MGTA01H3 Chapter Notes - Chapter 5: U.S. Route 3, North American Free Trade Agreement, Protectionism

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Published on 21 Apr 2013
School
UTSC
Department
Management (MGT)
Course
MGTA01H3
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of 4
Chapter 5 The Rise of International Business
Globalization the integration of markets globally; refers to the process by which the world economy is
fast and becoming a single interdependent entity.
The rise of international business there are more and more business firms engaged in international
business. The global economy is characterized by rapid growth in the exchange of information and trade
in services.
Major World Marketplaces North America, Western Europe (dominated by Germany, the UK, France,
and Italy), and Asia-Pacific (dominated by Japan)
Per Capita Income the average income per person of a country
High-income countries per capita income greater than US $10 065
Upper-middle income countries per capita income between US $3 255-$10 065
Low middle-income countries per capita income between US $825-$3 255
Low-income countries per capita income of less than US $825
Forms of Competitive Advantage
Absolute Advantage a nation’s ability to produce something more cheaply or better than any
other country
Comparative Advantage a nation’s ability to produce some products more efficiently or better
than other goods
National Competitive Advantage country will be motivated to engage in international trade
when the four conditions are favourable
Factor Conditions factors of production
Demand Conditions reflects a large domestic consumer base that promotes strong demand for
innovative products
Related and Supporting Industries include a strong local or regional suppliers and/or industrial
customers
Strategies, structures, and rivalries - refer to 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
world markets
Import-Export Balances
Balance of Trade difference in value between its total export and its total imports
Trade Surplus occurs when a country exports more than it imports, a favourable balance of
trade
Trade Deficit occurs when a country imports more than it exports, an unfavourable balance of
trade
*United States is the largest trading partner with Canada; the World Trade Organization found that
Canada’s economic dependence on the US is growing, leaving Canada vulnerable
Balance of Payments refers to the flow of money in to or out of a country as a result of trade and
other transactions
Factors leading to a favourable balance of payments
Exports
Foreign tourist spending within the domestic country
Foreign investments within the domestic country
Earnings from overseas investments
All these must be greater than
Imports
Canadian tourist spending overseas
Foreign aid grants
Military spending abroad
Investments made by domestic firms
Earning of foreigners from their investments in Canada
Exchange Rates the rate at which the currency of one nation can be exchanged for that of another
Euro common currency shared among most of the members of the European Union (excludes
Denmark, Sweden, and the UK)
International Organizational Structures
Independent Agents a foreign individual, or organization, who agrees to represent an exporter’s
interests in foreign markets; they act as sales representatives
Licensing Arrangement an arrangement by an owner of a process or product to allow another
business to produce, distribute, or market it for a fee or royalty
Branch Offices a location that an exporting firm establishes in a foreign country in order to sell its
products more efficiently; has more direct control. It gives the company the benefit of a more visible
public presence in foreign countries
Strategic Alliances an enterprise in which two or more persons or companies temporarily join forces
to undertake a particular project
Foreign Direct Investment buying or establishing tangible assets in another country
Barriers to International Trade
Social and Cultural Differences - firms involved in international business must understand the
culture of the country they are intending to operate in. Some of these barriers include language
barriers, physical structure of people, average age, population, value differences, and
behavioural differences (for example, crossing your legs in a business meeting could be
considered inappropriate.
Economic Differences firms must be aware of when and to what extent the government is
involved in a given industry. In particular, firms must understand the relationship of the
government to businesses.
Legal and Political Differences:
Quota restricts the total number of certain products that can be imported into a country;
raises the price of those imports by reducing their supply
Embargo ultimate form of quota; a government order forbidding exportation and/or
importation of a particular product of a particular product
Tariff tax charged on imported products; raises the price of imports to consumers who pay the
price of the tariff in addition to the price for the product
Revenue Tariff imposed strictly to raise money for the government
Protectionists Tariffs discourage the importation of a particular product
Subsidy a government payment to help the domestic business compete with foreign firms
Protectionism protecting a domestic business at the expense of free market competition
-tariffs and quotas can protect domestic firms and jobs
Local-Content Laws laws requiring that products sold in a particular country be at least partly
made in that country
Business Practice Laws laws or regulations governing business practices in given countries
Cartel an association of producers whose purpose is to control the supply and price of a
particular product
Dumping to sell a product for less than the comparable price charged in its domestic country
Free Trade Agreements
- The European Union (EU) initially included only nations such as Italy, Germany, France, and the
UK. By 2006, 25 countries belonged to the EU; the EU eliminated most quotas and set uniform
tariff levels on products imported and exported within their group. The EU is the world’s largest
free marketplace.
- North American Free Trade Agreement (NAFTA) came into effect in 1994. Removed tariffs
and other trade barriers among Canada, the U.S., and Mexico. Effects that were noticeable after
free trade opened include
- NAFTA created a much more active North American market
- Direct foreign investment has increased in Canada
- U.S. imports from (and exports to) Mexico have increased
- Canada has become an exporting powerhouse
- Canada has a large trade surplus with the States due to their rise in trades

Document Summary

Chapter 5 the rise of international business. Globalization the integration of markets globally; refers to the process by which the world economy is fast and becoming a single interdependent entity. The rise of international business there are more and more business firms engaged in international business. The global economy is characterized by rapid growth in the exchange of information and trade in services. Major world marketplaces north america, western europe (dominated by germany, the uk, france, and italy), and asia-pacific (dominated by japan) Per capita income the average income per person of a country. High-income countries per capita income greater than us 065. Upper-middle income countries per capita income between us 255- 065. Low middle-income countries per capita income between us - 255. Low-income countries per capita income of less than us . Absolute advantage a nation"s ability to produce something more cheaply or better than any other country.