Chapter 2: The Importance of International Business

Aspects of International Business

-I.B.: is all the business activities needed by producers to create, ship,

and sell goods and services to consumers; involves international trade,
the importing and exporting of goods and services, licensing the use of
assets in other countries, and foreign investment

-exporting: companies in one country fulfilling the needs and wants of Out
another country be selling products to companies, organizations, or
governments in that country

-importing: companies bringing in products and services to satisfy the IN

needs and wants of their own consumers

-products: can be either goods and services

-goods: consist of raw materials, semi-manufactured goods, or

manufactured goods
-raw materials: natural materials that have NOT been processed,
for example, lumber, fish, minerals
-semi-manufactured goods: goods that have been partially
manufactured, for example automotive parts or electronic
components
-manufactured goods: merchandise, for example toys, clothes

-services: are activities that individuals, groups, organizations, or

companies perform to advise or assist other individuals, groups,
organizations, or companies

Importing
-reasons to import:
-need products that are conveniently/economically
available/obtainable from foreign sources
-specialized products, better quality products
-make sure there is demand for the product
-contacting foreign suppliers
-finalize deal
-check order when it arrives
-know exactly what is allowed to be/can be sold - research,
specifications

Exporting
-find potential buyer, meet their needs, agree on sales terms, provide the
products or services, complete the transaction
-challenges: establish a presence in the country, developing sufficient
production capacity to manufacture, understand local business laws and
customs
-pack and ship according to weight and volume
-faster shipped = more cost
-shipments usually made in containers
-plays a key role in growth and prosperity

Starting an Import or Export Business

-review management commitment, competitive advantage, cash flow,
capacity to produce; strong financial and personnel support needed
-experience with marketing and servicing internationally - create a
business plan - viable plan
-invest time and money; choose market carefully
-gather information and arrange necessary assistance
-understand strengths and competitive advantage (SWOT)
-more markets = more involvement
-more aggressive the expansion plan = greater cash flow
-all sizes of companies can trade internationally

Trade Missions
-Outgoing Trade Missions: visits by selected Canadian firms to a
target foreign market
-Incoming Trade Missions: are visits to Canada by foreign buyers and
investors - source of supply, place to invest, arrange joint venture
-usefulness of trade missions:
-to get in touch with officials of the target countries
-gather information and insights
-Team Canada:
-government sponsored
-led by the prime minister
-includes federal ministers, provincial premiers, territorial gov.’t,
gov.’t agencies, interested Canadian businesses
-Export Development Canada
-Canadian financial institution
-provides trade finance services to Canadian exporters/investors
-200 markets, 130 of which are in developing countries

Trade Shows
-allow a potential purchaser to communicate with suppliers
-provide potential or newly established exporters with an opportunity to
promote their products and services, identify potential sales
opportunities, develop valuable business contacts, and locate local
agents and distributors
-often focus on one industry
-advertised on the Internet, in trade publication advertisements , and
through suppliers
-must declare product samples when brought to trade shows,
documentation, proof, customs, taxes
-GATS (General Agreement on Trade Services): gov.’t to gov.’t
agreement, international rules, legal structure

Exporting Goods and Services

-more companies are involved in importing and exporting goods than in
other types of international business (vs. services)
-Canadian companies import and export a wide range of products
-becoming more active in exporting services
-buying services = paying for knowledge, creativity, or manual work of
the provider
-technology allows Canadian companies to deal with foreign countries
without leaving the Canada
-private and public goods and services are exported
-many businesses sell both goods and services

Foreign Investments
-investments may be in partnership with other international institutions
or companies, public or private
-Public-sector investments: involves putting money in state or
government owned assets Schools, Hospital, power
-Private-sector investments: can be held in a variety public or privately
owned companies or through the creation of new companies of either
type
-two categories of foreign investments:
1. Foreign Direct Investment (FDIs):
-when a company in one country expands into another; setting up a
subsidiary, joint venture, controlling interest of foreign company -
influence management; obtain information, patents; purchase all or part
of a company to ensure source of supply or acquire new technologies
-can invest directly in land or property where permitted, construct
offices, plants, research facilities, infrastructures, projects
2. Portfolio Investment:
-investor buys a share of a foreign company but has no controlling
interest and little operational say; simply want to earn a share of profit
-may buy bonds or shares
-usually less risky than direct investment

Why Do Companies Expand Internationally?

-expanded markets and increased sales
-controlling expenses
 -outsourcing: obtaining something by contracting it from another
source
-diversification
-competitiveness

Reasons for Recent Growth in International Business

•due to recent developments in:
-communications technology
-Internet, e-mail, conference calls, videoconferencing, Web sites,
fax, phone
-time zones and standard time have solved worldwide problems
regarding the movement of goods and services and communication
-transportation
-shipping by sea, rail, truck, tractor-trailer, air, pipelines
-freer boarders
-WTO, NAFTA, GATT
-increased business confidence
-less risky, less costly, and less time-consuming
-international institutions - banks, insurers, postal
-feel confident in searching the world for new ideas, products,
manufacturing processes, and intellectual property
-wireless communication is easier, safer, and more secure
-courier companies operate worldwide
-increased global competition
-result is better quality, more inexpensive products, variety
Advantages of Doing Business in Canada
-lower production and business costs
-see figure 2.10, page 59 - International Comparison of Business
Costs
-excellent human resources
-Organization for Economic Cooperation and Development
(OECD) - in Paris, France has stated Canada has the highest
computer literacy rate in the G8 (U.S., Japan, Germany, Britain,
France, Canada, Italy, and Russia - world’s eight most
industrialized countries)
-see figure 2.12, page 61 - Higher Education Achievement
-see figure 2.13, page 61 - Management Education
-a positive business climate
-business climate: a measure of the ease with which companies
can run their businesses - Canada’s rank is fourth
-International Policy Centre has ranked Canada first amongst G8
in terms of ethical business practices
-higher rate of unionization vs. U.S.; use less sick days vs. U.S.
-almost seamless North American markets
-Canada and U.S are the world’s largest trading partners ($)
-proximity
-NAFTA
-good business infrastructure
-the choice of such project priorities (environment, clean air and
water) and the qualities of these infrastructures and services in
Canada make the country very attractive to investors and
businesses; favouring of research and development; education
system; see figure 2.15, page 64, “Global Outlook Country
Forecast - Business Environment Scorings and Rankings
(Canada places in positions 2 and 3)
-quality of life
-1990's - best place to live by the U.N - 7 years in a row
-world reputation as a multinational country that welcomes
immigrants and has a humanitarian policy toward refugees
Preparing for the International Workplace
-getting experience abroad
-getting experience at home
-knowledge and skills
-general traits
-adaptation and coping skills
-inter-cultural communications skills and traits
-overseas work effectiveness skills
-see pages 66 to 70