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Lecture 6

AFM131 Lecture Notes - Lecture 6: Protectionism, Gulf Cooperation Council, Trade Bloc


Department
Accounting & Financial Management
Course Code
AFM131
Professor
Roberto Umana
Lecture
6

Page:
of 3
Globalization Module Study Notes
Dynamic Global Market
Canada is a large exporting nation as our population is .05% of the world's population
Contrast exporting vs. importing and world-wide competition
Global trade allows a nation to produce what it is most capable of producing, over and
above local consumption; and buy what it needs from other nations which is mutually beneficial
(supports free trade - pros and cons in Figure 3.2)
Comparative (producing more effectively and efficiently) versus absolute advantage
(producing what someone else cannot produce or more efficiently than all other countries)
Getting Involved in Global Trade
See the list of conditions that might apply to imports into Canada on page 71
See the categories of Canada's merchandise and service trade in Figure 3.3
Global trade is measured by: the balance of trade and the balance of payments.
Historically Canada has been extremely dependant on the U.S. as a trading partner
Canada has a number of priority markets for future development of trade in: south-east
Asia, Australia and New Zealand, Brazil, China, India, Europe, Gulf states among others
Canada’s trade priorities for 2013 and 2014:
Concluding the Canada –European Union Economic and Trade Agreement
Seeking an Economic Partnership agreement with India
Advancing free trade negotiations with Japan and South Korea
Negotiating a free trade agreement with the Trans-Pacific Partnership
Developing trade ties with Gulf Cooperation Council
Article on, “6 Potential Stumbling Blocks to Canada-EU Trade Deal”:
1. Automobiles – how much content of a Canadian car needs to be needs to be
made in Canada
2. Agriculture – issues re dairy and poultry imports into Canada; beef imports into
Europe,
3. Pharmaceutical companies – length of copyright protection
4. Banking business – direct competition
5. Provincial procurement – non restriction of European companies
6. Foreign takeovers of Canadian companies – exemption from Canada
Investment Act
Strategies for Reaching Global Markets
There are six strategies that can be put on a continuum from least amount of
commitment, control, risk and profit potential to most.
Licensing when a company sells the right to manufacture its product or use its trademark
to a foreign company - licensor may also provide support with the elements of marketing
and licensee may also be required to purchase some components and consulting
services and pay a royalty. The country(ies) where the licensee can sell this product are
also specified in the agreement - often including the country where the licensee is
located. The licensee attaches their own labelling to the product and is restricted to
where they can sell the licensed product.
Licensor pays little money on marketing but carries the risk of: small percentages of the
total revenue from the sales in the foreign market and copying of their technology or product
secrets by the licensee.
Exporting is selling directly into a foreign market - sometimes utilizing export-trading
companies that provide many services.
Franchising involves the sale of a right to use a business name and sell in a given
territory (more control for a franchisor than a licensor).
Contract manufacturing is having a foreign company making your product which you
attach your company's brand name or trademark (outsourcing) and then sell this product
in country(s) including where the foreign company is located. The product is made
according to stringent production standards.
International Joint Ventures and Strategic Alliances occur when a partnership is formed.
Joint- ventures features companies pooling their technology, marketing, management and
knowledge to share the risk of selling in a market (often governments mandate that the only
way a foreign company can operate is through a joint venture - i.e. in China).
With a strategic alliance is a partnership designed to help each company build their own
competitive market advantages - no sharing of costs, risks, management and profits.
Foreign Direct Investment (F.D.I.) is the buying of permanent property and businesses in
foreign nations. Knowledge, technology, skills and increased trade can occur in the host
country however profits may flow back to and R and D may only be done in and plum
jobs may only exist in the home country.
A concern for F.D. I. is expropriation by the foreign government.
Another form of F.D.I. is through a multinational corporation.
Forces Affecting Trading in Global Markets
Sociocultural differences (values, beliefs, rules and institutions) impact the ability to do
business and manage employees. Culture also includes: social structures, religion,
manners and customers, values and attitudes, language and personal communication.
Economic and financial forces include: consumer wealth, exchange rates (how much
foreign currency is needed for each Canadian dollar when a foreign buys a product in
Canada) and devaluation, and countertrading. Exchange rates controlled by global
currency traders or governments directly
Legal and regulatory forces are unique to a given country and must be understood.
Canadian companies must follow Canadian laws.
Physical and Environmental forces or technological forces can act as a restraint - for
instance electrical systems.
Trade Protectionism
Limits importing of goods and services which protects domestic producers, allowing
them to survive and grow and produce more jobs (but increases the prices paid by local
consumers).
What is dumping and why do company's practice it?
Tariffs introduced to protect local economies from mercantilism
Two types of tariffs: protective and revenue.
What is the difference between import quotas and embargos?
Non-tariff barriers are not as specific or formal but have the same impact on trade
GATT formed to negotiate mutual reductions in trade barriers.
WTO replaced GATT to mediate trade disputes.
IMF is an international bank focused on supporting countries with a balance of trade
problem.
World Bank is concerned with developing infrastructure in less-developed countries.
Formal trade agreements include: producers' cartels, common market or trading bloc
(NAFTA and the EU) where there are common external tariffs, no internal tariffs and co-
ordination of laws to facilitate exchanges between member countries.
Article on, “Borderline Insanity”:
1. What is the inconsistency between support of the North American auto industry
and border security
2. How would you better manage border clearance
How do producer cartels work?
What are the objectives of NAFTA?
What is the European Union?
What is the impact of the European Union debt crisis on global trade?
What other trades agreements are in place?