Lecture 6 - RSM100

global company + give an example

integrate operations worldwide, with production and distribution localized in various countries.

ex) a Canadian company producing in China, selling in China

International trade used to be only for the _________ bc it was .....

RICH
- bc it was v. expensive to export produce to another country

INITIALLY, trade was based on ________________

absolute advantage

absolute advantage

when u can produce smth for less inputs then somebody else

INTERNATIONAL trade is based primarily on _________________________

comparative advantage

comparative advantage

who has lower OC of producing good

international company

exports a significant amount of its products/services to one or more countries

an international company doesn't just export, but also...

imports goods from abroad

if international activities are limited, an international company may still...

strategically think and plan from a global perspective

an international AND global company pursues customers across all.....

major global regions, including the Americas, Europe and Asia

2 reasons why nations trade

To obtain goods they need and want and cannot produce themselves
To obtain gold/hard currencies by running a trade surplus

How does running a trade surplus generate hard currencies/gold

TRADE SURPLUS: when a company exports more goods/services then it imports

Exports > Imports: The value of goods and services a country sells abroad exceeds the value of what it buys from other countries. This generates HARD CURRENCIES/GOLD

running a trade surplus generates ____________________ or _____________

hard currencies or gold

Bringing Coal to Newcastle (England)

England has a lot of resources available for extracting coal (strip mining) England became quickly industrialized, prioritizing factory production over mining

Despite having coal, England imported it from Germany because the OC of mining coal outweighed the benefits.

3 risks of international business

Labour shortages, political issues, climate change

3 reasons companies trade (give a real-world example for each one)

1. Use up excess resources
Ex: Saudi has a lot of oil they can trade for high prices

2. Cost reduction
Ex: cheaper to manufacture goods in China than Canada

3. Particular foreign market demand
ex) italian + french wine producers export not just bc they are using-up excess supply - they create EXTRA SUPPLY in order ex) to satisfy foreign appetites
fashions (Prada boots and Swiss watches)

is society generally better off with international trade?

YES

why does achieving "free trade" matter? (3)

- consumers will pay lower prices and have greater choice
- more export opportunities = more jobs, faster economic growth
- prevents economic distortions of trade barriers (not optimal outcomes for both countries if comparative/absolute advantages are not realized through free trade)

free trade is key driver of _________________________

globalization

The international financial system and international trade are __________________________

deeply interconnected

trade depends on the financial system for _________________________ and___________________________

currency exchange and value determination

for over 100 years, currencies were pegged to the value of ____________

GOLD

"the gold standard"

for over 100 years, currencies were pegged to the value of gold

why was the "gold standard" system abandoned?

there is limited supply of gold in the world

what currency system do we have now?

floating currency system

"floating currency system"

Modern currencies are not tied to a fixed standard like gold but "float," meaning their value fluctuates based on market dynamics.

An increase in a nation's money supply can lead to....

inflation, reducing the currency's value

is Canada currently in a trade deficit?

yes. country imports goods/services more then it exports

trade deficit

country imports goods/services more then it exports

trade surplus

when a country exports more than it imports

How does a low Canadian dollar affect international trade and the economy (give 3 reasons)

- Higher import costs
- Canadian exports become relatively cheaper
- Positive impact on the trade deficit (less net money going out of country)

why is understanding different cultures important to business people? (3)

- you market a product in different ways in different countries
- can make more money if you understand other cultures and how to sell to those cultures
- have to respect the culture

business values can be ______________ from one country to another

different

Why did Chevrolet Nova sell vehicles well in Canada and not Mexico?

Nova means "No go" in Spanish
- not a good name for a car!

Why did Pocari Sweat sell well in Japan but not in North America?

Pocari Sweat is drink that helps with sweat
- In Japan, they see it as helping with sweat
- in US, they see it as drinking sweat

5 challenges that can arise from cultural diversity

1. misunderstandings based on the speed of building business relations
2. in different languages, words can mean different things in different places
3. language "context" barriers: technical, legalistic
4. unintended offences (culturally inappropriate gestures)
5. biases, stereotypes, discrimination by some ppl

give an interesting cultural nuance

need to address higher class and older people very formally in some cultures (think India)

ethics __________ from one country to another

differ

what ethical issues do international businesses face? (3)

- Different Labour Standards / Child labour working conditions, wages, hours, worker age, etc
- Corruption: should a company pay bribes if it is 'the way things normally get done' in a foreign location
- Environmental standards: some countries have looser regulations

benefit to CSR in home/foreign country?

- reputation in host country (they compare ur actions to ur behaviour in ur home country)
- reputation in home country: Many citizens and NGOs concerned about global corporate responsibility: media often writes about poor conduct in foreign operations

tariff

Tax imposed by one country on the goods/services imported from another country to influence it, raise revenues or protect competitive advantages

Competitive Advantage of Chinese EVs: Chinese manufacturers produce electric vehicles (EVs) at significantly lower costs due to... (2)

- Economies of scale.
- Controlling 80% of global battery production—crucial for EVs.

the EVs that China produces are exported to various markets, including ______________

Europe

Who enforces the tariff?

European Union (EU)

who produces the EVs?

china

The EU has imposed a tariff (import tax) on Chinese-made EV to.... (2)

- Protect European automakers from being undercut by cheaper Chinese EVs.
- Encourage consumers to buy European-made EVs.

Who Pays the Tariff? (2)

Chinese manufacturers or the importers/distributors of Chinese EVs in Europe

However, these costs are often passed on to European consumers, who end up paying more for the imported cars.

The cost of tariff is often passed on to ____________________

European Consumers, who end up paying more for the imported cars

Why Did the EU Impose the Tariff?

To protect European automakers which struggle to compete with cheaper Chinese EVs.
To encourage local production of EVs to meet Europe's climate goals (increasing EV adoption to reduce carbon emissions).

what are the challenges of EU's tarrifs on Chinese EVs (from the perspective of EU) (3)

Dependence on Chinese Batteries: Even European EV makers rely heavily on Chinese-made batteries. Tariffs on finished cars do not affect battery imports, so Europe remains dependent on China for critical components.

Tariff Loopholes: Chinese manufacturers can bypass the tariffs by: Exporting car components (e.g., batteries) instead of fully assembled cars. Establishing assembly plants in non-EU countries with free trade agreements.

Impact on Climate Goals: Higher prices for EVs (due to tariffs) could slow down the adoption of EVs in Europe, making it harder for the EU to meet its climate targets.

all Chinese companies exporting have an incredible advantage compared to other countries exporting around the world due to....

government support and subsidies

how does state capitalism as practiced in China, influence global markets? (5)

- all Chinese companies exporting have an incredible advantage compared to other countries exporting around the world due to government support and subsidies

- have more money for R&D thanks to government backing
- significant market dominance
- can lead to overproduction
- they have dominance in batteries

Pros of state capitalism compared to market-driven economies (4)

- Customers are able to pay less for products.
- Allows industries to grow very fast and scale up quickly.
- Companies can grow their market share rapidly.
- Economic stability during downturns due to government backing.

Cons of state capitalism compare to market driven economies (5)

- Less customer choice due to heavy government involvement.
- Market inefficiency as it is not a natural market.
- Overproduction can disrupt markets.
- Less creativity and innovation due to reduced competition.
- Global tensions and retaliatory measures may arise.

How do economies of scale contribute to China's ability to produce EVs at a lower cost than European and American manufacturers? (8)

- can mass produce on a larger scale → bring down costs significantly
- Controlling a large share of the global battery market (an expensive part of the car) keeps production costs low.
- Common components (e.g., lightbulbs for EVs) across different models further reduce costs.
- Producing more cars helps them cover the R and D costs (economies of scale)
better supply chains can cut the production time and the production costs
- Access to cheaper, efficient labour reduces manufacturing expenses.
- Government support: Financial backing from the government allows for higher production volumes and mitigates the impact of tariffs.
- As a market leader, China drives trends and innovation, avoiding costs associated with "following" other manufacturers

How Do Tariffs Help Domestic Industries? (7)

Prevent competition from coming in (limit imports)
Protects local companies (ie. Tesla is protected by the government due to tariffs)
more levelled playing field with the tariffs
protects jobs
encourages us to buy domestically
levels playing field so domestic companies are more competitive
can subsidize other sectors or initiatives with money from tariffs
provides companies temporary relief to restructure if needed (a buffer to make changes)

How Do Tariffs Hinder Domestic Industries? (7)

"Short-term Survival (Tariff) vs Long-Term Innovation (No tariff)"
- Reduced Innovation: Protection from competition may lower the incentive to innovate and cut costs.
- Higher Costs for Consumers: Tariffs increase the price of imported goods, making domestic products more expensive.
- Supply Chain Complications: Tariffs can disrupt established supply chains, increasing production costs.
- Political Tensions: Tariffs can lead to trade wars, straining relationships between countries.
- Limited Consumer Choice: Fewer imported goods mean less variety for consumers.
- Slow Industry Growth: Short-term protection can delay the long-term competitiveness of domestic industries.

How should businesses adapt their strategies in response to tariffs imposed by other countries? (3)

- move manufacturing to nearby country within free trade agreements (ex: Mexico)
- Spread sourcing and production across multiple countries to reduce reliance on tariff-affected regions.
- Differentiate products by adding unique features or capabilities that set them apart from competitors. Example: - - - Tesla's self-driving technology offers a competitive edge, justifying higher prices despite tariffs.

Why is it important is it for companies to have control over their supply chains in today's global economy? (4)

- mitigate risks from disasters, geopolitical tensions
- cost efficiency - control helps you reduce costs significantly
ensure quality
- makes you more agile and responsive to things changing

Benefits of OUTSOURCING vs vertical integration for critical components

- Reduces costs - less costs to scale up (don't need to incur fixed costs to scale up)
- More flexibility
- Access to global markets (and get components u might not be able to get domestically)
- leverage reduces labour costs
accelerate product development - can have reliable outsourcers

vertical integration

A company decides to own and produce in-house one of the steps in its supply chain (SCALE UP)