GMS723-CLASS2
International trade landscape
The course emphasizes starting now to avoid getting lost and jeopardizing projected grades (40% of project grade mentioned).
Canada’s trade system is unique but bears similarities to the United States, UK, Sweden, Australia; Canada has some unique dynamics.
Key question: What is CETA? Answer: Canada–European Union Comprehensive Economic and Trade Agreement; it needs to be engaged and interrupted when discussed.
EU population: about 450,000,000 people; US population around 380,000,000.
Canada’s current major export destination: the United States; roughly 75% of Canadian exports go to the US (the exact number fluctuates but around three-quarters).
Canada’s import dependency on the US: about 40% of all Canadian goods are imported from the US.
Brexit: the UK’s exit from the EU; potential future separate deal considerations for Canada if the UK negotiates anew with Europe; a hypothetical concern about upsetting EU partners by duplicating deals.
USMCA (U.S.-Mexico-Canada Agreement): Canada’s trilateral free trade agreement with the US and Mexico; trade with Mexico is around 3% of Canada’s total trade, far smaller than with the US; signed in 1994, ongoing for ~31 years as of 2025.
Global trade scale: over $31 trillion in international trade in 2023; numbers fluctuate with global events.
Advertising and political economy note: “Buy Canadian” campaigns exist; questions about how “Canadian” products really are (e.g., 70% of Canadian organizations in the resource sector are foreign-owned).
Emerging markets vs. developed markets: emerging markets/developing countries are growing about 30% faster than developed markets; commodities are seen as growth sectors; resource dependencies influence trade dynamics.
Lithium and critical minerals: batteries for electric vehicles (EVs) require lithium; Canada imports lithium and relies on countries like China for supply; natural resources become more critical amidst uncertainty and geopolitical tension.
The link between economic uncertainty and geopolitical tension: two driving forces that shape trade flows; geopolitical risk can lead to volatility in markets and influence trade patterns.
Geopolitical risk vs. tension definitions:
Geopolitical risk: military actions, warfare, government-to-government clashes, border disputes.
Tension: gradual buildup that signals potential risk; tension can precede risk.
Proximity and stability as drivers of trade during global tension: trade with the US often increases during global tension due to proximity and perceived stability; trade with other partners may decrease.
Practical relevance to projects: teams will receive exact destination details (country, address) for shipping; risk assessment is required for each country; this ties into real-world logistics and security considerations.
Veggie burger case study: used as a recurring example for applying trade concepts to a product with shipping and regulatory considerations.
Key takeaway: global trade is shaped by market size, proximity, regulations, and geopolitical risk; strategy must adapt to each partner country.
Visible vs invisible trade; current account balance
Visible trade: tangible goods that can be touched and shipped in bulk; clear language around goods movement.
Invisible trade: services; significant portion of Canada’s GDP is driven by services exports.
Current account balance (balance of trade): difference between exports and imports; a fundamental metric in international trade.
Question and concept check: balance of trade = exports − imports; a surplus occurs when exports exceed imports; a deficit when imports exceed exports.
Canada’s balance scenarios: generally aim for a surplus but seasonal factors can lead to deficits or small surpluses at times.
Tariffs, quotas, and regulations can be used by trading partners to respond to imbalances; these measures directly affect profitability and supply chain decisions.
Italy example: if Italy buys more from Canada than Canada buys from Italy (deficit from Canada’s perspective), Italy could impose tariffs, quotas, or regulations to rebalance trade; such measures affect profits and may force process adjustments.
Profits and organizational response: profitability incentives drive process changes, workforce adjustments, and strategic decisions; the professor reinforces the importance of profitability and practical management.
Note on government stance: countries often manage trade imbalances through tariffs, quotas, or regulatory changes; the United States is notably sensitive to trade imbalances with China.
Practical linking to course: student managers should understand how to read trade data, anticipate policy responses, and align production with market conditions.
Trade definitions and data sources
Three main types of international trade (as introduced):
Export trading; import trading; and entrepot (re-export via intermediate locations after reconfiguration or labeling changes).
Entrepôt defined: when a product is brought into a country, reconfigured or repackaged, and then shipped out to a different country without staying domestically in that form.
The HS coding system (harmonized system): used to classify goods for customs purposes; typically six digits with three parts; higher granularity (eight or ten digits) exists depending on the country.
Example used: apples in HS nomenclature: Chapter (edible fruits and nuts), specific heading for apples, subheading for fresh apples, and country-specific subdivisions with a corresponding HS code.
The HS code is administered by the World Customs Organization (WCO); the World Trade Organization (WTO) is a separate global body but HS coding is a WCO standard; in the US, HS categorization is administered by the US International Trade Commission (USITC).
Coding is essential for ensuring consistent taxation and tariffs across borders; correct product classification affects duty, compliance, and border efficiency.
Practical tip: HS code accuracy matters for product classification; students will be asked to identify a plausible HS code for their veggie burger project and justify it without excessive emails.
Localized HS code extensions (8 or 10 digits) reflect country-specific classifications for more precise tariff and regulatory treatment.
International trade types and the entrepot concept
Accidental imports/exports: unintended import or export due to supply chain moves (e.g., components or products shuttled through another company and ends up shipping elsewhere).
Active exports: intentional production and shipment from the home country to foreign markets.
International marketing: partially invested approach to promote and sell in foreign markets without full deep commitment; may involve licensing or strategic alliances.
International production and distribution in a foreign market: building or using facilities abroad to produce and distribute to nearby markets (e.g., Belgium facility to serve Europe) to reduce shipping costs and accelerate time-to-market.
Foreign direct investment (FDI): direct ownership or control of a business in another country; several modes include:
Joint venture
Subsidiary
Greenfield investment (new facilities)
Brownfield investment (acquiring existing facilities)
Strategic alliances
Franchising or other direct investment structures
Smuggling: acknowledged as a regular risk in some contexts; occasional inclusion as a recognized form of illicit trade to consider in risk management discussions.
International trade planning implication: students should understand where their product sits on the spectrum from export-only to full FDI, and how to plan risk management and regulatory compliance accordingly.
Five levels of international trade (and related concepts)
Five levels (as outlined in lecture):
Accidental exports/imports (unintended cross-border movement of goods/services).
Active exports (intentional selling to foreign markets).
International marketing (limited foreign promotion; risk-managed entry; licensing).
International production and distribution in a foreign market (local production to serve foreign markets).
Foreign direct investment (full cross-border ownership/control).
An additional element added by the instructor: smuggling (illicit trade) as a risk and study point.
Practical note: a capstone-like mindset is encouraged; students should map their project to these levels and consider how risk, cost, and control shift with each level.
Geopolitical risk, tension, and trade behavior
Geopolitical risk can threaten supply chains and trade flows; tension can signal rising risk before it materializes.
When geopolitical risk is high globally, trade patterns can be nuanced:
Trade with the United States often increases due to proximity and stability.
Trade with other partners may decline due to uncertainty and risk.
The proximity effect: neighboring or nearby partners (like the US for Canada) provide relatively stable and reliable markets, especially under global instability.
The supply chain and payment risk: bringing goods into volatile regions increases the risk that invoices will not be paid; stability of partner countries matters for cash flow.
Practical application: in the veggie burger project, teams will receive destination details and must assess risk for each country (regulatory, political, payment reliability) as part of the logistics plan.
Logistics and port operations: shipping a product internationally
Logistics basics for a food product like veggie burgers:
Refrigeration is essential; refrigerated containers are required to maintain product quality.
Container sizes: common options include 20-foot and 40-foot containers.
Ports function like small cities with complex flows of ships, containers, trucks, rail, and customs.
Trunk lines: rail lines that connect inland facilities to ports for efficient shipping; may be preferred over road transport for large volumes.
Port flow and sequencing (typical ship-to-customer chain):
Ship arrives; ships wait for docking space; delays can occur if early/late arrivals or port backlog.
Customs and security checks occur on arrival and before unloading.
Docking with pilots and tugs; unloading; customs clearance; ship departure.
Tracking: containers are tracked via container numbers, RFID, GPS, and port interfaces; some ports have more advanced interface systems than others.
If a container is tracked, you can provide customers with real-time location updates (e.g., “20 minutes out”).
Port backlog and risk management:
Port backlog websites exist to check alternative port options if a primary port is congested.
The “timer” cost concept: entering a port incurs costs; delays in customs or failure to pick up can increase costs and affect profitability.
Scan and security measures:
Ports use X-ray/scan technologies; there are permanent and portable scanners to inspect containers; if tampering is suspected, seals must be broken to access contents.
Tracking and visibility:
Container IDs and sensor-based tracking enable precise location and status checks along the journey.
Global port network scale:
There are roughly 4,700 ports across about 170 countries; this large network supports the massive scale of international trade.
Practical implication for managers: understand the need for port planning, alternative routes, and contingency plans for port closures or backlogs; track shipments meticulously to satisfy customer expectations and protect margins.
Customs coding, regulation, and the governance landscape
HS coding basics recap:
Six-digit HS codes are standard; eight- or ten-digit codes exist depending on the country for more granular classification.
Codes are organized by chapters, headings, and subheadings, with country-specific subdivisions.
Example used: apples are classified under Chapter for edible fruits and nuts, with specific headings and subheadings for apples, and further country-level subdivisions with corresponding codes.
Administration and governance bodies:
US International Trade Commission (USITC) administers HS coding and related classifications for the United States.
World Customs Organization (WCO) provides the global standard framework for HS codes (not to be confused with WTO – World Trade Organization).
WTO handles broader trade rules and agreements; WCO handles classification standards used by customs administrations.
Practical importance of HS codes:
Determines tariffs and duties; ensures consistent treatment across borders; impacts cost, pricing, and profitability.
Encourages accurate product classification; incorrect coding can lead to delays or penalties.
Assignment for the veggie burger project:
Students will receive a plausible HS code for their product; validate it with cost/structure considerations; be prepared to justify the code in class discussions.
Managerial lessons, failures, and real-world takeaways
Why managerial insight matters in global trade:
Multinational companies can fail when they do not understand local culture, regulations, supply chains, or market preferences.
Examples discussed include several high-profile failures and near-failures:
Target Canada (2013–2015): 133 stores opened, ~17,000 employees laid off; approximately $2B loss due to misread on consumer demand, product mix, and pricing strategy; poor localization and timing.
Walmart in Germany: 85 stores opened; failed due to cultural and regulatory misalignment; roughly a billion-dollar loss; misreading discount culture and labor rules.
Target enters the UK; bankruptcy-like outcomes? (points to misread of market and timing; specific numbers not given for UK but cited as poor performance).
Home Depot in China: entry into China; initial optimism but didn’t fully account for rising consumer preferences and service expectations; partial success with limited footprint; overall cautionary tale.
KFC in Malaysia: advertising vs. in-store product mismatch; cultural and dietary expectations impacted performance.
KFC in Israel: dietary and cultural differences affecting product suitability.
Starbucks in Australia: misread local coffee culture; limited store format and location strategy; eventual shift in strategy but initial impact noted.
General Foods in Japan and Tang in France: failed product-market fit due to local consumer preferences (e.g., ovens in homes in Japan; Tang’s French audience preference for juice vs. breakfast drink).
Coca-Cola in Spain: two-liter bottle size mismatched with European refrigerators; packaging and refrigerator architecture matter.
Tesco’s unsuccessful packaging/food service experimentation in North America (examples: prepackaged meals concept in 2007; not immediately successful, later adjustments).
Canadian Tire’s expansion into Texas (1985) failed due to misalignment with dealers and price competition, resulting in heavy losses.
Takeaway on globalization strategy:
Being first-mover offers standard-setting advantages, but it also carries high risk; adaptation to local culture and regulatory environments is essential.
Even large, capable firms can fail if they underestimate local consumer behavior, distribution networks, or regulatory constraints.
The value of due diligence, cultural research, and risk management in project planning; executives should document discussions and decisions to avoid misattribution when problems arise.
Personal and professional guidance from the lecturer:
The instructor emphasizes that students are future global managers and should be able to translate theory into practical, context-specific decisions.
Encourages documenting discussions and decisions (logbooks and follow-up emails) to clarify risk and accountability when issues arise.
The class will incorporate a Jeopardy-style game to review key concepts and ensure retention; teams will be formed, and students should prepare to contribute to their team charter.
Final reflection on the big picture:
Global trade requires balancing market potential with risk, cost, and regulatory compliance.
The veggie burger case serves as a concrete exercise in applying theory to practice, including supply chain, port logistics, HS coding, and risk assessment.
The emphasis on profitability (the professor’s recurring focus on “profit” and the 10% target) underscores that effective global management must support sustainable margins.
Practical formulas, quantities, and codes to remember
Balance of trade formula:
Surplus if > 0; Deficit if < 0.
Trade structure and codes (conceptual):
HS code structure: Chapters → Headings → Subheadings → country-specific subdivisions; typical length: 6 digits originally; can extend to 8 or 10 digits for precision.
HS coding authority: World Customs Organization (WCO); national adoption and administration via bodies like USITC for the US.
Trade scale reference: ≈ dollars in international trade for 2023 (over $31 trillion).
Market size references (illustrative): EU population ≈ 450,000,000; US population ≈ 380,000,000.
Trade dependency metrics: Canada exports to the US ≈ 75%; Canada imports from the US ≈ 40%.
Port and logistics metrics (conceptual): 4,700 ports across ~170 countries; port backlog impacts cost and timing; refrigerated containers required for veggie burgers; shipping container sizes commonly 20 ft and 40 ft.
Global risk concepts (definitions):
Geopolitical risk: military actions, wars, intergovernmental clashes, border disputes.
Tension: leading indicators of risk; not full-blown risk yet.
Proximity and stability: stability of partner country influences trade volumes during times of global risk.
Connections to foundational principles and real-world relevance
Trade theory concepts mirrored in practice:
Comparative advantage and specialization themes appear in discussions of trade with the US, EU, and emerging markets.
Trade balances reflect macroeconomic signals and policy responses (tariffs, quotas, and regulations).
Real-world relevance:
The lecture emphasizes the need for adaptation to local contexts (culture, packaging, product fit) when expanding internationally, illustrated by many historical corporate cases.
Logistics and border management are not abstract; they determine delivery reliability, costs, and customer satisfaction.
Ethical and practical implications:
Decisions around outsourcing, foreign direct investment, and cross-border partnerships have social and economic consequences, including employment, regulatory compliance, and local market impacts.
The discussion of “buy Canadian” and foreign ownership touches on nationalistic sentiment and policy considerations in open markets.
Preparatory takeaway for exam and project:
Be prepared to articulate trade definitions, market dynamics, and regulatory instruments.
Analyze a product’s international expansion plan by considering HS codes, port logistics, risk assessment, and cultural fit; anticipate potential regulatory barriers and cost implications.
Be ready to discuss the pros and cons of different modes of entry (export, licensing, joint venture, greenfield/brownfield FDI) and to identify the most appropriate choice given market size, proximity, and regulatory context.
Terminology recap (quick reference)
CETA: Canada–European Union Comprehensive Economic and Trade Agreement.
EU: European Union; ~450 million population.
USMCA: United States–Mexico–Canada Agreement.
HS code: Harmonized System code used for customs duties; usually 6 digits; can be 8–10 digits by country.
WCO: World Customs Organization.
USITC: United States International Trade Commission.
Entrepot: Re-exporting goods after processing or labeling changes without domestic sale in original form.
Accidental exports/imports: unintended cross-border movements due to supply chain dynamics.
Active exports: intentional cross-border shipments from domestic to foreign markets.
International marketing: partial foreign market entry with some investment; licensing and alliances.
International production and distribution: foreign facility setup to produce and supply markets abroad.
Foreign direct investment (FDI): direct ownership/control of foreign operations (joint ventures, subsidiaries, Greenfield/Brownfield).
Three main trade types: export trading, import trading, entrepot.
Visible vs invisible trade: tangible goods vs services.
Balance of trade: exports minus imports; surplus vs deficit.
Geopolitical risk vs tension: military/regulatory vs signaling risk respectively.
Trunk line: rail line connecting inland facilities to port for shipments.
Perishable goods logistics: refrigeration requirements; container tracking via GPS/RFID.
Port dynamics: backlog, docking slots, customs clearance, pilots, tugs, charges, and the cost of time in port.
Note about the structure used in this study guide
The notes above are organized as top-level Markdown headings with bullet points to mirror a comprehensive study guide you could use to replace or supplement the original transcript.
Key numbers and terms are included in plain text and where relevant converted to LaTeX expressions wrapped in as requested.
If you want, I can tailor this into a condensed cheat-sheet or expand any section with additional examples or practice questions for your upcoming exam.