CH.5 ~GLOBAL CONTEXT OF BUSINESS~

• World economy is increasingly transforming into one interdependent system also known as “GLOBALIZATION”
• Success of many Canadian firms depends on exports
• impact of globalization does not stop with firms looking to open locations abroad or closing location that fail
  • small firms with international operations (independent coffee shops) may still buy from international suppliers
  • individual contractors/self-employed people can be affected by fluctuations in exchange rates
• International trade is central to the fortunes of most nations of the world, as well as business
• Sometimes nations may follow strict policies to protect their domestic companies
  • can be an issue b/c trade is a two-way street
  • if new restrictions are put into place, the partner can fight back and make it hard for the companies to sell in their country as well
• Most countries are aggressively pushing international trade
  • are opening borders to foreign businesses
  • offering incentives for their domestic businesses to expand internationally
  • making it easier for foreign firms to partner with local firms through various alliances
• Why several forces have combined to spark and sustain globalization:
  • Gov’ts and businesses have learned the benefits of globalization to their countries and shareholders
  • modern technologies have made travel, communication, and commerce easier/faster/cheaper
  • cost of overseas calls and seaborne shipping costs per tonne have both declined sharply over the past several decades
  • social media is connecting people from around the world, daily
  • competitive pressures
  • sometimes a firm has to enter a foreign market to keep up with competitors
• Critics of Globalization claim:
  • businesses exploit workers in still-industrializing countries + avoid domestic environmental & tax regulations
  • leads to loss of cultural heritage
  • benefits the rich more than the poor

~Major World Marketplaces~

• managers of international businesses need to have a good understanding of the global economy which includes the world marketplaces

~Distinctions based on Wealth~

• Per Capita Income (PCI) is used to make distinctions among countries

  • High-income
  • Annual per capita income is > ~US$12,500.
  • includes nations like Canada, States, most countries in Europe, UAE, Cayman Islands, etc.
  • Upper-middle-income
  • Annual PCI is US$4,000 - US$12,500
  • countries: China, Libya, Lebanon, Indonesia, and South Africa
  • Low-middle-income
  • Annual PCI is US$1000 - US$4000
  • Ukraine, Pakistan, Philipines, Vietnam, etc.
  • Low-income countries (developing countries)
  • US$1000 OR LESS
  • Afghanistan, Malawi, Haiti, etc.
  • Due to low literacy rates, weak infrastructure, unstable gov’ts, and related problems, they become “less attractive” for international business

  ~Geographic Clusters~

• Three Major Marketplaces: North America, Europe, and Asia

• The three key geographic regions are home to most of the world’s largest economies, biggest corporations, influential financial markets, and highest-income consumers

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~Barriers to international trade~

• Many factors/differences can affect the international operations between countries like social, economic, and political issues.

~Social and Cultural Differences~

• differences in the average age of the local population can impact product development and marketing
• countries with growing populations tend to have a high percentage of young people
  • electronics, construction-related products, sporting goods, and fashionable clothing would do well
• countries with stable/declining populations tend to have more elderly people
  • generic pharmaceuticals, travel/leisure-related products for active retirees and electronic communication devices (hearing aids, tablets for zoom/Facebook) would be successful

~Economic Differences~

• hard to conduct business when an economy lacks stability

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~Legal and Political Differences~

• legal and political differences are often closely linked to the structure of economic systems in different countries

  • Issues include tariffs/quotas, local-content laws, and business practice laws

  ~Quotas, tariffs, and subsidies~

• free-market economies often use some sort of quota/tariffs that affect prices/quantities of foreign-made products in those nations

• Quota: restricts the total number of certain products that can be imported into the country

  • the ultimate form of quota is embargo: gov’t order forbidding exports/imports of a product

• Tariff: tax on imported goods

  • directly affects the prices of products
  • raises money for gov’ts and somewhat discourages the sale of imported goods

• Subsidy: gov’t payment given to a domestic business to help it compete with foreign firms

  • can have a negative impact on producers in other countries

• Protectionism: the practice of protecting domestic businesses at the expense of free-market competition

  • supporters agree that tariffs and quotas protect domestic firms and jobs
  • can protect new industries until they can compete internationally
  • can be justified in the name of national security
  • reduces competition and drives up prices
  • cause of friction between nations
  • while jobs in some industries would be lost if protectionism stopped, jobs in other industries would expand if all countries abolished tariffs and quotas.

~Local-content laws~

• country can affect how a foreign firm does business thereby enacting local-content laws that require products sold in a country must be at least partly made in that country
  • firms seeking to do business there must invest directly or have a local joint venture partner
• some of the profits in a foreign country are with the people who live there
• might even exist within a country, can act just like trade barriers

~Business Practice Laws~

• Definition: law or regulation governing business practices in given countries
• Cartel: an association of producers whose purpose is to control the supply and price of a commodity
  • have been evident in oil-producing countries (OPEC), diamonds, shopping, and coffee
• Dumping: selling products abroad for less than the comparable price charged in the home country

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