Chapter 5 Notes

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7 Dec 2010
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Chapter 5 Understanding International Business Notes
The Rise of International Business
x globalization : the integration of markets globally
x imports : products that are made or grows abroad and sold in Canada
x exports : products made or grown in Canada that are sold abroad
The Contemporary Global Economy
x whereas in the past many nations followed strict policies to protect domestic business, today more and more countries are
aggressively encouraging international trade
x they are more freely opening their borders to foreign businesses, offering incentives for their own domestic businesses to expand
internationally, and making it easier for foreign firms to partner with local firms through various alliances
x similarly, as more and more industries and markets become global, firms that compete in them are also becoming global
x several forces have combined to spark and sustain globalization: for one thing, governments and businesses have simply become
more aware of the benefits of globalization to their countries and shareholders; for another, new technologies make international
travel, communication, and commerce increasingly easier, faster, and cheaper than ever before; finally, there are competitive
pressures: sometimes, a firm simply must enter foreign markets just to keep up with its competitors
The Major World Marketplaces
x the contemporary world economy revolves around three major marketplaces: North America, Europe, and Asia – Pacific
x these three geographic regions are home to most of the world’s largest economies, biggest multinational corporations, most
influential financial markets, and highest income consumers
x per capita income : the average income per person of a country
o High – income countries are those with per capita income greater than US $10 065. These include Canada, the US, most
countries in Europe, Australia, New Zealand, Japan, South Korea, Kuwait, the UAE, Israel, Singapore, and Taiwan. Hong
Kong, while technically no longer an independent nation, also falls into this category.
o Upper – middle – income countries are those with per capita income between US $3255 and US $10 065. This group
includes, among others the Czech Republic, Greece, Hungary, Poland, most countries comprising the former Soviet Bloc,
Turkey, Mexico, Argentina, and South Africa.
o Low middle – income countries are those with per capita income between US $825 and US $3255. Among the countries in
this group are Colombia, Guatemala, Samoa, and Thailand. Some of these, including China and India, have huge
populations and are seen as potentially attractive markets for international business.
o Low – income countries (often called developing 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, these countries are less
attractive to international business. For example, the East African nation of Somalia is plagued by drought, civil war, and
starvation, and plays virtually no role in the world economy.
North America
x US dominates the NA business region; it is the single largest marketplace and enjoys the most stable economy in the world
x Canada also plays a major role in the international economy; and both are each other’s largest trading partners
x many US firms, such as GM and P & G, have maintained successful Canadian operations for years, and many Canadian firms,
such as Bombardier, Nortel Networks, and Alcan Aluminum, are also major international competitors
x Mexico has also become a major manufacturing center, especially along the southern US border, where cheap labour and low
transportation costs have encouraged many firms, from the US and other countries, to build manufacturing plants
Europe
x Western Europe, dominated by Germany, the UK, France, and Italy, has long been a mature but fragmented marketplace; but the
transformation of the EU in 1992 into a unified marketplace has further increased the region’s importance
x e-commerce and technology have also become increasingly important in this region
x Eastern Europe, once primarily communist, has also gained in importance, both as a marketplace and as a producer
Asia – Pacific
x Asia – Pacific consists of Japan, China, Thailand, Malaysia, Singapore, Indonesia, South Korea, Taiwan, the Philippines,
Australia, and New Zealand; Hong Kong may be included as a separate region; Vietnam is sometimes included
x fuelled by strong entries in the automobile, electronics, and banking industries, the economies of these countries grew rapidly in
the 1970s and 1980s; however, a currency crisis in the late 1990s generally slowed growth in virtually every country of AP
x technology promises to play an increasingly important role in this region, however, in Asia, the emergence of technology firms
has been hampered by a poorly developed electronic infrastructure, slower adoption of computers and IT, a higher percentage of
lower-income consumers, and the currency crisis
Forms of Competitive Advantage
Absolute Advantage
x absolute advantage : a nation’s ability to produce something more cheaply or better than any other country
Comparative Advantage
x comparative advantage : a nation’s ability to produce some products more cheaply or better than can others
National Competitive Advantage
x 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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