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AFM131 Study Guide - Final Guide: Bookkeeping, Financial Accounting, Current Liability

Accounting & Financial Management
Course Code
Robert Sproule
Study Guide

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AFM 131
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
economic obstruction.
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
become unemployed
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.

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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 3rd 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)
2. Determination
3. Risk
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:
- Exporting
- Licensing
- Franchising
- 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

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- 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
multinational management.
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
the investment.
- 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-
commerce difficult
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
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