Chapter 3 – Competing in Global Markets
The dynamic global market
- Canada is a market of more than 33.6 million people, but there are almost 6.8
billion potential customers in the 195 countries that make up the global
- A little less than 74% of the world’s population lives in developing areas
where technology, education and per capita income still lag behind
developed countries (Canada).
- Global trends have brought a big impact among the auto industry due to
price increase in gas and weakening demands for transportation automobile
(trucks.) layoff unemployment impact the country’s economy
Exporting: selling goods and services to another country
Importing: buying goods and services from another country
Why trade with other nations?
1. To meet the needs of its people. Even country with the most advanced
technology cannot meet all the needs of its people.
2. Even if one country become self-efficient, other nations would seek to
trade with them to meet the needs of their own people.
3. Abundance of natural resources and lack of technological knowledge vs.
sophisticated technology but few natural resources.
Free trade: the movement of goods and services among nations without political or
Higher demand for goods and services Domestic workers can lose their jobs due
to increased imports/production shifts
to low-wage global markets
Productivity growth Workers forced to accept pay cuts or else
Reduce import costs Domestic companies can lose their
comparative advantage when
competitors build advanced production
operations in low-wage countries
Comparative advantage theory: a country should sell to other countries those
products that it produces most effectively or efficiently, and buy from other
countries those products it cannot produce as effectively or efficiently. Absolute advantage: the advantage that exists when a country has the ability to
produce a particular good or service using fewer resources (and therefore at a lower
cost) than another country.
- Canada is the world’s 3 largest diamond producer on a value basis, after
Botswana and Russia.
- In Canada, small businesses account for 48% of the total private labour force
and about 85% or exports.
- Machinery and equipment, industrial goods and materials, and automotive
products make up almost 65% of Canada’s annual imports.
- Trade with other countries enhances the quality of life for Canadians and
contributes to our country’s economic well-being.
- Exports alone account for one in five Canadian jobs and generate 30 cents out
of every dollar earned.
- Industrial goods and materials, and machinery and equipment represented
the two largest export categories for merchandise trade in Canada.
Getting started globally:
1. Observation: observe and study global markets (travel to different countries
to observe foreign cultures and lifestyles)
Measuring Global Trade follow two key indicators:
1. Balance of trade: a nation’s ratio of exports to imports
2. Balance of payments: the difference between money coming into a country
(from exports) and money leaving the country (for imports) plus money
flows from other factors such as tourism, foreign aid, military expenditures,
and foreign investment.
Trade deficit (unfavorable balance of trade): occurs when the value of a
country’s imports exceeds that of its exports.
Strategies for reaching global markets:
- Contract manufacturing
- Creating international joint ventures and strategic alliances
- Engaging in foreign direct investment
Benefits of international joint ventures:
- Shared technology and risk
- Shared marketing and management expertise
- Entry into markets where foreign companies are often not allowed unless
goods are produced locally - Shared knowledge of the local marker, including local customs, government
connections, access to local skilled labour and supplies, and awareness of
domestic laws and regulations.
Foreign direct investment (FDI): the buying of permanent property and
businesses in foreign nations.
Foreign subsidiary: a company owned in a foreign country by the parent
Multinational corporation: an organization that manufactures and markets
products in many different countries and has multinational stock ownership and
Forces affecting trading in global markets:
1. Sociocultural forces: must adapt to different cultures if a country wish to
compete globally. “Think global, act local.”
2. Economic forces:
- Different packaging style in certain countries
- Be aware of the per capital income level of a country before implementing
- Exchange rate between countries
- Countertrading helps to eliminate financial problems and currency
constraints in global market
3. Legal and regulatory forces:
- Inconsistent laws and regulations often make the task of conducting global
business extremely difficult (interpretation is different among different
- For example, bribery might be illegal in certain countries, but it is acceptable
and may be the only way to secure a lucrative contract in others.
- It is useful to contact local business people when doing business in order to
help a company to examine the new market and deal with bureaucratic
4. Technological forces:
- Technological constraints such as electricity available (different volts for
electricity) might affect global trading
- Internet usage is rare in certain developing countries and this make e-
Trade protectionism: the use of government regulations to limit the import of
goods and services. (protect local producers by producing more jobs)
Ethnocentricity: an attitude that one’s own culture is superior to all others.
Devaluation: lowering the value of a nation’s currency relative to other
currencies. Countertrading: a complex form of bartering in which several countries may be
involved, each trading goods for goods or services for services. (accounts for
20% of all global exchange)
Dumping: selling products in a foreign country at lower prices than those
charged in the producing country.
- Companies use this tactic to get rid of surplus products
- Gain foothold in the foreign market by offering products at a lower price
- Leads to a decrease in revenue for domestic producers despite the fact it
generates sales increase
Mercantilism – sell more goods to other nations than it bought from them.
Tariffs: a tax imposed on imports, making imported goods more expensive to
- Protective tariffs (import taxes): raised the retail price of imported products
to save jobs for domestic producers
- Revenue tariffs: designed to raise money for the government
Import quota: a limit on the number of products in certain categories that a
nation can import.
Embargo: a complete ban on the import/export of a certain product or the
stopping of all trade with a particular country.
- A country can list detail standards on exactly how a product must be sold
- Safety, health, and labeling standards Organizations and agreements that attempt to eliminate trade barriers:
1. General Agreement on Tariffs and Trade (GATT): a 1948 agreement that
established an international forum for negotiating mutual reductions in trade
2. World Trade Organization (WTO): the international organization that
replaced the GATT and was assigned the duty to mediate trade disputes
- Trade issues are expected to be resolved within 12-15 months by WTO
- Not all problems being raised are solved
- Wide divide between developed and developing countries
3. International Monetary Fund (IMF): an international bank that makes
short-term loans to countries experiencing problems with their balance of
- Promote exchange stability, maintain orderly exchange arrangements, avoid
competitive currency depreciation, etc.
- The IMF also makes long-term loans at low interest rates to the world’s most
destitute nations to help them strengthen their economies.
- Similar to World Bank
4. World Bank/International Bank for Reconstruction and Development:
an autonomous United Nations agency that borrows money from the more
prosperous countries and lends it to less-developed countries to develop
- Concerned with developing infrastructure in less-developed countries
- To qualify for the program, several macroeconomic policies such as inflation
and poverty reduction have to be implemented
5. North American Free Trade Agreement (NAFTA): agreement that created
a free-trade area among Canada, the United States, and Mexico.
- Came into effect on Jan.1 , 1993. Replacing the precious Free Trade
Agreement between Canada and US.
1. Eliminate trade barriers and facilitate cross-border movement of goods
and services among the three countries
2. Promote conditions of fair competition in this free-trade area
3. Increase investment opportunities in the territories of the three nations
4. Provide effective protection and enforcement of intellectual property
rights (patents, copyrights, etc.) in each nation’s territory
5. Establish a framework for further regional trade co-operation
6. Improve working conditions in North America
- NAFTA was driven by the desire of Mexico to have greater access to the US
market. Provide employment for Mexicans and raise living standard in
Mexico. - US hopes to create jobs in Mexico and stop illegal immigrants entering the
- Canada joined NAFTA so it would not feel left out or penalized indirectly
- Concerns of NAFTA include opposition to Mexico has a poor policy on
environmental problems, bad working conditions, and a poor record on
human rights and political freedom.
6. European Union (EU): a group of 27 member nations, primarily in Europe,
with a population of almost 500 million citizens and an estimated 30% share
of the world’s nominal gross domestic product.
- The EU is the world’s biggest trading power
- Member nations see it as the major way to compete for global business with
the US, China, and Japan
- Launch join currency, euro, in 1999
Producers’ cartels: organizations of commodity-producing countries that are
formed to stabilize or increase prices to optimize overall profits in the long run.
- Ex. organization of the Petroleum Exporting Countries (OPEC)
Common market/trading bloc: a regional group of countries that have a
common external tariff, not internal tariffs, and a coordination of laws to
facilitate exchange. (ex. NAFTA and EU) Chapter 4: The role of government in business
The Canadian economy is a mixed economy – an economic system in which some
allocation of resources is made by the market and some is made by the
National Policy: government directive that placed high tariffs on imports from
the US to protect Canadian manufacturing, which had higher costs.
Government activities that affect business:
1. Crown corporations: a company that is owned by the federal or provincial
- Provides services that were not being provided by businesses (Air Canada)
- Bail out a major industry in trouble (Canadian National Railway)
- Provided special services that could not otherwise be made available (Bank
- A crown corporation owns the province’s electric power company
2. Laws and regulations:
- The British North America Act 1967: sets the legal ground rules for Canada
(renamed the Constitution Act in 1982)
- Business people will be affected by current and potential laws and
- Canada has a legislature(立法机构) in each province and territory to deal
with local matters
- The Parliament in Ottawa makes laws for all Canadians
- Upon conflicts, federal powers prevail
3. Taxation and financial policies:
- Government redistribute wealth through collecting taxes
- Revenues collected is used to pay for public services, pay down debt, and
fund government operations and programs
- Sin tax (increase of tax in alcohol, cigarettes, etc.) to encourage or discourage
- Tax credit: an amount that can be deducted from a tax bill
- The federal government receives its largest amount of taxes from personal
4. Government expenditures
- Canadian government disburse billions of dollars annually in pension,
allowances to low-income families, employment insurance etc. this create
more viable market for businesses
- Financial aids help individuals and corporations to ease their debt 5. Purchasing policies:
- Governments are very large purchasers and consumers of goods and services
provide jobs for Canadian companies
- When purchasing advanced technology items, governments insist that a
certain minimum portion be manufactured in Canada to obtain advanced
technology knowledge and provide employment
- Both Industry Canada and Foreign Affairs and International Trade Canada
provide services to businesses and consumers