The Dynamic Global Market
Exporting is selling products to another country and importing is buying products from another country.
Why Trade With Other Nations?
Free trade is the movement of goods and services among nations without political or economic barriers.
The Theories of Comparative and Absolute Advantages.
Comparative advantage theory states that a country should sell to other countries those products it
produces most effectively and effectively. To facilitate this plan, they restrict imports of competing products
from countries that can produce them at lower costs. A country has an absolute advantage if it has a
monopoly on producing a specific product or is able to produce it more efficiently than all other countries.
Getting Involved in Global Trade
Small businesses contribute slightly more than 30 percent to Canada’s gross domestic product and employ
approximately five million individuals. As well, about 86 percent of Canadian exporters were small
businesses. Many small businesses are becoming more involved in global markets. Getting started globally
is a matter of
Industrial goods and materials
Machinery and equipment
Automotive products Agricultural and fishing products
Other consumer goods
Service Trade Categories
Exporting Goods and Services
Canadian exports represented 2.5 percent of world merchandise trade and 1.8 percent of world services
trade. Trade with other countries enhances the quality of life for Canadians and contributes to our countries
economic well being. Exports alone account for one in three Canadian jobs. Exports can be sold directly or
indirectly (foreign located subsidiary of a Canadian company). Canadian companies are equivalent to over
90 percent of the value of goods and service exports.
Measuring Global Trade
The balance of trade is a nation’s ratio of exports to imports. A favorable balance of trade or trade surplus
occurs when the value of the country’s exports exceeds that of its imports. A trade deficit occurs when the
value of a country’s imports exceeds that of it’s exports The balance of payments is the difference between
money coming into a country from exports and money leaving the country for imports plus money flows
coming into or leaving a country from other factors such as tourism, foreign aid, military expenditures and
foreign investment. A favorable balance of payments. An unfavorable balance of payments is when more
money is flowing out of a country than coming in.
Trading in Global Markets: The Canadian Experience
As a country, Canada ranks thirteenth in the world as leading exporter and eleventh in the world as leading
importer in world merchandise trade. It’s expected that Canada’s economic prosperity will be increasingly
driven by trade with economies other than the United States. By 2020, the US will account for only 2/3 of
Canada’s exports down from a peak of 85% in 2002.
Canada’s Priority Markets
Technology; these emerging economies are enjoying high growth rates, rapid increases in their living
standards and a rising global prominence.
USA exports – 69.5% imports – 60.8% China and India are of particular interest as they are growing and emerging markets due to their size and
economic transformation. By 2050 India will be the worlds third largest economy with a GDP approaching
US 30 trillion.
Strategies for Reaching Global Markets
The key strategies include
creating international joint ventures and strategic alliances
Engaging in foreign direct investment
Licensing is a global strategy in which a firm (the licensor) allows a foreign company to produce its product
in exchange for a fee. It can benefit a firm in several ways. It can gain revenues it would not otherwise have
generated in it’s home market. A final advantage of licensing is that licensors spend little or no money to
produce and market their goods.
You can export goods and services. An export trading company not only matches buyers and sellers from
different countries but also deals with foreign custom offices, documentation and even eights and measures
conversions to ease the process of entering global markets
Franchising is a contractual agreement whereby someone with a good idea got a business sells the right to
use the business name and sell a product or service in a given territory in a specified manner.
Contract Manufacturing Contract manufacturing involves a foreign company’s production of private label goods to which a domestic
company then attaches its own brand name or trade mark. Contract manufacturing enables a company to
experiment in a new market without incurring heavy start up cost such as building a manufacturing plant.
International Joint Ventures
Joint ventures are partnerships in which two or more companies join to undertake a major product. The
1. Shared technology risk
2. Shared marketing and management expertise
3. Entry into markets where foreign companies are often not allowed unless goods are produced locally
Some drawbacks are one of the companies can learn the others technology and practices and use it to
their own advantage.
A strategic alliance is a long term partnership between two or more companies established to help each
company build competitive market advantages. They don’t share costs or risks and profits. They can
effectively link firms from different countries and firms of vastly different sizes.
Foreign Direct Investment
Foreign Direct Investment is buying permanent property and businesses in foreign nations. As the size of a
foreign market expands, many firms increase FDI and establish a foreign subsidiary. A foreign subsidiary is
a company owned in a foreign country by another company. The primary advantage of a subsidiary is that
the company maintains complete control over any technology within foreign boundaries. Should
relationships with a host country falter, the firms assets could be taken over by the foreign government.
Nestle is a multinational corporation, one that manufactures and markets products is many different
countries and has multinational stock ownership and management. Only firms that have manufacturing
capacity or some other physical presence in different nations, such as Magna International can truly be
called multinational. Canadian subsidiaries of foreign based companies have played a major role in
developing the Canadian economy. Canada has been criticized for having a “branch plant economy”. This
occurs when many subsidiaries are owned by foreign companies and profits are returned to the home
country rather than reinvested in Canada. One of Canada’s competitive problems is the high concentration of foreignowned firms that perform little
sophisticated production or R&D.
Forces Affecting Trading in Global Markets
The barriers to success are higher in global markets than in domestic markets. Some barriers include
dealing with differences in sociocultural forces, economic and financial forces as well as legal, physical and
Culture refers to the set of values, beliefs, rules and institutions held by a specific group of people. It can
also include social structures, religion, manners and customs, values and attitudes, language and personal
communication. Ethnocentricity is an attitude that ones own culture is superior to all other cultures. Religion
is important to society’s culture and can have a significant impact on business operations. Successful
companies are those that can understand these differences and devlop go