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MGTA01H3 (583)
Chapter 5-10

MGTA03 Chapter 5-10 Notes

14 Pages
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Department
Management (MGT)
Course Code
MGTA01H3
Professor
Chris Bovaird

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Chapter 5 Understanding International Business
The Rise of International Business
Globalization the integration of markets globally
Imports products that are made or grown abroad and sold in Canada
Exports - products made or grown in Canada that are sold aboard
The Contemporary Global Economy
Trade between nations can actually be traced back as far as 200BCE
International trade is becoming increasingly central to the fortunes of most nations of the world, as
well as their largest business
Today international trade is encouraged and more freely opening their borders to foreign business,
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
The Major World Marketplace
The contemporary world economy revolves around three major marketplaces: North America,
Europe, and Asia-Pacific
Three geographic regions are home to most of the worlds largest economies, biggest multi-national
corporation, most influential financial markets and highest income consumers
The World Bank, an agency of the United Nations uses per capita income
Per capita income the average income per person of a country
oHigh income countries are those with per capita income greater than U.S. $10 065. (include
Canada, the United Sates, most countries in Europe, Australia, New Zealand, Japan, South
Korea, Kuwait, Hong Kong)
oUpper-middle-income countries are those with per capita income between U.S. $3255 and
U.S. $10065. (include Czech Republic, Greece, Hungary, Poland)
oLow-middle-countries are those with per capita income between U.S. $825 and U.S. $3255
(include 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
oLow-income countries (often called developing countries) are those with annual per-capita
income of less than U.S. $825. Due to low literacy rates, weak infrastructures, unstable
governments, and related problems, these countries are less attractive to international
business.
North America
The United States dominates the North American business region (the single largest marketplace
and enjoys the most stable economy in the world
Canada also plays a major role in the international economy
Untied States and Canada are each others largest trading partner
Mexico has also become a major manufacturing centre, especially along the southern U.S. border;
where cheap labour and low transportation costs have encouraged many firms, from the United
States and other countries to build manufacturing plants
Europe
Has often been regarded as two regions Western Europe and Eastern Europe
www.notesolution.com
Western Europe is dominated by Germany, the United Kingdom, France and Italy, has long been a
mature but fragmented marketplace.
The transformation of the European Union (EU) in 1992 into a unified market place has further
increased the regions importance
Ecommerce and technology have also become increasingly important in this region
Eastern Europe, once primarily communist, has also gained in importance both as marketplace
and as producer
Asia-Pacific
consists Japan, China, Thailand, Malaysia, Singapore, Indonesia, South Korea, Taiwan, the
Philippines, Australia, and New Zealand
a currency crisis in the late 1990s generally slowed growth in virtually every country of the region
is an important force in the world economy and a major source of competition for North American
firms
China, the most densely populated country in the world, continues to emerge as an important
market in its own right. (worlds third largest economy, behind United States and Japan)
In Asia however, the emergence of technology firms has been hampered by a poorly developed
electronic infrastructure, slower adoption of computers and information technology, a higher
percentage of lower-income consumers, and the afore mentioned currency crisis
Forms of Competitive Advantage
Countries tend to export products that they can produce better or less expensively than other
countries, using the proceed s to import products that they cannot produce as effectively
Absolute Advantage a nations ability to produce something more cheaply or better than any other
country
oExists when a country can produce something more cheaply and/or higher quality than any
other country
Comparative Advantage a nations ability to produce some products more cheaply or better than it
can others
oit can produce more efficiently or better than other goods
National Competitive Advantage a country will be inclined to engage in international trade when
factor conditions, demand conditions, related and supporting industries, and strategies/structure/rivalries
are favourable
1)Factor conditions are factors of production that we identified in Chapter 1
2)Demand conditions reflect a large domestic consumer base that promotes strong
demand for innovative products
3)Related and supporting industries include strong local or regional suppliers and/or
industrial customers
4)Strategies, structures, and rivalries refer to firms and industries that stress cost
reduction, product quality, higher productivity, and innovative new products
When all of these conditions exist, a nation will naturally be inclined to engage in international
business (Japan has strong domestic demand for automobiles)
International Competitiveness the ability of a country to generate more wealth than its
competitors in world markets
www.notesolution.com
Import-Export Business
Trading with other nations can pose problems if a countrys imports and exports do not strike an
acceptable balance
In declining whether an overall balance exists, economists use two measures: balance of trade and
balance of payments
Balance of Trade
The difference in value between a country`s total exports and its total imports
Trade surplus: occurs when a country exports more than it imports
Trade deficit: occurs when a country imports more than it exports
Balance of Payments
The difference between money flowing in to and out of a country as a result of trade and other
transactions
An unfavourable balance means that more money is flowing out than in
Exchange Rates
The balance of imports and exports between two countries is affected by the rate of exchange
between their currencies
Exchange Ratio: the ratio of one currency to another
othe rate at which the currency of one nation can be exchanged for that of another
At the end of Second World War, the major nations of the world agreed to establish fixed exchange
rates
Fixed exchange rates, the value of any countrys currency relative to that of another country
remains constant
Floating exchange rates, are the norm, and the value of one countrys currency relative to that of
another country varies with market conditions
A currency is said to be strong when demand for it is high, it is also strong when there is high
demand for the goods manufactured at the expense of that currency
Exchange rate typically fluctuate by very small amounts on a daily basis
Euro: a common currency shared among most of the members of the European Union (excluding
Denmark, Sweden, and the United Kingdom) officially introduced in 2002
Exchange Rates and Competition
Changes affect overseas demand for their product and can be a major factor in international
competition
When the value of a countrys domestic currency rises become stronger companies based there
find it harder to export products to foreign markets and easier for foreign companies to enter local
markets
When the value of a countrys currency declines becomes weaker just the opposite patterns
occur
International Organizational Structures
Different levels of involvement in international business require different kinds of organizational
structure
www.notesolution.com

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Description
Chapter 5 Understanding International Business The Rise of International Business Globalization the integration of markets globally Imports products that are made or grown abroad and sold in Canada Exports - products made or grown in Canada that are sold aboard The Contemporary Global Economy Trade between nations can actually be traced back as far as 200BCE International trade is becoming increasingly central to the fortunes of most nations of the world, as well as their largest business Today international trade is encouraged and more freely opening their borders to foreign business, 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 The Major World Marketplace The contemporary world economy revolves around three major marketplaces: North America, Europe, and Asia-Pacific Three geographic regions are home to most of the worlds largest economies, biggest multi-national corporation, most influential financial markets and highest income consumers The World Bank, an agency of the United Nations uses per capita income Per capita income the average income per person of a country o High income countries are those with per capita income greater than U.S. $10 065. (include Canada, the United Sates, most countries in Europe, Australia, New Zealand, Japan, South Korea, Kuwait, Hong Kong) o Upper-middle-income countries are those with per capita income between U.S. $3255 and U.S. $10065. (include Czech Republic, Greece, Hungary, Poland) o Low-middle-countries are those with per capita income between U.S. $825 and U.S. $3255 (include 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 U.S. $825. Due to low literacy rates, weak infrastructures, unstable governments, and related problems, these countries are less attractive to international business. North America The United States dominates the North American business region (the single largest marketplace and enjoys the most stable economy in the world Canada also plays a major role in the international economy Untied States and Canada are each others largest trading partner Mexico has also become a major manufacturing centre, especially along the southern U.S. border; where cheap labour and low transportation costs have encouraged many firms, from the United States and other countries to build manufacturing plants Europe Has often been regarded as two regions Western Europe and Eastern Europe www.notesolution.com Western Europe is dominated by Germany, the United Kingdom, France and Italy, has long been a mature but fragmented marketplace. The transformation of the European Union (EU) in 1992 into a unified market place has further increased the regions importance Ecommerce and technology have also become increasingly important in this region Eastern Europe, once primarily communist, has also gained in importance both as marketplace and as producer Asia-Pacific consists Japan, China, Thailand, Malaysia, Singapore, Indonesia, South Korea, Taiwan, the Philippines, Australia, and New Zealand a currency crisis in the late 1990s generally slowed growth in virtually every country of the region is an important force in the world economy and a major source of competition for North American firms China, the most densely populated country in the world, continues to emerge as an important market in its own right. (worlds third largest economy, behind United States and Japan) In Asia however, the emergence of technology firms has been hampered by a poorly developed electronic infrastructure, slower adoption of computers and information technology, a higher percentage of lower-income consumers, and the afore mentioned currency crisis Forms of Competitive Advantage Countries tend to export products that they can produce better or less expensively than other countries, using the proceed s to import products that they cannot produce as effectively Absolute Advantage a nations ability to produce something more cheaply or better than any other country o Exists when a country can produce something more cheaply andor higher quality than any other country Comparative Advantage a nations ability to produce some products more cheaply or better than it can others o it can produce more efficiently or better than other goods National Competitive Advantage a country will be inclined to engage in international trade when factor conditions, demand conditions, related and supporting industries, and strategiesstructurerivalries are favourable 1) Factor conditions are factors of production that we identified in Chapter 1 2) Demand conditions reflect a large domestic consumer base that promotes strong demand for innovative products 3) Related and supporting industries include strong local or regional suppliers andor industrial customers 4) Strategies, structures, and rivalries refer to firms and industries that stress cost reduction, product quality, higher productivity, and innovative new products When all of these conditions exist, a nation will naturally be inclined to engage in international business (Japan has strong domestic demand for automobiles) International Competitiveness the ability of a country to generate more wealth than its competitors in world markets www.notesolution.com
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