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Canada (158,177)
MGTA01H3 (583)
Chapter 5

Chapter 5

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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

Chapter 5 – Understanding International Business THE RISE OF INTERNATIONAL BUSINESS - Total volume of world trade today is $8 trillion each year. - Globalization is the integration of market globally. - Imports are products that are made or grown abroad and sold in Canada - Exports are products made or grown in Canada that are sold abroad. The Contemporary Global Economy - In past many nations followed strict policies to protect domestic business, today more and more countries are aggressively encouraging international trade. - Governments and businesses have simply become more aware of the benefits of globalization to their countries and shareholders. The Major World Marketplaces - The contemporary world economy revolves around three major marketplaces: North America, Europe, and Asia-Pacific. They are home to most of the world’s largest economies, biggest multinational corporation, most influential financial markets, and highest-income consumers. - The World Bank uses per capita income, the average income per person, as a measure to divide countries into one of four groups: o High-income countries are those with per capita income greater than US$10,065. o Upper-middle-income countries are those with per capita income between US$3255 and US$10,065. o Lowe middle-income countries are those with per capita income between US$825 and US$3255. o Low-income countries are those with annual per-capita income of less than US$825. Due to low literacy rates, weak infrastructures, unstable governments, and related problems, there countries are less attractive to international business. North America - The US dominates the North American business region. - The second largest marketplace and enjoys the most stable economy in the world. - The US and Canada are each other’s largest trading partner. - Mexico has also become a major manufacturing centre, especially along the southern US border. Europe - Western Europe, dominated by Germany, the UK, France, and Italy, has long been a mature but fragmented marketplace. - Ecommerce and technology have become increasingly important in Europe. Asia-Pacific - Asia-Pacific consists of Japan, China, Thailand, Malaysia, Singapore, Indonesia, South Korea, Taiwan, the Philippines, Australia, and New Zealand. www.notesolution.com - Fuelled by strong entries in the automobile, electronics, and banking industries, the economies of these countries grew rapidly in the 1970s and the 1980s. - Unfortunately, a currency crisis in the late 1990s generally slowed growth in virtually every country of the region. - China, the most densely populated country in the world, continues to emerge as an important market in its own right. - The Chinese economy is now the world’s third largest, behind the US and Japan. - As in North America and Western Europe, technology promises to play an increasingly important role in this region. Forms of Competitive Advantage - Countries tend to export products that they can produce better or less expensively than other countries, using the proceeds to import products they cannot produce as effectively. Absolute Advantage - An absolute advantage exist when a country can produce something more cheaply and/or higher quality than any other country. Comparative Advantage - A country has a comparative advantage in goods that it can produce more efficiently or better than other goods. National Competitive Advantage - National competitive advantage derives from four conditions (diamond): o Factor conditions o Demand conditions o Related and supporting industries o Strategies, structures, and rivalries - When all of these conditions exist, a nation will naturally be inclined to engage in international business. - International competitiveness refers to the ability of a country to generate more wealth than its competitors in world markets. - World Economic Forum publishes a global competitiveness ranking. o Ranked on both hard economic data and on a poll of business leaders in many countries. - Canada’s high taxes, regulated industries, and overly conservative capital market institutional are the reasons of Canada’s lower rating. Import-Export Balance - In deciding whether an overall balance exists, economists use two measures: balance of trade and balance of payments. Balance of Trade - A balance of trade is the difference in value between a nation’s total exports and its total imports. www.notesolution.com - A country that exports more than its imports has a favourable balance of trade, or trade surplus. - A country that imports more than its exports has an unfavourable balance of trade, or trade deficit. - The US is by far the largest trading partner Canada has, and our overall trade balance is favourable only because we export so much more to the US than we import from them.
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