CHAPTER 5 Understanding International Business Sixth Canadian Edition
CHAPTER 5 Understanding International Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
2 Learning Objectives Describe the rise of international business and identify the major world marketplaces Explain how different forms of competitive advantage, import-export balances, exchange rates, and foreign competition determine the ways in which countries and businesses respond to the international environment Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
3 More Learning Objectives Discuss the factors involved in deciding to do business internationally and in selecting the appropriate levels of international involvement and international organizational structure Describe some of the ways in which social, cultural, economic, legal, and political differences act as barriers to international trade Explain how free trade agreements assist world trade Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
4 The Rise of International Business Total volume of world trade $8 trillion /yr Globalization <The integration of markets globally <The world is becoming a single interdependent system Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
5 Imports and Exports Imports <Products purchased in Canada which are manufactured and shipped in from other countries Exports <Products made in Canada which are purchased by consumers in other countries Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
6 Major World Marketplaces North America <US largest and most stable market <Our largest trading partner is US <Mexico exports increasing (esp. autos) Europe <Western and Eastern Asia-Pacific <esp. Japan and China Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
7 Competitive Advantage Absolute advantage < a country can produce something more cheaply or better than any other country Comparative advantage < a country can produce certain items more cheaply than it can other items International competitiveness < ability of a country to generate more wealth than others Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
8 Balance of Trade Imports < Exports = Trade Surplus (Favourable) Imports > Exports = Trade Deficit (Unfavourable) Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
9 Balance of Payments Difference between cash flowing into the country and out of the country Cash flow in Cash flow out < exports < imports < foreign tourist spending in Canada < Canadian tourist spending outside of Canada < foreign investments in Canada < earnings from Canadian investments outside of Canada Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke < Canadian investments outside of Canada < earnings of foreign investments in Canada < foreign aid, military expenditure outside of Canada Copyright © 2008 Pearson Education Canada
10 Foreign Exchange Ratio of one currency to another <“strong” Cdn $ when high demand for Canadian dollars and products <When the value of the Cdn $ depreciates texports increase and imports cost more <When the value of the Cdn $ appreciates texports decrease and imports cost less Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
11 Levels of Involvement in International Business Multinational Firm (assets and facilities in 2 or more foreign countries) International Firm Exporter (significant portion of business abroad and overseas facilities) (make in one country and sell to others) Importer (buy products in foreign markets for resale at home) Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
12 Multinational Firms Control assets, factories, mines, sales offices, and affiliates in two or more foreign countries < worldwide presence < favourable exchange rates, technology and expertise < provide needed jobs, prosperity, technology, and growth to developing nations < often criticized for taking resources out of the country, and not doing enough to develop local labour markets Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
13 International Organizational Strategies Importing or Exporting via Independent Agent Licensing Arrangement Establishing a Branch Office Choosing a Strategic Alliance Foreign Direct Investment Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
14 Why Have a Branch Office? Established in foreign country Increased sales due to local presence More direct control May be a foreign legal requirement Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
15 Strategic Alliances Strategic alliance <“joint venture” or “partnership” between two independently owned firms May be mandated in some nations Get knowledge and expertise of the foreign partner Greater control Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
16 Top Ten Foreign Controlled Companies in Canada Company General Motors of Canada Ltd. Imperial Oil Ltd. Daimler/Chrysler Canada Inc. Shell Canada Ltd Ford Motor Co. of Canada Ltd. Wal-Mart Canada Corp. Honda Canada Inc. Ultramar Ltd. Costco Wholesale Canada Mc. Kesson Canada Corp. Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Revenue (Billions) $34. 9 27. 7 20. 8 14. 1 13. 8 13. 5 13. 0 9. 5 8. 1 7. 1 Copyright © 2008 Pearson Education Canada
17 Barriers to Trade Social and Cultural Differences Economic Differences Legal and Political Differences <Quotas/Tariffs/Subsidies <Local Content Laws <Business Practice Laws Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
18 Social & Cultural Differences Language Population demographics Shopping habits Religious differences Social beliefs Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
19 Economic Differences The role of government in the economy Planned vs. Market economies <capitalist <socialist <communist Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
20 Quotas, Tariffs, & Subsidies Quota < limitations on importation of a product class Embargo < forbidding export/import from a nation (US vs. Cuba) Tariff: a tax on imported goods < Protectionist measure to protect domestic producers < Raises government revenues as well Subsidy < government financial assistance for domestic firms Protectionism < Protecting domestic business at expense of free market Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
21 Local Content Laws Requires that at least part of the product be made in the export (foreign) country < may result in joint venture Canadian provinces may buy from their own companies before going to other provinces Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
22 Business Practices Bribes < seen as “gratuities” to government officials in some nations Dumping < the practice of selling goods abroad for less than a firm charges in its home market, is illegal in most nations Cartels < associations of producers created to control supply and demand (OPEC) Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
23 Overcoming Barriers to Trade General Agreement on Tariffs and Trade (GATT) World Trade Organization (WTO) European Union (EU) The North American Free Trade Agreement (NAFTA) Other < South American Free Trade Area (SAFTA) < Americas Free Trade Area (AFTA) < ASEAN Free Trade Agreement < Asia-Pacific Economic Cooperation < Economic Community of Central African States < Gulf Cooperation Council Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
24 European Union (EU) Largest free marketplace in the world 25 countries, plus Eliminated quotas and set uniform tariffs within the union Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
25 World Trade Organization (WTO) Member nations negotiate trade agreements and resolve trade disputes <successor of GATT, but more power 140 countries, plus Agricultural subsidies controversial Some protest against trade liberalization Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
26 North American Free Trade Agreement Came into effect in 1994 Goal to remove tariffs and other trade barriers among Canada, the United States and Mexico Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
27 Consumers’ Fears of Free Trade Job losses Market flooded with goods produced in low-wage countries like Mexico Loss of control over environmental standards US takeover of Canada’s natural resources Loss of Canadian cultural sovereignty Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
28 Consumer Support for Free Trade Access to lucrative US markets for Canadian exporters Increased jobs due to increased exports Environment is not covered or threatened by free trade agreements Nothing threatening natural resources About trade, not cultural sovereignty Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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