Management Chapter 5
The Rise of International Business
Globalization – when economies are becoming a single interdependent system,
where the economies are seemingly merging.
Imports – products made or grown aboard but sold in Canada.
Exports – products made or grown domestically and shipped for sale abroad.
The Contemporary Global Economy
International Trade took place as far back as 2000 B.C.E.
Forces that influence globalization: new technologies for quick international travel,
communication, and commerce; firms going international to keep up with its
The Major World Marketplaces
The three regions with largest economies, most influential markets and highest
income consumers are: North America, Europe, and Asia-Pacific.
Per capita income – the average income per person
Per capita income is used by World Bank to group countries:
High income countries –income per capita greater than 10,065. E.g. Canada and
Upper-middle-income countries – between 3,255 and 10,065 E.g. Czech Republic
Lower middle-income countries – between 825 and 3,255. E.g. China and India.
Lower income countries (or developing countries)- less than 825 U.S. E.g. East
Mexico is known to for its major cheap manufacturing centres, such as for
automobiles (with a 23.6 billion export)
Europe is divided by two regions Western Europe and Eastern Europe
Western Europe is dominated by Germany, the U.K, France, and Italy. European Union, EU, has unified the market, with bigger trade in this area
Ecommerce and technology, internet start ups (U.K), software (Ireland), and biotech
(France) are growing products
Example of Eastern Europe countries are Russia, Bulgaria, Albania, and Romania.
Government instability has hampered economic development, and used to consider
Examples of countries are Japan, China, Thailand, Malaysia, Singapore, Indonesia,
Products include Toyota, Toshiba (Japan); Samsung(South Korea); Chinese
Petroleum (Taiwan); and Financial Centres (Hong Kong).
Asia is hampered by poor electronic infrastructure, adoption of computers, lower –
income consumers, and currency crisis.
ASEAN – Association of Southeast Asian Nations; Economic group in Asia Pacific.
Forms of Competitive Advantage
Absolute Advantage is when a country produces cheaply and higher quality
products compared to another country. E.g. Economics- less labour needed to
produce a certain good. E.g. Canada with wheat
Comparative advantage is when a country can produce more efficiently than
another good. E.g. Economics – where a country produces one good better than
another. E.g. Korea with VCRs.
National Competitive advantage comes from four conditions:
Production Factor conditions: Labour, Capital, Entrepreneur, National Resources,
Information Tech, Social Organization.
Demand Conditions: Demand for innovative products, large enough market, market
wealthy enough to purchase product, market ready to purchase products.
Related and Supporting Industries – Strong local or regional suppliers and industrial
customers, transportation suppliers, and banking and capital management (funds).
Strategies, structure, and rivalries – Firms that reduce cost, higher productivity, new
products and innovation, and technology to gain information from economy.
Canada wants to trade with Korea due to competitive advantage, not absolute
advantage or comparative advantage. When absolute or comparative, it only means
pertaining to itself and in comparison to another, but in this case. They trade due to
competitive advantage. International competitiveness – ability of country to generate more wealth than
its competitors in the world market
Import – Export Balances
Balance of Trade is the difference in value between exports and its total imports
Trade Surplus is when a country exports more than it imports.
Trade Deficit is when a country imports more than it exports.
Balance of Payments
Balance of Payments refers to the flow of money in to or out of a country.
(Different from trade balance, and different from CGI-XM which is domestic budgets)
A bad balance means that more money is flowing out than in.
For Canada to have favourable balance: exports + foreign tourist spending +
foreign investment here+ overseas investment earnings effo > iifmp
Imports+ Canadian tourist spending+ foreign aid grants+ military spending abroad
+ investment made by Canadian firms abroad + payments made to foreigners from
their investment in Canada.
Money flows out of Canada = less funds for Canada. Money flows in = more funds
for improving Canadian economy.
Exchange rate is the rate at which the currency of one nation can be exchanged
for that of another.
Higher exchange rate means that Canadians can buy more goods, lower means
less. High dollar favours the consumers and hurts the exporters.
Fixed exchange rate is where the country’s exchange rate is fixed relative to
Floating exchange rate is the rate relative to another country varying depending
on market conditions.
E.g. When many Chinese want to buy Canadian goods, the CDN rate compared to
the Chinese Yen rises. Currency is high when demand for the Canadian dollar is
Euro – A common currency among the most of the members of the European union.
Exchange Rates and Competition When Canada’s Currency Rises: Export companies find it harder to export and
foreign companies would enter. Canadian companies would move to other countries
for lower cost production, due to high dollar purchasing power. Opposite is true
when Canada’s currency drops.
Canada Currency Drops: The Balance of Trade would be higher, as other countries
are able to buy more of Canada’s products. Foreign Companies would export less
products to Canada, since we would buy less with weaker dollar.
Division of the Local Market in to Categories
Different resources, different cost structure of production, different cultures, and
government as a player in the economy
Gauging International Demand
Company should consider following question when going aboard:
1. Is there a demand for its products aboard
2. If yes, must those products be adapted for international consumption?