1/29 Global Marketing Why do individuals trade?

also found in Adam Smiths Wealth of Nations; explains why countries trade produce more than what countries need and exchange surplus Specialization of labor one person is better at making arrows so makes arrows and trades with hunters who give him meat; economic development can be explained by increased specialization we get further and further away from self subsistence Money as a medium of exchange if youre selling shoes while Im selling livestock, wont be able to trade due to impediment of trade Why do countries trade? Adam Smith - absolute advantage; what youre better at doing Ricardo comparative advantage; if France is better at producing both wine AND wool than Britain, should they produce both products or specialize? Ricardo said they should specialize in the product that theyre really good at (where they have comparative advantage); modern example Afghanistan producing peaches vs opium? Modern Explanations for trade patterns o Skilled labor some countries dont have core competencies o R & D ex: electronics came out of govt research o Internal demand if you can satisfy world class customers who are very demanding, then you can satisfy anyone; ex: exotic cars (Buggatti) o Intra-industry trade exchange of similar products belonging to the same industry; most trade is in this category; we ship a lot of cars to Europe and vise versa; we ship a lot of electronics to Asia and vise versa all within same industry Growth of International Competition Attractiveness of foreign markets regulation internationally is less strict (ex: cigarettes); emerging markets have produced more than so called industrialized markets Decline in trade barriers cost of importing/exporting have gone down Transportation technology cost of distributing products has gone down; roses grown in Argentina can be purchased/shipped to US for 20 cents a piece Communication technology ex: skype, VOIP Product and process technology Technical standards ex: different electrical standards for plugs; having common standards across the world is important Global merchandise exports and GDP (annual percent change 50-09)
10 8 6 4 2 0 -2 -4 -6 -8 -10 -12 -14 1950-60 1980-90 1960-70 1990-00 2001002003004005006007008009 1970-80 2000-09 2 2 2 2 2 2 2 2 Exports GDP

Top 5 in international trade 09

Entering international markets Exports (least control, least risk -control and risk increase downwards) o Indirect o Direct Joint venturing o Licensing o Contract manufacturing o Management contracting o Joint ownership Direct investment (most control, most risk)

Global Adaptation Dual adaptation - Procter and Gambles Mr. Clean in Spanish that targets low income families; also product invention innovative way of washing clothes Product Don't Change Don't adapt Communications Straight extension Adapt Product Adaptation Product invention Adapt Communication adaptation Dual adaptation New