Ch. 2.pdf

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University of Calgary
Entrepreneurship and Innovation
ENTI 201
Norman Althouse

Chapter 2 01.14.12 Global vision: the ability to recognize and react to international business opportunities, be aware of threats from foreign competition, and effectively use international distribution networks to obtain raw materials and move finished products to customers. The importance of Global Business to Canada • Offers expanded markets for our products • Enhances the quality of Canadian life • Canada exports approximately 45% of what it produces • Approximately 33% of all jobs in Canada rely on exports • Helps to maintain the high standard of living Team Canada Missions. - led by the prime minister with participation by the provincial premiers, territorial government leaders, and the minister of international trade Canada Trade Missions - led by the Minister of International Trade with the provincial trade ministers invited to participate. International trade benefits: • provides employment economies of scale in production and marketing; • • ease of the transfer of experience, technology, and know-how across borders; • global recognition of products and brand names, allowing for easier introduction of new products and services; and • the possibility of a uniform global image for the companies. Measuring Trade Between Nations • Exports and Imports • Balance of Trade • The difference between the value of a countryʼs exports and the value of its imports during a certain time • Trade surplus: a favourable balance of trade that occurs when a country exports more than it imports • Trade deficit: an unfavourable balance of trade that occurs when a country imports more than it exports • Balance of Payments • A summary of a countryʼs international financial transactions showing the difference between the countryʼs total payments to and the the total receipts from other countries • Includes imports and exports (balance of trade), long-term investments in overseas plants and equipment, government loans to and from other countries, gifts and foreign aid, military expenditures made in other countries, and money transfers into and out of foreign banks • Changing Value of Currencies (Exchange Rates) • If a country's currency appreciates, less of that country's currency is needed to buy another country's currency. If a country's currency depreciates, more of that currency will be needed to buy another country's currency. • • Floating exchange rates: a system in which prices of currencies move up and down based on the demand for and supply of the various currencies • Global currency traders create the supply of and demand for a particular currency based on that currency's investment, trade potential, and economic strength. Devaluation: a lowering of he value of a nationʼs currency relative to other currencies • • As the dollar depreciates, the price of foreign goods rises for Canadians, so they buy fewer of these goods—thus, Canadian imports decline. • At the same time as the dollar depreciates relative to the other currency, the other currency appreciates relative to the dollar. This means prices of Canadian goods fall for others, and exports rise. Why Nations Trade • Absolute and Comparative Advantage • Absolute advantage: the situation when it can produce and sell a product at a lower cost than any other country or when it is the only country that can provide a product • (principle of) Comparative Advantage: the concept that each country should specialize in the products that it can produce most readily and cheaply and trade those products for goods that foreign countries can produce most readily and cheaply. • This specialization ensures greater product availability and lower prices. • Free trade: the policy of permitting the people of a country to buy and sell where they please without restriction • Protectionism: the policy of protecting home industries from outside competition by establishing artificial barriers such as tariffs and quotas 1 Chapter 2 01.14.12 • Fear of Trade and Globalization Canadians have lost jobs due to imports or production shifts abroad • • Others fear losing their jobs • Employers threaten to export jobs if workers do not accept pay cuts • Service and white-collar jobs are vulnerable to operations move offshore Benefits of Globalization • • Rise from poverty for foreign nations • Per capita income increases • Productivity and living standard increase when countries produce goods and services in which they have a comparative advantages • Global competition and cheap imports keep down prices, so inflation is less threatening • Open economy spurs innovation • Export jobs may pay more For Tariffs Barriers to Trade ! Protect infant industries • Natural Barriers ! Protect Canadian jobs • Distance, language culture, legal and regulatory Tariff Barriers • Against Tariffs • Tariff: a tax imposed on imported goods • Protective tariffs: tariffs that are imposed less attractive to buyers than domestic products • Non-Tariff Barriers ! Discourage free trade Import quotas (quantitate restraint): a limit of the quantity of a certain good that can be imported ! Raise prices • Copyright © 2011 by Nelson Education Ltd. • Embargo: a total ban on imports or exports of a product • Customs regulations:regulations on products that are different from generally accepted international standards • Exchange controls: laws that require a company earning foreign exchange (foreign currency) from its exports to sell the foreign exchange to a control agency, such a central bank • Ex. assume that Rolex, a Swiss company, sells 300 watches to a Canadian retailer for $120,000. If Switzerland had exchange controls, Rolex would have to sell its Canadian dollars to the Swiss central bank and would receive Swiss francs. If Rolex wants to buy goods from abroad, it must go to the central bank and buy foreign exchange (currency). • By controlling the amount of foreign exchange sold to companies, the government controls the amount of products that can be imported. Fostering Global to Trade • Antidumping laws • Dumping: the practice of charging a lower price for a product in foreign markets than in the firmʼs home market • The company might be trying to win foreign customers, or it might be seeking to get rid of surplus goods. When the variation in price can't be explained by differences in the cost of serving the two markets, dumping is • suspected. Most industrialized countries have antidumping regulations. They are especially concerned about predatory dumping, the attempt to gain control of a foreign market by destroying competitors with impossibly low prices. The legal test for product dumping is based on two criteria. First, the product must be priced unfairly low— • either below its production costs or below the selling price in the home country. Second, the imported product must harm the domestic industry. • The Uruguay Round and the World Trade Organization Uruguay Round: a 1994 agreement by 117 (now 1
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