Textbook Notes (369,014)
Canada (162,338)
RSM100Y1 (431)
Chapter 4

Chapter 4.docx

11 Pages
83 Views
Unlock Document

Department
Rotman Commerce
Course
RSM100Y1
Professor
Michael Khan
Semester
Fall

Description
Chapter 4 – Kayla Seto Inside Business: PotashCorp: Genesis for Economic Development  Generates wealth by creating commodities for Canadians and international customers (i.e. oil, natural gas, gold, etc) o Resources that businesses need to make their outputs Chapter 4 Overview  International trade = future success  Companies LF> new markets for their goods/services o Also LF> cost-effective factory locations  Business cannot rely on domestic sales alone o Other country = new market/profit opportunities  Export; domestically produced goods sold in foreign countries  Import; foreign products purchased by domestic customers  Canadian Ethorts + Imports = ~30% of GDP o 10 largest exporter o E/I worth more than $400 bil each  International business/trade: o Must work w/ new social/cultural practices o Different economic/political environment o Must change business plans to fit those requirements of different countries WHY NATIONS TRADE  Important for financial success (expanding into other countries) o iTD Bank bought Ameritrade in 2006 o Bombardier sells jet aircrafts around the world o Takes advantage of large population, healthy resources, etc o Increases economic growth by providing:  New market for products  Access to needed resources International Sources of Factors of Production  Operating abroad depend on: availability, price, quality of labour, natural resources, capital, and entrepreneurship [FACTORS OF PRODUCTION] o i.e. India -> many qualified computer scientists = many firms set operations here to take advantage, some outsourced to India (IT and Customer Service jobs)  allows to spread risk b/c different nations = different part of business cycle (demand might be different) Size of the International Marketplace  World population = ~7 bil, w/ 1/6 in well-developed countries  Developed nations = lower birthrate = not so developed -> higher population  Increases chances of reaching new group of customers o China/India = large populations  Canada ranked 36 in population rankings, 11 on GDP / capita  Developing nations = lower GDP / capita Chapter 4 – Kayla Seto o Despite low income, huge population, still profitable markets for some companies  Want to benefit from local sales b/c of expanding economies o Wal-Mart has expanded into China – Brazil, becoming a global company  Canada’s trade tied w US , and vice versa o Similar social/cultural views o Closeness helps for transportation, communication, cross border trade Absolute and Comparative Advantage  Few countries can produce all goods/services they need o trading helps meet demand for goods/services  countries can focus on what they do best, export, then import  foreign sales depend on whether it has absolute or comparative adv  absolute advantage: when it has a monopoly over making product or produce product at a lower cost than others (RARE NOW)  comparative advantage: when it can supply products more efficiently and @ lower price than it can supply other goods, compared w outputs of other countries MEASURING TRADE BETWEEN NATIONS  Balance of trade and balance of payments o Helps understanding of trade inflow/outflow o Important note -> exchange rate between countries o Balance of trades: Nation’s exports – imports  Exports > imports = trade surplus  Imports > exports = trade deficit o Balance of payments: overall $ flow into/out of country  Affected by oversea loans, borrowing, international investment, profits from it, foreign aid payments  Monetary Inflow – Monetary outflow  + = balance of payments surplus  - = balance of payments deficit Major Canadian Exports and Imports  Global economy > $74 tril total GDP o Canada’s: 1.3 tr , US: 14.7 tr  Energy product exports => + 72% since 2000  Import: Canada’s top = Machinery and Equipment, Industrial goods and materials, and automotive products,. o Net exporter of energy, but also increased imports of energy  US leads world in international trade of goods/services o Exports + imports = 2.5 til $ o Ranges from machinery and vehicles to crude oil and chemicals o Reflects America’s ability to produce wide range of products for the world consumption o Imports > exports  US Services; sells > $507 bil in services annually o Most come from travel/tourism – foreign nationals visiting US Chapter 4 – Kayla Seto o Exports include; business and technical services (engineering, financial services, computing, legal services, entertainment)  US demands foreign made goods, from clothing to consumer electronics (shoes huge trade deficits with two nations that export most consumer goods to North America – China and Japan) Exchange Rates  Value of country’s currency in terms of other currencies  Important economic measure  Factors that affect foreign exchange rates: o Economic/political conditions, actions by central bank, balance of payments, position, speculation over future currency values o Can fluctuate or “float” depending on supply/demand o Floating exchange rates: currency trades create market for world’s currencies based on each country’s trade and likelihood of investments  National government often step in to change exchange rate  Nations can link exchange rates together, or plan o Devalue currency = increase exports and encourage foreign investment  Devaluation: reduction in currency’s value in terms of other currencies or fixed standard o Effects on individual businesses:  Depends on where it buys materials and sells products  Usually uses currency of where it takes place  Exchange rate changes can create/destroy competitive advantage o Important factor to investor when deciding to invest  Hard currencies: currencies that easily convert into other currencies o Euro, US, Yen  Soft currencies: Opposite of above o Russian ruble, many central European o Exporters who trade with these prefer to barter (accept payment not in cash but in goods; oil, commodities, etc)  Foreign currency market = largest financial market in world BARRIERS TO INTERNATIONAL TRADE  Some countries have rules of when retailers can be open  International companies must comply to sets of laws/exchange currencies  Might need to change product to suit needs better o i.e Oreo cookies less sweet in China  social/cultural differences, economic barriers, and legal/political barriers (languages, values, regulations, restrictions) o some are easy to deal w/, but some affect whole business strategy Social and Cultural Differences  Ranges from language and customs  education background and religious holidays  Understanding/respecting == important for success  Can win clients and meet business goals by being aware of local views Chapter 4 – Kayla Seto o i.e. Chinese students learn golf, because some business deals are made on a golf course  LANGUAGE o English: 2 most widely spoken language in world st o Mandarin Chinese = 1 o Understanding primary language can make a difference o Websites have to also be “internationally” friendly  i.e. white is the colour of death, 4 is unlucky number o hand gestures also!!!  VALUES AND RELIGIOUS ATTITUDES o Not everyone shares same values/religious attitudes o N. America  Business Efficiency and Lower Employment o Europe  Employee benefits more valued  i.e. more vacation time o N American culture values national unity and accepts regional differences o Business people must be sensitive to religious views (i.e. holidays, etc)  i.e. Gifting of Pig or Alcohol = Bad in Muslim people Economic Differences  N American business often does well in densely populated areas o China/India eager to buy western products o Must consider country size, per capita income, stage of economic development  Infrastructure; basic system of country’s communication, transportation, and energy facilities o i.e. TV, Radio, roads/highways, power plants, Internet o must be considered when thinking about country’s economic measures o financial systems provides type of infrastructure  i.e. Canada business’ accept whole range of payment – cheques, credit card, etc… Many African countries (local businesses) don’t accept credit card  Currency Conversion and Shifts o Rapid unexpected changers = difficulty pricing items in local $ o Can also affect business decisions o Devalued $ may make nation less desirable to export to  But can also be desirable as investment opportunity Political and Legal Differences  i.e. China government strict about Internet usage o uses censorship o many Chinese websites trying to register overseas to avoid  managers in international business must be familiar o general trade restrictions, etc  Political Climate o Stability of political situation o Host nations often pass laws to protect own interests  Even at cost of foreign business Chapter 4 – Kayla Seto o Change in political structure = change in legal environment  Legal Environment o Must be familiar with Canadian Law, international regulations and laws of country in which they plan to trade w/  Some laws protects right of foreign country to compete in Canada o Canada’s Corruption of Foreign Public Officials Act (CFPOA)  American Foreign Corrupt Practice Act ( FCPA)  Illegal for companies to bribe foreign officials, political candidates, government reps  Fines and jail time for managers  Organization for Economic Co-Operation and Development’s Anti-Bribery Convention (signed by many countries)  Ends tax reduction for bribes  Makes it a criminal offence o Corruption = international problem  Commonness of bribing + international rules against bribery -> difficult for Canadians who want to do business in foreign countries o Growth of online business introduced new elements  Hard to keep watch (patents trademarks, copyrights, etc)  Availability of information over Internet  Some countries have laws against obtaining things o International Regulations  International commerce standardized: Canada + other countries have treaties/signed agreements on expected conduct of international business  Canada has entered Friendship, commerce, and navigation treaties w other nations  Describes many aspects of international business relations (i.e. right to conduct business in treaty partner’s home market)  China X US trade relations  Each side agreed on something (i.e. lower taxes, have business access, etc)  Worldwide products = must meet min req for quality  And numerous local regulations Types of Trade Restrictions  Ex. Traxes on imports, complicated admin procedures  Additional barriers to additional business x.x  May limit goods/services to consumers, increase costs of foreign g/s  May limit exports of strategic/defense related goods  May be made
More Less

Related notes for RSM100Y1

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit