. Current Account Balance

(% of GDP)
Exhibit 2.4

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What Would
One U.S. Dollar Buy?
Exhibit 2.5

http://online.wsj.com/mdc/public/page/2_3021-forex.html

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Protectionism
The reality of world trade is that countries
protect its markets from foreign companies by
setting up tariffs, quotas, and nontariff barriers.
Barriers to trade can take any of the following
forms:

Legal (tariffs and quotas)

Exchange
Psychological (nontariffs)
Private market

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Protection
Logic and Illogic
Arguments for protectionism:

Protection of infant industry

Protection of the home market
Need to keep money at home
Encouragement of capital accumulation
Maintenance of the standard of living and real wages
Conservation of natural resources
Industrialization of a low-wage nation
Maintenance of employment and reduction of unemployment
National defense
Increase of business size
Retaliation and bargaining
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Does Protectionism Help?

A recent study on 21 protected industries showed that
while jobs are protected, consumers pay much higher
prices because of protectionism:
U.S. consumers pay about $70 billion per year in
higher prices because of tariffs and other protective
restrictions.
At the same time, the average cost to consumers for
saving one job in these protected industries was
$170,000 per year.
Protectionism is politically popular, particularly during
times of declining wages, and/or high employment, but it
rarely leads to renewed growth in a declining industry.
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Trade Barriers

Tariffs
Quotas and Import Licenses
Voluntary Export Restraints (VER)
Boycotts and embargoes
Monetary barriers
Blocked currency
Government approval

Standards
Antidumping penalties
Domestic subsidies and economic stimuli
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Trade Barriers
Tariffs are taxes imposed by a government on goods
entering its borders.
Inflationary pressures, special interests privileges,
government control and political considerations in
economic matters, and the number of tariffs
Balance-of-payment positions, supply and demand
patterns, and international relations by starting trade
wars
Manufacturers supply sources, choices available to
consumers, and competition
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Trade Barriers
Quotas and Import Licenses
Quota is a specific unit or dollar limit applied to a
particular type of good (increases price of good)
Import licenses limits quantities on a case-by-case basis
Japan and foreign rice; Banana wars between the United
States and the EU

Voluntary Export Restraints (VER)

Often used in the 1980s is an agreement between the
importing country and the exporting country for a
restriction on the volume of exports.
Japans VER on U.S. automobiles

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The General Agreement on

Tariffs and Trade (GATT)
Shortly after World War II, the U.S. and 22 other countries
signed GATT (1947) which paved the way for the first effective
worldwide tariff agreement
Basic elements of the GATT
Trade shall be conducted on a nondiscriminatory basis
Protection shall be afforded domestic industries through customs
tariffs, not through such commercial measures as import quotas
Consultation shall be the primary method used to solve global
trade problems

Eliminating international trade barriers Uruguay Round

The General Agreement on Trade in Services (GATS)
Trade-Related Investment Measures (TRIMs)
Trade-Related aspects of Intellectual Property Rights (TRIPs)

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The World
Trade Organization (WTO)
WTO which is an institution, not an agreement, was founded in
1994.
Sets many rules governing trade between its 148 members
Provides a panel exports to hear and rule on trade disputes
between members
Issues binding decisions
All member countries will have equal representation
Member countries have open their markets and to be bound by
the rules of the multilateral trading system

U.S. ratification concerns

Possible loss of sovereignty over its trade laws to WTO
Lack of veto power
Role U.S. would assume when a conflict arises over an individual
states laws that might be challenged by a WTO member

China became member of the WTO (2001); Vietnam (2007)

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Skirting the spirit of

GATT and WTO
Loopholes
China reduced tariffs while at the same time
increased number and scope of technical
standards and inspection requirements

Imposing antidumping duties

Negotiating bilateral trade agreements
May lead to multinational concessions
Not necessarily consistent with WTO goals
and aspirations
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International Monetary Fund

(IMF)
Because of inadequate money reserves
and unstable currencies, the IMF was
created to assist nations in becoming and
remaining economically viable
Objectives of the IMF
Stabilization of foreign exchange rates
Establishment of freely convertible currencies
to facilitate the expansion and balanced
growth of international trade
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World Bank Group

By promoting sustainable growth and investment in people,
the World Bank Group is an institution created in 1944 to
reduce poverty and improve standard of living
The World Bank has five institutions which perform the
following services:
Lending money to the governments of developing countries
Providing assistance to governments for developmental projects
to the poorest developing countries (per capital incomes of $925 or
less)
Lending directly to the private sector
Providing investors with guarantees against noncommercial risk
Promoting increased flows of international investment

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Anti-globalization Protests
The unintended consequences of globalizing

Environmental concerns
Worker exploitation and domestic job losses
Cultural extinction
Higher oil prices
Diminished sovereignty of nations

Protests

WTO meeting in Seattle (November 2009)

World Bank and IMF meetings in Washington D.C. (April 2010)
World Economic Forun meeting in Australia (September 2010)
IMF meeting in Prague (September 2010)
Terrorism in London (2005)

Antisweatshop campaigns
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Summary (1 of 2)
Heightened worldwide competition has
increased pressure for protectionism from every
region of the globe when open markets are
needed
Although there are arguments in favor of
protectionism, the consumer seldom benefits
from such protection
Free trade in international markets help
underdeveloped countries become self-sufficient

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Summary (2 of 2)
Free trade will always be partially threatened by
various governmental and market barriers that
exist or are created for the protection of local
businesses
The future of open global markets lies with the
controlled and equitable reduction of trade
barriers

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