International Marketing

15th edition

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

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
 Introduction 2

• 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 2

• 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
2
Trade Barriers: An International
Marketer’s 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&G’s 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 2
Trade Environment
• Yesterday’s 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 2
($ billions, merchandise trade)
Exhibit 2.1

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 Twentieth to the 2
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 world’s
economies stronger, which enable them to buy more
from us.

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 Twentieth to the 2
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 2

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 2

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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 World’s 100 Largest Industrial 2
Corporations (Annual Revenues)

Exhibit 2.2

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 Beyond the First Decade 2
of the 21st 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 2
of the 21st 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 2

(1 of 2)
• Balance of payments is defined as the system of
accounts that records a nation’s 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

(2 of 2)
Receipts (+) Payments (-)
• Export sales • Cost of goods imported
• Money spent by foreign • Spending by American
tourists tourists overseas
• Transportation • New overseas
• Insurance to the U.S. investments
government • Cost of foreign military
• Dividend and interest on • Economic aid
investments abroad
• Foreign government
payments to the U.S.

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 U.S. Current Account 2
by Major Components, 2009 ($ billions)

Exhibit 2.3

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 U.S. Current Account Balance 2
(% of GDP)
Exhibit 2.4

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 What Would 2
One U.S. Dollar Buy?
Exhibit 2.5

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

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 Protectionism 2

• 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 2
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? 2

• 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 2

• 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 2

• Tariffs are taxes imposed by a government on goods

entering its borders.

Inflationary pressures, special interests’ privileges,

Increase government control and political considerations in
economic matters, and the number of tariffs

Weaken Balance-of-payment positions, supply and demand

patterns, and international relations by starting trade
wars

Restrict Manufacturer’s supply sources, choices available to

consumers, and competition

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 Trade Barriers 2

• 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.
– Japan’s VER on U.S. automobiles

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 The General Agreement on 2
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 2
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
state’s 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 2
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 2
(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 2

• 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 2

• 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) 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) 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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