4.

● International trade = vital to a nation & its businesses

○ Increases economic growth
■ By providing a new market for products
■ By providing access to needed resources
○ Expand markets, seek growth opportunities in other nations, make their
production and distribution systems more efficient, reduce their dependence
on the economies of their home nations
● Imports: foreign made products purchased by domestic consumers
● Exports: sell domestically produced goods and services to other countries

● International sources of factors of production

○ Availability
○ Price
○ Quality of labour
○ Natural resources
○ Capital
○ Entrepreneurship
● Trading with other countries → allows a company to spread risk
○ Different nations = different stages of the business cycle

● Size of the international marketplace

○ Companies attracted to international business
■ Size of the global market
○ Portion of the world’s population living in less-developed countries → increase
■ More developed nations = low birthrates
○ Global birthrate = slowing overall
■ Population size does not guarantee economic prosperity

● When firms increase global business → increase ability to reach new groups of
customers
○ New revenue
■ China & India
○ Ppl in developing nations = lower per capita incomes
■ Despite having lower incomes, huge populations → profitable markets
○ While the major Canadian trading partners = USA, Mexico, China, Japan,
Canada has other important global partners in all the world’s major market
regions

● Absolute and comparative advantage

○ A country has an absolute advantage in making a product when it has a
monopoly on making that product or when it can produce the product at a
lower cost than any other country
■ Rare today
■ E.g., China = absolute advantage in silk production
○ A nation can develop a comparative advantage in skilled human resources by
ensuring that its people are well educated
 ■ Produce one good more efficiently than other producers
■ E.g., India = comparative advantage in software development because
of its highly educated workforce and low wage scale
■ Each nation exploiting its comparative advantage in the global
marketplace leads to higher standards of living everywhere

4.2

● Balance of trade: the difference between a nation’s exports and imports

○ If exports are larger than imports → trade surplus
○ If imports are larger than exports → trade deficit
■ US = currently in trade deficit
○ Balance of payments: the overall money flows into and out of a country
■ Affected by overseas loans and borrowing, international investments,
profits from international investments, and foreign aid payments
■ Outflow - Inflow
■ Balance of payment surplus: more money has moved into a country
than out of it
■ Balance of payments deficit: more money has gone out of the country
than entered it

● Major Candian Exports and Imports

○ Canada’s top exports = industrial goods & materials, energy products, and
machinery and equipment
■ Energy products increased dramatically
○ Canada’s top imports = machinery and equipment, industrial goods and
materials, and automotive products

● Exchange Rates
○ Exchange rate: the value of one country’s currency in terms of the currencies
of other countries
○ Important economic measure for every country
○ Factors affect foreign exchange rates
■ Economic and political conditions
■ Actions by the central bank
■ Balance of payments position
■ Speculation over future currency values
○ Exchange rates can go up and down freely as supply and demand change
■ Do not float in total freedom
■ Involved with national governments
○ Nations sometimes take deliberate action to devalue their currencies as a
way to increase exports & stimulate foreign investment
■ When the value of one currency falls relative to another, it is
experiencing devaluation
● Devaluation: a reduction in a currency’s value in terms of
other currencies or in terms of a fixed standard
○ Exchange rate changes can quickly create or destroy – a competitive
advantage
 ■ Important factors when investors decide whether to invest in other
countries
■ Hard currencies: currencies that easily convert into other currencies
● E.g., euro, U.S. dollar, & Japanese yen

4.3

● Businesses face barriers when trade in international markets

○ Must follow laws and deal with multiple exchange currencies
○ Change their products to suit different tastes in other countries
○ Social & cultural differences, economic barrers & legal & political barriers

● Social & Cultural differences

○ Language barriers
○ Should be sensitive to local views
○ Cultural sensitivity = important in cyberspace
■ Website visitors = come from anywhere
■ Icons = easily recognisable

● Values and Religious attitudes

○ People in different countries = share different values and religious feeligns
■ E.g.,s north american places a higher value on business efficiency and
lower unemployment than european society
○ Should be sensitive to the major religions in countries where they operate
■ Need to understand religious cycles and the timings of major holidays

● Economic differences
○ Economic factors
■ Country’s size
■ Its per capita income
■ Stage of economic development
○ Infrastructure: the basic system
■ Communications
■ Transportation
■ Energy systems of a country
■ Internet & technology

● Political & Legal Differences

○ Political climate
■ Stability of the political situation
■ Nations often pass laws to protect their own interests
○ Legal environment
■ Three dimensions of law
● Canadian law
● International regulations
● Laws in the countries where they plan to trade
○ To regulate international commerce, Canada and many other countries have
ratified treaties and other agreements
 ○ Online business
■ Patents
■ Brand names
■ Trademarks
■ Copyrights
■ Other intellectual property

● Internation regulations
○ Canada has entered into many friendship, commerce and navigation treaties
with other nations
■ Treaties → describe many aspects of international business relations
● Right to conduct business in the treaty partner’s home market
○ Other international business agreements
■ Product standards
■ Patents
■ Trademarks
■ Tax policies
■ Export controls
■ International air travel
■ International communications

● Types of trade restrictions

○ Tariffs: taxes imposed on imported goods
■ 2 types of tariffs
● Revenue tariffs
○ Generate income for the government
● Protective tariffs
○ To raise the retail price of imported products to match
or top the prices of similar products made in the home
country
■ Limit imports and give local competitors an
equal chance to succeed
■ May be levied for the purposes of generating revenue for a
government or protecting domestic industries
■ Limit the products and services available to consumers and can
increase the costs of foreign made products
■ Trade restrictions → protect citizens’ security, health, and jobs
○ Nontariff barriers
■ Quotas (a limit on imports) → prevent dumping, an embargo ( a total
ban on trade) and exchange controls (regulate currency exchanges)
● A limit set on the amoiunts of particular products that can be
imported
● Dumping: selling products in other countries at prices below
production costs or below typical prices in the home market to
capture market share from domestic competitors
● Embargo: a total ban on importing specific products or a total
stop to trading with a particular country
 ● Exchange control: a restriction on importing certain products
or a restriction against certain companies to reduce trade and
the spending of foreign currency

4.4

● Organizations promoting international trade

○ General Agreement on Tariffs and Trade (GATT): international trade accord
■ Aimed at reducing tariffs & relaxing import quotas
■ Its successor, WHO, monitors trade agreements & mediates trade
disputes
■ IMF was created to promote trade, eliminate trade barriers, and make
short-term loans to member nations that are unable to meet their
budgets

● International Economic Communities

○ Countries may establish a free-trade area
■ Trade freely among themselves without tariffs or trade restrictions
○ Customs union sets up a free-trade area and specifies a tariff structure for
members’ trade with nonmember nations
○ In a common market (economic union), members go beyond a customs union
and try to bring all of their trade rules into agreement
○ United States-Mexico-Canada Agreement (USMCA), Central
America-Dominican Republic Free Trade Agreement (CAFTA-DR), and
the European Union (EU) → aim to reduce trade barriers & promote working
together to create regions that share economic benefits
■ Various forms
● E.g., free-trade area, a customs union, common market

4.5

● Expanding into overseas markets → increase profits & marketing opportunities

○ Also make a firm’s business operations more complex
○ Before deciding to go global, must make many key decisions
■ Which foreign markets to enter
● Do research
○ Local demand for the firm’s products
○ Availability of needed resources
○ Ability of the local workforce to make world-class,
quality products
○ Potential competition, tariff rates, currency stability,
investment barriers
■ The costs of entering a new market
■ The best way to organise the overseas operations

● Levels of involvement
○ After research, firms can choose one or more strategies
■ Exporting or importing
 ■ Entering into contract-based agreements such as franchising,
licensing and subcontracting deals
■ Choosing direct investment in the foreign market through acquisitions,
joint ventures, or by setting up an overseas division
○ Direct & indirect exporting = least risky level
■ Indirect exporting: when it makes a product, such as an electronic
component, that becomes part of another product sold in foreign
markets
■ Direct exporting: occurs wehn a company tries to sell its products in
markets outside its own country
○ Countertrade: a barter agreement whereby trade between two or more
nations involves payment made in the form of local products instead of
currency
■ Poor access to the needed foreign currency
■ Many developing countries simply cannot get enough credit or
financial help to afford the imports that their people want
■ Countries that have heavy debt also use countertrade
○ Contract-based agreements
■ Franchising
■ Foreign licensing
● an international agreement in which one firm allows another
firm to produce or sell its product or use its trademark, patent,
or manufacturing processes in a specific geographical area in
return for royalties or other compensation.
■ Subcontracting
● an agreement that involves hiring other companies to produce,
distribute, or sell goods or services; in international
subcontracting, local companies in a specific country or
geographical region are hired to produce, distribute, or sell
goods or services.
○ Joint Venture: a partnership between companies for a specific activity
○ Multinational corporation (MNC): a firm with many operations and
marketing activities outside its home country