MGCR 382 Chapter Notes - Chapter 2: Import Substitution Industrialization, International Business, Post-Soviet States

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MGCR382 Chapter 2 Notes: Global Marketplaces and Business Centres
Businesses trying to internationalize their operations often blunder because they fail to obtain information vital
to their success. Ignorance of basic geography, market characteristics, culture, and politics may lead to lost
profits or doom a venture to failure. Linguistic and cultural ties, past political associations, and military
alliances play significant roles in the world pattern of trade and investment and in shaping the opportunities
available to businesses today
Triad Japan, the European Union, and the United States
Quad the Triad plus Canada together the 948 million residents of the Quad countries produce 69% of the
world’s GDP
Global strategic thinking typifies industries such as airlines, banking, securities, automobiles, computers, and
accounting services.
Emerging markets are responsible for much of the growth in the world economy.
The Marketplaces of North America
Includes the United States, Canada, Mexico, Greenland, and the countries of Central America and the
Caribbean, which produce approximately 32% of the world’s output.
The United States
Possesses the largest economy, accounting for 24% of the world’s GDP
Highest per capita income of the North American countries
Occupies a unique position in the world economy because of its size and political stability, accounting
for about 1/10th of world exports of goods and services and about 1/7th of world imports of goods and
services
Prime market for lower-income countries trying to raise their standards of living through export-oriented
economic development strategies
educated middle class
U.S. dollar serves as invoicing currency (currency in which the sale of goods and services is
denominated) for about half of all international transactions and is an important component of foreign-
currency reserves worldwide
Due to its political stability and military strength, the U.S. attracts flight capital (money sent out of a
politically or economically unstable country to one perceived as a safe haven)
Important recipient of long-term foreign investment
Because of the country’s large size, trade that might be counted as international in smaller countries is
considered domestic in the U.S.
31% of the world’s largest corporations are headquartered in the U.S.
Canada
exports are vital to the Canadian economy, accounting for 31% of its GDP
most important exports reflect its rich natural resources: forest products, petroleum, minerals, and grain
U.S. is the dominant market for Canadian goods, receiving over ¾ of Canada’s exports in a typical year
Two-way trade between the U.S. and Canada forms the single largest bilateral trading relationship in the
world
Canada’s excellent infrastructure and educational systems also contribute to the performance of its
economy
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Lingering threat to political stability is the long-standing conflict between French-speaking Canadians
and English-speaking Canadians. A strong separatist movement has existed in Quebec since the 1960s
Firms exporting products to Canada must be aware of the country’s bilingual labeling laws
Riskiness of loans to Quebec firms would increase substantially, at least in the short run, if the province
were to become a separate nation
Mexico
Federal system but one whose head of government is elected by popular vote every six years
For over half a century the Mexican government implemented a program of economic nationalism under
which Mexico discouraged foreign investment and erected high tariff walls to protect its domestic
industries
During the past two decades, Mexico has abandoned these policies and opened it markets to foreign
goods and investors. Also reduced the government’s role in its economy by selling off many publicly
owned firms
In 1994, Canada, Mexico, and the U.S. initiated the North American Free Trade Agreement (NAFTA),
which is reducing barriers to trade among the three countries
Thousands of foreign companies have established new factories in Mexico to take advantage of
NAFTA, generating hundreds of thousands of new jobs in the process
Central America and the Caribbean
Total GDP is a quarter of that of Canada
With a few exceptions (notably Costa Rica), the economic development of these countries has suffered
from a variety of problems, including political instability, chronic U.S. military intervention, inadequate
educational systems, a weak middle class, economic policies that have created large pockets of poverty,
and import limitations by the U.S. and other developed countries on Central American and Caribbean
goods, such as sugar and clothing
The Marketplaces of Western Europe
Among the world’s most prosperous, attracting the attention of businesses eager to market their products
to the region’s wealthy consumers
Population of 499 million, 17 members use Euro
EU comprises 27 countries that are seeking to promote European peace and prosperity by reducing
mutual barriers to trade and investment
Members are free-market-oriented, parliamentary democracies. However, government intervention and
ownership generally play a more important role in these countries’ economies than in the economy of
the U.S.
Germany is the EU’s most important member possesses the world’s third largest economy, after
Japan and the U.S.; world’s largest exporter of goods in 2006; because of the strength of the German
economy and the government’s strict anti-inflation policies, Germany has played a major role in
formulating the economic policies of the EU
o The German central bank had de facto control over the monetary policies of EU members, but its
role was taken over by the European Central Bank in 1999. The ECB now controls monetary
policy for countries using the euro
France exerts strong leadership within the EU. The French government has been a leading proponent of
promoting common European defense and foreign policies and strengthening human rights and workers’
rights in the EU criticism for promoting an agenda of economic nationalism, defending takeover
efforts, and protecting large subsidies paid to French farmers
o As the political leader of the EU, France has long been a strong advocate of strengthening human
and workers’ rights in the EU
UK has resisted many of the initiatives to broaden the EU’s powers and provides an important
counterweight to French protectionist tendencies; London is a major international finance center; major
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