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Chapter 5

MGTA01H3 Chapter Notes - Chapter 5: Strategic Alliance, Franchising, Protectionism

Management (MGT)
Course Code
Chris Bovaird

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Chapter 5 Understanding 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 worlds 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:
oHigh-income countries are those with per capita income greater than US$10,065.
oUpper-middle-income countries are those with per capita income between
US$3255 and US$10,065.
oLowe middle-income countries are those with per capita income between
US$825 and US$3255.
oLow-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
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 others largest trading partner.
- Mexico has also become a major manufacturing centre, especially along the southern
US border.
-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.
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-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 worlds 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
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):
oFactor conditions
oDemand conditions
oRelated and supporting industries
oStrategies, 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.
oRanked on both hard economic data and on a poll of business leaders in many
-Canadas high taxes, regulated industries, and overly conservative capital market
institutional are the reasons of Canadas 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 nations total exports and its total
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