Chapter Discussion

Appreciate the magnitude of international trade and how it has grown.
The volume of international trade in goods and services measured in current dollars approached $7 trillion in 1999. Merchandise exports, at $5.5 trillion, were more than 17 times what they were in 1970.

Identify the direction of trade, or who trades with whom.
The percentage of total exports of all the categories of developed nations to other developed nations is declining with the exception of Canada's. Most of Canada's exports to developed countries go to the United States, and they have been increasing since the U.S.-Canada Free Trade Agreement went into effect. Developing nations are selling more to each other, and U.S.–developing country trade is on the rise.

Recognize the value of analyzing trade statistics.
The analysis of trade statistics is useful to anyone starting to search outside the home market for new trade opportunities. Studying the general growth and direction of trade and analyzing the major trading partners will show businesspeople where the important trading activity is.

Explain the size, growth, and direction of U.S. foreign direct investment.
The book value of foreign direct investment has grown and now totals over $4.7 trillion. The American FDI is 1.7 times that of the United Kingdom, the next largest investor, and 2.7 times that of Germany, the third-largest investor. The proportion of global foreign direct investment accounted for by the United States has been declining, falling from 36 percent in 1985 to 24 percent in 1999. The direction of FDI follows the direction of foreign trade; that is, developed nations invest in each other just as they trade with each other. Note that because of the new business environment, many international firms are dispersing the activities of their manufacturing systems to locations closer to available resources. The decision where to locate may be either an FDI or a trade decision.

Identify who invests and how much is invested in the United States.
Foreign direct investment in the United States rose from $185 billion in 1985 to nearly $1 trillion in 1999. Firms from just six nations-United Kingdom, Japan, Netherlands, Germany, Canada, and France-own about three-quarters of the total stock of foreign direct investment in the United States.

Understand the reasons for entering foreign markets.
Companies enter foreign markets (exporting to and manufacturing in) to increase sales and profits and to protect markets, sales, and profits. Foreign firms often buy American firms to acquire technology and marketing know-how. Foreign investment also enables a company to diversify geographically.

Recognize the weaknesses in using GNP per capita as a basis for comparing economies.
One must be careful in using GNP blindly as a basis for comparing nations' economies. First, the reliability of the data is questionable. Second, the World Bank and other international agencies convert national currencies to dollars, the unit that usually appears in their statistics. Official exchange rates do not reflect the relative domestic purchasing powers of currencies.

Understand the international market entry methods.
The two basic methods of entering foreign markets are exporting to and manufacturing in them. Exporting may be done directly or indirectly. A firm may become involved in foreign production through various methods: (1) wholly owned subsidiaries, (2) joint ventures, (3) licensing, (4) franchising, and (5) contract manufacturing.

Explain the many forms of strategic alliances.
Many firms are forming strategic alliances with competing companies, suppliers, and customers to gain access to new products, technology, and markets and to share resources, costs, and risks. Strategic alliances take many forms, including licensing, mergers, joint ventures, and joint research and development contracts.

Comprehend that globalization of an international firm occurs over at least seven dimensions and that a company can be partially global in some dimensions and completely global in others.
A firm can have, and usually does have, an international strategy that is partially multidomestic in some dimensions and partially global in others. Management must decide the extent to which the firm should globalize along each dimension.

Discuss the channel members available to companies that export indirectly or directly or manufacture overseas.
Channel members are available to those who (1) indirectly export or are exporters that sell for manufacturers, (2) buy for their overseas customers, or (3) purchase for foreign users or middlemen. Direct exporters use manufacturers' agents, distributors, retailers, and trading companies. Firms that manufacture overseas generally have the same kinds of channel members they have in their domestic market, although their manner of operation may be different from what they are accustomed to.

Explain the structural trends in wholesaling and retailing.
The retailing trend in Europe and Japan, as well as in many developing nations, is toward more discounters. Rigid, inefficient distribution systems that depend on high prices are breaking up. Small retailers as well as large department stores are losing out to discounters. Wholesalers are being bypassed by retailers.