MGTA01H3 Study Guide - Final Guide: Free Trade
Chapter 5: Understanding International Business[EXAM]
Globalization: the integration of markets globally
The contemporary Global Economy
- Trade b/w nations can be traced back to 2000BC
- Capital mobility: the movement of money from country to country
- Forces that sustain globalization:
1) gov and business have become more aware of the benefits to their countries and
shareholders
2) new tech make international travel, communication and commerce increasingly easier,
faster and cheaper than ever before
3) competitive pressure: a firm simply must enter foreign markets to keep up with its
competitors
The major world marketplaces
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influential financial markets, and highest income consumers
Per capital Income: the avg income per person of a country
High income coutnrues: per capital income over US $10 065 ex Canada, US, Europe
Upper Middle: US $3255-10 065 [Greece, hungary, Poland]
Low middle: $825 - $3255 [ Colombia, Samoa, Thailand]
Low-income country: less than US$825 [east Africa]
Æ low literacy rates, weak infrastructure, unstable gov, related problems
North America
- US dominates the North America business region
- Single largest marketplace and enjoys the most stable economy in the world
- Canada also plays a major role in the international economy
- Mexico become a major manufacturing center, especially along the southern US border,
where cheap labour and low transportation costs have encouraged many firms to build
manufacturing plants
Europe
- Regarded as 2 regions: western Europe, Eastern Europe
- Western: dominated by Germany , united kingdom, France, Italy
Æ mature but fragmented market place
- Transformation of European Union in 1992 into a unified marketplace increase the
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- Ecommerce and tech becoming increasingly imp
- Southeast: surge in internet start up
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- France is the major center for biotech start-ups
- Barcelona, spain has many flourishing software and internet companies
- Frankfurt region of Germany is dotted with both software and biotech start-ups
- Eastern: gained importance as marketplace and producer
- Gov instability has hampered economic development
Asia-Pacific
[Japan, china, Thailand, Malaysia, Singapore, Indonesia, south Korea, Taiwan, Philippines,
Australia new Zealand]
- Strong entries in automobile, electronics, and banking industries
- Currency crisis in late 1990 slowed growth
- Major source of competition for North America firms
- Tech plays an imp role but emergence of tech firms has been hampered by poorly
developed electronic infrastructure , slower adaption of computers and information
techno, high percentage of lower income consumers, and currency crisis
Forms of competitive advantage [EXAM]
Competitive Advantage
x No country can make everything plentifully, cheaply and well.
x We make some products faster, cheaper, better than other products.
x Faster, cheaper, easier, to make some things here.
x Faster, cheaper, easier to get some things from elsewhere.
x Some things you just can't make.
(e.g. Saudi Arabia can't export water, Canada can't export pineapples).
x Competitive Advantage comes from two sources:
1) Absolute advantage : DQDWLRQV¶DELOLW\WRSURGXFHVRPHWKLQJPRUHFKHDSHURr better than any
other country$FFHVVWRVWXIIWKDWRWKHUFRXQWULHVGRQ¶W
Because of unusual or unique geography, climate, location, population, natural resources or other
factors, a nation has an ability to produce goods that other countries simply cannot.
Why? Absolute Advantages
x access to raw material (iron, copper, zinc mined in Ontario, not found in other countries)
x ability to transform raw materials (steel mills in Hamilton, not found in other countries)
x lots of capital (Canada is very wealthy, other countries much less so)
x highly educated workforce (universities and colleges with engineering and management
schools in Toronto, Hamilton, Waterloo, not found in other countries)
x good transportation systems (CN, CP, 401, 407, 409, St Laurence Seaway concentrated
in Golden Horseshoe, cars are large and heavy to transport)
x close to market (next door to USA, other countries are not)
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Example:
Saudi Arabia has oil in the ground
Italy, Fiji, Demark do not
Example:
Canada has millions of acres of wheat
Luxembourg, Japan, Barbados do not
2) Comparative Advantage: DQDWLRQ¶VDELOLW\WRSURGXFHVRPHSURGXFWVPRUHFKHDSO\RUEHWWHUWKDQLW
can others . A matter of specialisation or concentration.
A nation chooses to produce some products more cheaply or better than other products it could make,
but not as well.
So, we concentrate on former, ignore latter.
Example:
Wine can be grown in warmer regions of Canada, including much of Southern Ontario.
Cambridge and Oakville have similar climates to Niagara Peninsula.
However, these places make: automobiles
Canadian Competitive Advantage
Automobiles & Autoparts
GM, Chrysler, Ford among top 10 exporters
Canadian Competitive Disadvantage
x Textiles: we can make them, other countries make them more cheaply.
x Wine: we can make it, other countries make it more cheaply.
x Fruit & Vegetables: we grow some, but weather is problem
Competitive Advantage - Conclusion:
Do what you do well. Don't do what you do badly.
3) National competitive advantage: a country will be inclined to engage in international trade when
factor conditions, demand conditions, related and supporting industries, and strategies/structures/
rivalries are favourable
4 attributes: national diamond
1) factor conditions: factors of production
2) demand conditions: reflect a large domestic consumer case that promotes strong demand for
innovative products
3) related and supporting industries: include strong local or regional suppliers and/pr industrial
customers
4) strategies, structures and rivalries: firms and industries that stress cost reduction, product quality,
higher productivity, and innovative new products
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Æ when all conditions exist, a national will naturally e inclined to engage in international business
International competitiveness: the ability of a country to generate more wealth than its competitors in
world markets
Canada: high taxes, regulated industries and overly conservative capital market institutions were
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MGTA01H3 Full Course Notes
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