{"id":5987,"date":"2016-08-07T13:22:57","date_gmt":"2016-08-07T13:22:57","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/masterybusiness2xngcxmasterspring2016\/?post_type=chapter&p=5987"},"modified":"2019-01-16T23:43:01","modified_gmt":"2019-01-16T23:43:01","slug":"reading-global-markets","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wmintrobusiness\/chapter\/reading-global-markets\/","title":{"raw":"Reading: Global Markets","rendered":"Reading: Global Markets"},"content":{"raw":"\"Photo<\/a>\r\n

Global Markets and Business Opportunity<\/h2>\r\nIncreasingly nations and business use their comparative or absolute advantages to enter global markets driven by the same factor:\u00a0the immense size<\/em> of these markets.\r\n\r\n\"Three<\/a>\r\n\r\nLet's return to the banana for a moment. In 2015, Ecuador exported 6.55 million metric<\/em> tons<\/em> of bananas. Without a large global demand\u00a0for bananas, every man, woman, and child in Ecuador would have to eat 834 pounds of them per year to consume all of the production. Of course\u00a0that wouldn't happen: Instead, the country would simply cut back on the production of bananas\u2014but,\u00a0in so doing, it would lose an export that now\u00a0accounts for more than 10 percent of its gross domestic product (GDP). Ecuador needs a large and vibrant global market to keep up with its tremendous supply of bananas, and it relies on\u00a0the revenue from those bananas to purchase the other things it needs\u00a0(in the same way that you traded cell phones for blue jeans in the island trader simulation).\r\n\r\nLater in this module we'll discuss how nations like Ecuador enter foreign markets, but for now let's look more closely at the size of the world's largest markets. The following table\u00a0shows population and GDP data for the top five economies in the world as of 2015.[footnote]CIA World FactBook https:\/\/www.cia.gov\/library\/publications\/the-world-factbook\/rankorder\/2001rank.html#ch[\/footnote]\u00a0You'll recall from the economic environment module that GDP, or gross domestic product,\u00a0is\u00a0a monetary measure of the market value of all final goods and services produced in a period, and the GDP growth rate is the increase or decrease in GDP over a period of time, expressed as a percentage.\r\n
\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
Country<\/strong><\/td>\r\nGDP<\/strong><\/td>\r\nPopulation<\/strong><\/td>\r\nGDP Growth Rate<\/strong><\/td>\r\n<\/tr>\r\n<\/thead>\r\n
China<\/td>\r\n$19,390,000,000,000<\/td>\r\n1,367,485,388<\/td>\r\n6.90%<\/td>\r\n<\/tr>\r\n
European Union<\/td>\r\n$19,180,000,000,000<\/td>\r\n513,949,445<\/td>\r\n2.20%<\/td>\r\n<\/tr>\r\n
United States<\/td>\r\n$17,950,000,000,000<\/td>\r\n321,368,864<\/td>\r\n2.40%<\/td>\r\n<\/tr>\r\n
India<\/td>\r\n$7,965,000,000,000<\/td>\r\n1,251,695,584<\/td>\r\n7.30%<\/td>\r\n<\/tr>\r\n
Japan<\/td>\r\n$4,830,000,000,000<\/td>\r\n126,919,659<\/td>\r\n0.50%<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\nLooking at the\u00a0figures in this table, it isn\u2019t hard to imagine that a country or company would like to have a foothold in one or all of these markets. Taken together, these five economies represent a lot of people, a lot of purchasing power, and a lot of economic growth. However, the immensity of the global market offers more than just new target customers.\u00a0Consider some of the following benefits nations and firms realize by entering foreign markets.\r\n

Access to Factors of Production<\/strong><\/h3>\r\nYou will recall that the factors of production required for a successful business venture are natural resources, capital, human capital, and entrepreneurship. Access to global markets enables\u00a0countries and companies\u00a0to acquire these factors of production when they are nonexistent, scarce, or just\u00a0too costly\u00a0at home. For example, India is one of the largest providers of telephone-based customer service (labor) worldwide, which makes sense given that its\u00a0population is second only to China and almost four times that of the United States.\u00a0In addition, labor costs in India are significantly lower than in the U.S.<\/span>\u00a0<\/span>\r\n

Innovation and Ideas<\/strong><\/h3>\r\nMany companies enter global markets and, once there, discover unmet needs or unique products and services. They are\u00a0then able to use their discoveries\u00a0to expand an existing product line or introduce new products in other markets or at home. For example, many people credit the United Kingdom with inspiring the development\u00a0of the craft beer industry in the United States.\r\n

Risk Reduction<\/strong><\/h3>\r\nGiven the complexity of operating a business globally, it may seem like a contradiction that risk\u00a0reduction is one of the benefits of a large global market, but it's actually true. If a country\u00a0or a company trades or does business with multiple<\/em>\u00a0foreign partners, they are less dependent on the success of any single partnership. Likewise, if a nation or business has multiple global sources for factors of production, then if one source \u201cdries up,\u201d they will still have access to what they need. For example, in 2010 China halted its export of rare earth minerals to Japan after the two countries were unable to resolve a territory dispute. Japan used these minerals in the production of everything from cars\u00a0to computer chips, and to say that the Japanese were in a state of distress\u00a0is an understatement. As a result of this albeit brief reduction in Chinese supply, Japan established a trade agreement with India for the import of the needed materials. They will no longer be totally dependent upon the Chinese for these important resources.\r\n\r\nIn summary, globalization makes business on a global scale possible, and the size of the global market makes it attractive. By using their absolute and comparative advantages, countries and companies can leverage their resources to produce and trade the things that benefit them the most.\r\n\r\nThe following video provides a recap of the main reasons why countries and businesses engage in global trade.\r\n\r\nhttps:\/\/youtu.be\/-IW8ZzY3xt8\r\n\r\n ","rendered":"

\"Photo<\/a><\/p>\n

Global Markets and Business Opportunity<\/h2>\n

Increasingly nations and business use their comparative or absolute advantages to enter global markets driven by the same factor:\u00a0the immense size<\/em> of these markets.<\/p>\n

\"Three<\/a><\/p>\n

Let’s return to the banana for a moment. In 2015, Ecuador exported 6.55 million metric<\/em> tons<\/em> of bananas. Without a large global demand\u00a0for bananas, every man, woman, and child in Ecuador would have to eat 834 pounds of them per year to consume all of the production. Of course\u00a0that wouldn’t happen: Instead, the country would simply cut back on the production of bananas\u2014but,\u00a0in so doing, it would lose an export that now\u00a0accounts for more than 10 percent of its gross domestic product (GDP). Ecuador needs a large and vibrant global market to keep up with its tremendous supply of bananas, and it relies on\u00a0the revenue from those bananas to purchase the other things it needs\u00a0(in the same way that you traded cell phones for blue jeans in the island trader simulation).<\/p>\n

Later in this module we’ll discuss how nations like Ecuador enter foreign markets, but for now let’s look more closely at the size of the world’s largest markets. The following table\u00a0shows population and GDP data for the top five economies in the world as of 2015.[1]<\/sup><\/a>\u00a0You’ll recall from the economic environment module that GDP, or gross domestic product,\u00a0is\u00a0a monetary measure of the market value of all final goods and services produced in a period, and the GDP growth rate is the increase or decrease in GDP over a period of time, expressed as a percentage.<\/p>\n

\n\n\n\n\n\n\n\n\n\n
Country<\/strong><\/td>\nGDP<\/strong><\/td>\nPopulation<\/strong><\/td>\nGDP Growth Rate<\/strong><\/td>\n<\/tr>\n<\/thead>\n
China<\/td>\n$19,390,000,000,000<\/td>\n1,367,485,388<\/td>\n6.90%<\/td>\n<\/tr>\n
European Union<\/td>\n$19,180,000,000,000<\/td>\n513,949,445<\/td>\n2.20%<\/td>\n<\/tr>\n
United States<\/td>\n$17,950,000,000,000<\/td>\n321,368,864<\/td>\n2.40%<\/td>\n<\/tr>\n
India<\/td>\n$7,965,000,000,000<\/td>\n1,251,695,584<\/td>\n7.30%<\/td>\n<\/tr>\n
Japan<\/td>\n$4,830,000,000,000<\/td>\n126,919,659<\/td>\n0.50%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n

Looking at the\u00a0figures in this table, it isn\u2019t hard to imagine that a country or company would like to have a foothold in one or all of these markets. Taken together, these five economies represent a lot of people, a lot of purchasing power, and a lot of economic growth. However, the immensity of the global market offers more than just new target customers.\u00a0Consider some of the following benefits nations and firms realize by entering foreign markets.<\/p>\n

Access to Factors of Production<\/strong><\/h3>\n

You will recall that the factors of production required for a successful business venture are natural resources, capital, human capital, and entrepreneurship. Access to global markets enables\u00a0countries and companies\u00a0to acquire these factors of production when they are nonexistent, scarce, or just\u00a0too costly\u00a0at home. For example, India is one of the largest providers of telephone-based customer service (labor) worldwide, which makes sense given that its\u00a0population is second only to China and almost four times that of the United States.\u00a0In addition, labor costs in India are significantly lower than in the U.S.<\/span>\u00a0<\/span><\/p>\n

Innovation and Ideas<\/strong><\/h3>\n

Many companies enter global markets and, once there, discover unmet needs or unique products and services. They are\u00a0then able to use their discoveries\u00a0to expand an existing product line or introduce new products in other markets or at home. For example, many people credit the United Kingdom with inspiring the development\u00a0of the craft beer industry in the United States.<\/p>\n

Risk Reduction<\/strong><\/h3>\n

Given the complexity of operating a business globally, it may seem like a contradiction that risk\u00a0reduction is one of the benefits of a large global market, but it’s actually true. If a country\u00a0or a company trades or does business with multiple<\/em>\u00a0foreign partners, they are less dependent on the success of any single partnership. Likewise, if a nation or business has multiple global sources for factors of production, then if one source \u201cdries up,\u201d they will still have access to what they need. For example, in 2010 China halted its export of rare earth minerals to Japan after the two countries were unable to resolve a territory dispute. Japan used these minerals in the production of everything from cars\u00a0to computer chips, and to say that the Japanese were in a state of distress\u00a0is an understatement. As a result of this albeit brief reduction in Chinese supply, Japan established a trade agreement with India for the import of the needed materials. They will no longer be totally dependent upon the Chinese for these important resources.<\/p>\n

In summary, globalization makes business on a global scale possible, and the size of the global market makes it attractive. By using their absolute and comparative advantages, countries and companies can leverage their resources to produce and trade the things that benefit them the most.<\/p>\n

The following video provides a recap of the main reasons why countries and businesses engage in global trade.<\/p>\n