Summary of Chapter 3 :

“ Doing Business in Global Markets “

In this chapter , we will discuss a lot on how the free trade benefits the world’s economy ,
and also deepen the knowledge of various types of trade and the global businesses. In the
first part we will explain what is import and what is export , when we buy a products from
another country then we can call it import but , when we sell our products to another country
then its called export.

In these days , countries are tend to build a business that works globally. Somehow , we don’t
know why global trade are important. Global trade provide the countries to produce what
they want and to fulfil what they need from another country. This trade doesn’t go well
without the process called free trade , free trade comes when each countries exchange their
goods and services without any political or economy barriers. In the other hands , some of
the countries are not agree with this system so that’s why there is pro’s and contras of this
trade. Some of the pro is ; the import costs are low , productivity grows , and improve new
innovations and creativity from various industry. Some of the contra is ; the employees should
accept a pay-cuts from their employers , the domestic employees become outsourced , and
domestic companies could lost their comparative advantage since the other competitors
build an advanced products and operations in countries with low salary.

The theories of comparative advantage and absolute comparative was stated by English
economist , David Ricardo. Comparative advantage comes when a country sell their most
efficient goods to another countries and buy from other countries the products that they
cannot produce it well. A country also has an absolute advantages. Absolute advantages
comes if it can produce goods better than other countries , this advantage doesn’t last forever
, it depends on the markets and it’s competition which can be different from year to year.

Next part will be discussing about how the global trade is measured. There are two key
indicators , the first one is balance of trade and the second one is balance of payments.
Balance of trade is the full-scale values of a country’s exports and imports that measured over
particular period. There are also two types of trades , Trade surplus incurred when a country’s
value of exports is greater than it’s imports value. Trade deficit happens when the value of
exports is less than it’s imports value. The balance of payments is the diversity between the
income and the expenses from other factors like tourism , foreign investments, and military
expenditures. They aim is to have more money coming to the country than the expenses. The
balance of payments will exist if the expenses are bigger than the revenues. Behind all of this
, there is an unfair business practices that some of countries are not agree. This practices
called dumping , dumping occurs when a countries sell their products abroad with a lower
price than it usually charges in their region.

Businesses always use a different strategies to survive and reach the breaking point which is
the global markets. The strategies are licensing , exporting , franchising , and contract
manufacturing. After this we will explain what is joint venture , Joint venture is a partnership
that conducted by two or more enterprises whose join to undertake the major project. It
usually mandated by the governments , the benefits of joint venture is they can shared
technology and risk , they also shared each expertise on managing and marketing , and gives
us an opportunity to entry a markets which foreign companies sometimes are not allowed
unless they produce their goods locally. Not only joint venture , strategic alliance also one of
the key factors on global markets. Strategic alliance is a long-term partnership between two
or more enterprises that help each enterprise to conduct a competitive market advantages.
It usually doesn’t share costs , risks , management or profits. Now lets hop on to the other
parts which is Foreign Direct Investment , FDI is buying a property and business from another
country that last permanently. FDI is a foreign subsidiary , foreign subsidiary is a enterprise
owned by foreign country by another enterprise called “The Parent Company”. This subsidiary
works like a domestic firm with production, distribution, promotion , pricing and other
business functions below the control of the subsidiary’s manangement. This subsidiary also
observe the the legal requirements of both the country where the parent company is located.
What is multinational corporation , this corporation is run globally in many countries both
markets and products , it also has multinational stock of ownership and management.
Multinational corporations usually conduct by a large company but , not all big companies are
multinational. We can call a corporation is multinational when they have manufacturing
capacity or some other physical presence in different countries.

Sovereign Wealth Funds ( SWFs) is an investment funds that undertake by the governments
holding large stakes in another country’s companies. For the next part , we will describe how
forces affect the global markets. There are several forces that affecting the markets which is
social culture , economic and financial , legal and regulatory , and the last one ; physical and
environmental forces. From the economic and financial , we will explain the meaning of
exchange rate , exchange rate is the value of one nation’s currency that related to foreign
currencies. What is floating exchange rates , it’s a system that operate the global finance
which means the value of the currency ‘floats’ on demand and supply in the global market for
currency. Devaluation happens when they want to lowers the value of a nation’s currency
that related to other countries currency. Countertrading is a complex form of bartering from
several countries that shared each goods or services.

Next , this part is about trade protectionism , what is the meaning of that trade ? , well it’s a
protection that provided by the governments to limit the import of goods and services. What
is tariffs ? , tariffs is an additional cost for import goods , making it more expensive. The Import
quota is aim to limit the amount of company from particular categories a nation can import.
Embargo happens to stop the imports from certain country.

The World Trade Organization works to mediate trades disputes among nations. GATT (
General Agreement on Tariffs and Trade ) is a global forum that aim to reduce the trade
restrictions on goods , services , ideas , and cultural programs.

The last part is common markets. Common markets is a regional group with a common
external tariffs and no internal tariffs . They coordinate laws to facilitate exchange among
members ( EU , ASEAN , COMESA , etc ).