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Canada (509,326)
MGTA01H3 (348)
Lecture

Chapter 6.docx

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Department
Management (MGT)
Course
MGTA01H3
Professor
Chris Bovaird
Semester
Fall

Description
Chapter 5 Importance of Trade to Canada 7 largest exporter, 7 largest importer • G8 countries are our biggest customers, suppliers. • 3 biggest customers are USA, Japan and UK. • We are very dependent on the US in terms of imports and exports so we should try to sell to other countries. The Major World Marketplace • World economy revolves around 3 major markets: North America, Europe and Asia • High income countries have more than $10000 income per capita o Canada, the U.S, most countries in Europe, Australia, Japan, South Korea, Kuwait, the United Arab Emirates, Israel, Singapore, Hong Kong and Taiwan. • Upper middle class includes: income per capita between: $10,000 - $3255 o Czech Slovakia, Greece, Hungary, Poland, Turkey, most countries comprising the former Soviet Bloc, Mexico, Argentina and South Africa • Low middle class: $3255 - $825 o Colombia, Guatemala, Samoa, and Thailand. Some of these countries such as China and India possess high populations and are seen as potentially attractive markets for international business. • Developing countries: less than $825 o Due to low literary rates, weak infrastructures, unstable governments and related problems, these countries are less attractive to international businesses. For example, the nation of Somalia is plagued by drought, civil war and starvation, and plays virtually no role in the world economy. Comparative Advantage • Absolute advantage: a nation’s ability to produce something more cheaply or better than any other country. • Comparative advantage: a nation’s ability to produce some products better or more cheaply than others • International competitiveness: the ability of a country to generate more wealth than its competitors in world market. National Competitive Advantage • A country will be inclined to engage in international trade when factor conditions demand conditions related to and supporting industries and strategies/structures/rivalries are favourable. It is derived from four conditions. • Factor conditions are the factors of production identified in Chapter 1. • Demand conditions reflect a large domestic consumer base that promotes strong demand for innovative products. • Related and supporting industries include strong local or regional suppliers and/or customers. • Strategies, structures and rivalries refer to firms and industries that stress cost reduction, product quality, higher productivity and innovative new products. Imports and Exports Balances • Exchange rates: the rate at which the currency of one nation can be exchanged for that of another. • Euro: a common currency shared among most of the members of the European Union. • Balance of payments: the difference between money flowing in and out of a country as a result of trade and other transactions • Trade surplus: occurs when a country exports more than it imports • Trade deficit: occurs when a country imports more than it exports Exchange Rates International companies should watch exchange rates frequently Stronger currency rates, make exporting for domestic companies harder, and imports are easier to get The value of the country’s currency declines (becomes weaker), the opposite reaction occurs. As the value of a country’s currency falls, its balance of trade should improve because domestic companies should experience a boost in exports. There should also be a corresponding decrease in the incentives for foreign companies to ship products into the domestic market. International Business Management Gauging International demand Questions companies should ask themselves: Is there a demand for my products abroad? If so, must I adapt those products for international consumption? Products that are successful in one country may be useless in another. (example: snowmobiles are useless in Central America, due to climatic lack of snow) Foreign demand for a product may be greater, the same as, or weaker than domestic demand. Market research and/or prior market entry of competitors may indicate whether there’s an international demand for a firm’s products. If there is international demand for its product, a firm must consider whether and how to adapt that product to meet the special demands of foreign customers. (EG: dubbing movies into foreign languages) Levels of Involvement in IB Exporters: a firm that makes products in one country and then distributes and sells them in others. Importers: a firm that buys products in foreign markets and then imports them for resale in its home country. International firm: international firm conducts a significant portion of its business abroad and maintains manufacturing facilities overseas. Multinational firm: controls assets, factories, mines, sales offices and affiliates in two or more foreign countries. International Organization Structures Independent agents: a foreign individual or organization who agrees to represent an exporter’s interests in foreign markets. Licensing arrangement: an arrangement by an owner of a process or product to allow another business to produce, distribute or market it for a fee or royalty. Branch office: a location that an exporting firm establishes in a foreign country in order to sell its products more effectively. Strategic alliance: an enterprise in which two or more persons or companies temporarily FDI: buying or establishing tangible assets in another country. Barriers to International Trade Social differences: Language barriers Physical barriers Age differences of local population Growing populations Subtle valuation differences Economic Differences More pronounced Firms must be aware of when and to what extent the government is involved in a given industry. Legal and Political Differences Quotas: a restriction by one nation on the total number of products of a certain type that can be imparted from another nation. Embargo: a government order forbidding exportation and/or importation of a particular product. Tariff: a tax levied on imported products. Subsidy: a government payment to help domestic business compete with foreign firms Protectionism: protecting domestic business at the expense of free market competition. Local content laws: laws requiring that products sold in a particular country be at least partly made in that country. Business practice laws: laws or regulations governing business practices in given countries. Cartel: any association of producers whose purpose is to control the supply and price of a given product. Dumping: selling a product for less abroad than in the producing Chapter 6 • All corporations depend on effective management • Managers perform many of the same functions, are responsible for many of the same tasks, and have many of the same responsibilities. • Work involves developing strategic and tactical plans. They must analyze their competitive environments and plan, organize, direct and control day to day operations. • Managers work in; Charities, churches, social organizations, educational institutions, and government agencies. • Managers bring to small organizations many of the same kinds of skills the ability to make decisions and respond to a variety of challenges- that they bring to large ones. Setting Goals and formulating strategy • Goals: Objectives that a business hopes and plans to achieve. 1. Deciding what the business intends to do is only step one for an organization 2. Companies managers must also make decisions about actions that will and will not achieve its goals 3. Strategy is the broad program that underlies those decisions; the basic steps in formulating strategy. The purpose of Goal setting: 1.Goal setting provides direction, guidance, and motivation for all managers: less potential for error if manager knows exactly the direction of company. 2.Goal setting helps firms allocate resources: Areas that are expected to grow will get first priority. The company allocates more resources to new projects with large sales potential then it allocates to mature products with established
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