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Terminology International Business Defined • “All the business transactions (exchanges of money) necessary for creating, shipping, and selling goods and services across national borders. Also referred to international trade or foreign trade” Wilson, Jack et al. The World of Business (5th ed) Canada, Nelson, 2007 Domestic Transaction • Selling of goods produced in the same country. • For example: You visit a store in your community (local store) and purchase a bicycle that has been manufactured in Canada. International Transaction • Selling goods produced in another country. • Involves creating, shipping, and selling goods and services across national borders. • Also referred to as international trade or foreign trade. • For example: You go to Canadian Tire and purchase a tool that was manufactured in China. Economy The financial health of a place • Municipal – Ottawa’s economy • Provincial – Ontario’s economy • National – Canada’s economy • Continental – North American economy • Global – Global Economy • The health of an economy is generally determined/measured by looking at factors such as employment rates, interest rates, gross domestic product data, trade deficits vs. surplus… (Next Chapter)
Imports A good or service brought into Canada from another country. (made in China) Exports A product or service produced in Canada and sold in another country. (made in Canada) Trade Deficit When Canada imports more goods than it exports, we have what is called a Trade Deficit. Imports > Exports = Trade Deficit Trade Surplus When Canada exports more goods than it imports, we have a Trade Surplus. Exports > Imports = Trade Surplus
cameras) 2. conform to different laws of various countries Global Product A standardized item that is offered in the same form in all countries in which it is sold. In addition to helping increase profits. Access to many more markets 2. Cheaper Labour Businesses make profits when their sales are greater than their costs of running the business. soccer balls. 1. Discuss the ethical considerations of cheap labour? .e. wants and preferences based on cultural differences and/or preferences 2. they can reduce their costs of doing business substantially.Which do you think is better for the Canadian economy? B. Access to cheaper labour 3. (i. The single largest expense of any business/organization is generally the labour (employees and management wages and salaries) If a company can produce its goods and/or services in another country where the labour laws allow businesses to pay employees less than they would be paid in Canada. Why? Companies must adapt their products and/or services to: 1. The cheaper an item is. Access To Markets Canada’s Population: Roughly 33.000. Increased quality or quantity of goods 4. different needs. perhaps the more the business will also sell. businesses can pass on those savings to consumers by reducing the price of the items. Access to resources that may not be available at home. Thus profits can increase even more by maintaining their sales level and decreasing their costs of running the business. Access to the global market does not guarantee bigger sales.600.000 33 million six hundred thousand World Population: Roughly 6. Benefits For Businesses Participating in International Business 1. pencils.000 6 billion 500 million Conclusion: The Global market can reach roughly 200 times more consumers than simply just Canadian consumers. 500.
Human Resources A Canadian company which opens up a factory in China to take advantage of its cheaper labour costs Capital Resources A company that purchases a specialized piece of machinery needed for their plant that is only made in Japan. 4. values. Magna Corporation in ON. New production facilities may open and perhaps in other countries. Customs and Beliefs on International Trade Culture • the sum of a country’s way of life.S. Punctuality Greetings Nonverbal communication signals Good Manners Decision making . Access to Resources Natural Resource Since Bamboo is a scarce resource in Canada a furniture company making bamboo furniture will import (bring into the country) bamboo fromanother country. customs • Influences how things are purchased. and norms • May be represented by a specific language • In order to do business with differing cultures. beliefs. 2.3. much market research is needed to help companies understand various similarities and differences even when dealing with everyday cultural norms dealing with people such as: 1. The Impact of Culture. 3. Leather seats come from South Africa. style.. Germany. 5. sold. Shipped to the production plan in South Caroline. manufacturers the rear-view mirror. C. 4. Michelin tires are manufactured in France BMW wanted to create the best possible product for its consumers so it searched for the manufacturers that produced the best quality in its car components. Increased Quality of Goods The BMW X5 Its engine is assembled in Munich. U. Increased Quantity Access to international markets may lead to an increase in demand of products thus increased quantities of goods sold. Results:Hours of operation may increase. Increase in job opportunities 5. • Sets boundaries on what can or can not be done • Impacts preferences. Canada.
” 5. not in others Bowing before an elder acquaintance versus not bowing at all 3. beyond’s people control Greetings Shaking hands – differs from one country to the next Eye contact made in some countries. • • • Punctuality Norms in Other Countries Time is considered flowing. and increases the level of respect people from different countries have for one another. decisions are made from the top down approach. • Shaking the head “side to side” means “no” to North Americans but “yes” to Bulgarians. . Opens up communication lines with people. • This difference may impact the order in which a sequential advertisement is laid out from one country to another. Broader range of prices offered (cheaper to purchase various goods) 3. Job creation 4. Punctuality Norms in North America • People are expected to be on time • Rely on books. improves mutual understanding. in others. 6. from the bottom up approach. Other Differences • North Americans read from left to right. • Personal space interpretations also differs from place to place. Good Manners • In North America. flexible. Availability of products and services unavailable in your own country 2. calendars and even pay a fee sometimes for missed appointments • 2. • In other Asian and Latin American countries it would be considered rude not to discuss family. and favours first to establish a personal relationship before business. Benefits and Costs of International Business Benefits to Society and Consumers: 1. • Israel and Egyptians read right to left. Political Benefits – “countries that trade with one another seldom go to war with each other. 4. 5. getting down to business is the norm when to business people meet. friends.1. Decision Making • In some cultures. Nonverbal Communications Signals • Considered rude in Asian cultures to refuse someone’s request. so an Asian business person may not give a direct “no” answer to a sales request • A “nod” means “yes” to North Americans but “no” to a Bulgarian. • The sign okay with ones hand is a symbol for money in Japan and is an offensive gesture in Brazil.
Lower costs to company which can focus on tasks it does better 2. . 4. 7. another country’s innovations. Example: • Many companies use call centres in India.Costs of International Trade The hidden or social costs of international business engaging in offshore outsourcing: 1. • Other? Environmental Degradation • Occurs when nature’s own resources such as trees. 2. Human rights and labour abuses 2. habitat. Advantages of Outsourcing 1. anddifferent tax structure Human Rights Issues and Labour Abuses Typical abuses in poor countries include: 1. Proximity to more efficient technologies 4. Increase profits from lower labour costs. 3. Physical abuse Sexual abuse Forced confinement Non-payment of wages Denial of food and health care Excessive working hours with no rest Child labour Child Labour defined: • Regular employment for boys and girls under the age of 16 • Many countries ignore abuses that target children and women. earth.” • The practice of hiring individuals from countries where labour costs are lower to complete some or all of the steps in the production process. and air are being used up (consumed) faster than nature can replenish them. Environmental degradation Offshore Outsourcing • Also known as “contracting out. Be closer to natural resources needed 3. water. What can be done to stop Child Labour and Human Rights Abuses? International Labour Organization (ILO) • United Nations (UN) specialized agency that seeks the promotion of social justice and human and labour rights that are accepted by all countries. 5. 6. China and Costa Rica for customer service and IT customer service.
. Tariffs or Custom duties 2. cities. Currency Fluctuations 1.e. Non-Tariff barriers 3. Barriers To International Trade Purpose of Barriers • To help protect domestic businesses and consumers May be used to: 1. protect consumers from imports with problems or that do not conform to Canadian safety standards. Excise taxes 5. $6 per kilogram) Money collected goes to the government.Sustainable Development • The process of developing land. Barriers include: 1. 3. 5% of retail selling price. A form of tax on certain types of imports (goods coming into Canada from other countries) Companies bringing in the goods from another country to sell in Canada must pay the tariffs. Increased costs of importing and Exporting 4. Non-tariff Barriers • Legal and policy standards for the quality of imported goods are set so high that foreign competitors can not enter the market.e. Whose job is it to: 1. and communities that meet the needs of the present without compromising the ability of future generations to meet their own needs • Businesses need to be looking to provide sustainable business practices. change Canadian tariff policies to best serve the Canadian economy? Answer: • Finance Canada 2. On another basis (i. monitor Canadian tariff policies? 2. protect an existing industry struggling in a competitive global environment. businesses. (i. help assist a new business getting started 2. • • • • • • • Tariffs Also called custom duties One of the most important tools for any government in managing trade with other countries. monitor tariff policies of other countries? 3. Examples: • A Canadian law forces an international company to apply for a license to do business in Canada (it may be very time consuming and expensive) • Government will allow some goods into the country only after being inspected and having met certain health and safety standards set out by the Canadian Food and Inspection Agency.) or. Tariffs are based on a percentage of the retail value.
4. the foreign tool whose landed cost was greater than the domestic purchase cost or. taxes. broker fees. • Marketing. Salaries) • % of profit the company wants to make on the sale • Depending on the laws of another country and cultural differences. Raise money (i. Price of a good sold is based on the following costs among others: • Manufacturing (includes wages). • Shipping. • It is composed of the vendor cost. Discourage people from engaging in certain activities 3. the domestic tool whose cost was cheaper than the landed cost. or consumption of a particular product produced in your country Governments use excise taxes to: 1. b. additional costs may be incurred. which one would you select if the quality of both products was equal? a. Costs of Importing and Exporting Landed Cost • The actual cost for an imported purchased item. Increase the costs of imported goods to encourage consumers to buy Canadian products. transportation charges.5 cents per litre on gasoline for the provincial government • Excise tax on tobacco products varies from province to province . • storage. Heating etc. Examples of excise taxes: • 10 cents per litre on gasoline for the federal government • 14. • Advertising • Overhead (Equipment. sale. Excise Taxes • A tax on the manufacture.e tobacco related health care costs) 2. duties.3. and any other charges associated with getting the product ready to sell in a foreign market. (another country) Question If you owned Canadian Tire and had to choose between selling a tool from a Canadian manufacturer or a foreign manufacturer.
bankofcanada. businesses may start laying off employees. and goods are often cheaper in the US. the value rises. when businesses are earning less revenue. Currency Fluctuations/ Exchange Rates • Converting the value of $1 Canadian dollar to US currency and other national currencies. .ca/en/backgrounders/bg-e1. Demand > Supply.com/convert/fxhistory Factors Affecting Exchange Rates • The financial health of Canada’s economy versus the US economy • Interest Rates Example: • If the Canadian economy is performing better than the US. the value of the Canadian dollar will increase. The US is Canada’s biggest trading partner. 2007 .html Impacts of Exchange Rates • Canadian economy is largely dependent on the value of imports and exports which can be greatly impacted by the value of the Canadian dollar. thus making importsZ higher. Result: • Less sales revenue for Canadian businesses which in the long run. 2000 . For example. profits decrease and if significant decreases occur.oanda.$100 US à $98 Canadian Website to research a history of exchange rates: http://www. the value of the Canadian dollar will increase. it makes exports more expensive. the US will be purchasing less from Canadian businesses Note: Canadian consumers also tend to purchase more products from the US because the value of the dollar is higher. the value rises. When Canadian Exports to US > US Imports = Trade Surplus When Canadian Exports to US < US Imports = Trade Deficit Exports decrease when: • the Canadian dollar increases in value to the US dollar.$100 US à $157 Canadian Nov. Foreigners will be attracted to invest in Canadian funds where banks are providing higher interest rates. • If interest rates are higher than those of other countries while inflation remains fairly stable. • the US economy is weak and the CD dollar is increasing. The demand for the Canadian dollar rises.5. can end up hurting the Canadian economy. Examples Nov. Information on factors affecting exchange rates: • http://www. Demand > Supply.
General Agreement on Trade in Services • GATS came into effect in 1995 . • Process for resolving trade disputes amongst the participating countries in the agreement. • The current body of trade agreements comprising the WTO consists of 16 different multilateral agreements (to which all WTO members are parties) and two different plurilateral agreements (to which only some WTO members are parties). • When and why people will be able to work across international borders. Advantages of Reducing Trade Barriers • Canadian businesses or other domestic businesses are able to sell their products and services to international markets at lower prices because additional tariffs on exported products are reduced or eliminated. • GATT came into effect in 1948 • GATT was signed by Canada and 22 other nations who were allies during World War II. • Governs approximately 97% of all world trade B. • An international organization was set up to help GATT nations negotiate trade deals. (Great for the consumer) A. Common terms outlined in the agreements include: • Reducing tariffs and custom duties on various products to reduce trade barriers. as well as for settling disputes arising from their interpretation and application. • Contributes to global economic growth and development. • The WTO also provides a legal and institutional framework for the implementation and monitoring of these agreements. resolve problems and collect data about world trade. History of the WTO • WTO developed out of an international trade agreement called the General Agreement on Tariffs and Trade (GATT). the WTO replaced the initial GATT organization. • The WTO provides a forum for negotiating agreements aimed at reducing obstacles to international trade and ensuring a level playing field for all. WTO Today • Main international organization that deals with the rules of trade between nations. • How business trade secrets will be protected (intellectual property). • In 1995. • What qualifications one will need to work in another country. • The WTO currently has 139 member countries. International Trade Agreements 1. • Increased competition motivates companies to improve their quality or reduce their prices in order to compete with imported goods.International Trade Agreements International Trade Agreement • Legal contract between or amongst nations who voluntarily agree to conduct business affairs in each other’s country based on the terms set out in the agreement.
The Canada-US Free Trade Agreement • Commonly known as FTA came into effect in January 1989. Each day NAFTA countries conduct $1. • • • • Wanted to increase their exports to Canada Wanted clarification regarding rules of intellectual property To reduce restrictions on US investment in Canadian industries Exemptions: sugar. Regional Trade Agreements • Trade agreements involving groups of countries Bilateral Trade Agreements • Trade agreements involving Canada and one other country or group Trading Bloc • Group of countries that share the same trading interests . and cotton All products other than exemptions are duty-free if produced within the free-trade zone. • Intended to gradually phase out (get rid of) a number of tariff barriers between the two countries Issues dealt with under the agreement Canada’s wishes: • wanted stable access to U. US and Mexico is tariff free for all products produced in the free-trade zone except for exemptions mentioned. peanuts. diary. 2. North American Free Trade Agreement Commonly known as NAFTA Came into effect in 1994 Trade between Canada. Markets • Wanted to bid on US government contracts • wanted to create a dispute settlement tribunal • To increase exports to the US • Exemptions included dairy and poultry US Wishes: • • • • • 3.S.• Sets guidelines for the trade of services such as banking across international borders.7 billion in trilateral trade.
Italy. What is the G-20? • Established in 1999 • The Group of Twenty (G-20) Finance Ministers and Central Bank Governors of important industrialized and developing economies to discuss key issues in the global economy.Other International Organizations C. Nelson Education Ltd.g20. 2007 World Trade Organization [Online] Available: http://www.. Other International Organizations 1. 5th Ed. and international financial institutions D. Canada. France. [Online] Available: http://www.org/about_what_is_g20.wto.htm . US. Group of Eight (G8) • Eight of the world’s largest and most powerful industrialized democracies meet annually and work together to deal with major economic and political issues facing their individual and collective countries. Topics dealt with at major G8 summits include: • Energy • Employment • Environment • Human rights • Arms Control • • Seek to provide guidance and support to established international organizations Countries include Britain. Germany. and Russia 2. • To help support growth and development across the globe by contributing to the strengthening of the international financial architecture and providing opportunities for dialogue on national policies. Canada. international co-operation.org/english/thewto_e/whatis_e/wto_dg_stat_e. Japan. The World of Business.aspx Wilson Jack et al. Other Free Trade Agreements • Free Trade Area of the Americas • Central American Free Trade Agreement (2004) • European Free Trade Association (1960) • Asia-Pacific Economic Cooperation (1989) Sources: About G20. G-20 Mandate • The G-20 is an informal forum that promotes open and constructive discussion between industrial and emerging-market countries on key issues related to global economic stability.