International Business UNIT 1 Test Notes

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Business Trade & the Economy

Definition of International Business:

Purchase & sale of goods & services between different countries.

Most important way in which a country connects w/ its neighbours.

What is Globalization?

Buzzword describing International Trade

Changes over 20 Years in Business:

Reduction in trade barriers

EU 1993

NAFTA

WTO

Trade Triangle:

Canada, US, China

Changes of Globalization over 25 Years:

New & improved telecommunications

More efficient transportation

Creation of new free-market economies

Opportunities for Canada:

Cheaper imports from emerging market countries

Overseas investment

Rapid technological change

Why do Countries TRADE?

To buy goods or services they can't produce themselves

Very few countries can make everything they meet to satisfy needs & wants

Countries can sell goods they produce but don't need themselves: INTERDEPENDENCE

Threats to Canadian Economy

Threats to:

Manufacturing industries

Jobs in service sector industries

Structural unemployment

Widening of rich-poor divide

Threats to global env.

World Oil Demand

U.S has largest world oil demand

Domestic VS International

Business Definition:

The manufacturing and/or sale of goods &/or services to satisfy the wants & needs of consumers & to make a profit

Domestic Business:

A business that makes most of its transactions within the borders of the country in which it's based

International Business/International Trade:

The economic system of transactions conducted between businesses located in different countries

5 Main Ways for a business to be considered International:

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

Transaction:

An exchange of things of value (goods/money/services) for other goods/money/services

Exporting:

Sending goods or services to another country, especially for sale (going out)

Importing:

Bringing products or services into a country, for use by another business or for resale (coming in)

History of Canadian Trade

Trade with Mexico:

Very recently developed

As a result of NAFTA goods made in Mexico & US can enter Canada duty-free

Mexican goods are bargain to Canadian businesses

Imports from Mexico have greatly increased since NAFTA was signed 1993

Become one of Canada's top 5 trading partners in last 5 years

Our top 5 imports from Mexico: Electrical machinery, Vehicles, Minerals, Fuel, Oil, Furniture/Bedding, Other machinery

Canada's top 5 exports to Mexico: Vehicles, Electrical Machinery, Grain/Seed/Fruit, other Machinery, Iron/Steel

Trade with U.S:

Late 1700's - Declared independence from Britain, revolutionary war - USA becoming self-sufficient (manufactured goods/industrial rev.)

1775 - James Watt invented steam engine - Created cheap power for machines

1794 - Eli Whitney invented Cotton Gin - separated cotton seed from raw cotton - Increased production of clean, raw,cotton - Cotton industry became the profitable backbone

Mid to late 1800's - Huge population growth - Industrial jobs growing - manufactured based, while Canada was resource based (supplying)

2008 - Canada's exports to US: $375B - Canada's imports from US $227B

Trade with Middle East

Centered on oil

Problem - No-arable desert & resulting countries in these locations are not yet industrialized

Due to Anti-American feelings, conservative religious leadership & recent Iraq war M.E seen as politically unstable

Oil Trade - non sustainable which prevents countries in M.E from becoming long-term economic leaders

World i smoking away from oil - result is countries like Saudi Arabia and Iraq will have no other established industries to fall back on

Dubai, Israel, Egypt have gotten away from depending mainly on Oil & established long term trading relationships

Over 1.4 billion Canadian exports reached Dubai in 2008

2008 Financial Crisis burst real-estate bubble & caused Dubai to post-pone their repayment of 26B in foreign debt

Israel & Canada signed over 1.2B worth of medicine, diamonds, engines, shoes & numerous other products to Canada 2008

Dubai, Egypt & Israel established trading relationship with Canada

European Trade

1700s trade grew quickly after settlements were established

Most goods traded were raw materials (i.e. Fur Trade in exchange for finished goods)

Historical connection to Britain = built up during this time

Early settlers settled near water - made sure most major Canadian cities have port access (all goods came by ship)

Trade with Africa

Accounts for 1/2 of 1% of Canadian exports

Accounts for 3% of imports - most African nations have major infrastructure problems

Produces abundance of raw materials

European colonists & other business interests have exploited Africa's raw materials & its people

Individual African nations did not have self-rule

Riches of each country were sent back to its ruling nation

Trade with Asia

Canada frist started to trade with Asia after WW2 in late 1940s specifically Japan

Japans modern factories began producing high-quality electronics like radios, televisions, cameras, computers

By end of 20th century Japan became known for its automobiles & high-tech equipment

One of Canada's top 5 trading partners

Within past 30 years Chinas cheap & abundant labour has encouraged businesses from West to develop partnerships with chances firms

2/3 Chinas exports are from factories that foreign investors own - either outright or in partnerships with Chinese firms

Chinese products = very popular with North American retailers ex. Walmart buys $15 B worth of goods from China

Today - China is one of Canada's top 5 trading partners - over $42B in imports & $10B exports 2008

Trade with India

India = second biggest of population in world

Good at outsourcing services & manufacturing

Labor force of India is young & education is well

Exports of India increases slowly - Imports of India increases sharply

From Canada India gets: diamonds, linen, clothing, rice

India usually sells: vegetables, newsprint, copper

India not good at telecommunication services

Reliable electrical power makes India's business increases slowly

High taxes is one of biggest problems in India

Free Trade & Globalization

What is Free Trade?

The unrestricted purchase & sale of goods & services between countries without the imposition of constraints such as tariffs, duties, & quotas.

Bilateral Agreement

A promise made by one party in exchange for performance of some act by the other party

Both parties are bound by their exchange of promises

"If you do this, I will do this"

Examples of Free Trade Agreements:

NAFTA-North American Free Trade Agreement (Canada, US, Mexico)

TPP- Trans Pacific Partnership

What is Globalization?

The growing integration of national&regional economies & cultures, & trade due to new:

Global communication technology

Foreign direct investment

International trade

Migration

Transportation

Trade Agreements - NAFTA & TPP

NAFTA 1994

Canada, US, Mexico

Elimination of duties on thousands of goods crossing borders within North America

Easier access for business professionals & hundreds of different professions so they can travel for business throughout continent

Created to eliminate tariff barriers to agricultural, manufacturing & services - to remove investment restrictions & protect intellectual property rights

Access to gov. procurement opportunities at federal level in Canada, US, Mexico

Created one of world's largest free trade zones

Building foundations for strong economic growth & rising prosperity for Canada, US, Mexico

Tariffs on virtually all origination goods traded between Canada&Mexico were eliminated in 2008 - exemption of Canadian agricultural goods in dairy, poultry, egg, and sugar sectors (exempt from tariff elimination)

Use world banks international centre for settlement of investment disputes (ICSID) & used settle disputes of international trade law

Softwood lumber dispute is one of largest & enduring trade disputes between both nations (Can &US) - conflict given rise in early 1980s & effects still seen today

Use rules of united nations commission for international trade law

TPP

Trans Pacific Partnership

Trade agreement among 12 Pacific Rim countries: ex. Australia, Canada, Chile, Japan, Mexico, Peru, NewZealand, USA, Vietnam

Agreement reached Oct 5 2015 after 7 years of negotiations

Benefits: Economic agreement will increase Canada's foothold in the Asia-Pacific, makes it easier for trade to happen

Canadian sectors it will help: Agricultural & Agri-food products, Fish & seafood, Forestry&Value added wood products, Services & Financial services

Industrial goods&consumer products

Protests: Dairy farmers, How secretive agreement is to public, Benefits big corporations at expense of public, Any trade agreements that is confidential

Canadian Owned Companies

Loblaws

RBC

Canadian Tire

Shoppers Drug Mart

Roots

BMO

McCain

Multinational Corporation

MNC is a corporation that has its facilities & other assets in at least one country other than its home country. S

Such companies have offices &/or factories in different countries & usually have a centralized head office where they coordinate global management

Primary/Secondary/Tertiary Industries

Three levels of interdependence in trade:

Around the room are posted church paper with a level of industry:

Primary Industry - the sector of economy characterized by the extraction of natural resources

Secondary Industry - industries that create a finished, usable product

Tertiary Industry - industries that do not make product necessary services to consumers & other businesses

Value Added

The amount of worth that is added to a product as it is processed; the difference between the cost of raw materials & the cost of the finished goods

Trade Barriers

Standards

Tariffs

Foreign Investment Restrictions

Other trade barriers

Trade Embargoes

Trade Quotas