Download International Business

International
Business
Unit 1, Chapter 4
What is International
Business?
O Domestic transaction is the selling of items
produced in the same country.
O International transaction is the selling of
items produced in other countries.
O Foreign trade – transactions usually involved
in exchanges of one type or another
internationally.
O Global economy – participating in
international transactions.
Benefits for Business
O Access to Markets
O Most countries rely on international trade for
their economic survival. Trading abroad makes
sense for Canadian businesses.
A global product is a standardized item that is
offered in the same form in all the countries in
which it is sold.
Cheaper labour
Increased quality of goods
Increased quantity
Access to resources
The Five Ps of International
Business
O International business not only offers advantages to
business, it also benefits consumers.
O International business provides increased markets
for businesses and a broader choice of products,
services, and prices for consumers.
O There are 5 major reasons for doing business
internationally: product, price, proximity, preference,
and promotion.
O These reasons are sometimes called the 5 Ps of
international business, and they represent the
benefits of getting involved with businesses outside
Canada.
Costs of International Trade
O Offshore outsourcing is the practice of hiring
service providers from countries where
labour costs are lower to complete some or
all of the steps in the production process.
O Many companies will not outsource to a
particular country at all. Instead, they will
turn to large transnational corporations –
companies that operate in several countries.
Costs of International Trade
O Human Rights Issues and Labour Abuses are two
ethical problems that result from offshore
outsourcing. Workers in many poor countries face a
wide range of abuses in the workplace. These abuses
could include labour exploitation, including physical
and sexual abuse, forced confinement, non-payment
of wages, denial of food and health care, and
excessive working hours with no rest days.
O The International Labour Organization is the UN
specialized agency that seeks the promotion of social
justice and internationally recognized human and
labour rights.
Cost of International Trade
O Environmental Degradation
O Sustainable development is a process of
developing land, cities, businesses, and
communities that meets the needs of the
present without compromising the ability of
future generations to meet their own needs.
O Environmental degradation occurs when
nature’s resources such as trees, habitat,
earth, water, and air are being consumed
faster than nature can replenish them.
Barriers to International
Business
O The Canadian government uses barriers,
sometimes referred to as roadblocks, to help
protect domestic businesses and
consumers. These barriers can be used to
help assist a new business in getting started
as well as to protect an existing industry
struggling in a competitive global
environment.
Barriers to International
Business
O Tariffs (customs duties) are forms of tax on certain types of
O
O
O
O
imports. Tariffs are levied on a percentage-of-value basis (e.g.
6.1% of retail value) or on a specific basis (e.g. $6 per 100 Kg)
Tariffs represent one of the most important tools for any
government in managing trade with other nations.
View table 4.1 on page 124
Each country sets its own rules for dealing with imports. They
are there to protect domestic industries.
Tariff barriers are often the subject of international
negotiations, create trade barriers are gradually being reduced
as countries create trade agreements.
O View movie, “Ben & Jerry’s , A Frozen Empire
Barriers to International
Business
O Non-tariff barriers are standards for the quality of imported
goods that are set so high that foreign competitors cannot
enter the market. (e.g. if Canada set very high standards for
safety and emission controls on imported vehicles, few
existing imported vehicles would meet the standards)
O Costs of Importing and Exporting
O Price is based on the cost of manufacturing, plus the costs
of storage, marketing, shipping, advertising, overhead, and
the profit margins of each business involved. Shipping
costs is one of the largest components of the landed cost.
The landed cost is the actual cost for an imported
purchased item, composed of the vendor cost,
transportation charges, duties, taxes, broker fees, and any
other charges.
Barriers to International
Business
O Excise Taxes
O An excise tax is a tax on the manufacture,
sale, or consumption of a particular product
within a country. (e.g. the Canadian
government charges an excise tax of 10
cents per litre on gasoline. Raising about $4
billion per year, while provincial governments
charge an average 14.5 cents per litre).
Excise taxes depend on the quantity or mass
of an item.
Barriers to International
Business
O Currency Fluctuations
O One of several factors that influence the
shifting currency exchange rates between
countries has to do with the strength of the
economies of the two countries in relation to
one another.
O Currency exchange rates have a very real
impact on doing business internationally.
Flow of Goods and Services
O Goods and services flow into Canada as
imports, and they flow out as exports. The
imports coming into Canada include raw
materials, processed materials, semifinished goods, or manufactured products
that are ready for sale.
O The less finished the imports are, the more
jobs they create for Canadians.
Flow of Goods and Services
O Balance of Trade is the relationship between
a country’s total imports and total exports.
O If the country pays more for imports than it
earns from exports, there is a trade deficit.
O If the country earns more from exports than
it pays for imports, there is a trade surplus.
Flow of Goods and Services
O Imports
O A business that wants to start importing goods for sale
O
O
O
O
in Canada should consider the five main ways of
offsetting the risks of importing in Figure 4.3, page 130.
Exports
The idea to export a good or service can come either
from the company that produces it or from the buyers in
a foreign market who wish to purchase it.
Direct exporting means the exporter deals directly with
the importer and does not use an intermediary.
Indirect exporting means the goods move from the
exporter to an intermediary and then on to the importer.
Flow of Goods and Services
O Offsetting Risks
O Exporters can offset risks through careful planning. If
you plan to export a product to a foreign market, start
by conducting market research to make sure there
are consumers in the market who will buy your goods.
O Canada’s Major Trading Partners
O In some ways, international trade is like collecting
trading cards. You can use whatever you have in
abundance to trade for whatever you need. The only
difference is that countries don’t usually trade goods
directly. Instead, they buy and sell goods for money.
O See table 4.2 on page 133, for Canada’s major
trading partners.
Canada and International
Trade Agreements
O You’ve already learned that countries often set up
trade barriers, such as customs duties, tariffs, and
embargoes, to protect domestic businesses.
O There are two main advantages to reducing trade
barriers. The first is that domestic businesses are
able to sell their products and services abroad at
lower prices since customs duties are not added to
the cost of domestic businesses’ exports. The
second advantage is that consumers have access to
new products, and existing domestic products must
improve their quality or reduce their prices in order to
compete with imported products.
Canada and International
Trade Agreements
O Trade agreements state which tariff each
country will drop or reduce and may include a
process for resolving disputes.
O Trade agreements need to include answers to
questions such as when and why people will be
permitted to work across international borders,
what qualifications they will need, what
standards will be applied to their work, and how
businesses’ trade secrets (also known as
intellectual property) will be protected.
O Can you name some of these agreements
Canada has entered into?
Canada and International
Trade Agreements
O
O
O
O
O
O
O
The World Trade Organization developed out of a very important
international trade agreement called the General Agreement on
Tariffs and Trade (GATT), which was signed in 1947 and came into
effect in 1948.
Canada and 22 other countries signed this agreement.
GATT endured for nearly 50 years and grew to include 115 member
states.
In 1995, the World Trade Organization (WTO) was established to
replace the earlier GTT administration.
With 139 member countries, the WTO is the principal international
organization that deals with the rules of trade between nations.
One important WTO agreement is the 1995 General Agreement on
Trade in Services (GATS). It sets guidelines for the trade of World
Trade Organization (WTO)
services (such as banking) across international borders. Currently,
the WTO governs about 97% of all world trade.
Canada and International
Trade Agreements
O North American Free Trade Agreement (NAFTA)
O The United States wanted to clarify rules regarding
services and intellectual property, reduce restrictions on
American investment in Canadian industries, and
increase their exports to Canada.
O The Canada-U.S. Free Trade Agreement (FTA) came into
effect in January 1989.
O Soon after the FTA came into effect, the United States
announced a similar agreement with Mexico, and
Canada asked to be included in the negotiations. The
North America Free Trade Agreement (NAFTA), which
came into effect in 1994, joined all three countries in a
continent-wide free-trade zone.
O See tables 4.3 and 4.4 on page 136
Canada and International
Trade Agreements
O Other Free Trade Agreements
O Canada has other free trade agreements
around the world. Some are regional
(involving groups of countries), while others
are bilateral (involving Canada and one
other country or group).
O A trading block is a group of countries that
share the same trade interests.
Canada and International
Trade Agreements
O The Group of Eight
O The Group of Eight (G8), formerly known as
the Group of Seven (G7), is an association of
the world’s most powerful industrialized
democracies. G8 countries are not located
close together. They are from different parts
of the world working together in the global
economy.
O Read Table 4.5 on page 138
The Future of International
Trade
O European Union (EU) is the union of many
European countries into a single market, a
process that began after WWII and
culminated in a single-currency market in
2002. The euro is the official currency of EU.
O Denmark and the United Kingdom have not
adopted the euro as their currency.
O Evolution of NAFTA – could see the direction
from a trading bloc into a single market.
The Future of International
Trade
O Impact of Cultural Differences
O The future of international trade depends, in part, on our
ability to accept and respond to cultural differences.
O Culture is the sum of a country’s way of life, beliefs, and
customs. It influences how things are bought and sold.
O Dealing with people – doing business around the world not
only means learning other languages and understanding
other cultures; it also means learning the nuances of
dealing with people and finding out about what’s important
to them.
O Punctuality – in North America people are expected to be
on time for appointments. In other cultures, time is
considered to be flowing, flexible, and beyond people’s
control. What doesn’t get done today can be done
tomorrow.
The Future of International
Trade
O Greetings – In many countries, the way you greet someone is
an important part of the impression you make. Handshakes
are common in most countries, but not everyone shakes hands
the same way.
O Non-verbal Communication Signals – In many cultures,
nonverbal signals tell far more than words. Businesspeople
may have to rely on the body language of the person they’re
speaking with to tell them whether they have or have not made
a sale.
O Good Manners – The three Fs of business – family, friends,
and favours – have a very strong influence on the business
decisions people make. Knowing the culture of those you are
doing business with, is important for a successful outcome.
O Decision Making – Depending on the culture and how the
decisions are made (top-down, down-up), will determine the
time needed to make a decision which affects the deal.
Global Dependency
O Global dependency exists when customers
in one country begin to demand items that
are created in another country. These
customers become aware of the products
because of global communications. Over
time, the products are incorporated into the
culture of the people who buy them.