AFM 131 - Chapter 3 Notes

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University of Waterloo
Accounting & Financial Management
AFM 131
Robert Sproule

Chapter 3 Notes 1 Competing in Global Markets Why Trade with Other Nations: 1. No country can produce all the products that its people want and need. 2. Even if a country become self-sufficient, other nations would seek to trade with that country to meet the needs of its own people. 3. Some countries have an abundance of natural resources and lack of technological know-how (China) and vice-versa (Japan). (pg 4)  Comparative advantage theory states that a country should sell to other countries those products that it produces most efficiently and buy from countries the products it cannot. (pg 5)  Absolute advantage is when a country has the ability to produce a particular good or service using fewer resources than another country. (pg 5)  Balance of trade is the ratio of exports to imports. A trade deficit occurs when imports are greater than exports. Joint Ventures: it is a partnership in which two or more companies (often from different countries) join to undertake a major project or form a new company. The benefits of international joint ventures are: 1. Shared technology and risk 2. Shared manufacturing and management expertise 3. Entry into markets where foreign companies are often not allowed unless goods are produced locally 4. Shared knowledge of the local market, including customs, government connections, access to local skilled labour and supplies, and awareness of domestic laws and regulations. (pg 13) Strategic Alliance: a long-term partnership between two or more companies established to help each company build competitive market advantages. (pg 14)  A high Canadian dollar value makes it cheaper to buy foreign goods but makes Canadian products more expensive for foreign nations to buy. (pg 18)  Countertrading is a complex form of barter
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