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McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
Appreciate the magnitude of international trade
Identify the direction of trade, or who trades with
whom
Explain the patterns of worldwide foreign direct
investment
Identify who invests and how much is invested in the
U.S.
Understand the reasons for entering foreign markets
Comprehend that an international firm
i. Globalizes along at least seven dimensions
ii. Can be global in some dimensions, partially global
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in others 2-2
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Large Firms Lead Overseas
Investment, They Also Export
FDI from Large American international firms is at
its highest level ever because of
global competition
liberalization by host governments in regard to
foreign investment
advances in technology
U.S. FDI doubled from 2003 to 2006 reaching
$217 billion, even so…
During the ten years to 2007, U.S. exports
increased 76% to $1,646 billion
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Large Firms Invest Overseas, They Also Export
Proportion of Foreign Sales and Profits
of the World’s Largest Multinationals
Rank: Income from
Foreign Sales
Fortune Foreign Operations
Company as Percentage
Global as Percentage of
of Total Sales
500 Net Income
1 Wal-Mart Stores 24 22
2 Exxon Mobil NA 73
3 Royal Dutch Shell* 58 NA
4 BP 75 84
5 General Motors # 43 NA
6 Toyota 77 37
7 Chevron 65 68
8 Daimler 77 NA
9 Conoco Philips 33 25
10 Total 76 NA
Source: Company annual reports; Fortune magazine’s 2007 Global 500 listing of world’s largest companies,
http://money.cnn.com/magazines/fortune/global500/2007/full_list/ (July 4, 2008).
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World Exports of Merchandise
(FOB Values; in Billions of Current U.S. Dollars)
1-5
World Exports of Commercial Services
(FOB Values; in Billions of Current U.S. Dollars)
1-6
Distribution of World Manufacturing Value
Added by Industrial Sector (% share)
Industrialized
Developing countries
Industrial Sector countries
1995 2000 2006 1995 2000 2006
15 - Food and beverages 67.8 66.6 60.3 30.5 31.6 37.3
16 - Tobacco products 44.2 37.0 24.5 55.3 62.1 74.7
17 - Textiles 53.0 48.6 36.1 45.8 50.3 62.6
18 - Wearing apparel, fur 71.0 61.6 41.2 28.2 37.3 57.5
21 - Paper and paper products 82.5 79.5 72.2 16.5 19.4 26.3
22 - Printing and publishing 89.4 89.2 85.0 10.4 10.5 14.5
23 - Coke, refined petroleum products, nuclear fuel 56.1 53.1 46.4 42.4 45.4 51.9
24 - Chemicals and chemical products 75.5 72.3 67.5 23.5 26.6 31.5
25 - Rubber and plastics products 73.3 70.8 61.8 26.0 28.5 37.3
26 - Non-metallic mineral products 67.3 66.6 60.1 30.5 31.6 37.3
27 - Basic metals 68.5 64.7 52.6 28.0 31.6 43.6
29 - Machinery and equipment n. e. c. 82.2 81.3 74.8 16.3 17.5 23.7
31 - Electrical machinery and apparatus 76.3 72.3 55.7 22.9 27.0 43.4
35 - Other transport equipment 71.0 65.8 48.4 27.0 32.4 50.2
36 - Furniture; manufacturing n. e. c. 79.9 80.5 73.5 19.3 18.7 25.3
1-7
Leading Exporters and Importers
in World Merchandise and Service (Billions of dollars and percentage)
Source: World Trade Organization, International Trade Statistics 2007, (Geneva: World Trade Organization, 2007) LO1
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Direction of Trade
(percentage of total merchandise exports)
Exports from Year DE U.S. Can. Jap. Eur. DA D. Am CIS
Developed 1980 71 19 4 10 43 5 6 3
economies (DE) 2006 73 12 4 2 54 1 5 2
United States (U.S.) 1980 60 — 16 10 27 2 18 2
2006 52 — 22 6 22 1 21 1
Canada (Can.) 1980 85 63 — 6 13 1 5 3
2006 91 82 — <1 7 <1 2 <1
Japan (Jap.) 1980 48 25 2 — 14 5 7 3
2005 42 23 1 — 15 1 4 1
Europe (Eur) 1980 77 6 1 1 56 7 3 4
2006 81 8 1 1 71 1 2 2
Developing 1980 83 26 <1 2 46 3 6 3
Africa (DA) 2006 61 27 2 4 28 13 4 <1
Developing 1980 64 32 3 4 22 2 21 7
America (D. Am.) 2006 67 48 2 2 14 1 20 2
Former USSR 1980 28 1 <1 1 19 3 3 51
and E. Europe (CIS) 2006 60 3 <1 1 55 <1 2 7
Source: Monthly Bulletin of Statistics (New York: United Nations, 2001, 2000, 1997, 1993); Statistical Yearbook (New York: United Nations,
1969); 的 International Trade—World Exports by Provenance and Destination, http://unstats.un.org/unsd/mbs/t41-July05-online.pdf (July 14,
2006); and International Trade—World Exports by Provenance and Destination, Monthly Bulletin of Statistics, July 2007, Table 40.
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Why do Managers Focus on
Major Trading Partner Countries?
1. Export and import regulations are not
insurmountable
2. Favorable business climate in the importing nation
3. Minimal cultural objections to buying that nation’s
goods
4. Satisfactory transportation facilities already
established
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Why do Managers Focus on
Major Trading Partner Countries?
1. Import channel members (merchants, banks,
customs brokers) are experienced in handling the
exporting country’s shipments
2. Foreign exchange is available to pay for exports
3. The trading partner’s government may be applying
pressure on importers to buy from the country’s
good customer nations
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Imports from Major Trading
Partners of the United States
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Exports to Major Trading
Partners of the United States
Source: “U.S. Aggregate Foreign Trade Data, 1999 and Prior Years,” U.S. Foreign Trade Highlights, tables 10 and 11, U.S. Department of Commerce International Trade Administration, http://
www.ita.doc.gov/td/industry/otea/usfth/tabcon.html “Table 11: Top 50 Suppliers of U.S. Imports in 2004,” U.S. Department of Commerce International Trade Administration, www.ita.doc.gov/td/industry/otea/usfth/tabcon.html (July
14, 2006); “Table 10: Top 50 Purchasers of U.S. Exports in 2004,” U.S. Department of Commerce International Trade Administration, www.ita.doc.gov/td/industry/otea/usfth/tabcon.html (July 14, 2006).
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Major Trade Flows
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Two Aspects of Foreign Investment
Portfolio investment
The purchase of stocks and bonds of firms in other
countries to obtain a return on the funds invested
Foreign Direct investment (FDI)
The purchase of sufficient equity in a firm located
in another country to obtain significant
management control
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Two Dimensions of
Foreign Direct Investment
Volume of Outstanding Stock of FDI
The book value of all foreign direct investment
Annual Inflows and Outflows of FDI
The amount invested each year across national
borders
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Stocks of Outward
Foreign Direct Investment
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Foreign Investment
Level and Direction of FDI
Amounts of such investments and of the places in
which they are being made
Trade Leads to FDI
Foreign trade is typically less costly and less risky
than making a direct investment into foreign
markets
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U.S. FDI Position Abroad
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Foreign Direct Investment
in the U.S.
Note: Figures are based on current cost. 2002 figures are preliminary.
Source: Elena L. Nguyen, “The International Investment Position of the United States at Year-End 2002,” Survey of Current Business,
July 2003, pp. 20–21; LO4 2-20
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Why Do Firms Enter
Foreign Markets?
Firms enter foreign markets to increase sales
and profits
New sales from
new customer base
better managerial control through improved
communications technologies
Obtain greater profits
increased revenues
lower cost of goods sold (maybe)
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Why Do Firms Enter
Foreign Markets?
Firms enter foreign markets to
protect their domestic market
attack in competitor’s home market and force
competitor to dedicate resources there
guarantee supply of raw materials
acquire technology and management know-how
diversify geographically
follow customers overseas
satisfy management’s desire for expansion to a
particular country or region
bypass protectionist regulations
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Dimensions Along Which
Management Globalizes a Firm
Management globalizes a firm through
products
markets
promotion
where value is added to the product
competitive strategy
use of non-home-country personnel
extent of global ownership in the firm
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