GLOBAL TRADE AND MARKETING A Nepalese Perspective Bijendra Man Shakya Associate Professor (Economics) Shanker Dev Campus Tribhuvan University RATNA PUSTAK BHANDAR Kathmandu, Nepal
CONTENTS List of Boxes List of Tables and Figures PREFACE xiv xv xvii PART ONE: INTRODUCTION Chapter I An Overview of Global Trade 3-14 1.1 Meaning and nature of global trade 3 1.2 Scope of global trade. 6 1.3 Global trade at a glance 8 1.4 Global trade and business firm 12 Plan of the book 13 Notes 13 Chapter II Domestic Trade and Global Trade 15-20 2.1 Factor immobility and Variation in factor prices 15 2.2 Use of different currencies 16 2.3 Politically different units 17 2.4 Trade barriers 18 2.5 Separate markets 18 2.6 Balance of payments 19 2.7 Greater distance and higher transaction costs 19 2.8 International economic problems 20 Notes 20 Chapter III Role of Global Trade in Economic Development 21-28 3.1 Advantage of specialization 22 3.2 Income and employment opportunities 23 3.3 Progress in technology 24 3.4 Attraction of foreign Investment 25 3.5 Basier access to raw materials 26 3.6 Expansion of external markets 27 3.7 Fostering of healthy competition 27 Notes 28
Chapter IV Importance of Global Trade to Business Firms 29-34 4.1 Increasing sales and profits 30 4.2 Exploiting excess production capacity 30 4.3 Tapping the growing global markets 31 4.4 Reducing dependency on domestic market 31 4.5 Enhancing competitiveness 32 4.6 Expanding research and development 32 4.7 Getting international feedback on technical Information 33 Notes 33 PART TWO: THEORETICAL BASIS OF GLOBAL TRADE Chapter V Trade Theories and Terms of Trade 37-62 5.1 Absolute Cost Theory 39 5.2 Comparative Cost Theory 40 Comparative cost differences and gains from trade 41 Equal exchange ratlos and impossibility of trade 43 Assumptions and criticisms 44 5.3 Opportunity Cost Theory 45 Opportunity cost and production possibilities curve 46 Constant opportunity cost and gains from trade 47 5.4 Factor Proportions Theory 50 Reasons for comparative cost differences 50 Relative differences in factor proportions and factor endowment 50 Leontief Paradox 52 5.5 Alternative trade theories 53 Similar Incomes and Tastes Hypothesis 54 Technology Gap and Product Life-cycle 55 Intra-Industry Trade 55 5.6 Terms of trade 56 Factors affecting the terms of trade 59 Problems in measuring the terms of trade 60 Notes 61 Chapter VI Trade Barriers 63-78 6.1 Tariff 64 Types of tariff 65 Tariff schedule 66 (vi)
Preferential tariff 67 Retaliatory tariff 68 Effects of tariff and partial equilibrium analysis 69 6.2 Non-tariff barriers (NTBs) 71 Quota 71 Exchange control measures 74 Technical and administrative regulations 75 Voluntary Export Restraints (VER) 76 Other administrative barriers 77 Notes 77 Chapter VII Commercial Policy 79-90 7.1 Free trade policy 79 Arguments for free trade 80 Arguments against free trade 82 7.2 Policy of protection 84 Arguments for and against protection 84 7.3 Commercial policy in developing countries 87 Notes 89 Chapter VIII Balance of Trade and Balance of Payments 91-102 8.1 The meaning and purpose 91 8.2 Balance of payments accounting 92 8.3 Composition of balance of payments 93 8.4 Balance of trade and balance of payments 96 8.5 Disequilibrium in balance of payments 97 8.6 Correction of balance of payments disequilibrium 99 Notes 102 PART THREE: NEPAL AND GLOBAL TRADE Chapter IX Foreign Trade Structure of Nepal 105-116 9.1 Performance of the trade sector 106 9.2 Composition and direction 108 Vulnerable export 112 Uncontrollable import 113 Mounting trade deficit 114 Notes 115 (vii)
Chapter X Problems and Prospects in Nepal's Trade Sector 171-136 10.1 Problems in trade sector 117 Commodity-country concentration 117 Narrow export base 118 Lack of infrastructures 119 Weak standardization and conformity assessment facility 119 High transaction costs 120 Weak international demand 121 Non-tariff barriers 121 Cumbersome trade procedure 122 Ineffective and inconsistence policy measures 123 Absence of public-private sector partnership 123 10.2 Prospects in trade sector 124 Comparative and competitive advantage 124 Benefits of policy measures and support 126 Proximity to the world's two fastest growing economies 127 Access to preferential market entry 130 Generalized system of preference (GSP) 130 Market access privilege under SAFTA 133 Preferential market access to India 133 Notes 134 Chapter XI Review of Nepal's Trade Policy 137-156 11.1 Protectionist regime 138 11.2 Begirming of trade policy reform 140 11.3 Liberalization of trade 143 Elimination of trade barriers and deregulation of licensing 143 Improvement of export promotion strategy 143 Liberalization of foreign exchange system 144 11.4 Integration with global trading system 144 11.5 Trade Policy (2009) 145 11.6 Nepal Trade Integration Strategy (NTIS) 150 Notes 153 Chapter XII Trade Policy Instruments 157-166 12.1 Import control measures 157 12.2 Export promotion measures 159 Duty-drawback scheme 159 Bonded warehouse facility 160 (viii)
Export subsidy 161 Freight subsidy 163 Taxrebate 163 Export processing zones (EPZs) 163 12.3 Limitations of export incentives 164 Notes _ 165 Chapter XIII Trade Support Institutions 167-174 13.1 Trade Board and Business Forum 168 13.2 Trade and Export Promotion Centre (TEPC) 168 13.3 Federation of Nepalese Chambers of Commerce and Industry (FNCCI) 171 Notes 174 Chapter XIV Bilateral Trade Relations 175-186 14.1 Trade relation with India 175 Composition and direction of Nepal's trade with India 176 Trade relations in retrospect 177 Trade impasse with India 178 Treaty of Trade (1991) 179 Towards free trade agreement 180 The latest development 181 14.2 Nepal - China Trade relations 183 Notes 184 Chapter XV Regional Free Trade Arrangement 187-202 15.1 Phases of preferential trading arrangement 187 Preferential Trading Arrangement (PTA) 188 Free Trade Area (FTA) 188 Customs Union 188 Common Market 189 Economic Union 189 15.2 Trade creation and trade diversion effects 189 15.3 Limitations of FT As 190 15.4 Proliferation of free trade areas 191 15.5 Nepal's affiliation to regional FT As 192 SAFTA and Nepal 192 BIMSTEC and Nepal 198 Notes 201 (ix)
Chapter XVI Multilateral Trading System and WTO 203-218 16.1 Emergence of the multilateral trading system 204 Trade negotiations under GATT 204 Transformation from GATT to WTO 205 16.2 WTO and the multilateral trading system 206 Principles of WTO 206 Structure and decision-making process of WTO 208 WTO Ministerial Meetings 209 16.3 Nepal and WTO 212 Commitments and obligations 213 Implications of WTO membership 215 Notes 217 Chapter XVII Trade Procedures and Documentation 219-236 17.1 Export procedure and documents 220 17.2 Import procedures and documents 228 17.3 Problems in trade procedures 232 Notes 234 Chapter XVIII Transit System and Transit Agreements 237-244 18.1 Transit process and documentation 237 18.2 Transit agreements 239 Nepal-India Transit Treaty 239 Nepal-Bangladesh Transit Treaty 240 18.3 Problems in transit trade 242 Notes 244 Chapter XIX Multimodal Transport System and Dry Ports 245-250 19.1 Advent of the multimodal transport system in Nepal 245 19.2 Inland Container depots (ICDs) and dry ports 248 Advantages of ICDs 249 Notes 250 PART FOUR: GLOBAL MARKETING Chapter XX Introduction to Global Marketing 253-264 20.1 Concept and nature of global marketing 254 20.2 Importance of global marketing 254 20.3 Global management orientation 254 20.4 Organization and management of global marketing 257 Export Manager 257 (x)
Factors affecting export organizational set-up 258 Alternatives for organizational structure 258 20.5 Management of export firms in Nepal 260 20.6 Driving and restraining forces affecting global marketing 261 Notes 264 Chapter XXI Global Marketing Environment 265-296 21.1 Economic environment 265 Economic systems and economic freedom 266 Stages of economic development and market development 267 Global trade alliance and economic Cooperation 268 European Union (EU) 269 North American Free Trade Agreement (NAFTA) 271 Asia-Pacific Economic Cooperation (APEC) 271 Association of South East Asian Nations (ASEAN) 272 South Asian Free Trade Agreement (SAFTA) 273 Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation (BIMSTEC) 274 Global trading system and emergence of WTO 274 21.2 Political environment 276 Government's attitude and national sovereignty 277 Political risks 278 Expropriation, conßscation, and nationalization 278 High tax and tariff regimes 279 Other political risks 279 Reducing the political risks 279 21.3 Legal environment 280 International legal system 280 Important global business legal issues 281 Intellectual property rights 281 Licensing and trade secrets 282 Antitrust laws 282 Bribary and corruption 283 Dispute resolution in global marketing 283 Arbitration of commercial disputes 284 Mediation 285 Jurisdiction clause 285 (xi)
Regulatory environment 285 WTO and Dispute Settlement Mechanism 286 21.4 Cultural environment 288 Aspects of society and culture 288 Analysis of cultural factors 291 Hierarchy of needs 291 Seif reference criteria 292 Environmental sensitivity 293 Impact of culture on marketing of industrial and consumer products 293 Gross cultural complications and their solutions 294 Notes 295 Chapter XXII Global Market Flanning and Entry Strategies 297-306 22.1 Flanning for global markets 297 22.2 Selection of global markets 298 22.3 Alternatives for global market entry strategies 300 Exporting 300 Piggyback arrangement / 304 Licensing and franchising 304 Joint venture 305 Fully-owned manufacturing 306 Notes 306 Chapter XXIII Global Marketing Mix Strategies 307-346 23.1 Product development strategy 307 Standardized products versus differentiated products 308 Quality control and product Standards 309 International quality system and ISO 9000 310 Benefits of ISO 9000 quality systems 311 Brand management and strategy 312 Global branding strategy 312 Packaging and Green Marketing 314 Green marketing and global marketing 315 Product positioning 317 23.2 Pricing for global markets 318 Factors affecting the pricing decisions 319 Global pricing approaches 321 Cost-oriented pricing 321 Price escalation 323 Strategie approaches to price escalation 325 Demand and competition oriented pricing 326 (xii)
Dumping. 326 Administered pricing and countertrades 329 Transfer pricing 332 23.3 Distribution in global marketing 332 Channel structures and options 334 Channel selection and motivation 336 23.4 Global promotion 337 Global promotion challenges 338 Promotional campaign 339 Global advertisement 340 Creative challenges in advertising 340 Media availability 341 Factors to be considered in advertising 343 E-marketing 343 Drivers of e-commerce 344 Development of e-commerce 345 Notes 345 Chapter XXIV Targeting Global Customers 347-360 24.1 Characteristics of regional markets 348 European markets 348 Western Europe 348 Eastem and Central Europe 349 North America 349 Asia Pacific 350 China, 351 India 352 Japan 353 Middle East 353 24.2 Global buyers and buying decisions 354 Customer value and value equation 354 Diffusion of innovations 356 The adoption process 356 Categories of adopters 357 Characteristics of Innovation 358 Notes 359 REFERENCES 361-366 (xiü)