AFM 131 All Textbook Notes for Midterm1.docx

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Accounting & Financial Management
AFM 131
Robert Sproule

AFM 131 Midterm Chapter 3: competing in global markets Why trade with other nations? - No country can produce all products that people want and need - Even if self-sufficient, other nations seek to trade with country in order to meet needs of own people - Some have abundance of natural resources, lack of technology, vice versa - Enhances quality of life for Canadians and contributes to country’s economic well-being Free Trade – movement of goods and services among nations without political or economic obstruction Comparative advantage – sell to countries products that it produces most effectively and efficiently and buy from countries whose products it cannot produce as effectively.efficiently Absolute advantage – country has monopoly on producing specific product, or able to produce more efficiently than all other countries Balance of trade – nation’s ratio of exports to imports -> favorable = exports exceeds imports (surplus), opposite = deficit Balance of payments – difference between money coming into country (exports) and money leaving (imports) plus money flows from other factors (tourism, foreign aid, military expenditures, foreign investment, etc), goal = more money flowing in Strategies for reaching global markets Exporting Licensing – a firm allows foreign company to produce its product in exchange for a fee - Spends little or no money to produce and market products - Gain additional revenues from product it would not have generated in home market - Licensees must purchase supplies, component materials, consulting services – from licensing firm Franchising – someone with good idea for business sells rights to use business name and sell a product or service to others in given territory Contract manufacturing – foreign country’s production of private-label goods to which a domestic company attaches its brand name or trademark (outsourcing) Joint venture – partnership in which two or more companies undertake major project to form new company - Benefits: shared technology and risk, shared marketing and management expertise, entry into markets where foreign companies are not allowed unless goods produced locally, shared knowledge of local market - Disadvantages – one partner learn other’s technology and uses what it has learned, shared technology become obsolete - Strategic alliance – long-term partnership between two or more companies to help each company build competitive market advantages Foreign Direct Investment – buying of permanent property and businesses in foreign nations - Foreign subsidiary – company owned in a foreign country by another company Trade protectionism- use of government regulations to limit import of goods and services Dumping – selling products in foreign country at lower prices than those charged in producing country Import quota – limits number of products in a certain category that a nation can import Embargo – complete ban on import/ export of certain product Chapter 4: Role of government in business Government activities affecting business – crown corporations, laws and regulations, taxation and financial policies, government expenditures, purchasing policies, and services National policy – placed high tariffs on imports from U.S. to protect Canadian manufacturing, which had higher costs (NAFTA eliminated this) Crown operations - companies owned by federal or provincial governments - Provided service that were not being provided by businesses (air Canada) - Bail out a major industry in trouble (ex. Canadian national railway) - Provide special service that could not otherwise be made available Minor revolution – disposal of government assets and companies - Privatization – process of governments selling crown corporations - Regulated industries became deregulated (partial or complete) - Looking for ways to lower costs and improve efficiencies - Reduce role of government in economy Federal government – responsible for trade regulations, incorporation of federal companies, taxation, banking/monetary system, national defence, unemployment, immigration, criminal law, fisheries Provincial government – regulation of provincial trade and commerce, natural resources within their boundaries, direct taxation for provincial purposes, incorporation of provincial companies, licensing for revenue purposes, administration of justice, health
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