Chapter Two: International Business Practices

Today, Canada trades for a variety of reasons. These include:

- Company growth
- Entry into new markets
- Expanded customer base
- Increased profits
- Access to inexpensive supplies
- Lower labour costs
- Access to financing

Foreign portfolio investment

- Investment in businesses located outside of Canada through stocks, bonds,
and financial investments
- Allows Canadians to spread out their investments, which is less risky than
investing in just one area
- Also provides greater choice and opportunity

Importing
- To bring products or services into a country, for use by another business or
for resale
- The majority of the goods that Canada imports come from the United States

Global sourcing: The process of a company buying equipment, capital

goods, raw materials, or services from around the world

Exporting: To send goods or services to another country, for use by a

business or for resale
*The majority of goods that Canada exports go to the United States

Value Added: The amount of worth that is added to a product at each stage
of processing. It is the difference between the cost of the raw materials and
the finished goods.

Licensing agreement: An agreement that grants permission to a company to

use a product, service, brand name, or patent in exchange for a fee or royalty

Exclusive distribution rights: A form of licensing agreement that grants a

company the right to e the only distributor of a product in a specific
geographic area or country.

Franchise: An agreement granted to an individual or group by a company to

use that company’s name, services, products, and marketing
For a fee, the franchisor provides support to the franchise in the areas of
financing, operations, human resources, marketing, advertising, quality
control, etc.

Joint venture: A company type of international business, in which a new

company with shared ownership is formed by two business, one of which is
usually located in the country where the new company is established.

Foreign subsidiaries: Often referred to as wholly owned subsidiary, a branch

of a company that is run as an independent entity in a country outside of the
one in which the parent company is located.
The parent company often sets financial targets, and allows the subsidiary to
manage its own day-to-day operations as long as those targets are being met.

Tariffs: the most common type of trade barrier, are taxes or duties put on
imported products or services.
Tariffs raise the cost of imports, so that locally manufactured products are less
expensive and more appealing to consumers.

Tariff winners:
- Domestic governments – they collect the additional taxes
- Local producer – their goods are more competitively priced
- Local employees – the people working in local companies keep their jobs

Tariff losers:
- Foreign producers – their goods are now more expensive
- Consumers – the price of the products go up and consumers are forced to
pay higher prices
- Foreign employees – the people working in companies overseas lose out on
opportunities

Protectionism: The theory practice of shielding domestic industries from

foreign competition, often through trade barriers such as tariffs

Trade quotas: A government-imposed limit on the amount of product that can

be imported in a certain period of time

Trade embargo: A government-imposed ban on trade of a specific product or

with a specific country, often declared to pressure foreign governments to
change their policies.

Trade sanctions: Economic action taken by a country to coerce another to

conform to an international agreement or norms of conduct.

Foreign investment restriction

- Canadian law with the greatest impact is the Investments Canada Act
- Ensures that all foreign investments are reviewed to determine how they will
benefit Canada

Standards
- Countries have different standards for products in areas such as
environmental protection, voltage, and health and safety
- The ISO (International Organization for Standardization) is a network of
standardization groups form over 170 countries established to set quality
regulations

Exchange rate: The amount of one country’s currency in relation to the

currency of another country
- The Canadian dollar (CAD) is most often quoted against the U.S. dollar
(USD) because the two countries are the largest trading partners in the world

Winners of a High Canadian Dollar

- importers
- Canadian travelers
- major league sports teams in Canada

Losers of a high Canadian Dollar

- Exporters
- Canadian tourism
- Canadian retailers

Floating Rate ： An exchange rate that is not fixed in relation to other

currencies
- The price at which currency with a floating rate is bought and sold fluctuates
according to supply and demand

Currency revaluation: The increase in value of a currency because the

demand for that particular currency is greater than the supply

Currency devaluation: The decrease in value of a currency because the

supply of that particular currency is greater than the demand for it

Factor Affect the Exchange Rate:

- Economic conditions in Canada – inflation rate, unemployment rate, GDP
(gross domestic product), interest rates
- Trading between countries – the more favorable the terms of trade
(comparison of exports to imports), the higher the currency exchange
- Politics – political tension and instability or the threat of terrorism decreases
the demand for a currency
- Psychological factors – historical significance and stability change the way
currencies are viewed

Hard currencies: stable currencies, such as the euro, and the U.S. and
Canadian dollars, which are easily converted to other currencies on the world
exchange markets.

Soft currencies: A currency belonging to a country with an economy that is

small, weak, or that fluctuates often, and is difficult to convert into other
currencies, such as the Russian ruble or Chinese yuan.

Time Zones:
- Communication technology allows the world of international business to
operate twenty-four hours a day
- Certain methods of communication can be used at any time (email), other
methods (telephone) require knowledge of time zones
- Some methods offer immediate feedback and interaction, others do not