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International Marketing

United States under the Super 301 laws of the Omnibus omy than other nations. Most of what Americans con-
Trade and Competitiveness Act of 1988. sume is produced in the United States—which implies
that, in the absence of a chain reaction from abroad, the
United States is relatively more insulated from external
PORTFOLIO INVESTMENT
shocks than, say, Germany and China.
The increasing integration of economies also derives from
portfolio investment (or indirect investment) in foreign The dominant feature of the global economy, how-
ever, is the rapid change in the relative status of various
countries and from money flows in the international
countries’ economic output. In 1830 China and India
financial markets. Portfolio investment refers to invest-
ments in foreign countries that are withdrawable at short alone accounted for about 60 percent of the manufactured
output of the world. Nevertheless, the share of the world
notice, such as investment in foreign stocks and bonds.
manufacturing output produced by the twenty or so
In the international financial markets, the borders
countries that today are known as the rich industrial
between nations have, for all practical purposes, disap-
economies increased from about 30 percent in 1830 to
peared. The enormous quantities of money that are traded almost 80 percent by 1913.
on a daily basis have assumed a life of their own. When
In the 1980s, the U.S. economy was characterized as
trading in foreign currencies began, it was as an adjunct to “floundering” or even “declining,” and many pundits pre-
the international trade transaction in goods and services— dicted that Asia, led by Japan, would become the leading
banks and firms bought and sold currencies to complete regional economy in the twenty-first century. Then the
the export or import transaction or to hedge the exposure
to fluctuations in the exchange rates in the currencies of Asian financial crisis of the late 1990s changed the eco-
nomic milieu of the world; by the early twenty-first cen-
interest in the trade transaction.
tury, the U.S. economy was growing at a faster rate than
In today’s international financial markets, however,
that of any other developed country. The United States
traders usually trade currencies without an underlying
and Western European economies have become the twin
trade transaction. They trade on the accounts of the banks engines of the world economy, driven by increased trade
and financial institutions they work for, mostly on the and investment as a result of continued deregulation,
basis of daily news on inflation rates, interest rates, politi- improved technology, and transatlantic mergers, among
cal events, stock and bond market movements, commod- other things. Obviously, a decade is a long time in the ever-
ity supplies and demand, and so on. The weekly volume changing world economy; and indeed, no single country
of international trade in currencies exceeds the annual has sustained its economic performance continuously.
value of the trade in goods and services.
SEE ALSO Capital Investments; International Business;
The effect of this trend is that all nations with even
Investments
partially convertible currencies are exposed to the fluctua-
tions in the currency markets. A rise in the value of the local
currency due to these daily flows vis-à-vis other currencies BIBLIOGRAPHY
makes exports more expensive (at least in the short run) and United Nations Conference on Trade and Development. (2005).
World investment report 2004. Geneva: UNCTAD.
can add to the trade deficit or reduce the trade surplus. A
rising currency value will also deter foreign investment in U.S. Census Bureau. (2005). Statistical abstract of the United
States. Washington, DC: U.S. Government Printing Office.
the country and encourage outflow of investment.
World Trade Organization. (2004, October 25). 2004 trade
It may also encourage a decrease in the interest rates
growth to exceed 2003 despite higher oil prices (Press
in the country if the central bank of that country wants to release). Retrieved November 18, 2005, from
maintain the currency exchange rate and a decrease in the http://www.wto.org/english/news_e/pres04_e/pr386_e.htm
interest rate would spur local investment. An interesting
example is the Mexican meltdown in early 1995 and the
massive devaluation of the peso, which was exacerbated by Masaaki Kotabe
the withdrawal of money by foreign investors. The mas-
sive depreciation of many Asian currencies in the 1997 to
1999 period, known as the Asian financial crisis, is also an
instance of the influence of these short-term movements INTERNATIONAL
of money. Today, the influence of these short-term money MARKETING
flows is a far more powerful determinant of exchange rates The American Marketing Association defines marketing
than an investment by a Japanese or German automaker. as the process of planning and executing the conception,
Despite its economic size, the United States contin- pricing, promotion, and distribution of ideas, goods, and
ues to be relatively more insulated from the global econ- services to create exchanges that satisfy individual and

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