Foreign Trade:
Americans drive cars made in Germany, use DVD's made in Japan and wear clothing made in China. Japanese watch American movies, Egyptians drink American cola and Swedes jog in American running shoes. The world economy is more integrated than ever before. This chapter illustrates the operations of activities, we live in and with the increase of projects, due to Foreign Trade, makes you acquaint about the basic concepts of trading. And next time, when you are talking with your counterparts abroad, you will be discussing with more conscience of your business economies of scale. This chapter is indeed intresting, especially when you are involved with global projects
Many large Projects are "multinational" in that they have branches and subsidiaries all over the world. By some estimates, intra-firm trade, or trade between branches of the same Project in different countries.
Many Projects buy and sell goods overseas and others form partnerships with foreign companies so that cooperation replaces competition. This has a profound effect on how companies operate in the global marketplace. Businesses around the world work side-by-side to produce and market products and earn Projects, thereby reducing the economic risks of global production and marketing.
For instance, there may be a running the Project:
Executing in the United States, financed by a Japanese bank, buying raw material from Spain, manufacturing in Mexico, employing a U.S. company for the legal and accounting work, and a British firm to handle all its designing the project..
Multinational Projects shift resources from one country to another to maximize profits and productivity.
To remain competitive, individuals, companies, and governments all must adapt to the changing global marketplace.
Projects practices vary from country to country and may require new approaches to making profits. In the United States, a signed contract is considered all but sacrosanct; in the Far East, southern Europe and the Middle East, the spirit of the agreement can sometimes matter more than the letter.
What is Foreign Trade?
Foreign Trade shapes our everyday lives and the world we live in. Nearly every time we complete Projects we are participating in the global economy. Products and their components come to our store shelves from all over the world.
Foreign Trade is the system by which countries exchange goods and services. Countries trade with each other to obtain things that are better quality, less expensive or simply different from what is produced at home.
World Trade is Diverse
Most Foreign Trade consists of the purchase and sale of industrial equipment, consumer goods, oil and agricultural products.
WORLD EXPORTS ARE UP SHARPLY
Trade: Important for economic well being:
With the increase in volume, trade has become very important to the economic well-being of many countries. In early 1960s, the United States bought less than $1 billion of foreign cars and parts. By 2001, this figure had increased to more than $189 billion.
Financial ties between United States and the rest of the world have grown significantly over time:
Number of foreign banking offices operating in the United States rose from fewer than 40 to over 600 at present. Amount of foreign direct investment (FDI) was $158 billion in 2001.
Foreign direct investment is the amount of money individuals invest in companies, assets and real estate of another country.
If stocks on the New York Stock Exchange plummet in value, the news is transmitted instantly worldwide, and stock prices all over the world might change. This means that countries have to work together more closely and rely on each other for prosperity.
Investment Environment
Primary Market
When a corporation issues securities, cash flows from investors to the firm.
Usually an underwriter is involved
Secondary Markets
Involve the sale of "used" securities from one investor to another.
Trade: Why do it?
Foreign Trade occurs because individuals, businesses and governments in one country want to buy goods and services produced in another country.
Trade provides people with a greater selection of goods and services to choose from. Often these goods are available at prices lower than those in the domestic economy.
Trade also provides a wider variety of goods to consumers: cars from Japan, salmon from Scandinavia, bananas from South America, are just a few.
Law of Comparative Advantage
Even if a country can produce everything more efficiently than another country, there is still scope for trade. A country can maximize its wealth by putting its resources into its most competitive industries, regardless of whether other countries are more competitive in those industries. This is called the law of comparative advantage.
Law of Comparative Advantage
Suppose India produces both cloth and furniture better than China:
Bales of cloth per day
Pieces of furniture per day
India
10
05
China
2
3
India has an absolute advantage—is more efficient—in the production of both cloth and furniture. However to achieve greater wealth, each country should specialize in the item in which it enjoys greatest advantage among all the products it produces—comparative advantage.
In terms of opportunity cost, or the cost of not transferring resources, India is twice as efficient in producing cloth as furniture.
India
China
Opportunity Cost
1 piece of furniture = 2 bales of cloth
1 piece of furniture = 2/3 bales of cloth
Since China's opportunity cost for producing furniture is less than India's, it makes economic sense for China to focus on furniture.
India should continue producing cloth and trade for China's furniture. Whereas, China should concentrate on furniture and trade it for cloth with India. Channeling resources into the most productive enterprise in each country will result in more products to trade.
Benefits of Diversification
Even though it makes economic sense to allocate resources to the most productive industries, no country wants to rely on only a few products. This makes the country vulnerable to changes in the world economy, such as recession, new trade laws and treaties, and new technologies.
A country that relies too heavily on one product is especially susceptible to market forces. If demand suddenly drops or if a cheaper alternative becomes available, the economy of that country could be damaged.
Many Middle East countries that are largely dependent on their oil exports see their economic fortunes rise and fall in tandem with the oil market.
The degree to which countries specialize is influenced by that country's terms of trade—i.e. the relative prices of a country's imports and exports. It is most advantageous to have declining import prices compared with the prices of exports. Exchange rates and productivity differences affect the terms of trade more than any other factors.
By developing a diversified economy, a country can make sure that even if some industries are suffering, other, more competitive industries will keep the economy relatively healthy. The United States is competitive in finance, entertainment, aerospace, industrial equipment, pharmaceuticals and communications, among others.
Competitiveness
Competitiveness is used to describe the relative productivity of companies and industries. If one company can produce better products at lower prices than another, it is said to be more competitive. This is a matter of concern for governments, since it is difficult for uncompetitive industries to survive.
In the long run, competitiveness depends on:
a country's natural resources, its stock of machinery and equipment, and the skills of its workers in creating goods and services that people want to buy.
Natural resources are predetermined and must be used efficiently, but a country's infrastructure and its workers' skills have to be developed over time. The ability of a society to do this effectively determines whether it can remain competitive in the global economy.
Economies of Scale
The law of comparative advantage says that a country can become more competitive by directing its resources to its most efficient industries. This enables a country to achieve economies of scale—increasing its output in a particular industry so that its costs per unit decrease. Such lower-cost goods are more in demand in international markets.
Certain industries that require heavy research and development or capital expenditures cannot be competitive unless they can spread the costs over many units. If a sophisticated weapons industry knows that it has access to foreign markets and could export, it may increase the scale of its manufacturing operations and become more efficient and competitive in the international markets.
Other factors affecting a country's trade competitiveness can be complex.
Sometimes it is difficult to move resources from one industry to another—it would cost a great deal of money to turn a shoe factory into a car factory. Governments often attempt to restrict or encourage Foreign Trade to achieve domestic economic goals—increasing employment in certain industries, or maintaining economic independence.
Knowledge-Intensive Products Contributed to a U.S. Export Boom
From 1986 to 2001 there was an enormous boom in U.S. exports, especially in manufactured goods. Exports went up from $227 billion to $731 billion. One of the driving forces behind the increase in exports was the success of U.S. companies in selling "knowledge-intensive" manufactured goods to other industrialized countries.
The value of knowledge-intensive products depends on the skills that went into producing them, rather than the actual cost of the components. For example, while producing a new compact disc, the expenses of paying the artist, advertising, marketing and legal and other fees far outweigh the actual cost of the physical disc.
Production of such knowledge-intensive goods relies more on a well-educated and skilled workforce than on natural resources. A number of products fit this description, from computer software to custom-built aircraft engine parts. Such products are produced for specific market niches and substitutes are not easy to come by.
These knowledge-intensive products are becoming a major force in Foreign Trade and a source of wealth for economies well positioned to compete in those markets.
Importing & exporting
Being a POME specialist, have you got acquainted about the operations of the Projects by importing or exporting goods? There are strict regulations on importing and exporting goods based upon the regions, so it is vitally important that you find out what applies to you.
Importing Customs requirements Prohibited & restricted goods Quarantine requirements Assistance for importers Labeling requirements Exporting Develop an export plan Customs requirements for exports Quarantine controls on exports Financial assistance for exporters Information on exporting Free Trade Agreements (FTAs)
Exports measure the total physical movement of merchandise out of the Domestic Country to foreign countries whether such merchandise is exported from within the Customs Territory or from a Customs bonded warehouse or a Foreign Trade Zone. Total Exports is the sum of two types of exports:
o Domestic Exports- Commodities grown, produced or manufactured in the domestic Country including commodities imported from foreign countries that have been significantly changed or enhanced in value, in either the Domestic Country or a Foreign Trade Zone. o Foreign Exports (Re-exports) - Commodities of foreign origin that have entered the domestic Country but are "re-exported" in substantially the same condition as when imported.
Imports include commodities of foreign origin or domestically produced goods that are returned to the Domestic Country with no change in condition or after having been processed and/or assembled in other countries. There are two measurement styles for imports:
o General Imports - This number measures the total value of merchandise shipments that arrive in the domestic Country from foreign countries, whether such merchandise enters consumption channels immediately or is entered into bonded warehouses or Foreign Trade Zones under Customs custody.
Bonded Warehouses are authorized by Customs for storage or manufacturing of goods on which payment of duties is deferred until the goods are removed into Customs Territory. These goods are not subject to duties if reshipped to foreign points.
Foreign Trade Zones are enclosed areas, operated as public utilities, under control of Customs with facilities for handling, storing, manipulating, manufacturing, and exhibiting goods. The merchandise may be exported, destroyed, or sent into Customs Territory from the zone, in the original package or otherwise. It is subject to Customs duties if sent into Customs Territory, but not if reshipped to foreign points.
Types of Services:
o Travel - Purchases of services and goods by domestic country travelers abroad and by foreign visitors to the Domestic Country. o Passenger Fares - Receipts consist of fares received by carriers from foreign residents for travel between the Domestic Country and foreign countries and between two foreign points. Payments consist of fares paid by residents to foreign carriers for travel between the Domestic Country and foreign countries. o Other Transportation - Charges for the transportation of goods by ocean, air, waterway, pipeline, and rail carriers to and from the Domestic Country. o Royalties and License Fees - Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. o Other Private Services - Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. o Transfers underdomestic Military Sales Contracts - Exports of goods and services in which DOMESTIC COUNTRY military agencies participate. Includes both goods (such as equipment) and services (such as repair services and training) that cannot be separately identified. o Direct Defense Expenditures (imports only) - Expenditures incurred by domestic military agencies abroad, including expenditures by domestic country personnel, payments of wages to foreign residents, construction expenditures, payments for foreign contractual services, and procurement of foreign goods. Includes both goods and services that cannot be separately identified. o Government Miscellaneous Services - Transactions of government nonmilitary agencies with foreign residents. Most of these transactions involve the provision of services to, or purchases of services from, foreigners; transfers of some goods are also included.
Gautam Koppala,
POME Author
GAUTAM KOPPALA, With over a decade, track record of successful leadership, excellent results through strategic skills in driving revenue and profit growth. Demonstrated ability to identify and trouble shoot critical issues impacting productivity, cost, distribution, marketing, Strategic positioning, sales and financial operations, with innate ability to build and maintain strong client relationships in operations. Expert in distilling and managing processes, enhancing internal structures, and promoting multi-skilled team competencies via nurturing mentorship and inspirational leadership. Engagements have spanned operational, strategic, technological and change management roles. Academically, I am a cum laude graduate with a Bachelor of Technology degree in Electrical and Electronics Engineering (B-Tech E.E.E.) and a post graduate in Masters in Human Resources Management (M.H.R.M.) and Masters of Foreign Trade (M.F.T.). As you will see my Post Graduation's were been studied part-time, as well as working full-time as an Engineer. I feel that this demonstrates my ability to maintain dedication, motivation and enthusiasm for a project management over a long period of time. In addition, balancing full-time work with study has perfected my time-management and organizational skills. I believe that my college degrees and gamut certifications in combination with my extensive broad-based work experience along with my drive, resourcefulness and determination, would make me an excellent candidate for a senior management position with any company. Highlights of my background include Operations related Commercial, Supply chain, Sales with a magnificent experience in Project management, technically oriented towards Automation and Security Systems in Industrial and Building sectors. Presently, writing a book on Projects and Operations Management (comprise of 12 volumes, 6K pages), and awaited for the reputed publications. These books can be checked in Google books and other search engines too.
