Understanding the Global Marketplace
The Global Marketplace
Definition
A market is an institutional structure that permits people and organizations to exchange goods, services, and labor. The United States, for example, is a market. The United States, Canada, and Mexico form a quasi-free market governed by the North American Free Trade Agreement. The European Union is a market. A global market is not limited to specific geographic locations but rather involves the exchange of goods, services, and labor anywhere in the world. For example, a business may be located in the United States. It may purchase components for one of its products from Japan, South Korea, Germany, and Mexico. The components may be shipped by a shipping company from Greece to an outsourcing firm in China for assembly, where it is then transported across Chinese and Russian railroads for distribution in European retail stores. The business’ stock may be traded on the New York Stock Exchange, the Japanese Nikkei Exchange, and the London Stock Exchange.
Conceptual Framework
Let’s take a look at what an ideal global market would look like:
Standardization
The goods and services traded in the global marketplace should be standardized so that they can be utilized by all market participants. For example, appliances should operate on the standard electrical system. An obvious problem today is that the US still operates on the old English measuring system instead of the metric system utilized by the vast majority of the world. Environmental and safety standards still vary quite a bit between countries. An example of a service standard may be accounting rules.
Trust
Global market participants must have confidence that everyone will follow the same rules of the marketplace and the rules will be uniformly enforced. For example, buyers and sellers need to feel confident that contracts will be honored by all parties and will be enforced by the legal system if there is a breach. Market participants will also often have to rely on third parties to provide credible information on parties to market transactions.
So, do we currently have a true global market? Not really. We have yet to achieve complete product standardization on a global basis. While strides have been made in creating standardized rules governing international market transactions, not all countries participate in the various treaties and trade conventions currently enacted. Our current trading system is still closer to a set of international markets rather than one overarching global market. In contrast to a global market, an international market exists where market participants are from different countries. For example, market transactions within the European Union constitute international market activities, as does trade between the United States and China. International trade agreements between the trading countries help build the confidence of market participants. Additionally, while there may not be international product and service standards in place for every product, international trading partners can usually accommodate the specific requirements of their customers because the scale is much smaller.
Summary
A global market is where goods, services, and labor are exchanged throughout the entire world. An ideal global market requires product and service standardization so that goods and services can move freely across the globe. Market participants must also have trust and confidence in the global market. The current economic environment doesn’t reflect this ideal type of global marketplace. Instead, we are still primarily operating in a system of international markets between various countries and geographic regions.