International

Business
Unit 1, Chapter 4
What is International Business?
O Domestic transaction is the selling of items
produced in the same country.
O International transaction is the selling of
items produced in other countries.
O Foreign trade – transactions usually involved
in exchanges of one type or another
internationally.
O Global economy – participating in
international transactions.
 Benefits for Business
O Access to Markets
O Most countries rely on international trade for their
economic survival. Trading abroad makes sense for
Canadian businesses.
A global product is a standardized item that is offered
in the same form in all the countries in which it is sold.
Cheaper labour
Increased quality of goods
Increased quantity
Access to resources
 The Five Ps of International
Business
O International business not only offers advantages to
business, it also benefits consumers.
O International business provides increased markets for
businesses and a broader choice of products, services,
and prices for consumers.
O There are 5 major reasons for doing business
internationally: product, price, proximity, preference,
and promotion.
O These reasons are sometimes called the 5 Ps of
international business, and they represent the benefits of
getting involved with businesses outside Canada.
Costs of International Trade
O Offshore outsourcing is the practice of hiring
service providers from countries where labour
costs are lower to complete some or all of the
steps in the production process.
O Many companies will not outsource to a
particular country at all. Instead, they will
turn to large transnational corporations –
companies that operate in several countries.
Costs of International Trade
O Human Rights Issues and Labour Abuses are two ethical
problems that result from offshore outsourcing. Workers in
many poor countries face a wide range of abuses in the
workplace. These abuses could include labour exploitation,
including physical and sexual abuse, forced confinement,
non-payment of wages, denial of food and health care, and
excessive working hours with no rest days.
O The International Labour Organization is the UN
specialized agency that seeks the promotion of social
justice and internationally recognized human and labour
rights.
Cost of International Trade
O Environmental Degradation
O Sustainable development is a process of
developing land, cities, businesses, and
communities that meets the needs of the present
without compromising the ability of future
generations to meet their own needs.
O Environmental degradation occurs when nature’s
resources such as trees, habitat, earth, water, and
air are being consumed faster than nature can
replenish them.
Barriers to International Business
O The Canadian government uses barriers,
sometimes referred to as roadblocks, to help
protect domestic businesses and consumers.
These barriers can be used to help assist a new
business in getting started as well as to protect
an existing industry struggling in a
competitive global environment.
Barriers to International Business
O Tariffs (customs duties) are forms of tax on certain types of imports.
Tariffs are levied on a percentage-of-value basis (e.g. 6.1% of retail
value) or on a specific basis (e.g. $6 per 100 Kg)
O Tariffs represent one of the most important tools for any government
in managing trade with other nations.
O View table 4.1 on page 124
O Each country sets its own rules for dealing with imports. They are
there to protect domestic industries.
O Tariff barriers are often the subject of international negotiations,
create trade barriers are gradually being reduced as countries create
trade agreements.

O View movie, “Ben & Jerry’s , A Frozen Empire

Barriers to International Business
O Non-tariff barriers are standards for the quality of imported
goods that are set so high that foreign competitors cannot
enter the market. (e.g. if Canada set very high standards for
safety and emission controls on imported vehicles, few
existing imported vehicles would meet the standards)
O Costs of Importing and Exporting
O Price is based on the cost of manufacturing, plus the costs of
storage, marketing, shipping, advertising, overhead, and the
profit margins of each business involved. Shipping costs is
one of the largest components of the landed cost. The landed
cost is the actual cost for an imported purchased item,
composed of the vendor cost, transportation charges, duties,
taxes, broker fees, and any other charges.
Barriers to International Business
O Excise Taxes
O An excise tax is a tax on the manufacture,
sale, or consumption of a particular product
within a country. (e.g. the Canadian
government charges an excise tax of 10 cents
per litre on gasoline. Raising about $4 billion
per year, while provincial governments charge
an average 14.5 cents per litre). Excise taxes
depend on the quantity or mass of an item.
Barriers to International Business
O Currency Fluctuations
O One of several factors that influence the
shifting currency exchange rates between
countries has to do with the strength of the
economies of the two countries in relation to
one another.
O Currency exchange rates have a very real
impact on doing business internationally.
Flow of Goods and Services
O Goods and services flow into Canada as
imports, and they flow out as exports. The
imports coming into Canada include raw
materials, processed materials, semi-finished
goods, or manufactured products that are
ready for sale.
O The less finished the imports are, the more
jobs they create for Canadians.
Flow of Goods and Services
O Balance of Trade is the relationship between
a country’s total imports and total exports.
O If the country pays more for imports than it
earns from exports, there is a trade deficit.
O If the country earns more from exports than it
pays for imports, there is a trade surplus.
Flow of Goods and Services
O Imports
O A business that wants to start importing goods for sale in
Canada should consider the five main ways of offsetting the
risks of importing in Figure 4.3, page 130.
O Exports
O The idea to export a good or service can come either from the
company that produces it or from the buyers in a foreign market
who wish to purchase it.
O Direct exporting means the exporter deals directly with the
importer and does not use an intermediary.
O Indirect exporting means the goods move from the exporter to
an intermediary and then on to the importer.
Flow of Goods and Services
O Offsetting Risks
O Exporters can offset risks through careful planning. If you plan
to export a product to a foreign market, start by conducting
market research to make sure there are consumers in the market
who will buy your goods.
O Canada’s Major Trading Partners
O In some ways, international trade is like collecting trading
cards. You can use whatever you have in abundance to trade for
whatever you need. The only difference is that countries don’t
usually trade goods directly. Instead, they buy and sell goods
for money.
O See table 4.2 on page 133, for Canada’s major trading partners.
Canada and International Trade
Agreements
O You’ve already learned that countries often set up trade
barriers, such as customs duties, tariffs, and embargoes,
to protect domestic businesses.
O There are two main advantages to reducing trade barriers.
The first is that domestic businesses are able to sell their
products and services abroad at lower prices since
customs duties are not added to the cost of domestic
businesses’ exports. The second advantage is that
consumers have access to new products, and existing
domestic products must improve their quality or reduce
their prices in order to compete with imported products.
Canada and International Trade
Agreements
O Trade agreements state which tariff each country will
drop or reduce and may include a process for resolving
disputes.
O Trade agreements need to include answers to questions
such as when and why people will be permitted to work
across international borders, what qualifications they
will need, what standards will be applied to their work,
and how businesses’ trade secrets (also known as
intellectual property) will be protected.
O Can you name some of these agreements Canada has
entered into?
Canada and International Trade
Agreements
O The World Trade Organization developed out of a very important
international trade agreement called the General Agreement on
Tariffs and Trade (GATT), which was signed in 1947 and came into
effect in 1948.
O Canada and 22 other countries signed this agreement.
O GATT endured for nearly 50 years and grew to include 115 member
states.
O In 1995, the World Trade Organization (WTO) was established to
replace the earlier GTT administration.
O With 139 member countries, the WTO is the principal international
organization that deals with the rules of trade between nations.
O One important WTO agreement is the 1995 General Agreement on
Trade in Services (GATS). It sets guidelines for the trade of World
Trade Organization (WTO)
O services (such as banking) across international borders. Currently, the
WTO governs about 97% of all world trade.
Canada and International Trade
Agreements
O North American Free Trade Agreement (NAFTA)
O The United States wanted to clarify rules regarding services and
intellectual property, reduce restrictions on American investment
in Canadian industries, and increase their exports to Canada.
O The Canada-U.S. Free Trade Agreement (FTA) came into
effect in January 1989.
O Soon after the FTA came into effect, the United States
announced a similar agreement with Mexico, and Canada asked
to be included in the negotiations. The North America Free
Trade Agreement (NAFTA), which came into effect in 1994,
joined all three countries in a continent-wide free-trade zone.
O See tables 4.3 and 4.4 on page 136
Canada and International Trade
Agreements
O Other Free Trade Agreements
O Canada has other free trade agreements around
the world. Some are regional (involving
groups of countries), while others are
bilateral (involving Canada and one other
country or group).
O A trading block is a group of countries that
share the same trade interests.
Canada and International Trade
Agreements
O The Group of Eight
O The Group of Eight (G8), formerly known as
the Group of Seven (G7), is an association of
the world’s most powerful industrialized
democracies. G8 countries are not located
close together. They are from different parts of
the world working together in the global
economy.
O Read Table 4.5 on page 138
The Future of International Trade
O European Union (EU) is the union of many
European countries into a single market, a
process that began after WWII and culminated
in a single-currency market in 2002. The euro
is the official currency of EU.
O Denmark and the United Kingdom have not
adopted the euro as their currency.
O Evolution of NAFTA – could see the
direction from a trading bloc into a single
market.
The Future of International Trade
O Impact of Cultural Differences
O The future of international trade depends, in part, on our
ability to accept and respond to cultural differences.
O Culture is the sum of a country’s way of life, beliefs, and
customs. It influences how things are bought and sold.
O Dealing with people – doing business around the world not
only means learning other languages and understanding other
cultures; it also means learning the nuances of dealing with
people and finding out about what’s important to them.
O Punctuality – in North America people are expected to be on
time for appointments. In other cultures, time is considered to
be flowing, flexible, and beyond people’s control. What
doesn’t get done today can be done tomorrow.
The Future of International Trade
O Greetings – In many countries, the way you greet someone is an
important part of the impression you make. Handshakes are common in
most countries, but not everyone shakes hands the same way.
O Non-verbal Communication Signals – In many cultures, nonverbal
signals tell far more than words. Businesspeople may have to rely on
the body language of the person they’re speaking with to tell them
whether they have or have not made a sale.
O Good Manners – The three Fs of business – family, friends, and
favours – have a very strong influence on the business decisions people
make. Knowing the culture of those you are doing business with, is
important for a successful outcome.
O Decision Making – Depending on the culture and how the decisions are
made (top-down, down-up), will determine the time needed to make a
decision which affects the deal.
 Global Dependency
O Global dependency exists when customers in
one country begin to demand items that are
created in another country. These customers
become aware of the products because of
global communications. Over time, the
products are incorporated into the culture of
the people who buy them.