International Business: Chapter 1+2 : Key Terms and Concepts

Business

Manufacturing and/or sale of goods and/or service to satisfy the wants and needs of consumers to make a profit

Transactions

Exchange of things of value

Domestic Business

Business that make most of its transactions within the borders of the country in which it is based

International Business

Economic system of business conducted between businesses located in several/different countries

Domestic Market

Customers of a business who live in the country where the business operates

Foreign Market

Customers of a business who live in a different country than the one where the business operates

Five 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

Trade

Used interchangeably with the word "business"

Foreign or International Trade

The economic system of transactions conducted between businesses located in different countries.
--> International business

Trading Partner

Business in Canada develops a relationship with a business in another country

Duty or Tariff

Taxes or Duties on imported products or services
-Taxes is direct tax applied to imported goods
-Duties are indirect taxes imposed on consumer of imported goods

Globalization

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 transport, flow of money)

Interdependence

The reliance of two or more nations on each other for product or services

Primary Industries

Sector of economy characterized by the extraction of natural resources from the earth or sea

Five major primary industries (or 6)

agriculture
Fishing, hunting, and trapping
Forestry and logging
Energy
Mining
Water (for Canada)

Secondary Industries

Industries that create a finished usable product (manufacturers)

Brand Plant

A factory owned by a company based in another country

Tertiary Industries

Industries that do not make a product or extract resources from the Earth, but provides necessary services to consumers and other businesses
(service sector)

How International Business Helps Canadians

1. Variety of products Access to goods that are not made in Canada

2. New markets, more jobs Expanding into foreign markets creates increased demand for Canadian-made products

3. Foreign investments Non-canadians can invest in Canadian businesses (and vice-versa)

4. New processes and technologies non -canadians suppliers can provide Canadian businesses with technology that may be newer, more efficient, and more economical

How International Business Harms Canadians

1. Loss of Culture/Identity

2. Increased foreign ownership of companies in Canada

Foreign Direct Investment

Direct Investments in a Business - invest to control business operations

Portfolio Investment (Foreign)

Investments of stocks, bonds, other financial instruments

Culture Industry

Production and distribution of cultural goods and services (film, music, literature, fashion, art, media)

Reason Canada Trades (7)

-Company growth

-Entry into new markets

-Expanded customer bases

-Increased profits

-Access to inexpensive supplies

-Lower labour costs

-Access to financing

Importing

To bring products or services into a country, for use by another business or for resale

Global Sourcing

Process of buying equipment, capital goods, raw materials, or services from around the world (B2B imports)

Exporting

Send goods or services to another country, for use by a business or for resale

Value Added

Amount of worth that is added to a product at each stage of processing

Licensing Agreement

An agreement that grants permission to a company to use a product, service, brand names, or patent in exchange for a fee or royalty

Exclusive Distribution Rights

Form of licensing agreements that grants a company the right to be the only distributor of a product in a specific geographic area or country

Franchise

An agreement granted to an individual or group by a company to use that company's name, services, products, and marketing

Joint Venture

Common type of international business - new company with shared ownership is formed by two businesses, one of which is located in the country where the new company is established

Foreign Subsidiary

(Wholly owned subsidiary)
A branch of a company that is run as an independent entity in a country outside of the one in which the parent company is located
- Subsidiary manages own operations, just has to meet targets of parent company

Protectionism

Shielding against foreign competition

Winners of Tariffs (3)

- Domestic governments collecting the additional taxes
-Local producers, their goods are more competitively priced
-Local employers, the people working in local companies keep their jobs

Losers of Tariffs (3)

• Foreign producers, their goods are now more expensive

• Consumers, the price of the products go up and consumers are forced to pay higher prices

• Foreign employers, the people working in companies overseas lose out on opportunities

Trade Quotas

A government imposed limit on the amount of products that can be imported in a certain period of time

Trade Embargo

Government-imposed ban on trade of a specific product or with a specific country, often declared to pressure foreign governments to change policies

Trade Sanctions

Economic action taken by a country to coerce another to conform to an international agreement or norms of conduct

Investment Canada Act

Ensure all foreign investments are reviewed to determine how they will benefit Canada

Standards

Countries have different standards for products in areas such as environmental protection, voltage, health and safety

ISO

(International Organization for Standardization)
Network of standardization groups from over 170 countries
- Established to set quality regulations and overcomes standardization problems

Exchange Rate

Amount of one's country's currency in relation to currency in another country

Winners of A High Canadian $ (3)

Importers, Canadian travelers, Major league sports teams in Canada

Losers of High CAD (3)

Exporters, Canadian tourism, Canadian retailers

Floating Rate

An exchange rate that is not fixed in relation to other countries (Canada has one)
- Supply and demand dictates the price at which the Canadian dollar is bought and sold

Currency Revaluation

Increase in value of a currency because the demand for that particular currency is greater than the supply

Currency Devaluation

Decrease in value of a currency because the supply of that particular currency is greater than the demand for it

Factors Affecting Exchange Rate (4)

• Economic conditions

• Trading between countries

• Politics

• Psychological factors

Terms of Trade

Comparison of imports VS exports

Hard Currencies

Stable currencies (Euro, CAD, USD), easily converted to other currencies
Hard = good

Soft Currencies

Currency of a country with weak and small economy, fluctuates often, difficult to convert into other currencies (Chinese Yuan, Russian Ruble) Soft = bad

Currency Speculating

Buying, holding, or selling foreign currency in anticipation of its value changing in order to profit from fluctuations in the price of currency