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Chapter 5

Chapter 5 Understanding International Business.docx

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Department
Management (MGT)
Course
MGTA01H3
Professor
Chris Bovaird
Semester
Winter

Description
Chapter 5 Understanding International Business  Globalization: integration of markets globally, becoming a single interdependent system  Imports: products that are made or grown aboard and sold in Canada  Exports: products that are made or grown in Canada and sold aboard  Government regulates flow of capital (more fluid than before)  Flow of people also fluid right now (passport, VISA) Contemporary Global Economy  More freely to open borders, offer incentives for going international and easier to partner with foreign local firms  Government and business more aware of the benefits of globalization  New technology make international travel and communication and commerce faster easier and cheaper  Competitive pressure to enter foreign markets to keep up with competitors Major World Marketplace  North America, Europe and Asia-Pacific  Per capita income: average income per person of a country  High income countries: US $10065; most western and Asia Pacific countries  Upper-middle-income countries: US $3225-10065; Eastern Europe  Low middle-income countries: US$825-3225; huge population countries (China, India), potentially attractive market  Low-income countries: US835 or less; low literacy rate, weak infrastructures, unstable government North America  United States as single largest marketplace  Most stable economy  US and Canada are each other’s biggest trading partner  Mexico: major manufacturing center with cheap labor and low transportation costs Europe  Western Europe: Germany, UK, France and Italy, mature but fragmented marketplace o Transformation to European Union (EU) into a unified marketplace o Ecommerce and technology (internets, biotech, software)  Eastern Europe: gained importance in marketplace and producer o Built new factories o Others are government instability hampering economic development Asia Pacific  Currency crisis in 1990s slowed the growth in virtually every country of region  Important force in world economy as competitor to N. American firms  China’s important market  Emergence of technological firms hampered by poorly developed electronic infrastructure, slower adaptation of computers and information technology and the currency crisis  Association of Southeast Asian Nation (ASEAN): for economic, political, social, and cultural co-operation Forms of Competitive Advantage  No country can produce all the goods and services that its people needed  Export product they can produce better or less expensive  Import product they cannot produce  Competition will push a poor quality brand to extinction or improve  Example of competitive Advantage: 1. Produce at a lower price 2. Quality product 3. Perception of a better brand 4. Custom services Absolute Advantage  Nation ability to produce something more cheaply or better than any other country  Rare (e.g. Canadian timber, Brazil coffee bean)  Relative advantages are more common Comparative advantage  A nation ability to produce some products more efficiently or better than other goods  E.g. Canadian produce good fish, but not computers: a comparative advantage in fishing National competitive advantage  A country will be inclined to engage in international trade with 4 parameter  Factor condition  Demand condition  Related and supporting industries(strong local supplies or industrial customers)  Strategies, structures and rivalries (cost reduction, product quality, higher productivity and innovative new products)  International competiveness: ability of a country to generate more wealth than its competitors in world markets o Canada rank 16 because of high taxes, regulated industries and overly conservative capital market instructions Import-Export Balances Balance of trade  Different in value between a country total export and its total import  Trade surplus: export more than import  Trade deficit: import more than export  US largest Canada trading partner, accounts for 85% export and 2/3 of imports  Competitiveness affect export and import (if Canada product is competitive, more export) Balance of payment  Difference between money flowing in and out of a country as a result of trade and other transaction  Tourism, foreign aid, buying and selling currency  Canada to have favorable balance of payment equals o Exports (out); tourism, foreign investment, earning of oversea investment o greater than o Imports (in), tourism spending oversea, foreign aid grants, military spending aboard, investment aboard and earning for foreign investment Exchange Rate  Ratio of one currency to another  Fixed exchange rate: country currency relative to another country currency remains constant  Floating exchange rate: country currency relative to another country currency varies with market conditions  Export -> more people use foreign currency to buy Canadian dollars -> demand for Canadian dollars increases -> Canadian dollar become stronger  Strong when high demand for currency and high demand for goods manufactured at the expense of that currency  Normally the ratio fluctuates at small amount  Currency change due to o Demand of currency o National economic environment  More valuable if one currency can get you more amount of another currency  Impact on balance of trade  Canadian dollar become stronger -> foreign will buy less Canadian stuff (expensive) and Canadian will buy more foreign stuffs (cheaper) -> import more than export -> trade deficit  Euro: a common currency shared among most of the member of European Union (except Denmark, Sweden and UK) Exchange Rate and Competition  Affect oversea demand for domestic product  Domestic currency rises; hard to export, easy to import; more cost-efficient for domestic companies to move production to lower cost sites in foreign countries  Currency falls; export increases; balance of trade improves  Exporter prefer lower Canadian currency International Business Management  Decision of whether go internationalized or not  Then decide level of international involvement and organizational structure that best meets its global need “Going International”  Cost money and time to go internationally  Overriding factor: business climate of other nations  Gauging International Demand  Adaptation to Customer Needs Levels of Involvement in International Business  Exporter: a firm that makes products in one country and then distributes and sell them in others  Importer: a firm that buys products in foreign country and import them for resell in home country o Lowest level of involvement o 40% Canadian goods are exported (lumbar, fish, oil etc.)  International firms: a company that conducts a significant portion of its business aboard and maintains manufacturing facilities oversea o Domestic
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