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
- 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
- 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
- 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 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
- An absolute advantage exist when a country can produce something more cheaply
and/or higher quality than any other country.
- 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 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
- Canada’s high taxes, regulated industries, and overly conservative capital market
institutional are the reasons of Canada’s lower rating.
- 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
www.notesolution.com - A country that exports more than its imports has a favourable balance of trade, or trade
- A country that imports more than its exports has an unfavourable balance of trade, or
- 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.