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1.

2 HISTORY OF CANADIAN
TRADE
1497 JOHN CABOT

Landed in Newfoundland in search of spices but instead found fish

1500S

Europeans came to fish for cod off the east coast of Canada (England, Spain,
& Portugal)
Began trading other things with the Aboriginal people for fur
o Valuable beaver fur
Hats
Easy to shape
Waterproof
Durable

1600S SAMUEL DE CHAMPLAIN

Sent by the French to permanently settle in Canada because the French


government wanted the riches from the fur trade
Gradually the French established a monopoly on the fur trade which lasted
almost 100 years (defeated by the English)

EARLY TRADE
From

Europe to Canada
Stylish clothing
Household furniture
Manufactured food
Precision tools

From

Canada to Europe
Fish
Fur
Metals
Wheat
Wood

INTERDEPENDENCE: the reliance of two or more groups on the actions of one


another to fulfill certain needs or wants
Canada: raw materials (fish, fur, metals, & wood)
Europe: manufactured goods (clothing, furniture, food, & tools)

1770S THE AMERICAN CONNECTION

Canada was dependent of the fur trade and we began to compete with the
U.S. in the fur market
o The North West Company vs. The American Fur Company

1820

Hudsons Bay Company and the North West Company merged under the HBC
name and they became the most powerful company on the continent

1840

Silk replaced fur as the popular fabric as beaver stocks were depleted
Canada had to increase its trade with the U.S. as the fur trade lost
significance

1860

The U.S. government passed a protectionist law that made it illegal for
Canadians to trade furs in the U.S.

PROTECTIONISM: the practice of protecting domestic industries and etiquette

1885

Canadian Pacific Railway was completed from East to West coast


Goods can now be shipped from coast to coast

PACIFIC RIM CONNECTION

Canadas trade expands after WWII with Japan


With North American aid, factories were rebuilt
o i.e. automotive sector
Japanese culture stressed education and a strong work ethic
Created inexpensive cheap toys, now known for high end electronics

1993

NAFTA (North American Free Trade Agreement) created & eliminated tariffs
among U.S., Canada, & Mexico by 2008

1.3 CANADAS ECONOMIC


IDENTITY
CURRENTLY

The extraction of natural resources is increasingly adopting advanced


technology
Canadas service trade is also growing quite fast because investments in
research & development and quality education contribute to our growing
leadership
Primary resource is semi-manufactured

CANADAS MAJOR INDUSTRIES

Primary
o Raw materials, natural
Manufacturing
o Processing & fabrication sectors
Services
o Do not sell tangible items
Dominant industries in Canada
o Commercial services
o Travel
o Transportation
o Government
One of the fastest growing sectors is consulting services

1.4 ADVANTAGES &


DISADVANTAGES OF
INTERNATIONAL TRADE
ADVANTAGES
1. Meeting Our Needs
a. Trade with foreign nations to meet the needs of Canadian businesses &
consumers
b. Trade our surplus of inventory of goods & services for goods & services
we want or need
2. Job Creation
a. Foreign businesses buy Canadian products & services, which leads to
more jobs for Canadians
b. Jobs lead to salaries and wages to employees who:
i. Pay taxes
1. Allows the government to provide services thus creating
more jobs
ii. Save
1. Capital markets can lend money to others
iii. Spend
1. On consumer goods & services which create your job
c. Exports are critical to Canada
d. Every 1 billion exports means 600 jobs for Canadians
3. Attracting Investment
a. Investment follows trade because foreign companies will invest in an
office, factory, or distribution centre in a country where there is a
consistently high demand for their products
4. New Technology & Materials
a. New tech may allow business to produce better products
5. Diverse Products & Services
a. Foreign trade opens the world up as a market

DISADVANTAGES
1. Support of Non-Democratic Systems
a. Some counties do not consider the welfare of the general population
when making decisions
2. Cultural Identity Issues
a. Products/services can carry cultural messages
b. Many of the products that Canadians use carry/value American
symbols
3. Social Welfare Issues

a. Canadian businesses pay to maintain things like minimum wage,


health care, etc.
4. Environmental Issues
a. Canada has laws & controls to ensure that businesses operating in
Canada treat the land well
5. Political Issues
a. Some countries war over issues such as farmland, blood diamonds, oil,
etc.
b. Trading with these countries only contributes to the company/countries
doing business there

2.1 ASPECTS OF
INTERNATIONAL BUSINESS
INTERNATIONAL BUSINESS
INTERNATIONAL BUSINESS: all business activities needed by producers to create,
ship, and sell goods & services to consumers
IB involves:

International trade
o Importing & exporting
o Trade missions
o Trade shows
Foreign investment

IMPORTING: bringing goods & services into Canada from abroad


EXPORTING: selling goods & services abroad from Canada

Auto, machinery/equipment, industrial goods


Forestry products, agriculture

FOREIGN INVESTMENT

Investments may be in partnership with other international institutions or


companies:
o PUBLIC-SECTOR INVESTMENT: put money into government-owned
assets
o PRIVATE-SECTOR INVESTMENT: put money into publicly held
companies (shares traded on stock exchange) or privately owned
companies (new companies)

FOREIGN DIRECT INVESTMENT (FDI)

Reasons FDI is done:


o Most often done to expand into another country
Accomplished by setting up a subsidiary operation or a joint
venture
o To influence a companys direction/management
Accomplished by purchasing a controlling interest in a foreign
country
o To obtain further info (i.e. to purchase the company)
o To ensure source of supply

To acquire new technologies

PORTFOLIO INVESTMENTS: investor buys a share of a foreign company but has no


controlling interest

2.2 WHY GO INTERNATIONAL?


REASONS
1. Expand Markets & Increase Sales
a. Increase sales = increase products
b. Increased opportunity for social responsibility
i. i.e. MAC
c. Acquisition = expansion
i. i.e. Este Lauder bought MAC
2. Controlling Expenses
a. Search beyond borders for more economical solutions
i. Lower labour
ii. Manufacture closer to natural resources
iii. New technology, profit from another country
iv. Innovation or tax cuts
v. Outsourcing
3. Diversification
a. Expand product line
i. i.e. cosmetics
b. No dependency on any one market
4. Competitiveness
a. Increase to protect from other businesses

2.3 REASONS FOR RECENT


GROWTH IN INTERNATIONAL
BUSINESS
REASONS
1. Improvements in communication technology
a. Email/Fax
i. Sends messages around the world
b. Teleconference/video conference
i. Limits travel
ii. Saves costs
c. Websites/e-commerce
i. Provides valuable info growth of information technologies
2. Time zones
a. 24 standardized time zones
3. Development in Transportation
a. Shipping, air, rail, truck
i. Most efficient: pipelines (natural gas)
b. Cut shipping times & costs
c. Improved logistics
i. Planning
ii. Storing
iii. Movement
iv. Inventory
d. More open borders & trade agreements
4. Business confidence
a. Less risky
i. Political stability
ii. International financial support
iii. Internet increased security
b. Less costly
i. Less duties
ii. Less trade barriers
c. Less time consuming
i. Infrastructure
5. Global competition
a. GLOBAL COMPETITION: when a product is introduced successfully
around the world and other companies capitalize on its success

3.1-3.2 INTERNATIONAL
COMPETITIVENESS,
PRODUCTIVITY, & QUALITY
COMPETITIVE ADVANTAGE

Achieved when companies and countries out perform their competitors around
the world by:
o Improved or superior products
o Better pricing
o Higher quality
o Better service
o Uniqueness or profit
o Better access to markets/distribution channels
Can be measured in a variety of ways:
o Market share
o Performance
o Partnerships with suppliers
o Customer demand
o Customer loyalty
o Distribution
o Service
o Basic resources
Support systems
Skilled workers

GROSS DOMESTIC PRODUCT (GDP)

Total value of all goods and services produced in a country during a specific
period
Includes items produced by foreign-owned companies
Higher GDP = more productivity and a greater ability to compete
internationally
GDP per captia = GDP/Population

FACTORS AFFECTING CANADAS COMPETITIVENESS

Quality & quantity of natural resources


Strength of the countrys currency and its exchange rate
Infrastructure in the country
Workforce characteristics
Research & development

Societal characteristics
Entrepreneurship
Government involvement

COMPARATIVE ADVANTAGE

Producing a product at a lower opportunity cost than another country

ABSOLUTE ADVANTAGE

Can produce the product at a lower cost or with a high rate of productivity
Can compete more strongly with another country

3.3 MEANING OF PRODUCTIVITY


PRODUCTIVITY: the amount of work that is accomplished in a unit of time using the
factors of production
BUSINESS PURPOSE: usually expressed in a companys mission statement; to fulfill
a need or solve a problem
BUSINESS GOAL: to make a profit

FACTORS INFLUENCING A COUNTRYS PRODUCTIVITY

Human & physical resources


Costs associated with labour
Technology
Education & government services
Business leadership & strategy
Work ethic
Domestic & international markets

STANDARD OF LIVING

The way people live as measured by the kinds and quality of goods & services
they can afford
Measured through:
o Average family income
o Ownership of durable goods
o Physicians per 1000 people
o Literacy rate
Income per capita = total income/population

KNOWLEDGE ECONOMY

Increased reliance of business, labour, information, and ideas

INTELLECTUAL CAPITAL

Sum of all knowledge, information, talent, intellectual property, and


experience within a country or an organization

RATIONALIZATION

The process used by an organization or company to change its organizational


structure, its product line, or its production process to become more efficient,
productive, and competitive

ECONOMIES OF SCALE

Tendency of the cost per item to go down when items are bought or produced
in large quantities

3.5 QUALITY CONTROL


KAIZEN

Japanese name for the concept of continual improvement


The belief that to gain a competitive advantage, there must be a commitment
to quality
Everyone works together to make improvements

4.1 THE CHANGING


MARKETPLACE

Business has been defined as the manufacture and/or resale of goods and/or
services to meet the needs of a marketplace and to produce a profit
3 things that cause change in business:
1. New technology
2. New processes
3. New attitudes

NEW TECHNOLOGY
INVENTIONS: totally new products that are based on a creative idea
INNOVATIONS: modifications to an invention that take the inventors initial concept
even further

NEW PROCESSES
MANUFACTURING: changes in the way something is made will often result in its
being made faster, better, and/or less expensively. Advances in technology change
the process.
DISTRIBUTION: word processing, e-mail, and the Internet have helped businesses
deal directly with their customers and sometimes eliminate intermediaries, such as
the wholesaler, importer, or even the retailer
INVENTORY CONTROL: used to be a manual process. Now manufacturers are linked
electronically to their sources of raw material, retailers are connected directly to their
suppliers, and service providers can track their customers. Most use Just-In-Time (JIT)
inventory.
MARKETING: mainly process changes. Current trends include: big box retailers.
Market research includes data mining (connecting specific customer characteristics
to their purchases)
ACCOUNTING: technology allows instant reporting of profit, inventory quantities &
value, investment activity and other financial data that helps a company make
decisions while reducing costs, increasing overall profit

NEW ATTITUDES

As peoples values change, their willingness to purchase certain products


change

Some
o
o
o

current trends affect what we buy:


Environmental awareness
Concern for health
Social conscience

INFORMATION

Businesses use information in two different ways:


o To make decisions
o As a product to market
DATABASE MANAGEMENT: information is analyzed and correlated
Also in the form of newsletters, subscriptions, as a commodity
Licensed, sold as patents or copyright, consulting services, and joint ventures

INFORMATION AS A COMMODITY

PATENT: protects the inventor, valid for 20 years


Canada signed the International Patent Cooperation Treaty to protect foreign
companies from using inventions without paying compensation
COPYRIGHT: legal protection for authors of original works, including literacy,
musical, artistic, and other intellectual work
o I.e. software life + 99 years
Both patents & copyrights can be sold, bequeathed in wills, counted as assets

IMPACT OF GLOBALIZATION

New markets abroad


Import opportunities
Labour is a variable cost
The value of information
Changes in immigration patterns

THE NEW OFFICE

Home office
Traveling Office
Hotel Office

STAYING DOMESTIC OR GOING INTERNATIONAL

Why do companies stay domestic and not go international?


o Product quality
o Complexity, risk, & cost
o Quality of life

5.1-5.2 INTERNATIONAL TRADE


AGREEMENTS,
ORGANIZATIONS, AND POLICIES
TOP-OF-THE-MIND AWARENESS

Companies engaged in international business want consumers to think of


them and their products first
Companies use specific techniques to boost that position in the minds of their
customers and their trading partners
A business needs to establish what makes its products/services unique,
different, or superior

CANADAS IMAGE CHALLENGE

To spread the word internationally that we are open for business and have
technical knowledge (we are not just a resource-based country)
Websites such as the Canadian Tourism Commissions website try to
communicate what Canada has to offer
Companies may use various strategies to position them internationally or
globally;
o Franchising
o Starting up wholly-owned subsidiaries
o Purchasing materials from foreign markets
o Joint ventures
o Strategic alliances

FRANCHISE

Types of business in which a company authorizes a group/person to sell its


goods or services
Franchisee pays franchiser fees and gives a percentage of revenue as well
(royalties)

STRATEGIC ALLIANCE

Two or more firms agree to co-develop, co-produce, and co-market their


products
Type of international partnership
Links manufacturers and suppliers with common interests

INTERNATIONAL AND GLOBAL COMPANIES

INTERNATIONAL COMPANY: a company that sells to or buys from another


country. Decisions come from corporate headquarters and executives often till
the subsidiaries top management positions
GLOBAL COMPANY: a company in which top management makes decisions
to maximize worldwide revenue/profit. Global companies encourage
employees to move from country to country, and they promote foreign
nationals to top management positions.

GLOBALIZATION

Growth/spread of interactive international economies and businesses around


the world

MULTINATIONAL CORPORATIONS (MNC)

A business enterprise that conducts business in several countries


Observes national regulations and policies
Operates on a borderless basis
Economic giants are MNCs:
o Oil/gas/hydroelectric/nuclear plants
o Cars
o Planes
o Computers
o Pharmaceutical products

ETHNOCENTRIC

Operates internationally in the same way it does at home


Maintains tight control over foreign operations from head office
i.e. Coca-Cola in Atlanta, Georgia

POLYCENTRIC

Understands market differences from country to country


Gives foreign operations greater autonomy (freedom & control)
i.e. 3M corporation

GEOCENTRIC

seeks total integration of its global operations


a truly global MNC is hard to find
i.e. Colgate-Palmolive

GLOBAL ORGANIZATIONAL STRUCTURE


Five ways to organize international business:

1.
2.
3.
4.
5.

Separate international divisions


Functional divisions
Product divisions
Geographical divisions
Matrix divisions

5.3 INTERNATIONAL TRADE


AGREEMENTS
BILATERAL TRADE: trade between two countries
MULTILATERAL TRADE: trade between more than two countries

TRADING BLOCS

Based on regional common interests


3 major trading blocs account for over 90% of global trade

NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

Took effect on Jan 1, 1994


Objective: to increase trade and to allow the participants to become more
competitive
Against protectionism between Canada, USA, and Mexico

EUROPEAN UNION (EU)

Supranational & intergovernmental union of 27 states in Europe


Established 1992 by the Treaty on European Union (Maustricht Treaty)
Is the de facto successor to the six member European Economic Community
(EEC) founded in 1957
Citizens of EU member states are also EU citizens
o They elect the European Parliament every 5 years
o They can live, travel, and invest in other member states
o Passport control and customs checks at most international borders
were abolished

ASIAN-PACIFIC ECONOMIC COOPERATION (APEC)

Forum for ministries/senior government officials of countries bordering the


Pacific Ocean to discuss regional policy and promote trade amongst its
members

AGREEMENT ON INTERNAL TRADE

Signed in 1995
Interprovincial trade barriers make it difficult to sell products across provincial
boundaries

Attempts to harmonize regulations and standards from province to province in


areas such as transportation and consumer protection

TRADE ORGANIZATIONS
WORLD TRADE ORGANIZATION (WTO)

Regulates trade and tariffs worldwide

G20

Promotes international, financial, and economic stability


Addresses the challenges of globalization

WORLD ECONOMIC FORUM (WEF)

Forum for discussion of key global issues

ORGANIZATION FOR ECONOMIC COOPERATION AND


DEVELOPMENT (OECD)

Provides member countries with a setting in which to discuss and develop


economic and social policy

WORLD BANK GROUP

Offers loans, advice, and other resources to more than 100 developing
countries in transition

INTERNATIONAL MONETARY FUND (IMF)

Promotes and facilitates international monetary cooperation, stability,


expansion, and trade growth

6.1 DEVELOPING IDEAS,


SOLUTIONS, & OPPORTUNITIES

Before a company expands internationally some preliminary questions need to


be addressed:
o Does the company have the product, talent, and skills?
o Can the company meet the demand and produce what is ordered?
o Does the company have the money to enter the international market
and sustain it?
o Can the company meet additional customer service demands?
o Does the international market meet long-term potential and strategic
business goals?

BUSINESS OPPORTUNITY

A company must distinguish between a business idea vs. a business


opportunity
First step: make sure that the companys products will meet a need or solve a
problem in that country

4 STEPS OF THE PRODUCT INNOVATION PROCESS


1. IDEA CREATION: new basic discoveries, extensions of existing
understanding, spontaneous creativity by individuals or through
communication
2. INITIAL EXPERIMENTATION: tested in concept by discussions with others,
referrals to customers, clients, technical experts, prototypes, and samples
3. FEASIBILITY DETERMINATION: studies that identify potential costs and
benefits as well as potential markets or applications
4. FINAL APPLICATION: new product is finally commercialized or put on sale in
the market, or a new process is implemented as part of normal operating
routines

MISSION STATEMENT

A mission statement should answer the question:


WHERE ARE WE GOING?

CHARACTERISTICS OF INNOVATIVE INTERNATIONAL COMPANIES

Innovation is expected and failure is acceptable

o But mistakes should not be repeated


The organization is willing to take risks
People from different departments work as a team
Large organizations create smaller, more manageable teams
Ideas for improvement are welcomed & rewarded

FINDING OPPORTUNITIES

Research international market


Government assistance
o International Business Opportunities Centre
Capacity to expand internationally grows as business grows
Internet revolution of information

6.2 IDENTIFYING
INTERNATIONAL
OPPORTUNITIES & TRENDS
ENTREPRENEUR: one who organizes, manages, and assumes the risk of starting &
running a business

CRITERIA FOR DEVELOPING A GLOBAL MINDSET

Be open to ideas from other countries & cultures


Be sensitive to cultural differences, but not fearful
View the international market as a source of ideas & technology
Treat others equally regardless of their national origin
Be a leader in discovering & pursuing emerging international market
opportunities
When looking at competition, check all regions of the world
Strive to have a universal identity rather than a national identity
Employ a world-wide selection of workers and give them the same opportunity
to move up the career ladder
Ensure that the board of directors, executives, and general managers
represent a mix of nationalities, international experience, and language skills

USA

#1 entrepreneurial country in the world


Has access to capital money, positive regulatory & tax environment, positive
social & cultural attitudes to entrepreneurship

GUIDED INDIVIDUALISM MODEL

Encourages individual enterprise but emphasizes the use of public policy and
government to influence the direction of entrepreneurial activity

SOCIAL DEMOCRATIC MODEL

Makes government a key player, along with other partners, in setting the
framework in which enterprises can flourish

TREND

A general direction or movement of the marketplace that is occurring now or


is expected to occur in the immediate future

THE LIFE CYCLE CONCEPT

Used to determine if a trend is rising or descending


SUNRISE OPPORTUNITIES: emerging trends on the rise
o i.e. iPad
SUNSET OPPORTUNITES: products near the end of their life cycle
o i.e. VCR Players

PRODUCT LIFE CYCLE STAGES

STAGE
STAGE
STAGE
STAGE
STAGE

1:
2:
3:
4:
5:

embryo (introduction) stage


growth stage
maturity stage
decline stage
decision stage

6.3 MAPPING INTERNATIONAL


TRENDS
SIX KEY INTERNATIONAL TRENDS TO OBSERVE AND FOLLOW
1.
2.
3.
4.
5.
6.

The global workplace


Increased global competition
Global information technology, convergence, and infrastructure
Asias global impact
Global consumer, global culture
Global companies vs. nations

HYPER-COMPETITION

This is the disruption of existing markets by flexible, creative, and fast-moving


firms

CAUSES OF HYPER-COMPETITION
1.
2.
3.
4.

Customers are demanding better quality products at lower prices


Rapid tech changes make it easier to enter markets
Competition is more aggressive and better financed
Governments are reducing barriers to entry
a. i.e. tariffs, deregulation

7.1 AVOIDING COMMON


MISTAKES AND PROBLEMS
COMMON PITFALLS

Costing
o Calculating the full landed cost of a product is essential
o LANDED COST: the cost of a product after all transportation, handling,
currency rates, and import changes have been added
Standards
o Manufacturing, labeling, and packaging could be different from
Canadian standards
o Failure to recognize these could be costly
Marketing
o Failure to research, and therefore do not understand their target
foreign market; distribution channels; consumer marketing; the time
required to arrange deals & introduce products
Infrastructure
o Internal transportation, human and material resources, communication
systems, health & safety, bureaucracy, corruption/bribery can all be
potential obstacles to IB

EXCHANGE RATES AND CURRENCY


HARD CURRENCY: widely accepted on foreign currency exchange market and can
easily be exchanged
SOFT CURRENCY: fluctuate in value and are not considered stable; not easily
converted to Canadians dollars

PROTECTION AGAINST CURRENCY


BUY IT FORWARD: purchases the foreign money required for an order at the time
an order is placed. This enables the company to avoid potential fluctuations

LETTERS OF CREDIT

Bank issues one to ensure the company can pay

TARIFFS & DUTIES

The Canadian government levies taxes on various imports to protect Canadian


businesses from competing with foreign-made goods
Tariffs increase the price of an imported product and must be taken into
account by the importer

TRANSPORTATION

Charges for transportation are affected by 5 factors


1. The agent and shipping company
2. The shipping method
3. Weight of the goods
4. Size or volume of the goods
5. The distance to their final destination
Containerization involves the use of sealed reusable containers of uniform size
and shape

HIDDEN COSTS

Currency conversion
Insurance
Travel
Translation services
Phone charges
Interest
Labeling
Local taxes
Etc.

PROBLEMS WITH STANDARDS

Production
Electrical
Clothing
Ethical
o Sweatshops

REALISTIC MARKET

Failures occur primarily of 3 interrelated errors


1. Miscalculation of the composition stage of distribution channels
2. Lack of research in branding, packaging, and timing
3. Misunderstanding of culture and customs

8.1 CUSTOMS AND CULTURE


CULTURE: a reflection of values and beliefs of a community or a nation. Includes
religion, laws, language, technology, music, art
CUSTOMS: are the ways in which cultural behaviours are performed. Includes social
habits and traditional behaviours that reflect cultural values

3 CULTURAL DETERMINATES
1. Geography
a. Things you need to do to survive
2. History
a. Settlement of nations and cultural values
b. Cultural nouns
i. Appearance
ii. Behavior
c. Cultural imperialism
i. When a group or nation imposes its cultural values and customs
3. Religion
a. Think: religious celebrations

8.2 CULTURE AND CONSUMER


NEEDS AND WANTS
CULTURAL MARKETING

Uses marketing resources to crate effective international marketing


campaigns that will appeal to consumers in specific countries

ADAPTING TO CULTURAL DIFFERENCES

Before spending money on advertising, promotion, and distribution, each


company would have to look closely at the culture in each country and how
that culture affects consumer wants and needs

8.3 NEGOTIATION STYLES


NEOGOTIATION STYLES

The way in which people negotiate business relationships and is important in


international business
Taking money first can be a mistake

LANGUAGE

English has become widely accepted as the language of international business

SILENT LANGUAGE

Nonverbal communication such as body language, gestures, personal distance


between people, appearance, the use of colour

BUSINESS PROTOCOL

Rules of correct or appropriate behavior to follow when meeting officials or


business people in another nation
Gift giving, punctuality, scheduling of meetings, business entertaining

8.4 DISAPPEARING DIVERSITY

International business is creating a type of global culture


Few places on earth are free from business travelers
Every culture wants to earn a profit

INFRASTRUCTURE AND
SERVICES

Transportation systems
Communication systems
Government services
Other services

9.1 THE POLITICAL PROCESS:


GOVERNMENTS ROLE IN
INTERNATIONAL TRADE
The Canadian government:

Establishes import and export policies to protect Canada and Canadians


Develops trade policies and regulations to govern and encourage trade
Assists Canadian exporters in their quest to succeed internationally
Matches potential Canadian exporters with international clients
Maintains and improves relationships with other nations for the purpose of
trade
Assists Canadian companies in adjusting to changing international market
conditions
Fosters innovation and human resource development to enable companies to
compete internationally

The Canadian embassy, high commission, and trade consulates found in foreign
countries are the key institutions for helping Canadian businesses. These government
offices have responsibility for promoting and encouraging safe and friendly trade
relations.

POLITICAL RISK
Political risk refers to the political decisions, conditions and events in a country that
affect business climate.

Financial loss
Time delays
Technical breakdown
Loss of reputation
Loss of market

Political risk analysis tries to identify causes and sources of risk to predict its impact
on investment in a country. Risk management requires a thorough assessment of
potential political situations.
When government policies threaten the business environment, political risk
arises.

TYPES OF POLITICAL SYSTEMS

Democratic

Totalitarian

Mixed
Economy

General population votes in free elections and decide on the


rules that will govern them
Individuals own property and run businesses
Free press + freedom of speech
Market-oriented/capitalist economy in which the market
allocates available resources
Centralize power
Military controls state
Single-party rule of dictatorship
Command economy
Government allocates available resources
Characteristics of both market and command economies

POLITICAL INTERDEPENDENCE

Interdependence comes with pressure to change political, economic and


cultural practices
A trade war is when governments act aggressively in international markets
and other forums to promote their own countries trading interests
Economic Imperialism is defined as the exploitation of developing countries
by more developed countries
o Developed country is driven to overseas economic expansion
Need for manufactured goods and raw materials

9.2 ASSESSING GLOBAL


POLITICAL RISKS
Companies look at the host or target countrys current or future political system and
examine changes to its stability to assess political risk.

TYPES OF POLITICAL RISK


RISK OF GENERAL POLITICAL INSTABILITY

GENERAL INSTABILITY RISK RAISES UNCERTAINTY ABOUT CANADIAN PROJECTS


OFERSEAS
OPERATIONS AFFECTED
PROFITS DECLINE

OWNERSHIP RISK

EXPROPRIATION (OPERATIONS THREATENED BY GOVERNMENT TAKEOVER)


Owners lose offshore property
When ideology leans towards protectionism and nationalization of business,
foreign governments force/coerce owners to sell their property

OPERATIONS RISK

Uncertainty about policies such as finance, marketing or production


New taxes, import restrictions, or government regulations

TRANSFER RISK

Currency exchange rates can be adversely affected


Affect companys ability to transfer capital out of the host country
Repatriation of earnings
o A company creates wealth in another country, and is forced to return a
considerable amount to that countrys government

Ask questions:
1.
2.
3.
4.
5.

Is terrorism part of the political landscape?


Could extremist groups pose a danger to the general stability of society?
Has there been a withdrawal of freedoms?
What is the role of the military in the government?
Is corruption part of the business ethic?

6. Could religious or ethnic pressures lead to civil strife and endanger employees
or property?

EVALUATING POLITICAL RISKS

What are the chances of political and economic instability in the host country
over the next 3-5 years?
What agreements are in place between the Canadian government and the
host government regarding Canadian investments?
How committed is the current government to the rules of ownership rights, for
example, property and business?
When is the next election and how long will the elected government stay in
place?

CONSEQUENCES OF TERRORISM

Business travel
Security intensification
More documentation needed
JIT systems break down

EVALUATING LEGAL
CONCERNS

Employment laws
Consumer protection laws
Taxation laws
Business liability laws
Property law
Contract law

9.3 ECONOMIC FACTORS


RELATED TO INTERNATIONAL
BUSINESS
ECONOMIC SYSTEMS

All factors of production


Rules and regulations involving production and consumption of goods and
services
Allows a country to decide on what to produce, how to produce and for whom
to produce
Include land, labor, capital and management, as well as standards or
regulations for creating products

MARKET ECONOMIES

CENTRALLY PLANNED ECONOMIES

Individual companies and consumers make


decisions.

Governments regulate the amount,


distribution and price of goods and services.

Ownership of private property is


encouraged
Individuals are free to make a profit
Competition is encouraged
Government has little direct
involvement
Foreign investment is encouraged

Korea, China Cuba


Government controls/restricts the
ownership of private property
Needs of society before needs of the
individual
Profit motive is not the goal of
business

MIXED ECONOMIES
Law of supply:
As the price of
a product
increases,
producers will
be wiling to
produce more

Law of
demand: As
the price of a
product
increases,
consumers will
demand less of

Supply and demand control market


economies.

Combines government involvement and


private ownership of business.

Aspects of both
Canada
Large land mass and small
population

Privatization refers to the selling into


private ownership by governments.

GLOBAL ECONOMIC SYSTEMS


BUSINESS CYCLES
1.

Depression

2.

Economy slows
Consumers buy less, unemployment is high
Government has less money for social services

Recovery

3.

Economy begins to improve


Businesses produce more goods
Unemployment decreases
Prices begin to increase

Prosperity

4.

Economy is doing well


Employment, wages, and profits increase
Investment is strong
Raw materials and skilled labour become scarce

Recession

Economy begins to slow


Business failures and unemployment
Cutbacks in consumption of major goods and services
Total economic output shrinks for at least six consecutive months

WORLD ECONOMIC FREEDOM INDEX (WEFI)

Measures economic performance


Economic Freedom rating
Rating of prosperity related to economic growth, per capita income, and
material wealth
A think tank is an organization that studies and researches specific topics
and issues

WEFI measures:
1.
2.
3.
4.

Size of government
Structure of the economy and use of the markets
Monetary policy and price stability
Freedom to use alternative currencies

5. Legal structure and property rights


6. International exchange
7. Freedom of exchange in capital and financial markets

CANADAS GLOBAL ENTREPRENEURS

GEM
o Global Entrepreneurship Monitor
o Relationship between entrepreneurship and economic growth
Encouraging new business ventures requires an environment:
o Free of red tape
Bureaucratic hurdles

AROUND THE CLOCK WORLD MARKETS


Stock exchanges discuss the creation of a global market in which investors could
trade stocks in companies around the world and around the clock, called the global
equity market.
Equity refers to something that has value.

COMMON CURRENCY

Economic partners
Greater price stability
Harmonized long0term interest rates
More stable national currencies
Commitment to control national budget deficits and public debt
Simplifies transactions
Reduces foreign exchange risks

9.4 MANAGING INTERNATIONAL


FINANCIAL RISKS
UNDERSTANDING FINANCIAL RISK

Risk is increased when operating internationally


Help manage risk by partnering with
o Bank, domestic trade agencies and resources and federal and prov.
Governments

CURRENCY RISK FACTORS


The exchange rate is the rate at which a nations currency can be exchanged for
other currencies or gold. A floating rate is defined as something that is not fixed
and tends to fluctuate or change over time to seek its proper balance.
Currency devaluation is the reduction by a government of the value of its currency
relative to currencies of other nations. Currency revaluation is when the value is
adjusted upward. A currency depreciates when its price falls and appreciations when
its price rises relative to another currency. Devaluation also reduces the price of
exports from the country whose currency has been devalue.
Exchange controls are political and economic measures used by a government to
try to regulate the amount and value of its currency. Companies obtaining foreign
exchange through exporting must sell their foreign exchange to the central bank in
the country from which they are exporting the goods. Importers must buy their
foreign exchange from the same institution.

STRATEGIES TO MANAGE FINANCIAL RISK


1. Foreign Exchange management
a. Research the currency and conduct an economic forecast
2. Credit control
a. Know the history
3. Open accounts
a. Reduce financial risk
b. Agreement between two companies that future shipments of a product
will be stopped if a payment is not made
c. Cause problems if the order is large and expensive
4. Insurance
a. Non-payment of invoices

ANALYZING FOREIGN INVESTMENT CLIMATES

Foreign investment is the purchase by non-residents of business enterprises, land,


shares and and any other assets with the potential for financial return.
1.
2.
3.
4.
5.

General political stability


Government policies towards foreign investment
Policies and legal factors
Economic environment
International payments

10.1 UNDERSTANDING
BUSINESS ETHICS AND SOCIAL
RESPONSIBILITY
BUSINESS ETHICS: are concerned with the behaviour of businesses in the
treatment of employees, society, stockholders, and consumers.

ETHICS, BUSINESS, AND THE LAW

Code of Ethics
o Behaviour codes that specify what conduct is acceptable or
unacceptable according to a groups principles
Ethical principles determined by a societys history and values
Rule of Law
o Used more by Western countries
o Establishes the standards or rules that citizens are expected to follow
o Canadian values, established in the Canadian Charter of Rights and
Freedoms
Democratic principles
Fundamental freedom and dignity of individuals
The right to a high level of health care and education
The right to be treated without discrimination

LEGAL VS. ETHICAL


ETHICAL DILEMMA: when two or more right courses of action conflict

Code of ethics provides a framework to arrange priority


Ethical policies
o Manage an organizations reputation
o Helps avoid conflict of interest
o Companies often give ethics training
Ethical dilemmas
o There is no single right way to behave
o Different countries have different ethical values
o Executives music make decisions about their companies actions in
different countries

CULTURAL RELATIVISM AND ETHICAL IMPERIALISM

ETHICAL IMPERIALISM: the belief that certain forms of behaviour are categorically
right or wrong; people may try to impose their ethical standards a=onto another
company or country
CULTURAL RELATIVISM: the belief that behaviour should be governed by what will
bring about the greatest good for the greatest number of people; different values and
laws all have equal validity
I.E.

Child Employment
o Customary for children to work long hours instead of school in certain
countries
o In North America, it is considered morally wrong

THE TWO EXTREMES OF CULTURAL RELATIISM AND ETHICAL


IMPERIALISM
CULTURAL RELATIVISM
No cultures ethics are superior.
The values and practices of the local
setting determine what is right or wrong.

ETHICAL IMPERIALISM
Certain absolute truths apply
everywhere.
Universal values transcend cultures in
determining what is right or wrong.

CORPORATE SOCIAL RESPONSIBILITY


CORPORATE SOCIAL RESPONSIBILITY (CSR): the social and environmental
impact of a company; a measure of corporate success

CSR includes:
o Corporate standards & practices regarding human rights
o Environment
o Human resources
o Community relations
Companies will publish their code of ethics to keep their practices ethical and
transparent

PROACTIVE COMPANIES
PROACTIVE COMPANY: a company that meets or exceeds its economic, legal,
ethical, and social responsibilities
SOCIAL MARKETING: when companies publicize its proactivity, especially social, for
stakeholders to recognize

VOLUNTARY CODES AND LEGISTLATED CODES


VOLUNTARY CODE OF CONDUCT: commitments made by companies, associations,
and other organizations to influence their behaviour for their own benefit and for the
sake of their communities

Demonstrated in voluntary initiatives, guidelines, or non-regulatory


agreements
Addresses the needs of consumers, workers, and citizens while allowing
companies to be more competitive

LEGISLATED CODE: the law

10.2 ETHICAL ISSUES


AFFECTING THE CONDUCT OF
INTERNATIONAL BUSINESS
ENVIRONMENTAL ISSUES

Pollution
Global warming
o Kyoto Protocol (Kyoto Accord)
o Global representatives met came to an agreement on targets to
combat global warming
o Some governments and corporations believe that reducing CO 2
emissions will negatively affect their economic performance
Proper storage of hazardous materials
Possible wholesale export of Canadas fresh water to other countries
o Unethical
o Could jeopardize the countrys physical environment

CONSUMER ISSUES

Product safety
Quality control
Safety of medications
Think: damage control

EMPLOYEE ISSUES
WORKPLACE AND HEALTH SAFETY

Workplace safety standards vary from country to country


Some multinational corporations choose not to own or operate the factories
that produce their products
o Contract instead
o Good for developing nations
Bring money and employment
BUT may threaten worker safety or human rights

EQUALITY ISSUES

Minorities
o Women

o Minority groups
o Individuals with disabilities
May face ethical dilemmas in efforts to act appropriately in issues of employee
equality without alienating local employees or markets
AFFIRMATIVE ACTION: the efforts to implement equal opportunity in
employment selection and in pay
GLASS CEILING EFFECT: the barrier to those who want to move ahead in
their career but cannot as the result of prejudice, discrimination, and tradition

HUMAN RIGHTS ISSUES

Potential conflicting business practices in host countries

LABOUR ISSUES

Companies can face conflicting points of views where its workers way of life is
threatened
When labour feels powerless about job security, disruptions occur
Non-union workers more vulnerable that union workers

STOCKHOLDER ISSUES
STOCKHOLDERS/SHAREHOLDERS: owners of a corporation

Corporation needs to disclose its business dealings honestly with stockholders


Issues may arise bout balancing sufficient disclosure with the danger of
alerting the competition to business dealings

CORRUPTION AND DUMPING

Gift giving is a vital part of some international business trips


The practice of making payments to suppliers or governments to win a
contract or to gain priority in releasing a shipment, or to have an inspector
come promptly is both unethical and illegal under Canadian law
Necessary in some countries

DUMPING: the practice of selling goods in a foreign country at a price that is lower
than in the country in which they were manufactured

Underpriced/outdated products
Developing countries complain that anti-dumping legislation is a form of
protectionism introduced to help Canadian producers during a global
economic slump
Dumping and similar practices become issues in talks on the liberalization of
trade

10.3 TAKING ACTION,


ETHICALLY
THE MULTINATIONAL CHALLENGE

Multinational companies face many things:


o Distance
o Time zones
o Different cultures & customs
o Governmental & foreign regulations & restrictions in host country
o No legal recourse if contracts are broken
o Must work out production costs
Labour
Resources
Shipping
Returns on shareholder investments
Multinational companies have been accused of many things:
o Polluting the environment of their host countries
o Taking profits out of the countries without significantly investing in
their economies
o Imposing their values and customs
o Using cheap labour without considering the welfare of their workers

CONSUMER ACTIVISM

Affects how multinational companies operate


Vigilante consumers
o Avoid purchasing unethically made products
o Seek to change conditions
o Seek to punish unethical manufacturers
Issues that multinational companies face when moving their production into
foreign countries:
o Should workers be paid the local wages or higher?
o Should better health and safety practices be adopted to improve the
host countrys standards?
o When is it acceptable to hire a person below school-leaving age, and
what constitutes child labour?
o Should the company monitor and enforce workplace standards if local
authorities do not?
Many multinational corporations now pay external organizations to monitor
the operations of their suppliers in other countries to ensure that those
suppliers comply with the codes in order to keep their brand intact

FUTURE DIRECTIONS FOR MULTINATIONAL CORPORATIONS

Important to be aware of the ethical stance of companies of interest


Individual companies establish their own voluntary corporate code of conduct
that defines their ethical standards

CONTRIBUTIONS OF NGOS AND NPOS


NON-GOVERNMENTAL ORGANIZATIONS (NGOs)/NONPROFIT or NOT-FORPROFIT ORGANIZATIONS (NPOs): the cooperation of individuals working together
to influence business or government behaviour and policies; work to bring out
positive and necessary change through lobbying; mostly financed through public
contributions and sponsorships from corporations
CORPORATE PHILANTHROPY: policies that allow many companies donate
significant financial and material resources to support NGOs & NPOs and social
causes

ORGANIZATIONS WORKING TOWARD ETHICAL BUSINESS PRACTICES


THE WORLD BUSINESS COUNCIL FOR SUSTAINABLE DEVELOPMENT

A coalition of 160 international countries from 30 countries and 20 major


industrial sectors
United by a shared commitment to sustainable development via the three
pillars of economic growth, ecological balance, and social progress
Focuses on:
o Corporate social sustainability
o Sustainable livelihoods
o Building capacity through education
o Stakeholder dialogues

CANADIAN BUSINESS FOR SOCIAL RESPONSIBILITY (CBSR)

Works with for-profit businesses


Encourages socially responsible and sustainable business practices
Developed comprehensive guidelines for:
o Communities
o Employees
o Customers
o Suppliers
o Shareholders
o The environment
o The international market

ETHICSCENTRE.CA (FORMERLY THE CANADIAN CENTRE FOR ETHICS


AND CORPORATE POLICY

Website
Made up of volunteers from corporations and the genral public
Offers articles by prominent Canadians on topics dealing with current issues in
business ethics

INSTITUTE FOR GLOBAL ETHICS

Uses educational & public policy reports, seminars, and publications


Wants to promote ethical behaviour in individuals, institutions and nations
through research, public discourse, and practical action

THE INTERNATIONAL INSTITUTE FOR GLOBAL ETHICS

Supports sustainable development


Makes policy recommendations on:
o International trade & investment
o Economic policy
o Climate change
o Measurement & indicators
o Natural resource management

TAKINGITGLOBAL (TIG)

Not-for-profit organization
Thousands of members from over 190 countries
Vision: to create a community that inspires young people around the world to
create positive change on a local and global level
Creates virtual & physical environments where people are exposed to:
o New thinking
o Diversity of voices
o New opportunities

11.1: INTERNATIONAL
MARKETING STRATEGIES
MARKETING: the sum of all the activities involved in the planning pricing,
promotion, distribution, and sale of goods and services to satisfy consumers needs
and wants

CENTRALIZED MARKETING STRATEGY

Focuses on the production and sale of goods from one central location
Think local, act global
Take advantage of global marketplace with no intention of setting up a
manufacturing plant in another country

ADVANTAGES

BRAND BUILDING (GLOBAL BRANDS): Making a brand recognizable


throughout the world and giving that brand a positive image
SYNERGY: when two agents or forces work together to produce an effect
that is greater than the sum of their individual effects
ECONOMIES OF SCALE: Bigger is not always better, but its less expensive.
A new product, new manufacturing system, or new advertising campaign
developed by centralized management provides cost savings that will lower
costs and increase sales and profits for local distributors

DECENTRALIZED MARKETING STRATEGY

Think global, act local


Uses local production facilities, distribution centres, advertising agencies,
market research companies, sales representatives, and/or retail partnerships
to target specific international markets
GLOCAL: Global +Local. Multinational companies that operate on a local basis
throughout the world

ADVANTAGES

PROXIMITY TO MARKETS: a company that manufactures locally can


distribute locally as well, targeting smaller communities in an area that
centralized companies may find too expensive to target.
FLEXIBILITY: As a brand shows major growth in a specific region, a
decentralized company can spot the trend quickly, respond, and, therefore,
maximize sales.

CULTURAL SENSITIVITY: Local people know local customs and can help
tailor advertising messages, package designs, and distribution strategies to
accommodate the local culture.

11.2 GLOBAL MARKETING


ECONOMIC MARKETING FACTORS

There are a number of ways of measuring the wealth of nations


For markets two major factors stand out
o Wages
o Prices

CONSUMER PROFILES

Demographic Profiles
o Characteristic of and statistics about human populations. They are
obviously medical facts
Age
Gender
Family Lifestyle
Motivational Profile
o Probably the most difficult thing to understand in marketing is why
consumers buy
Thorndykes Pleasure/Pain Theory
o Peoples behaviours are controlled by a desire to either achieve
pleasure or avoid pain
Maslows Hierarchy of Needs
o Arranges needs in ascending order of importance, with the most basic
need at the bottom and, once fulfilled, the next higher level need
becomes more important

INTERNATIONAL MARKETING RESEARCH

Collects, analyzes, & interprets data used to make marketing decisions

SECONDARY DATA

Easiest to collect because other organizations or government agencies have


already gathered it; Marketers just use what information they see as useful
Ex.
o The internet
o Periodicals and publications
o Country organizations

PRIMARY DATA

Information collected directly from the marketplace by a marketing research


company or by the company that wishes to use the information
Ex.
o Surveys
o Tests
o Interviews
o Data mining
o Focus groups

PRODUCT DEVELOPMENT

Product features
Branding
Packaging and labeling

12.1: LOGISTICS
LOGISTICS

Includes planning for, implementing, and controlling the flow and storage of
raw materials, inventory, finished goods, and related information, from the
point of origin to the point of consumption
1. Sourcing
The finding of materials
A company will purchase supplies from another country because:
o They are not readily available
o Necessary technologies are not developed in the home country
o The best components or products are produced in a foreign country
2. Warehousing and storage
The storage of goods in a companys manufacturing location and the
movement of those goods from start to finish
o Receiving goods into the warehouse
o Transferring goods to a location in the warehouse
o Selecting a particular combination of goods for customer orders or
inputs into manufacturing
o Loading goods for shipment to the consumer or to the production
line

THREE CATEGORIES OF WAREHOUSES


1. Private Warehouses: operated as a division of the company whose business is
other than warehousing
2. Public Warehouses: which offer their services to a broad clientele, usually
under 30 day contracts
3. Contract Warehouses: which offer services to a more restricted clientele and
which have more formalized long-term contracts with their clients
Physical Distribution
a. Actions required to move
Information management
b. The movement of information

ELECTRONIC DATA INTERCHANGE (EDI)

Computerized data interchange that allows businesses to use computers to


communicate with each other
Benefits are:
o Speeding up and reducing costs in the purchase and collection cycles
o Streamlining staff and operations at the same times that it improves
efficiency and inventory control
o Reducing errors associated with double keying and handling paper

o
o

Allowing materials and orders to be tracked


Reducing delivery time

DISADVANTAGED OF EDIS

Systems require compatibility among various systems


They are vulnerable to automated system mistakes, such as transmitting
computer viruses, and to breakdowns in the system
Costly to set up, and need frequent updates
Employees are displaced and machines take over

12.2 DISTRIBUTION AND


MODES OF TRANSPORT
FACTORS THAT AFFECT PRODUCT DELIVERY
TOPOGRAPHY

The natural features of the earths surface

CLIMATE

Climate of a region can affect the choice of products to be shipped, the mode
of transport and how the goods are transported
o Very humid countries nee specific and expensive packaging

COST

Must calculate all transportation handling, currency exchange rates, and


import and export costs

METHODS
TRUCKS

Speed and flexibility in pick up and delivery


Reliable
Some roads cannot bear the weight
Large border slowdowns

MARINE

Most frequently used


Cheapest mode of international transport
Slowest
Scheduling is important

AIR

Most expensive
Fastest mode of transport
May be the only one available

PIPELINES

Dependable, efficient low-cost


Primary means of transporting oil and natural gas
Expensive to set up, low cost to run
Number of accidents compared to other models is low

12.3 EXPORT PLANNING


PREPARING AN EXPORT PLAN
Export planning outlines the goals that a company hopes to achieve in a particular
country.

Description of company and product


Short term and long term goals
Description of target market
Modes of transportation involved
Documentation
International marketing plan

INTERMEDIARIES
FREIGHT FORWARDERS

Negotiate rate with shipping lines, airlines and trucking companies


Provide crating, marketing and storing
Often they bundle orders together to save money

CUSTOM BROKERS

Clearing goods through customs in a country


Licensed in the countries in which they work
Make sure goods conform to regulations and statues

EXPORT AND IMOPRTANT DOCUMENTATION


COMMERCIAL INVOICE: itemized list of goods being shipping, itemizes material
from each package and indicates the type of package, is a Canada customs form that
must be prepared
CERTIFICATE OF ORIGIN: states the origin of imported good
BILL OF LADING OR WAYBILL: issued by the carrier that is the contract
between the owner of the goods and the carrier
CERTIFICATE OF INSPECTION : ensures the goods being imported are free from
any defects; important for animals, plants and food products.
CERTIFICATE OF INSURANCE: describes the types of insurance that covers the
shipment

JOURNEY
New York to Tokyo