International[/b] Trade: [/b]
International economy is concerned with the effects upon economic activity of international differences in productive resources and consumer preferences and the institutions that affect them. It seeks to explain the patterns and consequences of transactions and interactions between the inhabitants of different countries, including trade, investment and migration.
It describes and predicts production, trade, and investment across countries. Wages and income rise and fall with international commerce even in large rich developed economies like the US. In many countries, international economics is a matter of life and death. Economics as a field began in England in the 1700s with a debate over issues of free international commerce, and the debate continues. Domestic industries pay politicians for protection against foreign competition.
The[/b] Gains from Trade:[/b]
There is a strong presumption that any exchange that is freely undertaken will benefit both parties, but that does not exclude the possibility that it may be harmful to others. However (on assumptions that included constant returns and competitive conditions) Paul Samuelson has proved that it will always be possible for the gainers from international trade to compensate the losers. Moreover, in that proof, Samuelson did not take account of the gains to others resulting from wider consumer choice, from the international specialization of productive activities - and consequent economies of scale, and from the transmission of the benefits of technological innovation.
An OECD study has suggested that there are further dynamic gains resulting from better resource allocation, deepening specialization, increasing returns to R&D, and technology spillover. The authors found the evidence concerning growth rates to be mixed, but that there is strong evidence that a 1 per cent increase in openness to trade increases the level of GDP per capita by between 0.9 per cent and 2.0 per cent. They suggested that much of the gain arises from the growth of the most productive firms at the expense of the less productive. Those findings and others have contributed to a broad consensus among economists that trade confers very substantial net benefits, and that government restrictions upon trade are generally damaging.
Gains from trade are the combination of consumer surplus and producer surplus obtained by buyers and sellers when engaging in a market exchange. Gains from trade arise because buyers are typically willing and able to pay a higher price to purchase a good than what they end up paying and because sellers are typically willing and able to accept a lower price to sell a good than what they end up receiving. Both sides of the market exchange are thus better off, have a net gain in welfare, by making the trade. While all types of market exchanges generate gains from trade, this topic is perhaps most important for an understanding of international trade.
Buyers and sellers engage in market exchanges because they benefit from the trade. As a generally rule both sides are better off after the exchange than they were before the exchange. Buyers are better off because they have a net gain in consumer surplus. Sellers are better off because they have a net gain in producer surplus.
While the gains obtained from market exchanges provides insight into all forms of trading and the very existence of a market-based economy used to allocate resources, it also provides a great deal of insight into trading among nations, that is, international trade. When two nations engage in trade they do so because they gain from the trade. Both countries are better off after the trade than they were before.
The gains obtained from market exchanges can be illustrated using the exhibit to the right. This exhibit presents a standard market graph. The negatively-sloped demand curve, D, represents the demand price that buyers are willing and able to pay to purchase different quantities of turnips. The positively-sloped supply curve, S, represents the supply price that sellers are willing and able to accept to sell different quantities of turnips.
If this is a competitive market, free of other market failures and other annoying complications, then the intersection of the demand and supply curves gives rise to the equilibrium price and equilibrium quantity. The relation between the market equilibrium price, the demand price on the demand curve, and the supply on the supply curve indicates the gains from trade.
The area above the equilibrium price and below the demand curve is the consumer surplus generated by this market. The [Consumers' Surplus] is highlighted this area. The area below the equilibrium price and above the supply curve is the producer surplus generated by this market. The [Producers' Surplus] is highlighted this area.
The combination of these two areas, the area above the supply curve and below the demand curve, is the gains from trade generated by this market. This is extra satisfaction, welfare, profit, etc. that would not exist if this market exchange did not take place.
Winners: The winners in an international trade are the consumers in the buying (or importing) nation and the producers in the selling (or exporting) nation. The buyers receive consumer surplus and the sellers acquire producer surplus.
Losers: However, the losers in an international trade are the producers in the buying (or importing) nation and the consumers in the selling (or exporting) nation. The producers in the buying nation face greater competition for their products, which inevitably means lower prices and profits. The consumers in the selling nation also face greater competition for this domestic production, which is bound to cause higher prices.
[/list]
For most international trades the winners win more than the losers lose, making such exchanges an overall win-win for both countries.
Pattern[/b] of Trade:[/b]
The main pattern of trade [/b]is that developing countries tend to export mainly primary goods, and import mainly manufactured goods. In developed countries the pattern is the other way around - they tend to import primary goods and export manufactured goods. Primary goods are raw materials. They include coal, grains and fish. Manufactured goods are goods that have been made. They include cars, machinery and computers.
Developed and developing countries are interdependent. This means they rely on each other. Developed countries need the raw materials for their manufacturing industries, and developing countries need to have a market for their goods.
Protectionism:[/b][/b]
The argument for so-called "protectionism" (called "fair trade" by some) may at first sound appealing. Supporters of "protectionist" laws claim that keeping out foreign goods will save jobs, giving ailing domestic industries a chance to recover and prosper, and reduce the trade deficits.
"Protectionism is a misnomer. The only people protected by tariffs, quotas and trade restrictions are those engaged in uneconomic and wasteful activity. Free trade is the only philosophy compatible with international peace and prosperity[/b]."
Walter Block, Senior Economist, Fraser Institute (Canada)
Those who gain from "protectionist" laws are special-interest groups, such as some big corporations, unions, and farmers' groups – all of whom would like to get away with charging higher prices and getting higher wages than they could expect in a free marketplace. These special interests have the money and political clout for influencing politicians to pass laws favourable to them. Politicians in turn play on the fears of uninformed voters to rally support for these laws. The losers are all other ordinary consumers. Your freedom is being trampled into the dust by these laws, and you are literally being robbed, through taxes and higher prices.
Balance[/b] of Payments (BOP):[/b]
The balance of payments (BOP) is the method countries use to monitor all international monetary transactions at a specific period of time. Usually, the BOP is calculated every quarter and every calendar year. All trades conducted by both the private and public sectors are accounted for in the BOP in order to determine how much money is going in and out of a country. If a country has received money, this is known as a credit, and, if a country has paid or given money, the transaction is counted as a debit. Theoretically, the BOP should be zero, meaning that assets (credits) and liabilities (debits) should balance. But in practice this is rarely the case and, thus, the BOP can tell the observer if a country has a deficit or a surplus and from which part of the economy the discrepancies are stemming.
The BOP is divided into three main categories: the current account, the capital account and the financial account. Within these three categories are sub-divisions, each of which accounts for a different type of international monetary transaction.
The Current AccountThe current account is used to mark the inflow and outflow of goods and services into a country. Earnings on investments, both public and private, are also put into the current account.
Within the current account are credits and debits on the trade of merchandise, which includes goods such as raw materials and manufactured goods that are bought, sold or given away (possibly in the form of aid). Receipts from income-generating assets such as stocks (in the form of dividends) are also recorded in the current account. The last component of the current account is unilateral transfers. These are credits that are mostly worker's remittances, which are salaries sent back into the home country of a national working abroad, as well as foreign aid that are directly received.
The Capital AccountThe capital account is where all international capital transfers are recorded. This refers to the acquisition or disposal of non-financial assets (for example, a physical asset such as land) and non-produced assets, which are needed for production but have not been produced, like a mine used for the extraction of diamonds.
The capital account is broken down into the monetary flows branching from debt forgiveness, the transfer of goods, and financial assets by migrants leaving or entering a country, the transfer of ownership on fixed assets (assets such as equipment used in the production process to generate income), the transfer of funds received to the sale or acquisition of fixed assets, gift and inheritance taxes, death levies, and, finally, uninsured damage to fixed assets.
The Financial AccountIn the financial account, international monetary flows related to investment in business, real estate, bonds and stocks are documented. Also included are government-owned assets such as foreign reserves, gold, special drawing rights (SDRs) held with the International Monetary Fund, private assets held abroad, and direct foreign investment. Assets owned by foreigners, private and official, are also recorded in the financial account.
The Balancing ActThe current account should be balanced against the combined-capital and financial accounts. However, as mentioned above, this rarely happens. We should also note that, with fluctuating exchange rates, the change in the value of money can add to BOP discrepancies. When there is a deficit in the current account, which is a balance of trade deficit, the difference can be borrowed or funded by the capital account. If a country has a fixed asset abroad, this borrowed amount is marked as a capital account outflow. However, the sale of that fixed asset would be considered a current account inflow (earnings from investments). The current account deficit would thus be funded.
When a country has a current account deficit that is financed by the capital account, the country is actually foregoing capital assets for more goods and services. If a country is borrowing money to fund its current account deficit, this would appear as an inflow of foreign capital in the BOP.
Current Statistical Evidence of BOP of Indian Economy[/b]
India’s trade deficit during the first nine months of fiscal 2009-10 on a balance of payments (BOP) basis was lower at US$ 89.51 compared with US$ 98.44 during the same period in fiscal 2008-09. The trade deficit on a BOP basis in Q3 (US$ 30.72 billion) was, however, less than that in Q3 of 2008-09 (US$ 34.04 billion).
Exchange[/b] Rate Determination:[/b]
The exchange rate expresses the national currency's quotation in respect to foreign ones. Thus, the exchange rate is a conversion factor, a multiplier or a ratio, depending on the direction of conversion. In a slightly different perspective, the exchange rate is a price. If the exchange rate can freely move, the exchange rate may turn out to be the fastest moving price in the economy, bringing together all the foreign goods with it.
Exchange rates between currencies can be either controlled as in the case of India prior to the reforms or left to the market to decide, as is the case now in India. In the case of controlled exchange rates, it is quite obvious that the government would fix them, so the question really boils down to what is the process by which markets determine rates. The process is really not different in its essentials from the way any market functions. The supply and demand for different goods determine what their prices are. In this case, substitute currencies for goods. Taking the case of one foreign currency to understand how this market works. Thus, the dollar-rupee exchange rates will depend on how the demand-supply balance moves. When the demand for dollars in India rises and supply does not rise correspondingly, each dollar will cost more rupees to buy.
Exchange rates can be divided into FIXED and FLEXIBLE EXCHANGE RATE system. Fixed exchange rates are chosen by central banks and they may turn out to be more or less accepted by financial markets. Changes in floating rates or pressures on fixed rates will derive, as for other financial assets, from three broad categories of determinants:
i) Variables on the "real" side of the economy;
ii) Monetary and financial variables determined in cross-linked markets;
iii) Past and expected values of the same financial market with its autonomous dynamics.
[/b]
International[/b] Goods Market:[/b]
Trade is increasingly global in scope today. There are several reasons for this. One significant reason is technological—because of improved transportation and communication opportunities today, trade is now more practical. Thus, consumers and businesses now have access to the very best products from many different countries. Increasingly rapid technology lifecycles also increases the competition among countries as to who can produce the newest in technology. In part to accommodate these realities, countries in the last several decades have taken increasing steps to promote global trade through agreements such as the General Treaty on Trade and Tariffs, and trade organizations such as the World Trade Organization (WTO), North American Free Trade Agreement (NAFTA), and the European Union (EU).
International marketing is simply the application of marketing principles to more than one country. However, there is a crossover between what is commonly expressed as international marketing and global marketing, which is a similar term. For the purposes of this lesson on international marketing and those that follow it, international marketing and global marketing are interchangeable.
The intersection is the result of the process of internationalization. Many American and European authors see international marketing as a simple extension of exporting, whereby the marketing mix is simply adapted in some way to take into account differences in consumers and segments. It then follows that global marketing takes a more standardized approach to world markets and focuses upon sameness, in other words the similarities in consumers and segments. So let's take a look at some generally accepted definitions.
Current[/b] International Economic Problem:[/b]
The global financial crisis, brewing for a while, really started to show its effects in the middle of 2007 and into 2008. Around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems.
On the one hand many people are concerned that those responsible for the financial problems are the ones being bailed out, while on the other hand, a global financial meltdown will affect the livelihoods of almost everyone in an increasingly inter-connected world. Following a period of economic boom, a financial bubble, global in scope has now burst. A collapse of the US sub-prime mortgage market and the reversal of the housing boom in other industrialized economies have had a ripple effect around the world. Furthermore, other weaknesses in the global financial system have surfaced. Some financial products and instruments have become so complex and twisted, that as things start to unravel, trust in the whole system started to fail. The subprime crisis came about in large part because of financial instruments such as securitization where banks would pool their various loans into sellable assets, thus off-loading risky loans onto others. (For banks, millions can be made in money-earning loans, but they are tied up for decades. So they were turned into securities. The security buyer gets regular payments from all those mortgages; the banker off loads the risk.
Ø Banks borrowed even more money to lend out so they could create more securitization. Some banks didn’t need to rely on savers as much then, as long as they could borrow from other banks and sell those loans on as securities; bad loans would be the problem of whoever bought the securities.
Ø Some investment banks like Lehman Brothers got into mortgages, buying them in order to securitize them and then sell them on.
Ø Some banks loaned even more to have an excuse to securitize those loans.
Ø Running out of whom to loan to, banks turned to the poor; the subprime, the riskier loans. Rising house prices led lenders to think it wasn’t too risky; bad loans meant repossessing high-valued property. Sub prime and “self-certified” loans (sometimes dubbed “liar’s loans”) became popular, especially in the US.
Ø Some banks evens started to buy securities from others.
Ø Collateralized Debt Obligations, or CDOs, (even more complex forms of securitization) spread the risk but were very complicated and often hid the bad loans. While things were good, no-one wanted bad news.
High street banks got into a form of investment banking, buying, selling and trading risk. Investment banks, not content with buying, selling and trading risk, got into home loans, mortgages, etc without the right controls and management.
Many banks were taking on huge risks increasing their exposure to problems. Perhaps it was ironic, as Evan Davies observed that a financial instrument to reduce risk and help lend more securities would backfire so much.
When people did eventually start to see problems, confidence fell quickly. Lending slowed, in some cases ceased for a while and even now, there is a crisis of confidence. Some investment banks were sitting on the riskiest loans that other investors did not want. Assets were plummeting in value so lenders wanted to take their money back. But some investment banks had little in deposits; no secure retail funding, so some collapsed quickly and dramatically.
The problem was so large; banks even with large capital reserves ran out, so they had to turn to governments for bail out. New capital was injected into banks to, in effect; allow them to lose more money without going bust. That still wasn’t enough and confidence was not restored. (Some think it may take years for confidence to return.) Shrinking banks suck money out of the economy as they try to build their capital and are nervous about loaning. Meanwhile businesses and individuals that rely on credit find it harder to get.
International economy is concerned with the effects upon economic activity of international differences in productive resources and consumer preferences and the institutions that affect them. It seeks to explain the patterns and consequences of transactions and interactions between the inhabitants of different countries, including trade, investment and migration.
It describes and predicts production, trade, and investment across countries. Wages and income rise and fall with international commerce even in large rich developed economies like the US. In many countries, international economics is a matter of life and death. Economics as a field began in England in the 1700s with a debate over issues of free international commerce, and the debate continues. Domestic industries pay politicians for protection against foreign competition.
The[/b] Gains from Trade:[/b]
There is a strong presumption that any exchange that is freely undertaken will benefit both parties, but that does not exclude the possibility that it may be harmful to others. However (on assumptions that included constant returns and competitive conditions) Paul Samuelson has proved that it will always be possible for the gainers from international trade to compensate the losers. Moreover, in that proof, Samuelson did not take account of the gains to others resulting from wider consumer choice, from the international specialization of productive activities - and consequent economies of scale, and from the transmission of the benefits of technological innovation.
An OECD study has suggested that there are further dynamic gains resulting from better resource allocation, deepening specialization, increasing returns to R&D, and technology spillover. The authors found the evidence concerning growth rates to be mixed, but that there is strong evidence that a 1 per cent increase in openness to trade increases the level of GDP per capita by between 0.9 per cent and 2.0 per cent. They suggested that much of the gain arises from the growth of the most productive firms at the expense of the less productive. Those findings and others have contributed to a broad consensus among economists that trade confers very substantial net benefits, and that government restrictions upon trade are generally damaging.
Gains from trade are the combination of consumer surplus and producer surplus obtained by buyers and sellers when engaging in a market exchange. Gains from trade arise because buyers are typically willing and able to pay a higher price to purchase a good than what they end up paying and because sellers are typically willing and able to accept a lower price to sell a good than what they end up receiving. Both sides of the market exchange are thus better off, have a net gain in welfare, by making the trade. While all types of market exchanges generate gains from trade, this topic is perhaps most important for an understanding of international trade.
Buyers and sellers engage in market exchanges because they benefit from the trade. As a generally rule both sides are better off after the exchange than they were before the exchange. Buyers are better off because they have a net gain in consumer surplus. Sellers are better off because they have a net gain in producer surplus.
While the gains obtained from market exchanges provides insight into all forms of trading and the very existence of a market-based economy used to allocate resources, it also provides a great deal of insight into trading among nations, that is, international trade. When two nations engage in trade they do so because they gain from the trade. Both countries are better off after the trade than they were before.
The gains obtained from market exchanges can be illustrated using the exhibit to the right. This exhibit presents a standard market graph. The negatively-sloped demand curve, D, represents the demand price that buyers are willing and able to pay to purchase different quantities of turnips. The positively-sloped supply curve, S, represents the supply price that sellers are willing and able to accept to sell different quantities of turnips.
If this is a competitive market, free of other market failures and other annoying complications, then the intersection of the demand and supply curves gives rise to the equilibrium price and equilibrium quantity. The relation between the market equilibrium price, the demand price on the demand curve, and the supply on the supply curve indicates the gains from trade.
The area above the equilibrium price and below the demand curve is the consumer surplus generated by this market. The [Consumers' Surplus] is highlighted this area. The area below the equilibrium price and above the supply curve is the producer surplus generated by this market. The [Producers' Surplus] is highlighted this area.
The combination of these two areas, the area above the supply curve and below the demand curve, is the gains from trade generated by this market. This is extra satisfaction, welfare, profit, etc. that would not exist if this market exchange did not take place.
Winners: The winners in an international trade are the consumers in the buying (or importing) nation and the producers in the selling (or exporting) nation. The buyers receive consumer surplus and the sellers acquire producer surplus.
Losers: However, the losers in an international trade are the producers in the buying (or importing) nation and the consumers in the selling (or exporting) nation. The producers in the buying nation face greater competition for their products, which inevitably means lower prices and profits. The consumers in the selling nation also face greater competition for this domestic production, which is bound to cause higher prices.
[/list]
For most international trades the winners win more than the losers lose, making such exchanges an overall win-win for both countries.
Pattern[/b] of Trade:[/b]
The main pattern of trade [/b]is that developing countries tend to export mainly primary goods, and import mainly manufactured goods. In developed countries the pattern is the other way around - they tend to import primary goods and export manufactured goods. Primary goods are raw materials. They include coal, grains and fish. Manufactured goods are goods that have been made. They include cars, machinery and computers.
Developed and developing countries are interdependent. This means they rely on each other. Developed countries need the raw materials for their manufacturing industries, and developing countries need to have a market for their goods.
Protectionism:[/b][/b]
The argument for so-called "protectionism" (called "fair trade" by some) may at first sound appealing. Supporters of "protectionist" laws claim that keeping out foreign goods will save jobs, giving ailing domestic industries a chance to recover and prosper, and reduce the trade deficits.
"Protectionism is a misnomer. The only people protected by tariffs, quotas and trade restrictions are those engaged in uneconomic and wasteful activity. Free trade is the only philosophy compatible with international peace and prosperity[/b]."
Walter Block, Senior Economist, Fraser Institute (Canada)
Those who gain from "protectionist" laws are special-interest groups, such as some big corporations, unions, and farmers' groups – all of whom would like to get away with charging higher prices and getting higher wages than they could expect in a free marketplace. These special interests have the money and political clout for influencing politicians to pass laws favourable to them. Politicians in turn play on the fears of uninformed voters to rally support for these laws. The losers are all other ordinary consumers. Your freedom is being trampled into the dust by these laws, and you are literally being robbed, through taxes and higher prices.
Balance[/b] of Payments (BOP):[/b]
The balance of payments (BOP) is the method countries use to monitor all international monetary transactions at a specific period of time. Usually, the BOP is calculated every quarter and every calendar year. All trades conducted by both the private and public sectors are accounted for in the BOP in order to determine how much money is going in and out of a country. If a country has received money, this is known as a credit, and, if a country has paid or given money, the transaction is counted as a debit. Theoretically, the BOP should be zero, meaning that assets (credits) and liabilities (debits) should balance. But in practice this is rarely the case and, thus, the BOP can tell the observer if a country has a deficit or a surplus and from which part of the economy the discrepancies are stemming.
The BOP is divided into three main categories: the current account, the capital account and the financial account. Within these three categories are sub-divisions, each of which accounts for a different type of international monetary transaction.
The Current AccountThe current account is used to mark the inflow and outflow of goods and services into a country. Earnings on investments, both public and private, are also put into the current account.
Within the current account are credits and debits on the trade of merchandise, which includes goods such as raw materials and manufactured goods that are bought, sold or given away (possibly in the form of aid). Receipts from income-generating assets such as stocks (in the form of dividends) are also recorded in the current account. The last component of the current account is unilateral transfers. These are credits that are mostly worker's remittances, which are salaries sent back into the home country of a national working abroad, as well as foreign aid that are directly received.
The Capital AccountThe capital account is where all international capital transfers are recorded. This refers to the acquisition or disposal of non-financial assets (for example, a physical asset such as land) and non-produced assets, which are needed for production but have not been produced, like a mine used for the extraction of diamonds.
The capital account is broken down into the monetary flows branching from debt forgiveness, the transfer of goods, and financial assets by migrants leaving or entering a country, the transfer of ownership on fixed assets (assets such as equipment used in the production process to generate income), the transfer of funds received to the sale or acquisition of fixed assets, gift and inheritance taxes, death levies, and, finally, uninsured damage to fixed assets.
The Financial AccountIn the financial account, international monetary flows related to investment in business, real estate, bonds and stocks are documented. Also included are government-owned assets such as foreign reserves, gold, special drawing rights (SDRs) held with the International Monetary Fund, private assets held abroad, and direct foreign investment. Assets owned by foreigners, private and official, are also recorded in the financial account.
The Balancing ActThe current account should be balanced against the combined-capital and financial accounts. However, as mentioned above, this rarely happens. We should also note that, with fluctuating exchange rates, the change in the value of money can add to BOP discrepancies. When there is a deficit in the current account, which is a balance of trade deficit, the difference can be borrowed or funded by the capital account. If a country has a fixed asset abroad, this borrowed amount is marked as a capital account outflow. However, the sale of that fixed asset would be considered a current account inflow (earnings from investments). The current account deficit would thus be funded.
When a country has a current account deficit that is financed by the capital account, the country is actually foregoing capital assets for more goods and services. If a country is borrowing money to fund its current account deficit, this would appear as an inflow of foreign capital in the BOP.
Current Statistical Evidence of BOP of Indian Economy[/b]
India’s trade deficit during the first nine months of fiscal 2009-10 on a balance of payments (BOP) basis was lower at US$ 89.51 compared with US$ 98.44 during the same period in fiscal 2008-09. The trade deficit on a BOP basis in Q3 (US$ 30.72 billion) was, however, less than that in Q3 of 2008-09 (US$ 34.04 billion).
Exchange[/b] Rate Determination:[/b]
The exchange rate expresses the national currency's quotation in respect to foreign ones. Thus, the exchange rate is a conversion factor, a multiplier or a ratio, depending on the direction of conversion. In a slightly different perspective, the exchange rate is a price. If the exchange rate can freely move, the exchange rate may turn out to be the fastest moving price in the economy, bringing together all the foreign goods with it.
Exchange rates between currencies can be either controlled as in the case of India prior to the reforms or left to the market to decide, as is the case now in India. In the case of controlled exchange rates, it is quite obvious that the government would fix them, so the question really boils down to what is the process by which markets determine rates. The process is really not different in its essentials from the way any market functions. The supply and demand for different goods determine what their prices are. In this case, substitute currencies for goods. Taking the case of one foreign currency to understand how this market works. Thus, the dollar-rupee exchange rates will depend on how the demand-supply balance moves. When the demand for dollars in India rises and supply does not rise correspondingly, each dollar will cost more rupees to buy.
Exchange rates can be divided into FIXED and FLEXIBLE EXCHANGE RATE system. Fixed exchange rates are chosen by central banks and they may turn out to be more or less accepted by financial markets. Changes in floating rates or pressures on fixed rates will derive, as for other financial assets, from three broad categories of determinants:
i) Variables on the "real" side of the economy;
ii) Monetary and financial variables determined in cross-linked markets;
iii) Past and expected values of the same financial market with its autonomous dynamics.
[/b]
International[/b] Goods Market:[/b]
Trade is increasingly global in scope today. There are several reasons for this. One significant reason is technological—because of improved transportation and communication opportunities today, trade is now more practical. Thus, consumers and businesses now have access to the very best products from many different countries. Increasingly rapid technology lifecycles also increases the competition among countries as to who can produce the newest in technology. In part to accommodate these realities, countries in the last several decades have taken increasing steps to promote global trade through agreements such as the General Treaty on Trade and Tariffs, and trade organizations such as the World Trade Organization (WTO), North American Free Trade Agreement (NAFTA), and the European Union (EU).
International marketing is simply the application of marketing principles to more than one country. However, there is a crossover between what is commonly expressed as international marketing and global marketing, which is a similar term. For the purposes of this lesson on international marketing and those that follow it, international marketing and global marketing are interchangeable.
The intersection is the result of the process of internationalization. Many American and European authors see international marketing as a simple extension of exporting, whereby the marketing mix is simply adapted in some way to take into account differences in consumers and segments. It then follows that global marketing takes a more standardized approach to world markets and focuses upon sameness, in other words the similarities in consumers and segments. So let's take a look at some generally accepted definitions.
Current[/b] International Economic Problem:[/b]
The global financial crisis, brewing for a while, really started to show its effects in the middle of 2007 and into 2008. Around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems.
On the one hand many people are concerned that those responsible for the financial problems are the ones being bailed out, while on the other hand, a global financial meltdown will affect the livelihoods of almost everyone in an increasingly inter-connected world. Following a period of economic boom, a financial bubble, global in scope has now burst. A collapse of the US sub-prime mortgage market and the reversal of the housing boom in other industrialized economies have had a ripple effect around the world. Furthermore, other weaknesses in the global financial system have surfaced. Some financial products and instruments have become so complex and twisted, that as things start to unravel, trust in the whole system started to fail. The subprime crisis came about in large part because of financial instruments such as securitization where banks would pool their various loans into sellable assets, thus off-loading risky loans onto others. (For banks, millions can be made in money-earning loans, but they are tied up for decades. So they were turned into securities. The security buyer gets regular payments from all those mortgages; the banker off loads the risk.
Ø Banks borrowed even more money to lend out so they could create more securitization. Some banks didn’t need to rely on savers as much then, as long as they could borrow from other banks and sell those loans on as securities; bad loans would be the problem of whoever bought the securities.
Ø Some investment banks like Lehman Brothers got into mortgages, buying them in order to securitize them and then sell them on.
Ø Some banks loaned even more to have an excuse to securitize those loans.
Ø Running out of whom to loan to, banks turned to the poor; the subprime, the riskier loans. Rising house prices led lenders to think it wasn’t too risky; bad loans meant repossessing high-valued property. Sub prime and “self-certified” loans (sometimes dubbed “liar’s loans”) became popular, especially in the US.
Ø Some banks evens started to buy securities from others.
Ø Collateralized Debt Obligations, or CDOs, (even more complex forms of securitization) spread the risk but were very complicated and often hid the bad loans. While things were good, no-one wanted bad news.
High street banks got into a form of investment banking, buying, selling and trading risk. Investment banks, not content with buying, selling and trading risk, got into home loans, mortgages, etc without the right controls and management.
Many banks were taking on huge risks increasing their exposure to problems. Perhaps it was ironic, as Evan Davies observed that a financial instrument to reduce risk and help lend more securities would backfire so much.
When people did eventually start to see problems, confidence fell quickly. Lending slowed, in some cases ceased for a while and even now, there is a crisis of confidence. Some investment banks were sitting on the riskiest loans that other investors did not want. Assets were plummeting in value so lenders wanted to take their money back. But some investment banks had little in deposits; no secure retail funding, so some collapsed quickly and dramatically.
The problem was so large; banks even with large capital reserves ran out, so they had to turn to governments for bail out. New capital was injected into banks to, in effect; allow them to lose more money without going bust. That still wasn’t enough and confidence was not restored. (Some think it may take years for confidence to return.) Shrinking banks suck money out of the economy as they try to build their capital and are nervous about loaning. Meanwhile businesses and individuals that rely on credit find it harder to get.