• Understand how businesses use importing, exporting, and countertrade in global trade
• Understand the difference between outsourcing and offshoring
• Understand how businesses use licensing and franchising to reach global markets
• Understand how businesses use foreign direct investments, joint ventures, and foreign strategic alliances to reach global markets

Entering the Global Market

In today’s economy, when a nation or business has an advantage—either comparative or absolute—it’s likely to look beyond its own borders or storefront to seek more economic opportunity. But how do you enter a global market? It’s certainly not as simple as loading up your products in a van, driving to the next town, and knocking on doors. This section describes some of the common strategies companies and countries use to get their goods and services into global markets.

Exporting/Importing

Exporting is the easiest and most straightforward way to engage with the global market.

exporting

Exporting is taking goods that were produced within a company’s home country and shipping them to another country. The party sending the good is called an exporter.

It is impossible to discuss exporting without mentioning its complement, importing.

importing

Importing is the process by which a good is brought into a jurisdiction, especially across a national border, from an external source. The party bringing in the good is called an importer.

Simply put, one country’s exports become another country’s imports. Examples of U.S. imports are everywhere: take a look at the labels in your clothes or the contents of your backpack. From our vantage point, U.S. exports may be a little harder to see, but they exist all the same and are plenty visible in other countries.

According to World’s Top Exports, the following export product groups represent the highest dollar value in American global shipments during 2024.^[1] In parentheses is the percentage share each export category represents in terms of overall U.S. exports:

1. Mineral fuels including oil: $320.1 billion (15.5% of total exports)
2. Machinery including computers: $252.4 billion (12.2%)
3. Electrical machinery, equipment: $213.9 billion (10.4%)
4. Vehicles: $143.8 billion (7%)
5. Aircraft, spacecraft: $134.2 billion (6.5%)

Advantages of Exporting and Importing

Since exporting doesn’t require a company to manufacture its products in the target country, the company doesn’t have to invest in factories, equipment, or other production facilities located halfway around the globe. Most of the costs involved in exporting are associated with finding a buyer or distributor in the destination market. For these reasons, exporting is considered to be the quickest and least expensive means to enter the global market. However, there are disadvantages, too.

Disadvantages of Exporting and Importing

Once products arrive in the destination market, the business loses control of them, which can result in products being misrepresented, copied by other manufacturers, or even sold on a black market. In addition, because the business isn’t active in the new market, it can’t gain insight into or experience with local consumer preferences and demand. This lack of information can create uncertainty and potentially cost the company opportunities down the road. As you will learn later in this module, businesses operating in other countries may find themselves subject to taxes, regulations, and/or restrictions that can substantially affect the profitability of the entire export venture.

Countertrade

countertrade

Countertrade is a system of exchange in which goods and services are used as payment rather than money.

Countertrading is common among countries that lack cash or where other types of market trade are impossible. In developing countries, whose currency may be weak or devalued relative to another country’s currency, bartering may be the only way to trade. Indonesia trades locally produced commodities such as palm oil, rubber, coffee, cocoa, tea, textiles, plastics, and spices in exchange for military equipment such as aircraft.^[2]

Did Pepsi Own a Russian Navy?^[3]

Coca-Cola dominated the soda market in Europe because American soldiers introduced the brand by bringing Cokes with them during World War II. Rather than compete with Coca-Cola, Pepsi tried to break into new countries. In 1971, Pepsi was able to negotiate a deal to bring Pepsi into the former Soviet Union, a potentially huge market. However, at the time, the Soviet currency could not be exchanged into any other currency. Pepsi agreed to exchange their soda for Stolichnaya, the Russian vodka.

By 1989, Pepsi realized that demand for Pepsi was growing in the Soviet Union faster than the market for vodka in the U.S. They would not be able to sell any more vodka so they needed an alternative form of payment. Pepsi, a Norwegian company, and the Soviet government negotiated a deal where old Soviet warships were sent to the Norwegian company to be broken down to scrap metal. Pepsi took 25% of the value of the ships as payment and sent Pepsi to the Soviet Union.

Pepsi eventually lost their lead in the region to Coca-Cola when the Soviet Union dissolved into Russia, Ukraine, and 13 other countries. However, as of 2022, both companies have suspended their production and sales in Russia due to its invasion of Ukraine.

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