Welcome to INTERNATIONAL BUSINESS

BBB 4MMrs Ross

Course Summary

• This course provides an overview of the importance of international business and trade in the

• global economy and explores the factors that influence success in international markets. Students

• will learn about the techniques and strategies associated with marketing, distribution, and

• managing international business effectively. This course prepares students for postsecondary

• programs in business, including international business, marketing, and management.

Core Content and Sequence

• Unit 1 Business, Trade and the Economy• Unit 2 The Global Environment for Business• Unit 3 Factors Influencing Success in

International Markets• Unit 4 Marketing Challenges, Approaches,

and Distribution• Unit 5 Working in International Markets

Chapter 1 International Interdependence

1.1 Evolution of Global Trade– Self-Sufficiency– Early Trade– The First Trade Regulations– Exploration of the Americas

Self-Sufficiency• the ability to provide for all of one’s basic needs

without relying on anyone else, e.g. Canada’s Aboriginal peoples – hunted or gathered their own food, made their clothes from the skins of the animals they ate.

Early Trade• As transportation developed, a trade among countries

developed – over 3000 years ago, e.g.1.trade from North Africa to the Western civilization – figs,

scented oils, and rare woods 2.trade from China to India – silk, tea for spices

The First Trade Regulations• The first trade regulations came about during the early part of the Middle Age (476 C.E. -1000 C.E.)

Guilds – merchant and craftspeople associations organized within towns – controlled the manufacturing and sale of the products made by the people of the town and made foreign merchants or traders pay a fee if they wanted to trade in the town.

Trade and Exploration• Trading flourished among the nations from England east to China – especially spices from India and China – the route patrolled by Turkey

• To avoid Turkish ships, Europeans rulers looked west, rather than east, in the hopes of reaching Asia and India.

• In 1492, Christopher Columbus discovers America, thinking he arrived in India.

1.2 History of Canadian Trade- The European Connection- The American Connection- The Pacific Rim Connection- Mexico and the Americas

The European Connection

Hudson Bay Company• 1670 The Hudson’s Bay Company is founded by Sieur des

Groseilliers.• Rejected by the French, he approached the king of England

and started to trade fur with England• He was granted a Royal Charter and formed the Governor and

Company of Adventurers of England Trading into Hudson’s Bay, known as the Hudson’s Bay Company (HBC)

The American Connection• By 1720, American and Canadian trade looked very different.

Canada focussed on European connections while the US developed a more diversified network

• Sugar (white gold) was so important in American trade• Raw sugar came into New York and was processed and then

shipped out to Europe & the West Indies

• In 1779 the North West Company was formed in Canada in direct competition with HBC

• It also competed with the American Fur Company• In 1816 the American government passed a law

making it illegal for Canadians to trade furs in the US• By the 1840s silk replaced beaver for hats• Canada became a nation in 1867 in response to the

desire to have access to all of Canada’s natural resources

• In 1885 the Canadian National Railway was built

The Pacific Rim Connection

• When the War ended in 1945, Japan’s industries were all but destroyed

• With North American aid they were rebuilt

• In the 1950s Japan entered the NA markets

• Japan has led other Pacific Rim countries and is now a major trading partner

Mexico and the Americas

• In 1993, Canada signed the NAFTA eliminating tariffs between Canada, USA and Mexico

• Created a large Mexican consumer market for Canada

• Canada’s branch plants took advantage of lower Mexican labour costs

• In 1994 this agreement was expanded to the FTAA

1.3 Canada’s Economic Identity

• Changes in Canada’s Economic IdentityIn the past few decades Canada has seen a shift in their international trade. Canada’s Exports Since 1971:

Semi-Manufactured& End- ProductPrimary Resource-Based

down from 43% to 18% up from 57% to 82%

PRIMARY INDUSTRIES

• Primary Industries (a.k.a extractive industries) take raw materials from nature, process them slightly, and sell them to other businesses that use them to make other products or to provide services.

Canada’s Major IndustriesPRIMARY

AGRICULTURE FISHING & TRAPPING

FORESTRY & LOGGING

ENERGY & MINING

Crops Groundfish Lumber Non-metalsLive stock Finish Pulpwood MetalsPoultry Shellfish Firewood Structure

materialsAnimal products

Wildlife Fossil fuels

Other agriculture products

Other marine life

Hydro-electric power

MANUFACTURING• Manufacturing industries include both the

processing and fabrication sectors. Grinding wheat into crude flour is an example of a manufacturing process. A company refines and enriches the flour fabricating process to consider it as a manufactured good. A manufactured good does not require any further processing.

PROCESSED FOODMeat-Canned/ Preserved foods

PRINTING& PUBLISHING--Business forms-Plate making-Book publishing

TRANSPORTATION-Aircraft parts-Automobiles-Mobile homes

WOOD-Veneer-Plywood-Cabinets

BEVERAGES- Soft drinks-Beer-Distilled spirits

ELECTRICAL& ELECTRONICSSmall electrical appliances-Major appliances-Lighting fixtures

PRIMARY METALS-Ferro-alloys-Aluminum

PAPER-Wood pulp-News print-Paperboard

PLASTIC-Pipes-Foam- Film

PETROLIUM& COAL-Ashphalt-Refined gas& oil-Grease

MACHINERY-agricultural implements-A.C. equipment-Mining machinery

TEXTILES-Manufactured fibre-Yarn-Woven cloth

SERVICES• Service industries do not sell tangible items (items a person

can touch), although rental services will allow customers to use tangible items such as DVD’s for a period of time. Services provide intangibles that people need or want. Services are also activities that are often performed by experts who can do what untrained people cannot do (eg: pilots) One of the fastest growing sectors of the service industry is in the consulting services, where the client pays for advice.

Service IndustriesCOMMERCIAL

SERVICESTRAVEL TRANSPORTATIO

NGOVERNMENT

•Communication•Construction•Research & Development

•Business & personal travel

•Transportation of persons & goods (air, water & land)

•Diplomatic•Commercial•Education•Healthcare

CANADA’S INTERNATIONAL MARKET

• There is no doubt that Canada's economy, jobs and quality of life all depend on our businesses and investors reaching out to the markets of the world to capture opportunities. International competition has been good for the economy, attracting investment to Canadian communities, spurring innovation and the creation of cutting-edge technology, and opening the eyes of Canadian businesses to the world of opportunity beyond our borders.

• Our future prosperity can be enhanced through government efforts to help our businesses and investors tap into global opportunities and succeed in markets around the world.

• These efforts involve providing support in the key global markets using the right tools and business intelligence, including timely and accurate information about trade and investment barriers in these markets.

While overall exports increased, the sectors showed varied performance, with brisk growth in industrial goods and materials and in agricultural and fisheries products, and declines in automotive and forestry products. Growth in industrial goods was fuelled by continued high world prices in metals and increased export volumes.

Imports of goods and services rose faster than exports, increasing by 3.2% to reach $502.5 billion.

By geographical area, 76.4% of goods exports were destined for the U.S., with about 8.5% and 2.2% of goods exports bound for the European Union and Japan, respectively.

In 2007, the United Kingdom was the second most important single country destination for Canadian goods exports, taking 3.2%.

1.4 Advantages and Disadvantages of International Trade

• Advantages1. Meeting our Needs – • sell something that we don't need and buy something that we do

need

2.  Job Creation - foreign businesses buy Canadian products or services = more jobs for Canadians.

•   1 out of 3 Canadian jobs depends on exports. > 40% of everything produced in Canada is exported. > 50% of everything produced in Ontario is exported. every $1 billion in exports = 6000 Canadian jobs.

• Disadvantages

• 3. Attracting Investment:• • Investment follows trade• Foreign companies will invest in an office, factory, or distribution warehouse

in Canada to simplify trade & reduce costs.• Jobs are then created in construction, sales and office management.• • 4. Attracts new Technology and Materials:• • Development of new technology = competitiveness and profitability.• Better, faster, cheaper machines = production of a more competitive

product.• • 5. Diverse Products and Services:• • Foreign trade opens up the world as a market - wide range of foods, high

fashions, and new inventions.

DISADVANTAGES:

International trade for the most part is good, however, it can lead to economic exploitation, loss of cultural identity, and even physical harm.

• 1. Support of non-democratic systems:• • Example: In Nicaragua and El Salvador, landowners want to grow coffee beans

for export (very profitable) • The farmers who grow the coffee want to grow food for their families.• Farmers do not own the land - their wishes are ignored.• General population's welfare must be considered.• • 2. Cultural Identity issues:• • Culture is a major export of the US (films, music, TV, etc.)• Promotes American values and lifestyle.• Another country may be overwhelmed.

• 3. Social Welfare Issues:

• Maintaining safety standards, minimum wages, worker's compensation, and health benefits cost taxpayers a great deal.

• Countries with lower standards can produce goods cheaper.

• Buying cheaper goods sometimes = supporting substandard safety conditions.

4. Environmental Issues5. Political Issues

1.5 Barriers to International Trade

1. Tariffs2. Currency Fluctuations3. Investment Regulations4. Environmental Restrictions5. Immigration Policies6. Dealing with Trade Barriers

Introduction to Barriers

• Although trade is beneficial to all countries, it is not always easy.

• Governments set up rules and regulations to protect local businesses, generate revenue, and protect their citizens from harmful products

• However, many of these regulations discourage international trade

PROTECTIONISM

• Protectionism is the shielding against foreign competition

• IS PROTECTIONISM GOOD FOR CANADA?• Yes – retains domestic jobs• No – protectionist policies cause other

countries to limit their imports of Canadian goods

TARIFFS

• Tariffs – Taxes imposed by the local government on goods or services coming into a country (imports).

• Tariffs increase the price of goods.• Used to protect local business.• Same way guilds used to work in the 1300’s.

TARIFFS

• WINNERS• Domestic Governments –

they collect the taxes (tariffs)

• Local Producers – their goods are more competitively priced

• Local Employees – the people working in local companies keep their jobs

• LOSERS• Foreign Producers –

their goods are now more expensive to us

• Consumers – the price of the products increase

• Foreign Employees- the people working in companies overseas lose out on opportunities

CURRENCY FLUCTUATION

• The rate given by one country for another countries currency is called the currency exchange rate.

• The daily exchange rate for the rest of the world is made according to the rates used when two banks trade between different countries.

3, 000, 000 YEN25 Pesos5 Euro

CURRENCY FLUCTUATION cont’d

• Rates of currency are always fluctuating and that can be a major barrier to trade because the buyer could end up paying way more than intended.

• When a country’s currency is devalued in relation to another countries currency it means the country with the lower value can sell more because the other country saves money.

• However, it discourages the devalued country from buying the goods and services from the country with the higher currency value because they would pay more for less.

WINNERS & LOSERS OF A HIGH CANADIAN DOLLAR

• WINNERS• Importers – we can shop in the US

and purchase more with our Canadian dollar

• Canadian companies can purchase US raw materials for less money to lower production costs

• Canadian Travellers – less expensive for Canadians to travel to the US

• Major League Sports teams – the US teams operating in Canada can attract great players for less money

• LOSERS• Exporters-when the Canadian

dollar is high, our goods are more expensive and therefore harder to sell. Some companies will leave Canada for this reason

• Canadian Tourism – when the dollar is high, Americans may not travel here

• Canadian Retailers – suffers when the dollar is high because many Canadians will shop in the US or buy goods from other countries on line

INVESTMENT REGULATIONS

• Investors are non Canadians who must comply with the provision of the investment Canada Act

• They need to file a notification when they commence a new business activity in Canada or each time they acquire control of an existing Canadian business.

• The investment will be reviewed if both the investor and the vendor are from a country that is not a World Trade organization member and if the value of the business being acquired in Canada is over 5 million.

• If the investor’s country is a WTO any direct investment in excess of 223 million is reviewable.

ENVIRONMENTAL RESTRICTIONS

• A large portion of Canada’s economy depends on its natural resources.

• Foreign insects and diseases could destroy entire industries and seriously harm the Canadian economy.

• Restrictions are now placed on imports to protect Canadian crops from contamination.

• The Canadian law requires that all food, plants, fish, animals, and their products that are brought into Canada must comply with Canadian standards.

• In other words products that do not meet Canadian environmental standards are not allowed to enter Canada.

FOREIGN RELATIONS & TRADE SANCTIONS

• Canada uses trade sanctions to influence polices or actions of other nations.

• Also attempts to stop human right violations by imposing sanctions instead of using force.

• Canada tends to join with other nations who share the same views to implement sanctions jointly.

SAFETY REGULATIONS

• The government regulates and administers commerce and trade in specified goods under the fallowing acts

• *Food and drug act• *Meat inspection act• *Health of animals act• *Hazardous Products act• *Customs act

• All of the acts affect both domestic and foreign imports.

• Each of these acts sets up many regulations.• These regulations could act as barriers to

trade for foreign exporters who may need to make costly changes in there manufacturing procedures to conform to Canadian standards.

IMMIGRATION POLICIES

• Since the first settlers arrived in New France in the early 1600s, Canada has been a nation that depended on immigrants to grow the country and its economy.

• The Canadian economy benefits from their skills and financial investments.

• The immigrants maintain Canada’s population as well as create a demand for imports –this encourages trade and makes Canada more culturally diverse.

VISITORS TO CANADA

• Canada welcomes visitors. • People coming to Canada spend money on goods,

services, or products they purchase to take home. • Many international companies wish to transfer key

managers and specialists to Canada for a period of time.

• They must apply for a work permit and if the work permit is granted these individuals may later apply for Permanent Resident Status in Canada.

IMMIGRANTS

• People wishing to relocate from their home country to Canada must have a Canadian Immigrant Visa.

• Immigrants with a Canadian Immigrant Visa are allowed to work or live anywhere in Canada.

• After having the Visa for three years they can apply for Canadian citizenship and they can sponsor a family member for Canadian Permanent Resident Status.

• There are two ways to qualify for Canadian Permanent Resident Status: as an Independent Immigrant or as a member of the Family Class. Independent Immigrants are divided into two categories: Skilled Worker Category and Business Category.

REFUGEES

• Refugees are peoples who have fled their country to escape persecution or war.

• The persecution could be physical violence, harassment, wrongful arrest or threats to their lives.

• Other reasons they might be persecuted could be for reasons of race, religion, gender, nationality, political opinion, or membership in a particular social group.

• Refugees cannot rely on their own government to provide them with legal or physical protection. They have to try and find safety in other countries.

DEALING WITH TRADE BARRIERS

• Numerous trade missions, organized by federal, provincial, and even some municipal governments, have visited foreign countries in an attempt to develop more trade with them.

Trade mission is an international trip by government officials and businesspeople that is organized by agencies of national or provincial governments for purpose of exploring international business opportunities. Business people who attend trade missions are typically introduced both to important business contacts and to well-placed government officials.

August 9, 2011 China is Canada’s fastest-growing trade partner. Recent figures from British Columbia show that, for the first time, Canada now exports more lumber to China than to the United States. If the U.S. opts out of building a pipeline that would deliver crude oil from Edmonton to the Gulf Coast, China will likely step in.

• The federal government has indicated a willingness to establish the FTAA. Canada has strong ties to the United Kingdom and is using them to forge trade deals with European Union at preferred tariff rates.

• The Asia-Pacific Economic Cooperation (APEC) was established in 1989 in response to the growing interdependence among Asia-Pacific economies.

• APEC has since become the primary regional vehicle for promoting open trade and economic cooperation with Canada and the other twenty member countries.

• The World Trade Organization (WTO) is influencing and ruling on international trade policies and on some existing bilateral and multilateral agreements.