Transcript Chapter 4

Chapter 2
Prepared by
Norm Althouse
University of Calgary
Copyright © 2011 by Nelson Education Ltd.
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Learning Outcomes
1 Show why global trade is important to Canada, and how it is measured.
2 Explain why nations trade.
3 Describe some of the barriers to international trade.
4 Discuss how governments and institutions foster world trade.
5 List some of the international economic communities.
6 Explain how companies can enter the global marketplace.
7 Explain some of the threats and opportunities in the global marketplace.
8 Discuss some of the advantages of multinational corporations.
Chapter 2
9 List some of the trends in the global marketplace.
Copyright © 2011 by Nelson Education Ltd.
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GLOBAL COMPETITION
Recognizing and reacting to
international business
opportunities
Chapter 2
Global
Vision
Being aware of threats from
foreign competitors
Effectively using international
distribution networks
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The Importance of Global Business for Canada
 Offers expanded markets for our products
Chapter 2
 Enhances the quality of Canadian life

Canada exports approximately 45% of what it produces
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Approximately 33% of all jobs in Canada rely on exports

Helps to maintain our high standard of living
Exports = 30% of
Canada’s GDP
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Exports = 76% of
Saskatchewan’s GDP
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Key Measures of International Trade
Exports
Imports
Balance of
Trade
Chapter 2
Balance of
Payments
Exchange
Rates
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Measuring devices
 Balance of Trade
 trade surplus (more exports than imports)
 trade deficit (more imports than exports)
Chapter 2
 Balance of Payments
 the difference between total payments to and total
receipts from other countries
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Measuring devices (continued)
Chapter 2
 Value of Currencies
 floating exchange rates price one country’s currency
in terms of another country’s currency
 long-term imbalance of trade will tend to stimulate a
currency rate correction
 Governments can also correct currency exchange
rates by buying and selling foreign currency; by
changing interest rates; by strict financial controls;
and by forced revaluations.
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Chapter 2
Canada / U.S. Foreign Exchange Rate
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Chapter 2
An underlying cause?
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WHY NATIONS TRADE
Absolute Advantage
• A country can produce and sell products
at a lower cost
• A country is the only provider of a product
Comparative Advantage
Chapter 2
A country should specialize in the products that it
can produce most readily and cheaply, and trade
these for goods that foreign countries can produce
most readily and cheaply (The textbook’s definition)
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Comparative advantage
Comparative Advantage
A country should specialize in the products that it
can produce most readily and cheaply, and trade
these for goods that foreign countries can produce
most readily and cheaply
Chapter 2
Comparative Advantage
A country should specialize in the products that it
is the most best at producing, and trade these for
those goods that foreign countries are least worst
at producing
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Costs and benefits of free trade
Ricardo’s theory of comparative advantage indicates that the
standard of living is improved by free trade between countries.
There are several costs however.
Specialization in what you are most best at or least worst at
implies that each country will stop producing something that it
produced before free trade started. This has two main effects.
First, people who were employed in that sector will no longer be
employed . If their skills are very specific, they may be unable to
work elsewhere. This is why labour groups are anti-free trade.
Chapter 2
Second, each country is now no longer self-sufficient – each is
dependent on the other country for the supply of the traded
products. This interdependence discourages war, e.g. in the EEC.
Some countries want to remain self-sufficient, and not be
dependent on others for strategically important goods. Japan, for
example, maintains its own rice growing industry despite the fact
that foreign rice is 10 times cheaper.
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BARRIERS TO TRADE
Natural Barriers
Chapter 2
Tariff Barriers
Non-Tariff Barriers
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distance, language, culture,
legal and regulatory
import taxes, protective tariffs
quotas, embargoes, buy-national
regulations, custom regulations,
exchange controls
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FOSTERING GLOBAL TRADE
Antidumping Laws
prevent charging a lower price in foreign markets
than in the home market for the same product
The Uruguay Round
agreement signed in 1994 by 117 nations to lower trade barriers
The World Trade Organization
provides lower trade barriers among member nations,
and helps resolve trade disputes
Chapter 2
The World Bank and International Monetary Fund
lend money to developing nations and troubled nations
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INTERNATIONAL ECONOMIC COMMUNITIES
North American Free Trade Agreement
(NAFTA)
Mercosur
The European Union
Chapter 2
ASEAN
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Chapter 2
Current EU
Members
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THE GLOBAL MARKETPLACE
Earn additional profits
Leverage a unique product or
technological advantage
Why
“Go Global?”
Possess exclusive
market information
Chapter 2
Saturated domestic markets
and excess capacity
Potential for cost savings
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Entering the Global Marketplace
Risk
Contract
Manufacturing
Licensing
Exporting
Chapter 2
Low
risk/
low
return
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Joint
Venture
Direct
Foreign
Investment
High
risk/
high
return
Return
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Chapter 2
Entering the Global Marketplace
Export
Sell domestically produced
products to buyers in other countries.
Licensing
Legal process allowing use of
manufacturing/patents/knowledge.
Contract
Manufacturing
Private-label manufacturing by a
foreign country.
Joint Venture
Domestic firm buys/joins a foreign
company to create new entity.
Direct Investment
Active ownership of a foreign
company/manufacturing facility.
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Entering the Global Marketplace
Chapter 2
Countertrade
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A form of international
trade in which part or all
of the payment of goods
or services is in the form
of goods and services.
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THREATS AND OPPORTUNITIES
Politics
Global
Marketplace
Threats and
Opportunities
Cultural Differences
Chapter 2
Economic Environment
PEST = the Political, Economic, Social and Technological
environments that interact with business.
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MULTINATIONAL CORPORATIONS
Multinational Corporations
Chapter 2
Corporations that move resources, goods,
services, and skills across national boundaries
without regard to the country in which their
headquarters are located.
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The Multinational Advantage
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Overcome trade problems
Sidestep regulatory problems
Shift production from one plant to another
Tap new technology from around the world
Save in labour costs
Chapter 2
The Multinational Challenges


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Social issues
Cultural issues
Economic and financial issues
Legal and regulatory issues
Environmental issues
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Trends in Global Competition
Market expansion
Trends in
Global
Competition
Resource acquisition
Chapter 2
Emergence of China and India
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