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Canada (158,278)
Management (802)
MGM101H5 (354)

5th Lecture - The Business Environment

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University of Toronto Mississauga
Dave Swanston

Chapter 5The Business Environment page 90121 Lecture 5 Canada is a current member of the G78Heads of the G78 countries meet at least once annually to discuss major economic political and societal issues challenging the global marketplaceCanada possesses one of the most fully developed economic systems in the world What has enabled our economy to grow and prosper over the past 200plus years is1Our abundance of natural resources2The skills of our labor force3The sophistication of our technologybased businesses The Canadian economy move from being primarily agricultural to a diversified system with products and services sought by consumers and businesses around the worldSpecific products driving Canadas current economic and trade performance includeCrude oil and other petroleum gasesWheat Canolaand other agriculturalbased productsMetals such as gold and nickelMinerals such as sulphur and potash On the manufacturing side although hardhit by the economic downturn of 200809areas such as telecommunicationsProductivity gains strong business investment technological innovation moderate wage increases and a favorable currency exchange rate are all key factors that are deemed to be critical in ensuring that our economy remains resilient and competitive now and in the futureaerospaceenergy support products eg gas turbinesforestryrelated productsautomotive sector These continue to demonstrate Canadas ability to develop worldclass competitive productsWhat influences the Economy What enables some economies and nations to prosper while others struggle 1The contributing factors for economic development that are in place within a particular economy 2The economic model that governs overall activityFigure shows Contributing Factors1Contributing Factors to Economic DevelopmentA core requirement to the stability and growth of any economic system lies in its ability to support and promote both the current and future economic activity taking place This includes both the ability to provide a stable environment for economic growth and to ensure that the required business and economic management systems are in place to support an organized approach to economic development Canada is fortunate to possess the elements critical to supporting and growing an economic system Our political system is stable We have the necessary factors of production including human naturaland capital resources that are essential to the efficient and effective development and delivery of goods and services throughout our economy Our national and provincial debt levels are within acceptable limits with both our federal and provincial governments working to reduce such debt loads even with the additional debt that has been added due to the financial sector and economic recovery programs put into place in 200809 Our banking system is considered to be one of the most efficient and technosavvy in the world Our inflation levels have been well managed in recent years by the monetary policies and actions put in place by our central bank the Bank of Canada Strong fair and equitable legal system with minimal corruption in both our public and private sectorsWith the natural resources available we have comparative advantage especially in the energy market sector Many domestic and foreign companies and investors view Canada as a safe and lucrative place to do businessIn 2008 the foreign direct investment FDI into Canada topped 500 billion a 28 increase over 2007 and up 175 over 2006 inflows Approximately 53 of the FDI flowing into Canada comes from the United States although investment and acquisitions from countries other than the United States particularly with respect to corporate acquisitions continue to rise In fact almost all of the increases in FDI in 2008 were from nonUS sources Outright acquisitions of Canadian companies are not the only investment road being taken by internationalbased companies and countrybased sovereign wealth funds Minority interests in Canadian companies by foreign entities particularly in the energy and commodity sectors are also becoming more common Foreign Direct Investment FDI occurs when a company or individual from one country makes an investment into a business within another country This investment can reflect the physical ownership of productive assets or the purchase of a significant interest in the operations of a business2The Underlying Economic ModelIn addition to these contributing factors to economic development in order for an economic system to develop and grow and to encourage and foster a climate that promotes and rewards economic risk a balanced relationship also needs to be established among three fundamental market composition principles1 The law of supply and demand 2 Allowance for private ownership entrepreneurship and wealth creationin influencing economic activity and direction3 Extent of government involvementThe Law of Supply And DemandA core fundamental of an open economic environment and it refers to the ability of the market independent of external influences to determine the price for which a product or service will be bought and sold Demand can be inelastic like gasoline or elastic Same goes for supplyIn some situations price may be influenced or controlled by external mechanisms such as duties tariffs subsidies or regulatory practices
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