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.
• 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
• 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
• 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
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
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
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
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
Age differences of local population
Subtle valuation differences
Firms must be aware of when and to what extent the government is involved in a
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
Tariff: a tax levied on imported products.
Subsidy: a government payment to help domestic business compete with foreign
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
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
• 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
• 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
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