Foib Slideshow ch1

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CHAPTER 1:
What Is Trade?
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business

Copyright 2010 Thompson Educational Publishing, Inc.
Key Terms
business
transactions
domestic business
international business
domestic market
foreign market
trade
foreign or international
trade
trading partner
duty or tariff
Chapter 1:
WHAT IS TRADE?
globalization
interdependence
primary industries
secondary industries
branch plant
tertiary industries
service sector
foreign direct
investment
portfolio investment
culture industry

Chapter Objectives
By the time you finish this chapter, you should be able to:
Describe key concepts related to international business
Explain how and why Canadas major international business
relationships have evolved over time
Demonstrate an understanding of how globalization has
affected international business
Describe ways in which international business activity
develops interdependence among nations
Evaluate the benefits and drawbacks of international trade for
Canada
Explain how the global market has affected consumer
demand
Chapter 1:
WHAT IS TRADE?

International Business Defined
Business
The manufacturing and/or sale of goods and/or
services to satisfy the wants and needs of
consumers to make a profit.
Chapter 1:
WHAT IS TRADE?

Transaction
An exchange of things of value.
$
Chapter 1:
WHAT IS TRADE?


Domestic business
A business that makes most of its transactions within
the borders of the country in which it is based.
A domestic business in Canada is:

owned by Canadians
relies on Canadian products and services
sells products and services to Canadians
Chapter 1:
WHAT IS TRADE?

International business
The economic system of transactions conducted
between businesses located in different countries.
Chapter 1:
WHAT IS TRADE?


Domestic transactions are made between two
Canadian companies.
International transactions involve a Canadian

company and a non-Canadian company.
Chapter 1:
WHAT IS TRADE?


Domestic market
The customers of a business who live in the country
where the business operates.
Foreign market
The customers of a business who live in a different
country than the one where the business operates.
Chapter 1:
WHAT IS TRADE?


Five ways for a business to be considered
an international business:
1.
2.
3.
4.
5.
Own a retail or distribution outlet in another country

Own a manufacturing plant in another country
Export to businesses in another country
Import from businesses in another country
Invest in businesses in another country
Chapter 1:
WHAT IS TRADE?

Trading partner
When a business in Canada develops a relationship
with a business in another country, that country
becomes a trading partner with Canada.
It is important to note that international trade takes
place between businesses, not countries.
Chapter 1:
WHAT IS TRADE?

History of Canadian Trade

Explorers from France and England landed in what is
now Canada in the 1600s
Traded with First Nations people, especially the
Ojibwa and the Cree, for fur and food, then sent
goods back to Europe
The success of this international business led to the
establishment of colonies and outposts in Canada,
notably the Hudsons Bay Company and the North
West Company
Chapter 1:
WHAT IS TRADE?


European Trade
Trade grew quickly after permanent settlements were
established in Canada in the 1700s
Demand for raw materials (beaver pelts, fish, lumber)
grew in Europe, where manufacturing took place
England defeated France in Seven Years War, which
led to Canadas reliance on England for finished
goods
Many major cities were established near ports to
facilitate export of raw materials and import of
finished goods
Chapter 1:
WHAT IS TRADE?

Major fur trade routes used to travel between Canada and Europe
Chapter 1:
WHAT IS TRADE?


Trade with the United States
United States declared independence from Britain in
late 1700s
Needed to become self-reliant
Invention of steam engine, cotton gin helped rapid
growth of American industry
Canada supplied raw materials that were needed in
the United States
United States became Canadas largest trading
partnerthis remains true today
Chapter 1:
WHAT IS TRADE?


Trade with Asia
Canada began trading with Japan after
World War II
Japan became known for high-quality
electronics and automobiles
China has more recently become a trading
partner
Chinese-made products are inexpensive
and well made, and popular with North
American retailers
Chapter 1:
WHAT IS TRADE?

Trade with Mexico

Developed since signing NAFTA in 1993
Goods made in Mexico and the United States now
enter Canada duty-free
Mexico has become one of Canadas top five trading
partners since 2000
Chapter 1:
WHAT IS TRADE?


Trade with Emerging Markets
The Middle East
Has traditionally centred on oil, but this
commodity is not sustainable
Political instability, lack of industrialization in
much of the region has limited trade
United Arab Emirates (Dubai), Israel, and Egypt
have established trading relationships with
Canadian businesses that do not depend on oil
Chapter 1:
WHAT IS TRADE?

EMERGING MARKETS
We are at a very exciting/scary point in world history, where a

fundamental shift in economic powers is taking place.
We are in the midst of witnessing the birth of 2 global economic giants,
both from Asia:
China and India
These countries make up 1/3 of the worlds population
Both countries were formerly either unwilling or unable to organize their
countries into global economies, but are now rapidly seeking global
business opportunities.
This will effect how our society functions in the coming decades

Used under license from Shutterstock, Inc.
India
Chapter 1:
WHAT IS TRADE?
Population of over one billion people

Workforce generally young and well
educated
Has become major centre of
outsourcing and manufacturing
Lack of infrastructure and widespread
corruption are persistent problems
Indian companies are aggressively
expanding into international markets
iStockphoto.com
Africa
African imports to Canada are very low
Business opportunities limited by unstable
governments, lack of infrastructure, rural
economies
Rich in primary resources
Some countries (Morocco, South Africa) are
beginning to emerge as major trading partners
Chapter 1:
WHAT IS TRADE?

Globalization
Globalization
The process whereby national or regional economies
and cultures have become integrated through:
New global communication technologies
Foreign direct investment
International trade
Migration
New forms of transportation
Flow of money
Chapter 1:
WHAT IS TRADE?

Globalization
History of Globalization
Began after World War II with establishment of the
United Nations and fostering of trade relations
between countries
Economic ties between countries strengthenedtax
treaties were negotiated, tariffs abolished, global
corporations developed
New technology allows international business to
occur in real time, transforming the globe into one
market
Has increased interdependence of all nations,
blurring political boundaries
Chapter 1:
WHAT IS TRADE?

Interdependence
Interdependence
The reliance of two or more nations on each other for
products or services.
Three main areas of interdependence:
1. Primary industries
2. Secondary industries
3. Tertiary industries
Chapter 1:
WHAT IS TRADE?

Interdependence
Primary industries
The sector of the economy characterized by the
extraction of natural resources from the earth or sea.
Five major primary industries:
agriculture
fishing, hunting, and trapping
forestry and logging
energy
Mining
In Canada, water is sometimes included in this list as well
Chapter 1:
WHAT IS TRADE?

RESOURCES
In addition, we are one of the most important

countries in the world when it comes to 2 vital
world resources
1) fresh water
2) oil
In the future, our influence on world issues will
largely be shaped by our ability to provide
these two resources to the rest of the world
Secondary Industries
iStockphoto.com
Interdependence
Industries that create a

finished, usable product.
Secondary manufacturing produces capital goods
(products used by businesses) and consumer goods
(products purchased by individuals).
Chapter 1:
WHAT IS TRADE?

Interdependence
Branch plant
A factory owned by a company based in another
country.
Canada has a branch-plant economy, based on
businesses owned by foreign interests
National Policy of 1879, which stated that
businesses wanting to reach Canadian
consumers needed to build factories in
Canada, led to this situation
Chapter 1:
WHAT IS TRADE?

Interdependence
Example of a company with branch plants in Canada

Chapter 1:
WHAT IS TRADE?

Interdependence
Tertiary industries (service sector)
Industries that do not make a product or extract
resources from the earth, but provide necessary
services to consumers and other businesses.
Examples include banking, construction,
communications, transportation, and retail sales.
Chapter 1:
WHAT IS TRADE?

How International Business Helps Canadians

International business helps Canadians:
Variety of products
New markets, more jobs
Foreign investments
New processes and technologies
Research and development: Discovering new
knowledge about products, processes, and services,
and then applying that knowledge to create new and
improved products, processes, and services that fill
market needs.
Chapter 1:
WHAT IS TRADE?

To meet our
needs
Certain products/services are not available in a country , for example due

to the climate (import Florida citrus fruits)
If country has oversupply of a certain product, there may be another
country who needs it
Job creation
An increase in foreign buyers means that there are more

products/services to sell, and will require additional labour to make the
goods/services
1/3 Canadian jobs depend on exports
> 40% of Canada goods are exported
Attract
Investment
New
technology and
materials
Diverse
products and
services
Chapter 1:
WHAT IS TRADE?
Branch plants
If foreign companies have a positive trade relationship with companies in
Canada they may build their own factories here
This creates jobs in construction for Canadian
Canada exports and imports new technology for businesses to save

money
Canada is ranked 2nd in the world for the number of biotech companies
Canadian consumers enjoy a variety of products and services from around the
world
Fundamentals of International
Business between producers of similar goods
Creates increased
competition
This is good for consumers because it leads to lower prices and better quality
How International Business Hurts Canadians

International business hurts Canadians:
Increased foreign ownership of companies in Canada
Foreign companies are loyal to investors and
executives in home country
Research and development is usually carried out
in the home country
Exports are reduced, as products manufactured in
branch plants stay in Canada
Revenues leave Canada to pay head office costs
Economic destabilization
Chapter 1:
WHAT IS TRADE?

Support of nondemocratic
systems
In countries without a democracy the voice of the people is largely

ignored by government
For example, in countries where coffee beans are produced, peoples
land is taken from them for this purpose rather than for growing food
Cultural Identity
Issues
This can be overwhelming for consumers

Americanized movies, music
Social Welfare
Issues
Environmental
Issues
Political Issues
Chapter 1:
WHAT IS TRADE?
High standards for working conditions in Canada vs.

Lower standards for working conditions in other countries
Increased expense for Canadian businesses
Hard for Canadian businesses to stay competitive
Acceptable pollution levels in Canada vs. other countries

This is very expensive to achieve
Hard for Canada to stay competitive
i.e. Copenhagen Summit 2009, Kyoto Protocol (Reduce greenhouse
gases) AND Canadas Withdrawal
Political Strife in a country (i.e. War) that Canada trades with

Usually over
precious resources: oil, diamonds, land
Canadas Withdrawal from the Kyoto Protocol
On December 15, 2011, the Government of Canada officially notified the

UNFCCC that Canada would exercise its legal right to formally withdraw from
the Kyoto Protocol.
From an environmental perspective, the Kyoto Protocol has not served the
international community well in meeting the real challenges of global
climate change or effectively engaging all major economies. The
Protocol only covers countries responsible for a small, and

increasingly smaller, percentage of global emissions and, as
a consequence, is not an effective vehicle for addressing the global challenge of
climate change. Importantly for Canada, the United States, which is
Canadas biggest economic trading partner and is

responsible for nearly 20% of global emissions, is not
covered by the Kyoto Protocol.
These issues have led Canada to focus its efforts on the development of a fairer
and more comprehensive global agreement
Chapter 1:
WHAT
IS TRADE?
http://
ec.gc.ca/Publications/default.asp?lang=En&n=EE4F06AE-1&xml=EE4F06AE
How International Business Hurts Canadians
Products commonly used in Canada are imported from

countries around the world.
Chapter 1:
WHAT IS TRADE?


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-----------------------------------

Fundamentals of International Business

Fundamentals of International Business

Fundamentals of International Business

International Business Defined

Fundamentals of International Business

International Business Defined

Fundamentals of International Business

International Business Defined

A domestic business in Canada is:

Fundamentals of International Business

International Business Defined

Fundamentals of International Business

International Business Defined

International transactions involve a Canadian

Fundamentals of International Business

International Business Defined

Fundamentals of International Business

International Business Defined

Own a retail or distribution outlet in another country

Fundamentals of International Business

International Business Defined

Fundamentals of International Business

History of Canadian Trade

Fundamentals of International Business

History of Canadian Trade

Fundamentals of International Business

History of Canadian Trade

Fundamentals of International Business

History of Canadian Trade

Fundamentals of International Business

History of Canadian Trade

Fundamentals of International Business

History of Canadian Trade

Trade with Mexico

Fundamentals of International Business

History of Canadian Trade

Fundamentals of International Business

We are at a very exciting/scary point in world history, where a

History of Canadian Trade

Used under license from Shutterstock, Inc.

Population of over one billion people

Trade with Emerging Markets

History of Canadian Trade

Fundamentals of International Business

Fundamentals of International Business

Fundamentals of International Business

Fundamentals of International Business

Fundamentals of International Business

In addition, we are one of the most important

Industries that create a

Fundamentals of International Business

Fundamentals of International Business

Example of a company with branch plants in Canada

Fundamentals of International Business

Fundamentals of International Business

How International Business Helps Canadians

Fundamentals of International Business

Certain products/services are not available in a country , for example due

An increase in foreign buyers means that there are more

Canada exports and imports new technology for businesses to save

How International Business Hurts Canadians