Economic interdependence is increasing throughout the world as companies
look for new markets for their goods and services and the most cost-effective
locations to set up factories.
Exports: domestically produced goods and services sold in other countries.
Imports: foreign goods and services purchased by domestic customers.
Canadian ethorts/imports make up about 30% of Canadian GDP.
o 10 largest exporter.
o Exports/imports worth +$400 billion each.
Companies that do business with other countries need to work with new
social and cultural practices, different economic and political environments,
and legal restrictions.
o Must also adapt business plans to work with the markets in other
Firms that do business in other countries take advantage of large
populations, healthy resources, and rising standards of living abroad that
increase foreign interests in their goods/services.
o The Canadian market’s high purchasing power attracts foreign
Trading with other countries increases economic growth in two ways:
o By providing a new market for products
o By providing access to needed resources.
o Expand their markets
o Seek growth opportunities in other nations
o Make their production and distribution systems more efficient
o Reduce their dependence on the economies of their home nations
Business decisions to operate abroad depend on the basic factors of
production in the other country:
o The availability, price, and quality of labour, natural resources, capital,
Trading with other countries also allows a company to spread risk.
o Other countries may be at different stages of the business cycle or in
different phases of development (i.e. low demand at home but high
Companies are also attracted to international business because of the sixe of
the global marketplace.
o World population is approx. 7 billion.
Only 1:6 people live in a well-developed nation.
o By expanding, companies can reach new groups of customers.
Firms looking for new revenue are usually attracted to giant
markets such as:
China o 1.3 billion people.
o GDP growth rate at about 10.1%
o 1.2 billion people.
o GDP growth rate at about 7.5%.
U.S./Canadian GDP rates grew at an annual rate of about 4% (prior to ’08
People in the developing nations have lower per-capita incomes than people
in the highly developed economies of NA and Western Europe.
o The higher-income group (despite being a small percentage of a
countries population), represent an important and growing market.
Firms that expand into developing countries want to benefit from local sales
as a result of expanding economies and rising standards of living.
Reasons for the strong trade between U.S. and Canada:
o Both countries are similar in their social and cultural values (if buyers
are found in one country, buyers will be found in the other).
o Majority of Canada’s population lives along the border.
Easier to transport goods and to communicate (helps develop
the cross-border trade).
Much of Canada’s trade with the U.S. is resource based.
Since few countries can produce all the goods/services they need, countries
will trade globally.
o The country will produce what it does best and sell the extra output
and buy foreign products that it doesn’t have or cannot produce
The foreign sales of a product depend on whether the country has:
o An absolute advantage
When a country has a monopoly on making a product or when
it can produce the product at a lower cost than any other
Climate differences can give some nations or regions an
advantage in growing certain plants (i.e. saffron).
China; silk production
Spain; saffron (extracted from crocus flowers)
o A comparative advantage
When a country can supply its products more efficiently and at
a lower price than it can supply other goods, compared with
the outputs of other countries.
A nation can also develop a comparative advantage in HR by
ensuring that its people are well educated (i.e. India and
India; tech support Two ideas that help us understand what the trade inflows and outflows mean
for a country are:
o Balance of trade
The difference between a nation’s exports and imports (X – I).
Exports > Imports; positive balance of trade called a trade
Canada runs a trade surplus with the U.S. and a trade
deficit with other trading partners (China particularly).
Exports < Imports; negative balance of trade called a trade
U.S. has had a trade deficit every year since 1976
(despite being one of the world’s top exporters).
o Balance of payments
The overall flow of money into or out of a country.
Balance of trade
Overseas loans and borrowing
Profits from international investments
Foreign aid payments
Calculated as monetary inflows – monetary outflows.
Inflows > Outflows; positive balance of payments called a
Inflows < Outflows; negative balance of payments called a
Global economy’s GDP is +$74 trillion.
o $1.3 trillion from Canada.
o $14.7 trillion from the U.S.
Canada’s top exports in 2010 were:
o Industrial goods and materials ($95 billion)
Increased 55% from 2000-2010.
o Energy products ($93 billion)
Increased 72% from 2000-2010.
Caused by increased export quantities and the dramatic
increase in market prices for oil.
o Machinery and equipment ($69 billion)
Decreased 28% from 2000-2010.
Caused by growing sales by foreign companies.
Canada’s top imports in 2010 were:
o Machinery and equipment ($113 billion)
o Industrial goods and materials ($85 billion)
o Automotive products ($68 billion)
U.S. has combined exports and imports of about $2.5 trillion.
U.S. exporters sell +$507 billion in services annually.
U.S. annual imports are nearing $2 trillion (world’s leading importer). China and Japan have huge trade deficits due to NA’s strong demand for
Exchange rate: the value of one country’s currency in terms of the currencies
of other countries.
Foreign exchange rates are affected by:
o Economic and political conditions
o Actions by the central bank
o Balance-of-payments position
o Speculation over future currency values.
Currency values fluctuate (“float”) depending on the supply and demand for
each currency n the world market (floating exchange rates).
o Currency traders create a market for the world’s currencies based on
each country’s trade and the likelihood of investments.
o They don’t float in total freedom (national governments can often step
in to change their exchange rates).
Nations can also affect exchange rates by:
o Forming currency blocs by linking their exchange rates to each other.
o Practising protectionist policies that try to protect their economies
against trade imbalances (i.e. devaluating their currency which
increases exports and encourages foreign investment).
Devaluation: a reduction in a currency’s value in terms of other currencies or
in terms of a fixed standard.
o I.e. Brazil did this and experienced major foreign investment.
For an individual business, the impact of currency devaluation depends on
where the business buys its materials and where it sells its products.
o Business transactions usually use the currency of the country where
the transactions take place.
Exchange rates can quickly create (or destroy) a competitive advantage.
Exchange rates are important factors when investors decide whether to
invest in other countries.
Hard currencies: currencies that easily convert into other currencies.
Soft currencies: currencies that are hard to convert into other currencies.
o When exporters trade with these nation’s, they prefer to barter with
goods (i.e. oil, timber etc.) and then sell off the goods received for hard
The foreign currency market is the largest financial market in the world
(daily volume of + US$3 trillion).
o About 10x the size of all the world’s stock markets combined.
The foreign exchange market is the most liquid and most efficient financial
market in the world.
International companies face:
o The need to follow a variety of laws in the countries in which they
I.e. Australia and New Zealand set rules for hours and days
retailers can open. o The need to exchange currencies
o The need to adapt product offerings to suit different tastes in other
o Social and cultural differences
o Economic barriers
o Legal and political barriers
To be successful in global markets, companies and their managers need to
understand not only how these barriers affect international trade but also
how to overcome them.
The social and cultural differences among nations range from language and
customs to educational background and religious holidays.
o Understanding and respecting these differences are important for
international business success.
o Businesspeople can win customers and meet their business goals by
being sensitive to local views, to how people like to be addressed, and
to suitable ways of dressing, using body language, and being on time
I.e. Chinese students at Xiamen University learn golf along with
studying business and law (since many business deals are
made on the golf course).
o Understanding a business colleague’s primary language can make the
difference between closing an international business transaction and
losing the sale.
Company workers in foreign markets not only must choose the
correct and suitable words but also need to translate the words
S correctly so they say what they want to say.
Some firms rename their products or rewrite slogans for
o Companies may make mistakes by presenting messages using
unsuitable media, overlooking local customs and regulations, or
LANGUAGEIER ignoring differences in taste.
Creates an importance to carefully plan how a website will
Most Spoken I.e. a high-five hand signal would be insulting to people
1. Mandarin o Gift-giving traditions use the language of symbolism.
Chinese I.e. certain items are associated with negative thoughts.
2. English o People in different countries do not always share the same values or
I.e. NA society places a higher value on business efficiency and
lower unemployment than European society.
o In Ontario, the Employment Standards Act states that every employee
is entitled to 2 weeks of vacation after working for a 12-month
vacation entitlement period. In EU, employees are given a minimum paid vacation of 4
When a Canadian company open a factory in an EU
country, it can hire local employees only if it offers
vacation time as set by that nation’s practices.
o NA culture values national unity and accepts regional differences
(Canada and U.S. are seen as separate national markets).
European countries that are part of the EU are trying to create
a similar marketplace.
BARRo A consumer from Britain has different value from an Italian consumer.
Activities need to adapt to address the differences of consumer
o Businesspeople must also learn to be sensitive to the major religions
in countries where they operate.
I.e. being aware of major holidays, diets, religious cycles etc.
o Islam’s month-long observance of Ramadan
o Muslim’s do not drink alcohol and pork is seen as
Economic differences such as a nation’s size, its per-capita income, and its
stage of economic development are important to consider when deciding
whether a country is right for an international business venture.
o Businesses that compete in world markets need to think about the
host country’s economic measures.
Infrastructure: the basic systems of a country’s
communication, transportation, and energy facilities.
I.e. India’s rapidly growing aviation infrastructure.
o The need for 400 new airports, 3,000 new planes
Financial systems provide a type of infrastructure for
o I.e. buyers in Canada have access to cheques,
credit cards, and debit cards, and to the
electronic systems needed to process these
DIFFERENCES IN payments.
Io Foreign currency fluctuations may mean more problems for global
I.e. difficulty in pricing items in the local currency.
Devaluation can also make a nation less desirable to export to
because of reduced demand in that country.
Can make the nation desirable for investment (buying
power of the investor’s currency will be greater).
COVELegal and political differences can also act as barriers. o Managers in international businesses need to be familiar with the
legislation that affects their industries.
Some countries have trade restrictions; others have rules
stating how foreign companies can operate.
o In any international business investment, an important factor is the
stability of the political situation.
o Some nations sometimes pass laws to protect their own interest,
sometimes at the expense of foreign businesses.
CLIMATEPolitical structure changes almost always bring changes in the legal
o When doing business internationally, managers must be familiar with
three dimensions of the legal environment:
I.e. the Corruption of Foreign Public Officials Act
Laws of the countries in which they plan to trade
o Corruption is a major issue internationally.
The Organization for Economic Co-operation and
Development’s Anti-Bribery Convention: signed by 40
countries making the offering or paying of bribes a criminal
o Corruption Perceptions Index: computed by Transparency
ENVIRONMENTernational that rates the degree of corruption observed by
businesspeople and the general public.
o The growth of online business has introduced new elements to the
legal situation of international business.
Patents, brand names, trademarks, copyrights, and other
intellectual property are difficult to keep watch over, given the
availability of info on the Internet.
o To make international commerce more standard, Canada and many
other countries have treaties and signed agreements that describe the
expected conduct of international business and protect some of its
Canada has entered into many friendship, commerce, and
navigation treaties with other nations.
o International business agreements can involve:
The right to conduct business in the agreement partner’s home
INTERNATIONAL International air travel
o The use and protection of water supplies is the one area with no
IBM initiative to provide water-management tools and
o Many rules affect the actions of managers that do business in
Worldwide producers and marketers must keep
required minimum levels of quality in all countries
where they operate.
There are numerous local regulations that have to be
o I.e. what is/isn’t allowed to be depicted in
Trade restrictions include taxes on imports and complicated administrative
o They may limit the products and services available to consumers and
can increase the costs of foreign-made products.
o They are used to:
Protect citizen’s security, health, and jobs
I.e. banning imports of food contaminated with
Protect a country’s own security
I.e. limiting exports of strategic and defence-related
goods to unfriendly countries.
Promote trade with certain countries
Protect countries from unfair competition
o Most take the form of tariffs.
Tariff: taxes imposed on imported goods.
Two types of tariffs:
o Generate income for the government.
I.e. limits on how much you can spend
when you cross the Canadian border into
o Purpose is to raise the retail price of imported
products to match or top the prices of similar
products made in the home country.
Try to limit imports and give local
competitors an equal chance to succeed.
Tariffs do not always have the desired effect. o Administrative trade barriers are also called nontariff trade barriers.
They restrict imports without using the strict rules that tariffs
They can be in the form of:
Quotas on imports
o Quota: a limit set on the amounts of particular
products that can be imported.
o They can be set as quantities (i.e. x bushels of
wheat) or as values (i.e. $x worth of cigarettes)