Ch 4 - Exploring Global Business

All business activities involving exchanges across national boundaries. Companies engage when buying inputs from or selling outputs to foreign organizations. 

Global Business

Global Business Opportunities

Profit for companies, more choices, lower prices, and access to new cultural experiences for customers.

Global Business Challenges

Understanding foreign environments (politics, culture, economics), currency differences, and economic infrastructure. 

Crucial for global engagement. Involves understanding and appreciating cultural differences in behavior and communication (verbal vs. nonverbal cues). Enhances networking, problem-solving, decision-making, and emotional intelligence, 

Cultural Sensitivity Skills

True or False: Cultural sensitivity is optional for successful global business operations.

False - it is crucial for networking, problem-solving, and decision-making across cultures. 

 __________ and __________ environments strongly influence global trade and government policies.

Political; Economic

Ability to produce a specific product more efficiently than any other competitor (business or country). 

Absolute Advantage

Ability to produce a specific product more efficiently than another product. Focuses on using resources as efficiently as possible to maximize profit. 

Comparative Advantage

Is the following an example of an absolute advantage or comparative advantage?

Example: Canada’s efficient wheat production due to natural resources and R&D.

Absolute Advantage

Is the following an example of an absolute advantage or comparative advantage?

Example: Canada focusing on wheat instead of tropical fruits 

Comparative Advantage

List the key benefits to international trade.

• Increased Jobs and Income: Expands consumer base = more production = more jobs and economic growth. 

• Access to Resources: Expands options and provides necessary resources.

• Lower Prices: Importing from countries with a lower production costs (e.g., labor)

• More Choices for Consumers: Access to more markets = variety of products.

• Encourages Innovation: Foreign competition pushes domestic companies to innovate and proves better performance, access, and price.

• Increases the Value of a Countries Resources

Federal government department supporting Canadian businesses in international trade through financing, connections, and export opportunities, with a focus on inclusive strategies for underrepresented groups.

Trade Commissioner Services

System of direct exchange of goods/ services; limited by mutual need and equal value. 

Barter 

Eliminates barter’s inconvenience, facilitating trade.

Currency

Restrictions on the amount of foreign currency that can be purchased or sold, limiting imports. 

Foreign-Exchange Control

What are some exchange rate determinants?

• Interest Rates

• Inflation

• Economic Strength

• Import/Export Volumes

 Decrease in currency value, which increases exports, decreases imports, and attracts international investment.

Currency Devaluation 

True or False: Currency appreciation makes domestic exports cheaper for foreign buyers.

False. Appreciation makes exports more expensive.

As currency value drops (devaluation), exports ___ and imports ___

Exports Increase:

• Domestic buyers find foreign goods more expensive.

Imports Decrease:

• Foreign buyers find goods cheaper

As currency value increase (appreciation), exports ___ and imports ___

Exports Decrease: 

• Foreign buyers find goods more expensive.

Imports Increase:

• Domestic buyers find foreign goods cheaper. 

Value of exports minus value of imports over a period.

Balance of Trade

Trade Surplus (Favorable/Positive)

When exports exceed imports.

Trade Deficit (Unfavorable/Negative)

Where imports exceed exports.

Total money flow into minus total money outflow of a country (includes physical and non-physical items like capital receipts/payments). 

Balance of Payments

Obstacles preventing companies from selling to one another in foreign markets, often to protect domestic industries. Can stifle Innovation by reducing competition. 

Trade Barriers

List the different types of trade restrictions.

• Tariffs (Revenue and Protective)

• Quotas

• Trade Sanctions

• Embargo

• Cultural Barriers

What are tariffs? Explain the two types.

Taxes on imported products, raising their price.

• Revenue Tariffs: Imposed solely to generate government income.

• Protective Tariffs: Imposed to protect domestic industries by making competing more expensive.

What are quotas?

Restrictions on the amount of a particular product that can imported or exported.

Trade Sanction

Measures used to punish or encourage policy change in a country (e.g., prohibiting trade). 

Embargo

Complete halt to trading with a particular country or of a particular product. Difficult to enforce, can create underground markets.

Cultural Barriers

Impede (delay or prevent) product acceptance due to unfamiliarity, perceptions of the country of origin, or differing business practices. 

 Which of the following is an example of a protective tariff?
a) Canadian duty on Scotch whisky

b) U.S. tariffs on Canadian softwood lumber

c) Foreign-exchange control

d) Currency devaluation

b) U.S. tariffs on Canadian softwood lumber

One reason for trade restrictions is to protect __________ jobs or industries.

domestic

What are some reasons for Trade Restrictions

• Protect new or weak industries

• Protect domestic jobs

• Protect the health of citizens

• Retaliate for another country’s trade restrictions

• Protect national security

Consequences of Trade Restrictions

• Higher prices for customers

• Restrictions of customer choices

• Misallocation of resources to weak/dying industries

• Increased hostility (unfriendliness) between countries

What are factors disrupting trade growth?

• National Rivalries: Economic, political, military competition leading to trade wars (e.g., retaliatory tariffs)

• Economic Instability: War, social/political change, resources shortage causing crises, declining foreign  investment, plummeting currency values

• Lack of Economic Development: Insufficient natural resources, skilled labor, or basic infrastructure (e.g., highways, ports)

List three International Organizations Promoting Cooperation

• World Trade Organization (WTO): Open markets, reduce trade barriers, raise living standards, create jobs (especially in developing countries). 

• International Monetary Fund (IMF): Promote economic stability, financial stability, and monetary cooperation. 

• World Bank: Help countries lacking basic resources for viable economics, reduce poverty.

World Trade Organizations (WTO)

Goal: Open markets, reduce trade barriers, raise living standards, create jobs (especially in developing countries). 

Activities: Address trade barriers, provide forum for negotiations, mediates trade disputes.

International Monetary Fund (IMF)

Goal: promote economic stability, financial stability, and monetary cooperation.

Activities: provides policy advice to governments/central banks, offers lending for economics in crisis (lender of last resort)

World Bank

Goal: Help countries lacking basic resources for viable economies, reduce poverty. 

Activities: Provides low-interest loans/grants, supportive investments (education, health, infrastructure, agriculture), focuses on debt relief for developing countries.

What is the collective aim of International Organizations Promoting Cooperation such as WTO, IMF, and world Bank?

Promote global economic development through increased trade, stable economies, and reduced poverty.

 True or False: The IMF focuses primarily on long-term poverty reduction through grants.

False. That is the World Bank’s primary focus

A group of countries promoting free movement of resources/products among members to reduce trade barriers and increase prosperity.

Economic Community

A community of over 30 European countries (~500 million people) with free commerce and shared political/economic goals.

European Union (EU)

CUSMA (USMCA/T-MEC)

Canada-United States-Mexico Agreement replacing NAFTA in 2020, promoting free trade among North American nations.

APEC

 Asia-Pacific Economic Cooperation—a forum of 21 Pacific Rim countries accounting for 40% of the world’s population and 44% of world trade.

 Which of the following is NOT a criticism of economic communities like CUSMA?
a) Erodes labor standards

b) Undermines national sovereignty

c) Reduces trade barriers

d) Fails to address environmental issues

c) Reduces trade barriers

What are some criticisms of economic communities?

• Hurts workers (eroding labor standards, lowering wages)

• Undermines national sovereignty

• Doesn’t adequately address environmental issues

• Can hurt agricultural sectors

• Potentially increases trade deficits 

What are some proponents of economic communities?

• Significant increases in trade and investments

• Benefits companies in all member countries

• Increase sales, new partnership, opportunities

• Creates high-paying export-related jobs

• Better prices and selection for consumers

• Eliminates most tariff and non-tariff barriers, creating confidence and stability

What are some primary entry methods to expanding to international markets?

• Exporting and Importing (lower control, lower risk)

• Contractual Agreements (more control, more risk)

• International Direct Investment (most control, most risk)

Manufacturing products domestically and selling them abroad. Low risk and low control.

Exporting

Buying products made by foreign companies. Provides more choices and lower prices.

Importing

 Agreement where one company allows another to produce and market its product for a fee or royalty.

Licensing

Similar to licensing but includes the entire business operation, including marketing and materials.

Franchising

Hiring another company to handle production or distribution duties under contract.

Subcontracting (Contract Manufacturing)

Building or owning foreign facilities to fully control operations—highest control and highest risk.

Direct Investment

Partnership between companies to create a competitive advantage, often in industries like automotive or technology.

Strategic Alliance

 A partnership for a specific goal or time period, providing market knowledge and reduced risk.

Joint Venture

 Purchasing an existing company in a foreign country.

Outright Acquisition

 True or False: Exporting involves higher risk and control than direct investment.

False. Exporting is lower risk and control.

Market entry methods range from low risk/control () to high risk/control ().

Exporting/Importing; Direct Investment

Fill in the blank:

• Low Risk/Control: ___/___

• Medium Risk/Control: ___, ___, ___

• High Risk/Control: ___

• Low Risk/Control: Exporting/Importing

• Medium Risk/Control: Licensing, Franchising, Subcontract

• High Risk/Control: Direct Investment (Subsidiary, joint Ventry, Acquisition)

Which type of advantage involves being able to produce a specific product more efficiently than any other product?

a) competitive advantage

b) absolute advantage

c) comparative advantage

d) product advantage

c) comparative advantage

What are the two most common types of trade restrictions?

a) tariffs and quotas

b) tariffs and embargoes

c) quotas and embargoes

d) revenue tariffs and protective tariffs

a) tariffs and quotas

What are commonly cited benefits of international trade?

a) that it can provide more choices for consumers, lower transportation costs, and increase access to resources

b) that it can increase jobs and incomes, lower prices, and encourage innovation

c) that it can create jobs, increase reliance on other countries, and add more choices for consumers

d) that it can increase incomes, lower transportation costs, and increase reliance on other countries

b) that it can increase jobs and incomes, lower prices, and encourage innovation

Proponents of international trade might say that countries should produce products in which they have both a comparative and absolute advantage, export what products they cannot consume, and import products that other countries can produce better. What is one of the benefits of this?

a) less need for expensive innovation

b) most valuable use of a country’s resources

c) lower transportation costs

d) fewer international tensions

b) most valuable use of a country’s resources

Critics emphasize that trade restrictions have both immediate and long-term consequences both within the country implementing the restrictions and in world trade patterns. Which of the following do the critics not cite as a possible consequence of trade restrictions?

a) restriction of consumer choices

b) misallocation of resources to weak or declining industries

c) increased hostility between countries

d) increased global employment

d) increased global employment

There are international organizations that oversee international trade, resolve trade disputes, reduce trade barriers, provide advice, and provide low-interest loans. Which international organization is the “lender of last resort” for nations in financial trouble?

a) International Monetary Fund

b) World Trade Organization

c) World Bank

d) World Development Fund

a) International Monetary Fund

The United States imposed a tax on Canadian lumber products exported to the United States because of their belief that Canada was subsidizing the industry. What is this an example of?

a) customs regulation

b) embargo

c) exchange control

d) tariff

d) tariff

A Canadian company that has decided to enter international markets can do so in several ways. Which of the following is an example of a low control, low risk method?

a) direct investment

b) foreign licensing

c) exporting and importing

d) joint ventures

c) exporting and importing

Marriott International, an American hospitality company, purchased British Columbia–based Delta Hotels and Resorts to have a broader presence in Canada. What is this an example of?

a) a franchise

b) an acquisition

c) foreign licensing

d) a joint venture

b) an acquisition

A Canadian company wants to expand into Asia. The company has agreed to allow an Asian company to produce its product, use its brand name, and market the product. How would this be best described?

a) franchising

b) licensing

c) subcontracting

d) commissioning

b) licensing