Chapter 4: International Business What Is International Business?

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Chapter 4 International BusinessWhat Is
International Business?

• A domestic transaction is the selling of items
  produced in the same country.
• An international transaction is the selling of
  items produced in other countries. These items
  contribute to the global economy.
• Benefits for Business
• access to markets
• cheaper labour
• increased quality of goods
• increased quantity of goods
• access to resources

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Chapter 4 International BusinessWhat Is
International Business?

• Benefits for Business
• Access to Markets
• By trading abroad, Canadian businesses can gain
  access to markets that are 200 times larger than
  those at home.
• Customers in other parts of the world have
  different needs and wants. Businesses must make
  adaptations to their products and services to be
  successful in other countries.
• A global product is a standardized item that is
  offered in the same format in all countries.
• Cheaper Labour
• Lower prices as the result of cheap labour in
  other countries is the number one reason why
  consumers buy items made in different parts of
  the world.

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Chapter 4 International BusinessWhat Is
International Business?

• Increased Quality of Goods
• International business can help producers improve
  the quality of the products they sell.
• Increased Quantity
• As long as a product has international appeal, so
  does the potential for increased sales.
• Access to Resources
• Connections to international markets provides
  businesses with increased access to the three
  types of economic resources natural, human, and
  capital.

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Chapter 4 International BusinessWhat Is
International Business?

• The Five Ps of International Business
• All countries benefit when businesses produce
  specialized goods and services that appeal to
  consumers.
• International business provides increased markets
  for businesses and offers them a broader choice
  of products, services, and prices for its
  consumers.
• The Five Ps of International Business
• Product
• Price
• Proximity
• Preference
• Promotion

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Chapter 4 International BusinessWhat Is
International Business?

• Product
• A countrys resources determine what goods and
  services it produces.
• Price
• The cost of producing goods and services varies
  from country to country. Sometimes it may be more
  profitable for Canadian businesses to produce
  products overseas and then ship them here to sell
  to consumers. Lower foreign wages, taxes, and
  material costs make it cheaper to produce
  products abroad rather than domestically.
• Proximity
• It may be more advantageous and profitable for
  some businesses to sell products and services to
  consumers near a neighbouring countrys border
  rather than to its domestic customers. For
  example, 80 percent of the Canadian population
  lives within 170 km of the American border.
  Therefore, many Canadian businesses trade
  extensively with Americans. The reverse is also
  true Americans market many of their goods and
  services to Canada.

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Chapter 4 International BusinessWhat Is
International Business?

• Preference
• Consumers often purchase foreign goods and
  services based on their reputation and
  specialization, even though similar products are
  produced domestically. Two examples are Swiss
  watches and Belgium chocolates.
• Promotion
• Technology, especially the Internet, makes it
  easy
• for businesses to promote their products and
  services internationally.

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Chapter 4 International BusinessWhat Is
International Business?

• Costs of International Trade
• The hidden or social costs often associated with
  international trade include offshore outsourcing,
  human rights or labour abuses, and environmental
  degradation.
• Offshore Outsourcing
• Offshore outsourcing occurs when businesses
  decide to produce all or part of their goods in
  countries where labour costs are lower. Some
  advantages include proximity to natural
  resources, more efficient technology, indigenous
  innovation, and favorable tax structures.
• However, offshore outsourcing faces potential
  changes in the future as companies may turn to
  transnational corporations that operate in
  several countries to produce their goods and
  services.

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Chapter 4 International BusinessWhat Is
International Business?

• Human Rights Issues and Labour Abuses
• Some workers in poor countries face labour
  exploitation, such as physical and sexual abuses,
  forced confinement, non-payment of wages, denial
  of food and health care, and excessive working
  hours. Child labourthe regular employment of
  boys and girls under the age of 16is commonly
  practiced in poor countries where the workforce
  is often exploited.
• Environmental Degradation
• Sustainable development is the process of
  developing land, cities, businesses, and
  communities that meet the needs of the present
  generation without compromising those of the
  future.
• Environmental degradation is the consumption of
  natural resources, such as trees, water, earth,
  habitat, and air, faster that nature can
  replenish them.

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Chapter 4 International BusinessWhat Is
International Business?

• Barriers to International Business
• The Canadian government uses barriers, often
  referred to a roadblocks, to help protect
  domestic businesses and consumers.
• Tariffs
• Tariffs, also called customs duties, are a form
  of tax on certain types of imports. Finished
  imported goods include tariffs, which increase
  their prices. Canadian products do not carry such
  tariffs, and, therefore, may be sold at lower
  prices. In an effort to protect their domestic
  industries, countries put up tariff barriers by
  increasing the cost of imported goods.

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Chapter 4 International BusinessWhat Is
International Business?

• Non-tariff Barriers
• Non-tariff barriers are controls or standards for
  the quality of imported goods set so high that
  foreign competitors cannot enter the market.
• Costs of Importing and Exporting
• The price of a product or service must take the
  landed cost into consideration. The landed cost
  is the actual cost of an imported purchased item,
  composed of the vendor cost, transportation
  charges, duties, taxes, broker fees, and any
  other charges.

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Chapter 4 International BusinessWhat Is
International Business?

• Excise Taxes
• An excise tax is a tax on the manufacture, sale,
  or consumption of a particular product within a
  country.
• Currency Fluctuations
• Since currency rates fluctuate on a daily basis,
  an international purchase made on one day may
  cost less or more than another purchase on the
  following day. Shifting currency exchange rates
  vary as the economic strength of the two
  countries change on a daily or weekly basis.

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Chapter 4 International BusinessFlow of Goods
and Services

• Imports, such as raw materials, processed
  material, semi-finished goods, and manufactured
  products, flow into Canada. Goods and materials
  also leave Canada as exports.
• Balance of Trade
• To maintain a healthy balance of trade, countries
  try to import the same total value of products
  that they export. An imbalance of the two results
  in the following
• a trade deficit in which a country pays more for
  imports than it earns from exports
• a trade surplus in which a country earns more
  from exports than it pays for imports

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Chapter 4 International BusinessFlow of Goods
and Services

• Imports
• Five Ways to Offset the Risk of Importing
• Measure consumer interest.
• Use care when selecting foreign suppliers.
• Learn about a foreign partners culture.
• Carefully scrutinize the purchase agreement and
  then sign it.
• Check goods for quantity and quality upon
  arrival.
• Exports
• Direct exporting is exporting a product directly
  to an importer without using an intermediary.
  Indirect exporting is exporting a product to an
  intermediary who then conveys the product to the
  importer. Larger established companies usually
  use direct exporting while newer ones utilize
  indirect exporting.

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Chapter 4 International BusinessFlow of Goods
and Services

• Offsetting Risks
• Exporters reduce risks by planning carefully. As
  part of their plan,
• they conduct market research to ensure that there
  are consumers for their goods and services.
• Canadas Major Trading Partners
• Canadas number one trade partner is the United
  States.
• Three major reasons for trading with the United
  States include
• low cost shipping due to proximity
• similar cultures (language, interests, product
  interest, and so on
• a market that is 10 timers larger than the
  domestic one

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Chapter 4 International BusinessCanada and
International Trade Agreements

• Two Main Advantages to Reducing Trade Barriers
• Domestic business can sell their products abroad
  at lower prices since duties are not added.
• Consumers have access to new foreign products
  that may result in lower costs and quality
  improvement of domestic products.
• Trade agreements between countries allow goods
  and service to flow more freely across boarders.
• World Trade Organization (WTO)
• In 1947, the General Agreement on Tariffs and
  Trade (GATT) was signed by 23 nations who were
  allies in World War II. The trade agreement came
  into effective in 1948. Eventually, GATT grew to
  115 member states before it was replaced by the
  World Trade Organization (WTO) in 1995. Today the
  WTO is the principal international organization
  that deals with rules of trade between nations.

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Chapter 4 International BusinessCanada and
International Trade Agreements

• North American Free Trade Agreement (NAFTA)
• Canada-U.S. Free Trade Agreement (FTA) came into
  effect in January
• 1989. In 1994, Mexico, the United States, and
  Canada formed the
• North American Free Trade Agreement (NAFTA).
• Other Free Trade Agreements
• Bilateral agreements involve Canada and one other
  country or group.
• A trading bloc is a group of countries that share
  trade interests.
• The Group of Eight (G8)
• The Group of Eight (G8) is an association of the
  worlds most powerful
• industrialized democracies. Meeting annually, the
  G8 deals with economic
• and political issues facing their own countries
  and those of the larger
• international community. Topics discussed include
  energy, employment,
• the environment, human rights, and arms control.

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Chapter 4 International BusinessThe Future of
International Trade

• The Asia-Pacific Economic Corporation (APEC) is
  an economic development organization formed in
  1889. The Asia-Pacific market is the fastest
  growing trade group.
• European Union (EU)
• In 1993, the European Union (EU) united 12 member
  states into a true single market. Today the EU
  has 15 members and a population of more that 370
  million people.
• Evolution of NAFTA
• If NAFTA becomes a single market, it could result
  in workers from the US, Canada, and Mexico moving
  freely between countries.

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Chapter 4 International BusinessThe Future of
International Trade

• Impact of Cultural Differences
• International trade depends on our response to
  and acceptance of
• cultural differences. Culture is the sum of a
  countrys way of life,
• beliefs, and customs.
• Dealing with People
• Conducting successful business in foreign
  countries involves learning
• what is important to their populations as well as
  its cultural nuances.
• Punctuality
• The value of punctuality depends on the cultures
  some cultures value timeliness, some do not. It
  is important to understand this before visiting
  foreign countries. Other characteristics to
  recognize are working at an acceptable pace,
  having good manners, and learning to avoid waits
  and disappointments.
• Greetings
• Greeting someone can leave an important first
  impression.

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Chapter 4 International BusinessThe Future of
International Trade

• Nonverbal Communication Signals
• Nonverbal signals can convey more than words do.
• Good Manners
• In Canada, the United States, and some European
  countries, business is completed at a quick and
  efficient pace. Most other countries prefer to
  get to know people before any business is done.
• Decision Making
• In North America, decision making is typically
  top-down. In other cultures, decisions are made
  from the bottom up.
• Global Dependency
• Global dependency exists when customers in one
  country demand items that are created in another.