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Chapter 5

Chapter 5 Notes


Department
Management (MGT)
Course Code
MGTA01H3
Professor
Chris Bovaird
Chapter
5

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Chapter 5 Notes: International Business
The Contemporary Global Economy
Trade happened back in 2000BCE
North African traded dates and clothing for olive oil and spices with the
middle east
More countries are encouraging international trade
Offer Incentives for their own domestic firms to expand internationally
Open board for foreign businesses
New technologies contributes to the expanding globalization
Easier, faster and cheaper to travel, communicate internationally
The Major World Marketplaces
3 Major Marketplaces: North America, Europe and Asia-Pacific
World Bank uses per capital to divide countries into 4 groups
High income
Upper middle income
Low middle income
Low income (aka developing) countries
North America
USA- single largest marketplace
USA & Canada= each others largest trading partner
Businesses would operate in both countries
Mexico
Major manufacturing centre (cheap labour and low transportation cost)
Attracts foreign firms to build manufacturing plants
Europe
2 regions: western and eastern Europe
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Western Europe dominated by Germany, UK, France and Italy
Eastern Europe: Technology and biotech are increasingly important in
the East
Ireland: worlds 2nd largest exporter of software
Western Europe: Important producer.
Many companies set up operation and factories
Asia- Pacific
Fuelled by strong entries in automobile, electronics, and banking industries
A major source of competition for North American firms
Toyota, smasung, Toshiba etc
Association of Southeast Asian Nations (ASEAN): Organization for economic,
political, social and cultural co-operation
Forms of Competitive Advantage
Why trade?
No countries can produce all the things that its people need
Export what they can produce better and cheaper
Import things that we cant make or costly to make
Absolute Advantage: Ability to produce something fast and cheaper and better
than anyone
Saudi oil, Brazilian coffee beans, Canada Timber
Comparative Advantage: a country can produce one good better than the other
good
Canada farming (fertile land, and temperature climate)
Korea electronics manufacturing (efficient operations and cheap labour)
National Competitive Advantage
A country will be inclined to engage in international trade when factor
conditions, demand conditions, related and supporting industries, and
strategies/ structures/ rivalries are favourable
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Attributes of national competitive advantages: (when they exist, the
country will trade internationally)
Factor Conditions: factor of productions
Demand Conditions: large domestic consumer base that
promotes strong demand for innovative products
Related and supporting industries: strong local or regional
supplies and industrial customers
Strategies, structures and rivalries: firms and industries
that stress cost reduction, product quality, higher productivity
and innovative new products
International Competitiveness: the ability of a country to generate more wealth
than its competitors in the world markets.
Top 3 countries: Switzerland, Finland and Sweden
Canada: 16th. High taxes, regulated industries, conservative capital market
resulted in lower ranking
Import Export Balances
Trading problems if the trade is not balanced
2 ways to measure trade: Balance of trade and Balance of Payments
Balance of Trade: The difference in value between a country total export
and import. Export Import.
Trade Surplus: Export > Import
Trade Deficit: Import > Export
Canadas economy is depending on USA
85% of Canadas goods export to USA and Big companies that
export to USA are American owned
Balance of Payment: The different between money flowing in to and out of
a country as a result of trade and other transaction
Unfavourable balance: more $$ flowing out than in
Canadas balance of payment:
oAdd: (exports+ foreign tourists+ foreign investment
here+ earnings from overseas+ investments)
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