BBB4M – Grade 12 International Business Exam

BBB4M – Grade 12 International Business Exam Domestic vs International Business ● Business: is the manufacturing of goods or services in order to make a profit ○ Term “trade” is used interchangeably with business ● Transactions: exchange of things of value ● Domestic Business: business that transacts mainly in the country it was base din ○ ie owned by Canadians, in Canada, selling to Canadians (Rare) ● Business performed between entities in other nations is known as international business. ● Domestic Transaction: between 2 Canadian companies ● International Transaction: between Canadian + non Canadian company ● Domestic Market: the customers of a business who are in the same country as the business ● Foreign Market: the customers of a business who are in a different country as the business ● 5 Ways for businesses to must be international ○ MUST own retailers or distributors in another country ○ MUST own manufacturing plant in another country ○ MUST export to other countries ○ MUST import from others ○ MUST invest in other country businesses ● Trading Partner: Canada businesses make relationships with businesses in another country, so they would be Canada’s trading partner. History of Canadian Trade ● European Trade ○ 1700s – trades grew fast after permanent Canadian settlement ○ Demand for raw materials (beaver pelts, fish, lumber) ■ Europe manufactured Canada’s raw materials ○ After 7 years war, England and Canada made trade agreements (help war torn France) ■ near-port cities used to facilitate trade import/exports ● US trade ○ Late 1700s, US independence and self reliant ○ Steam engine 1775 James Watt: revolutionized manufacturing and transporting ○ Cotton Gin by Eli Whitney: made cotton fibers, traded cotton with Canada ○ USA did most of Canada’s raw material manufacturing ○ To this day, US remains as Canada’s biggest trading partner ○ Mexico ■ NA Free Trade Agreement (NAFTA) made duty free trade in North America ● Asian Trade ○ 1940s – Traded with Japan for electronics and cars ○ China manufacturing (Wal-Mart $15B to China) ● Trade with Middle East ○ Oil ○ Politics, lack of industrialization, and technology limited trade ○ Dubai, Egypt, Israel have trades asides from oil ● Indian Trade ○ High, educated population ○ Outsourcing and manufacturing ○ Although open government, lack of infrastructure and issues troubled trades ○ India aggressively expanded internationally ■ Imports: Linen, Rice, diamonds, clothes ■ Exports: fertilizers, vegetables, newspaper, copper ● African Trade ○ Very low exchange with Canada (1% import, 3% export) ○ Corrupt government, infrastructure problems loom ○ Lots of primary resource potential ○ South Africa (no-oil) and Morocco (oil/fruits) trading partners: Globalization and Interdependence ● Globalization: where economies and cultures have become integrated through new global communication, investments, trade, and transport ○ easy to globalize nowadays ○ global sales, finance, marketing, manufacturing, transportation = globalization ○ international business IS NOT globalization ■ businesses can operate internationally but not globally ○ global businesses can be affected by global events ■ 2008 recession ■ Banks lent at low rates ■ not getting returned, lost money ■ closure of operations forced ● History: Globalization began after WW2 ○ United Nation first sign of globalization ■ Helps negotiate treaties and tariffs ● Technology: Internet/cellular made trades nearly instant, quick, even at remote places ● Social Issues ○ China – India building big economies ○ Large companies want to expand in China/India ■ Workers, moneyflow from huge population ○ Blur of political boundaries ■ EU collaborated all Europe nations ■ Agreements merge borders ● Interdependence: reliance between 2 or more nations for each other’s products and services ○ eg US relying on China to make goods ● Primary Industries: Mainly Raw materials ○ Agriculture, Hunting, Fishing, Energy/Mining, Forestry (FEFAH) ○ Western Canada: oil, gas, metals, beef ○ Eastern Canada: oil, offshore oil, minerals ● Secondary Industries: manufacturing or processing capital goods or consumer goods ○ Canada as good manufacturing paper, oil refining, diamond, paper ○ Canada relies on US and China for making other goods ■ Branch Plant: a factory located outside of host country ■ Canada branch plant policy saying you must have a factory to conduct business here ■ Disadvantages of branch plants (3) ■ Business reduction in roles mainly R&D and execs ■ Innovation follows parent company ■ Exports lack – made in Canada for Canadians ■ Non-Canadian Materials – uses imported materials often ■ Foreign secondary + domestic secondary can add value to raw materials ● Tertiary Industries: provides services for consumers and businesses ○ Retail is the largest (banking, construction, communication) ■ Canadian retail depend on imports ■ Most Canadian retailers are owned by foreign places How International business help Canadians ● Variety of products ○ most products made in USA, but we have access to those ○ experiences from around the world ○ electronics mostly imported ○ benefit from cheap labor and materials in China and India ● New Markets, More Jobs ○ 34 M pop’n in Canada, 100M pop’n in USA, 1B+ pop’n in China ○ BL: make products that suit Chinese demographics ○ Tim Hortons USA locations mean they hire more people ○ Foreign companies in Canada spend more money on R&D ● Foreign Investments ○ (1) Foreign Direct Investments (FDI): done to control all or some of business’ operations (startups) ○ (2) Foreign Portfolio Investments: stocks/bonds/funds issued by companies to own a part of it ○ HBC went bankrupt if it wasn't for foreign investments backing them up ● New processes and Technology ○ medical, consumer electronics How International business hurts Canadians ● Loss of culture/identity ○ Movies are mostly representing American culture, rare about Canada ■ CRTC regulates how much Canadian TV shows are shown in Canada ■ 35% of radio music must be canadian ■ M – Music ■ A – Artist ■ P – Produced ■ L – Lyrics ■ Canadians are often aware of Canadian books and TV shows due to recognition ○ Increased foreign ownership of Canadian companies ■ Foreign companies are likely to stay loyal to their home country ■ often leaves Canada in the dark when corporate problems rise ■ R&D is often left in home country, making such jobs not in Canada and lowered profits ■ Reduced Exports: foreign branch in Canada does things for Canada and does not export ■ Revenues leave Canada pay head offices: Canadian branch helps pay head office costs ■ This lowers actual income and lesser taxation. ■ High jobs like accounting, advertising, and marketing is done in home country ■ Economic destabilization, Global events can influence and impact Canadian economy due to many plugins from foreign businesses ■ Eg 2008 American “Buy American” campaign negatively affected CDN economy. International Business Practices ● Canada trades internationally because of 7 main reasons: ○ Company Growth ○ Entry into new markets ○ Expanded customer base ○ Increased profits ○ Access to inexpensive supplies ○ Lower labour costs ○ Access to financing ● Foreign Portfolio Investment (FPI): investments made on items from foreign countries ○ Joint Ventures are the riskiest ■ High % of ownership reside in foreign country, not home country ○ CDNs purchase stocks, bonds, and financial instruments to make money ○ Dividend: Interest made or amount that can be gained from an investment ○ Short-Term Investments: (Liquid) safe because they can be converted to cash easily ○ Capital Market: investing platform with long-term investments such as bonds, stocks. ■ Stocks are a popular way of FPI in New York or Tokyo. ■ Mutual Funds: combined $ from many people are invested and dividends paid ○ CDNs invest in foreign to diversify their portfolio ■ Canada is only 2% of world’s stock markets ■ Risk: International markets are interrelated with global events ■ 2008 US Crisis affected global markets ● Imports: bringing products or services into a country ○ Intended for resale or Business to Business (B2B) ○ Global Sourcing: importing equipment, capital, raw materials from around the world ○ Importing helps keep costs low, improve quality, or access new technologies ○ Services can also be imported ■ Call centers are regularly imported from India ○ Canada Imports: machinery, cars, oil, chemicals, electricity, consumer goods ○ In 2008, Canada’s import were ~$490 B ● Exports: when companies outside of Canada purchase Canadian goods or services ○ Services can also be exported, ie Call centers ○ Canada exports lumber, telecom. equipment, chemicals, plastics, fertilizers, oil, gas, electricity, aluminum ○ In 2008, Canada’s exports were ~$443 B ○ Exports are vital to Canada’s economic success ○ #1 CA trading partner is US, who is 77.7% of global exports ● Optional Section: Oil ○ CA imports 1 M barrels/day ○ CA exports 3.4 M barrels/day ○ CA imports for Eastern CA because there aren’t pipelines spanning west-east, only north-south ● Value Added: amount of worth that is added to a product as it is processed ○ = cost of finished products – cost of raw materials ○ Issue: Canada, making mainly primary goods, have little Value added to exports ○ Example: Value addition for furniture ■ CDN Lumber sold at $50, zero value added ■ US Furniture Maker sells table at $3000, added $2950 in value ■ CA Furniture store buys table for $3000, sells for $4500, made $1500 in value ● Licensing Agreement: gives a company permission to use a product, service, brand name, or patent in exchange for free or royalty. ○ Usually applicable in one specific region ○ For Example: Bell Mobility wanted to use UK Virgin brand in CA ■ Bell has to pay Virgin a fee for using it in Canada ■ Bell therefore has increased profits because of this new brand ● Exclusive Distribution Rights: a form of licensing where a company is allowed to be the only distributor of a product in a specific geographic area. ○ Strategy often used as an entry into a foreign market ○ Example: Rogers was the exclusive carrier for the iPhone 3G in ’08 when it first came out in CA ○ Licensing is used mostly for manufacturing also ■ Senior parent company staff are sent to train foreign manufacturing ■ After they are trained, the foreign employees manage it as parent staff retreats ○ Licensing agreements have little risk but offer limited money returns. ● Franchising: agreement to use a company’s name, services, products, and marketing. ○ Franchisee signs a contract and agrees to follow all the rules with the franchisor ○ They pay franchisor fees for finance, marketing, HR, operations, quality support ○ Examples include Kumon, McDonald’s, Wendy’s, Boston Pizza ○ Franchisees have less risk and lots of support from franchisor ○ Often have lesser profit, strict rules, and loss of control ● Joint Ventures: when 2 businesses, one from a foreign country, form a company with shared ownership ○ 25-40% of all foreign investments are joint ventures ○ Reason: joined so they’ll be allowed into countries ■ Often joining with gov’t or companies in China or Cuba with communist ■ Trade Winds Inc is a CDN mining company in China to explore ○ Companies can gain control of new markets, customers, and products ○ May also share financing, technology, cultural, risk reduction ○ However, it may be a risk for investors because 50% of all joint ventures fail ■ GM and Toyota joint failed, lost investor’s money ○ To overcome these risks, formal contracts, and attention to detail makes things run smoothly Trade Barriers ● Tariffs ○ Most common type of trade barrier ○ Tariffs are taxes or duties put on imported products or services. ○ Purpose to raise the cost of imported goods so consumers will purchase local products ○ Protectionism: shielding against foreign competition ○ Winners ■ Domestic government ■ Local producers ■ Local employees ○ Losers ■ Foreign producers ■ Consumers – price of products go up ■ Foreign employees – overseas employees lose out on opportunities ○ Canada uses NAFTA to void taxes in North America ● Trade Quotas ○ Government imposed limit on the amount of a product that can be imported ○ Protects domestic producers limiting import and reducing foreign competition ■ eg Canada has a quota of 14.5M kg of peanut butter to export to USA ○ Tariffs increase once company exceeds quota ● Trade Embargoes ○ banning ALL trade on a specific product or with a specific country ○ used to pressure foreign countries to change government policies or human rights ○ Embargoes increase the price of products as supply decreases ■ 2003 Canada embargo for beef with mad cow disease ● Trade Sanctions ○ Action taken by a country to force another to follow to international trade agreements or norms of conducts ○ Similar to embargoes, but Sanctions often only involve banning some products ○ Cuba – USA sanction for banning trade will continue until Cuba becomes democratic ● Foreign Investment Restrictions ○ Laws in Canada influences foreign investment ■ Investments Canada Act must review investments to make sure they benefit Canada ■ ie investments > $5M with non WTO country must be reviewed ■ investments >$312M with WTO country must be reviewed ■ trades of uranium, financial, transport, or culture industries must be reviewed ■ Bank act, telecom act, transport act also limit foreign ownership ■ Transport act limits 25% ownership to all Canadian domestic airlines ■ Canada faces foreign restrictions too ■ Canadians face Australia’s Foreign Investment Review Board for >$5M real estate invests ● Standards ○ Countries have different standards for environmental protection, voltage, or health/safety ○ Companies making products must account for compatibility in foreign standards ○ ISO (International Organization for Standardization) can help alleviate this standards issue ● Currencies ○ Exchange Rate: amount of currency in relation to the currency of another country ○ Fluctuations cause barriers because of uncertainty in pricing goods accurately ○ CAD often quoted with USD because they are largest partners in the world ■ Historically CAD was less than USD, at one time low of 1 CAD = $0.637 USD ■ But now it’s sometimes higher if not even at most times ■ Canada is 7th most traded in the world ● Winners of High Canadian Dollar ○ Importers: consumers like high dollar, means pay less CAD for USD products ■ Companies gain when importing US goods like machinery etc. ○ Canadian Travelers: costs less to spend CAD in USD after conversion ○ Major League Sports Teams: teams operating in Canada pay US dollars to players ■ If CAD is higher, it costs USD less to pay Canadian players ● Losses of High Canadian Dollar ○ Exports: difficult to foreign importers to buy Canadian products ■ causes companies to leave Canada for less expensive locations ○ Canadian Tourism: high cost in Canada keeps tourists home ■ 2009 Passport policies discouraged American visits even more ■ Hollywood Movies which were usually made in Canada are no longer ○ Canadian Retailers: Canadian shops in USA don’t import from Canada, prefer to buy from elsewhere ● Factors affecting the exchange rate ○ Floating Rate: no fixed rate in CAD compared to other currencies ○ Currency Valuation: demand > supply causing CAD to rise ○ Currency Devaluation: supply > demand causing CAD to fall ■ Economic Conditions in Canada: Inflation rate, GDP, unemployment rate have impact ■ Inflation Rate low = good stable prices ■ GDP increase = stable healthy economy ■ Low unemployment = good job market ■ Interest rates in CA attracts investors here ■ Trading Between Countries ■ Export > Imports = more demand for currency ■ Higher Terms of Trade: comparison between exports to imports = Higher currency ■ Politics: stability of country affects currency ■ Tension, terrorism, rioting ■ Psychological Factors: historical significance on international market ■ In international uprising, Swiss Franc is refugee, US+Euro are safe. ■ Hard currencies: easily convert to other currencies (CAD, US, Euro) ■ Soft currencies: not easily converted (Yuan, Russian ruble) ■ Canada wasn’t affected in the 2008 recession because, by comparison, the US had more problems while Canada’s natural resources were still growing. Thus, CAD still stayed high ● Currency Speculating: trading or holding foreign currency in anticipation of its changing value ○ Profit from currency fluctuations ○ Canadian companies often trade in USD to avoid currency fluctuations ○ Also trade with other countries in USD to have common currencies ○ Overcome currency fluctuations with multiple bank accounts serving different currencies ● Time Zones ○ Different time zones mean Canada can’t call Japan on demand, they must wait for the right time ○ Communication technologies make it easier, but still a barrier ○ Call centers business take advantage of this ○ Text/email can communicate, but real time feedback is hard to happen Culture Intro ● Culture: encompasses the knowledge, experience, beliefs, values, attitudes, religion, symbols, and possessions acquired by a group of people who lived in the same region or country for generations. ● Subculture: a cultural group within a larger or predominant culture distinguished from it by factors such as class, ethnic background, and religion, and unified by shared beliefs and interests ● Counter Culture: A culture that has values or lifestyles that are in opposition to those of a current accepted culture. Members of a counter culture openly reject the established cultural values that surround them. ● Culture Determinants: The main factors that shape the culture of a specific group include religion, politics, topology, climate, and history. Culture of Saudi Arabia ● ● ● ● ● ● Revolves around religion of Islam Prays 5 times a day Friday is a holy day, Weekend is Thurs – Sat Clothing is loose because its hot Women hide everything except hand feet and face Criminal cases are tried under Sharia (Sunni Islam) courts Culture of Japan ● ● ● ● ● ● ● ● Shintoism and Buddhism dominate (caring for nature and logic Hierarchical, status matters Kimonos worn by women during special events Gifts are informal for visits, formal for meetings Wrapping is often more important Opened when recipient is invited to do so Extravagant gifts are not appreciated, sets up inequalities between both parties Belittle your informal gift at visit (“It’s only a token but..”) Cultural Awareness and Business ● Canadian firms going global must determine the cultural differences ● Decide whether or not their business can adapt to foreign culture Extent of foreign operations ● Level of cultural awareness will depend on how much business a company does in foreign country ● Primary domestic operations that export do not need to care ● Manufacturing, retail are more crucial Degree of cultural differences ● If foreign culture is similar, no need to spend as much time ● If it's very different, then you need to spend more time Number of Foreign Operations ● Businesses in foreign markets need to be aware the difference between cultures Impact of culture on international business ● Failure to consider culture could ruin negotiations, marketing, labor, or even death ○ Products ■ Culture has a direct impact on the types of products and services that will be successful in other markets ■ Culture has little impact on the sale of Canadian raw goods ■ Canadian exports depend on foreign culture though (ie pork in jewish/muslim area) ○ Services ■ Financial services are most commonly exported into foreign markets ■ People’s attitude towards money is different in every culture ■ Chinese like to save money, investment firms like to tap into the billions of dollars Impact of culture on labor ● Canadian values extend into the workplace by means such as minimum wages, safety, discrimination, and holidays ● Rationalization: any attempt to increase a company’s effectiveness and efficiency ○ Ex. Downsizing, layoffs, relocating corporate functions and activities ● Many companies find Canadian labor is very expensive for manufacturing jobs ● For skilled jobs, Canada is very educated and well fitted for those tasks ● Canadians who wish to do business abroad must understand the differences between other country’s values about labor ● Child Labour ○ Child Labour is very prominent in Asia and the Pacific countries ○ To Canadian businesses, this is easy to control, just don’t hire kids ● ● ● ● ○ But to some nations, it may be ok or they don’t care who’s working ○ Some take advantage of kids, putting them in dangerous conditions ■ If a Canadian business is caught doing this, Canadians will see this as unacceptable and will decline to buy their products Discrimination ○ Canadian law prohibits any form of discrimination in the workplace ○ However, in Saudi Arabia, hiring women can be difficult as their values are different ○ Homosexuality may also be less welcomed in other countries Wages ○ Wages reflect standards of living in a country ○ Canadian manager must ask what is an acceptable or average wage in foreign countries Standards and Practices ○ Cultures may have different norms as part of the workplace than Canada ■ Lunch breaks: Canada = 1 hour, Mexico = 2 hours, Muslim Countries have times to pray ○ Labour Unions and benefits may be non-existent in some countries ○ Different labor cultures affect Canadian branch plants that they must respect Indigenous Cultures ○ Foreign branches must be aware of indigenous cultures ○ Positive indigenous effects: employment, medical, roads, water. ■ Ie Businesses who need educated people might benefit local schools etc. ○ Historically, it hadn’t worked out with indigenous people ■ Ex French Canada traders abused Native Indians to do resource extraction ○ Angola and Sierra Leone have rebel forces trading Diamond with bloody conflicts ■ Exploitation of diamonds for guns harms ecosystems, human life, and animal life ■ Thousands of indigenous colonies get displaced when companies expand into forests Business Meetings and Negotiations ● Canada ○ ○ ○ ○ ○ ○ Men wear suits, tie, jacket, black shoes, dress pants Women wear blazers, suit, or dress 10 minutes before meeting Sits at side of meeting table Shakes hand, maintains eye contact Logically paced presentation and scheduling ● Time Perception ○ Monochronic: sees time as linear and sequential, and focus on one thing at at time ■ Based on contracts, back and forth, formality, fact based, direct ○ Polychronic: sees many things happening at the same time with participation of many people ■ Works based on trust, contacts, and lesser formal ● Spatial Perception ○ Refers to the personal space and amount of physical contact ○ Europe, South Americans are closer than North American cultures ○ Physical contact can involve kissing, touching ■ Canada: hand shaking, patting on back is appropriate ■ Latin America: Kissing, hugging, patting is appropriate ■ Muslim: touching is offensive ○ Seating can also be different ■ Canada likes sitting across from each other, China likes side by side ● Non-Verbal Communication ○ Non-Verbal communication is closely related to cultural norms of space. ■ Ie Japan is strict to have 1 person talking at once, whispering is unacceptable ○ Some gestures are regarded as offenses ■ Ie “OK sign” is obscene in Spain ● Business Etiquette ○ Expectations for how a business person presents him/herself in a meeting is different ○ Business cards, dress, punctuality, gifts, greetings, and topics should be considered Hofstede’s Cultural Dimensions ● Power Distance (PDI) ○ How different in power between people is perceived differently. ○ High Power Distance ■ Cultures with superiority because of age, wealth, gender, status, job etc. ■ Ex. Mexico, India, Indonesia ○ Lower Power Distance ■ Cultures that assume on equality regardless ■ Assumed based on earned status and how you build yourself ■ People aren’t prejudged ■ Ex. Israel, Canada, Austria ● Uncertainty Avoidance (UAI) ○ How cultures adapt to change ○ High Uncertainty Avoidance ■ You like rules, routines, religion, belief ■ Act based on beliefs ■ Little tolerance for outsiders ■ Ex. Mexico, Japan, Saudi Arabia ○ Low Uncertainty Avoidance ■ Love risk taking and seeking change ■ Very high tolerance for difference ■ Accepting, diverse ■ Ex. Canada, USA, Sweden, Singapore ● Masculinity vs Femininity (MAS) ○ Workplace values of males and females ○ Masculinity ■ Something we possess and show ■ Being assertive, competitive, ambition, accumulative of material goods (collecting) ■ Ex. Japan, Mexico ○ Femininity ■ Degree of culture values nurturing, family values, and social support systems ■ Ex South Korea ● Individualism vs Collectivism (IDV) ○ Extent to which a person makes their own decisions regarding your education, job, and life partner ○ Individually (High IDV) ■ Makes decisions yourself ■ Ex Canada, USA, Australia ○ Collectivism (Low IDV) ■ Members have government, churches, and families make decisions for them ■ Ex. China, Cuba ● Orientation (LTO) ○ Long term orientation vs Short term orientation ○ Long Term Goals ■ Having perseverance for long term goals ■ Ex. South Korea ○ Short Term Goals ■ Looking at the present, what are you going to do now. ■ Ex. USA, Canada ● Hofstede’s Canada ○ High IDV: individualistic approach and attitude. Privacy. ○ Low LTO: short term driven and appreciates cultural traditions ○ Low PDI: High level of equality. Economics and Politics ● Political System: the type of government by which a country is run ● Economic System: the way a country organizes its resources and distributes good to citizens ○ Economic systems try to answer: ■ What should the country produce and in what quantities? ■ How should scarce resources such as labor and capital be allocated? ■ How should goods and services be distributed throughout the country? ■ What should be the price of goods and services? ○ Market Economy: capitalism or private enterprise ■ Businesses, consumers, government run independently of each other ■ Ensure there is a variety and little government control ■ Atmosphere in which citizens and corporations can be successful ■ Private Property: encouraged to own property (real estate, automobiles, furniture..) ■ Free to rent, sell, trade, or give properties ■ Profit: encouraged to be profitable because then companies can improve ■ Profit belongs to the owner of the business and they choose how to spend it ■ Competition: Companies compete on quality, services, price, reputation & warranties ■ competition results in more incentives by the companies to have loyal customers ■ Advantage: ■ Freedom of speech, religion, assembly ■ Efficiency ■ Innovation ■ Economic Growth ■ Low prices ■ Disadvantages ■ Rich and Poor gap ■ No education ■ Unhealthy products ○ Centrally Planned Economies: communism or command economy ■ Government controls all element of the economy and distributes income ■ Government provides education, healthcare, employment, and housing ■ Private Property: Restricted. Government owns all housing & businesses like factories, offices, farms. All workers are employed by the government ■ Profit: Profit belongs to the government. No portion belongs to citizens. Governments re-invest revenues into businesses or education, military. Governments control prices to increase revenue when needed ■ Competition: Limited. Government determines size, price, quality, and amounts. Consumers have little variety ■ Ex. North Korea, Cuba. ■ China and Russia are changing to market economy practices ■ Advantages ■ Citizens ensured minimum standards ■ No unemployment ■ All services provided ■ Stability ■ Disadvantages ■ Restriction of freedom ■ No motivation to work ■ No innovation ■ Large military ■ Corruption ○ Mixed Economies: Free enterprise systems ■ Ex. Canada has government services like healthcare and education, yet prosperous businesses and large corporations. ■ Private Property: owned by individuals, corporations, or government. Government has offices, parks, and schools. It sets regulations that affect private property. ■ Ex Canada has regulations for ownership of financial institutions and media ■ Profit: encouraged, but taxed to support the government. Federal & provincial level through sales tax, income tax, corporate tax. Municipal collects property taxes ■ Competition: Strong competition between businesses, but the government might be a competitor too. ■ Ex. Government owned VIA Rail, Canada Post affect DHL, Fedex, UPS etc. ■ Advantages: ■ Consumer protection ■ Individual incentive ■ Basic social services ■ Disadvantage ■ Higher taxation ■ Individuals have little on input on tax spendings ■ Less working motivation ■ Government might intervene growth ● Political Systems ○ Theocratic: based on religion ○ Monarchy: based on king and queen ○ Aristocracy: based on rich and wealthy ○ Democracy: Free and fair elections, rule of law, free speech, assembly, press, and religion ■ Entitled to education and govern themselves ■ Accompanied by market economy ■ Ex Canada, USA ■ Politicians get concerned with re-election than the overall benefit ■ Politicians rely on corporate funding may be influenced by corporations ■ Similar background from politicians (lack of women, minorities, poor) ■ Expensive to maintain ■ New emerging economies lack judicial systems to maintain political stability (latin america) ○ Autocracy: Ruled by a small group or individual ■ Believe 1 government will have rational decisions for entire country ■ Strong military presence ■ Controls citizen’s lives including media, professions, businesses, religions ■ Citizens have no say in government decisions ■ Ex. North Korea, Cuba are led by a single leader ■ Tied with centrally planned economy, though some countries have foreign investments ● Classifying Economic Development ○ Countries are classified by economic development. Whether they’re poor, rich, or just getting started ○ Countries are ranked based on criteria determined by United Nations (UN) and IMF (International Monetary Fund) ○ Underdeveloped Countries, least developed, or third world ■ Poor infrastructure, no healthcare, education ■ Small economies by comparison ■ Low literacy, limited technology, weak economies ■ Political issues, corruption, war ■ Relies predominantly on agriculture or resources ■ Frequent natural catastrophes result in underdevelopment (Rwanda, Madagascar) ○ Developing Countries, emerging countries ■ Improved literacy rates, increased health care access, technological advancements ■ Shift towards industrialization and manufacturing ■ Ex. China, Brazil, India, South Africa ■ Rural shift to cities as well as urbanization ■ Canadian businesses like Bombardier can benefit by providing for these countries ■ However, lower labour costs Canada can’t match can compete with Canada ■ Often weak regulatory and legal systems. ○ Developed Countries, industrialized nations, first world countries ■ High Income or strong GDP ■ High literacy rates, good healthcare, education, and technology ■ Manufacture diverse complex equipment like cell phones, computers, hybrid cars ■ Strong alliances between developed countries (G8) ■ Correlation between democracy and economic growth ● The Business Cycle ○ Recession, contraction ■ Economy slows down ■ 2 consecutive quarters of negative GDP ■ decline in consumer purchases, employment, business growth ■ Indication in Canada are construction contracts and exports ○ Trough, Bottom of the cycle ■ Employment and production at their lowest point ■ Turning point to success ■ sometimes worsens to become depression (ie 1930s) ○ Expansion, recovery, prosperity ■ growth of employment, wages, production, and profits ■ Strong investments, businesses created (Ie 20012007) ○ Peak ■ Top of the business cycle when economy stops expanding and begins contracting ● Economic Indicators of the business cycle ○ Leading indicators: predict where the economy is headed. ■ adjusts before economy actually experiences change ■ guides investors, businesses, and governments ■ Ex. Housing starts are leading indicators because people won’t purchase new homes if economy is down ○ Lagging Indicators: are adjusted after economic changes. ■ Takes 2-3 quarters for economic change to influence a lagging indicator ■ Ex. Unemployment rate: takes 6 months for unemployment rate to decrease after change ○ Coincident Indicators: move in conjunction with the business cycle ■ Ex International Trade: slumping economies involve less trading ● Governments and the Business Cycle ○ During the 2008-2009 US recession, Canada was affected by decrease in American purchases ○ Governments increased their spending to stimulate the economy ○ Canada allotted $12B for infrastructure, $7.8B for homes, $200B for consumers. ○ USA had a $787B stimulus package to government agencies ○ Democratic governments may invest in social programs to influence voter’s decisions before elections Economics of Trade ● Absolute Advantage ○ a country has an absolute advantage if it makes a product or service more productively than other countries. ○ They use the resources more efficiently to manufacture more products. ○ Country has better technology to produce goods with absolute advantage ○ Opportunity Cost: is the value of what is forgone ■ Opportunity cost of being in school is the money you could be making in a job ● Comparative Advantage ○ When a country has a comparative advantage, it means that country can produce a good at a lower opportunity cost as the other ○ Countries exporting products in which they have a comparative advantage, and import goods from countries with a comparative advantage for that product, both countries will benefit. The Role of Government in International Trade ● Government’s role include: IN/OUT Laws, tariffs, trade agreements, immigration laws, currency rates, taxation laws, education, tax treaties, military systems, environmental policies, infrastructures, embargoes ● Canadian government help int’d businesses set up in canada with incentives ● But impede with regulations, licenses, and laws. ● Government Regulations ○ Government regulates laws such as minimum wage ○ To start a business in Canada, it is easy to start a business with only one online application ○ New registered businesses will receive ■ A registration number ■ GST/HST number ■ Corporate income tax account ■ Import/Export account ■ Payroll deduction information ○ In China, though, it takes 13 stages of approval to open a business there ● Trade offices ○ Established in foreign countries, it helps foreign businesses operate ○ Trade offices help investments, exports, R&D, and lower costs by providing expertise ● Government Embassies, High commissions, and Consulates ○ Consular Services in foreign countries help traveling Canadians in case of emergencies ■ Communications with family after accident ■ Lost passports or identifications ■ Customs, Taxes, VISAs ○ Embassies: located in capital cities they provide full range of services ○ High Commissions: Same as embassies, but in Commonwealth countries (GB, Australia) ○ Permanent Missions: Located in the UN, WTO and EU. No consular services ○ Consulates General: embassy like offices located in major cities ○ Consulates: located in major cities but do not provide all range of services ○ Consulates headed by honorary consuls: Located around the world headed by honorary consuls. In places like Uganda and Paraguay. ○ Offices: Found in major and capital cities to aid with specific projects without consular services. ● Trade Missions ○ Organized by DFAIT, Team Canada visits a specific country focused on a specific industry ○ Provides Canadians a business opportunity to meet potential customers, suppliers etc. ○ Junior Team Canada are teenagers going abroad to gather business information, contacts, and opportunities. ○ “Brand Canada” promotes Canadian Culture to foreign places International Trade Agreements and Organizations Globalization and International Trade ● Globalization: movement of goods, services, technology, investment, ideas, and people around the world ○ Happened when trade barriers are reduced after WWII ● Positive aspects of globalization: ○ Outsourcing: ○ Lower Prices ○ Improved human rights ○ Increased productivity ○ Innovation ○ Better jobs ○ Increased capital flow ● Negative Aspects ○ Lost/fear of lost CDN jobs ○ Loss of CDN productivity ○ Exploitation of cheap labor ○ Increased pollution ○ Unhealthy products ○ Spread of disease ○ Increased income gap ○ Influence of MNCs (Multinational corporations) on government ● Globalization strategies: companies use different strategies with different parts of the world ○ Global Strategy: regards world as one big market with decisions made in headquarters ■ Adv: massive economic scale (produce bulk quantities) ■ Disadv: require rapid syncing of global countries, and little care for individual cultures ■ Ethnocentric: the idea that everyone will want and respond to the product the same way ○ Multidomestic strategy: customizes products and marketing for local culture ■ Decisions made decentralized ■ Adv: better political, product, and responsiveness from local people ■ Polycentric: local management is best strategy for what's best ○ Transnational strategy: combines the best of global and multidomestic ■ Maintains needs of local culture, but still stay cohesive to the global scale ■ Products made cheap centrally, then marketing customizes locally ■ Geocentric: values both local differences and what's best for company ■ Often very difficult to maintain the balance between the 2 however Trade Agreements ● Trade Agreement: enforceable treaty between 2 or more countries that addresses the movement of goods and services, eliminates trade barriers, terms of trade, and encourage foreign investment ○ Canada’s trade agreements: NAFTA, EFTA, Canada-Chilie FTA, Canada-Israel FTA ● NAFTA: sets rules surrounding movement of goods, services, investments in N.America ○ Adv: Higher prosperity and efficiency for many companies ■ Higher paying engineering jobs in Canada ■ Free flow of resources makes NA a stronger competitor to Asia markets ■ Trade has tripled for partners (894B) and exchange rate doubled ○ Disadv: Many manufacturing jobs were lost to Mexico ■ Mexico’s corn, beans, milk industry felt lack of tariffs made it hard to compete ■ Mexico increased pollution ■ Factory jobs were often poor in standards ● FTAA (Free trade Agreement of the Americas) ○ N/S America free trade zone making it the largest in the world ○ Agreement fell through because of Brazil and Venezuela ○ In 2010, Canada still had pending agreements with Morocco, EU, Korea etc. ● Tax Treaties: created to prevent double taxation and tax evasion for people who pay taxes in Canada and other countries for income ○ Canada has tax treaties with 92+ countries ○ Tax treaties give businesses more predictable and easily to move things across borders ○ Taxation framework makes developing countries more favorable ● EU: formed to remove many obstacles between movement through small EU countries ○ Has its own currency, financial policies, anthem, and flag ○ Belgium, France, GB, Ireland, Luxembourg, Portugal, Denmark, Germany, Greece, Italy, Spain, Netherlands, Cyprus, Estonia, Latvia, Malta, Slovakia, Czech Republic, Hungary, Romania, Bulgaria, Lithuania, Poland, Finland, Sweden, and Slovenia ○ Members must be stable, democratic, and has positive human rights record ○ Purpose: promote peace, economic growth, cooperation, people bonds, and political integration ○ Single market allows borders, goods, and investments to flow a lot easier ○ Collectively the largest GDP, 19.5 Trillion ○ Leaders switch once every 6 months, most votes majority but some unanimous ○ Council of EU > European parliament (laws, budgets) > European Commission (day to day) ● The Euro ○ Some members do not use Euro, while some do. ○ New members are expected to use Euro, and meet strict policies on inflation, stability, etc. ○ Adv: Decrease exchange rate fluctuations ■ Price transparency for comparisons ■ Eliminate transaction costs ■ Billing Ease ■ Large markets ■ Stability ■ Labour movements (easier to pay) ○ Disadv: Initial costs (implements accounting software, signs, etc.) ■ National control (nations can’t control certain rates) ■ Loss of tradition ○ Canada + Euro ■ EU is CA’s 4th largest Foreign investment & 2nd largest export partner @ $90B trades in 2008 ■ Metals, stones, oil, machinery ■ In 2009, agreements were made to start free trade (EFTA) Trade organizations ● Trade organizations: established to help free flow of goods and services ● World Trade Organization (WTO): promotes free trade throughout the world ○ Main Purpose: settle trade disputes ○ 153 members and decisions made by consensus ■ Purpose: A forum for negotiation ■ Purpose: Set global rules ■ Purpose: Dispute Settlement ○ WTO also provides protection of intellectual properties ○ Invites government to lower protectionist policies ○ Lower global cost and rise standards of living ○ Criticisms: WTO destabilizes markets, and drains resources from developing countries ■ Ie. Producing beans in USA faster then Madagascar can buy them at lower price ■ Leads to lowering the already low underdeveloped countries ■ Overprotection of IP (intellectual properties) make it hard to use them for generic items (Ie generic AIDS drugs) ■ WTO decisions aren’t clear and definitive. Ie Canada US Softwood lumber import duties disputes in 2006 ○ Canada + WTO ■ It’s been vital to Canada’s success as it helps alleviate most of the treaties ● Asia-Pacific Economic Cooperation (APEC): created in 1994 to unite countries in Asia ○ Main Purpose: Promote trade in Pacific Rim countries ○ 21 members represents 40.5 % of the world’s population ○ Foster free trade among its members, increase prosperity and economic growth ○ Trade, investments, business facilitation, economic and technical cooperation ○ Asides from business, APEC also discusses climate change, and security ○ Since APEC, countries have increased trade by 400% ● The group of eight (G8): comprises of major economies of the world ○ Main Purpose: Discuss Macroeconomic issues ○ GB, Germany, Canada, France, Italy, Japan, USA, Russia ○ Purpose to discuss macroeconomics such as growth, trade freedom, and helping developing countries ○ Also discusses terrorism, technology, arms, and crime/drugs, N.Korea, and nuclear weapons ● The group of 20 (G20): established in 1990s to discuss major economies of the world ○ Main Purpose: Discuss financial stability and growth of developing countries ○ Build to go beyond the G8 to include India, Brazil, and China ○ To strengthen ties throughout the world, growth, and eliminate trade barriers ○ Also discusses restructuring global financial organizations like IMF and World Bank ● Canada + G8 and G20 ○ There’s been talks to rank Canada lower in the G20 and replace them in the G8 ○ Plays a very small role in comparison ● Organization for Economic Co-operation and Development (OECD) ○ Main Purpose: promote democracy ○ Established for the advancement of democracy and market economies ○ Promote economic growth, expand employment, improve Stand. Of Living, ○ Financial stability, helping countries’ economic development, and enhance world trade ○ Provides publication on topics like sustainable development, world health data, statistics etc. ○ Their report “Economic Survey of Canada” is especially useful to Canadian businesses ● World Bank: organization of 186 members that provides monetary support for developing countries ○ Main Purpose: Lend money for developing countries ○ International Bank for Reconstruction and Development (IBRD) ■ Works with developing underdeveloped countries ○ International Development Association (IDA) ■ Assists the least prosperous countries ○ Provides loans and grants to poor countries with issues ○ Helps these countries get proper infrastructure ○ Canada and other countries donate to the WB ○ Some say many countries suffered because of the rules it makes for taking loans ■ They take advantage of the countries they loan to, so that when they’re working well, they’ll be advantageous to the countries in the WB ● The International Monetary Fund (IMF) ○ Main Purpose: Track and analyze economic trends ○ Tracks economic trends, analyzes countries’ financial performances, and warns governments of financial problems ○ 186 member including Canada ○ Purpose to encourage countries to adopt responsible economic policies ○ Lending money to emerging developing countries ○ Provide technical training in banking regulations and policies ○ In 1997 Asian economic crisis, IMF’s suggestion to increase interest rates made the crisis deepen ■ Loans also often come with strict regulations for inflation and other economic constraints ● Other organizations: Organization of Petroleum Exporting Countries (OPEC), World Economic Forum (WEF), International Chamber of Commerce (ICC), Canadian International Trade Tribunal (CITT) ● Canada Trade Assistance Organizations: GLOBE Foundation of Canada, The Fraser Institute, C.D Howe Institute, CIGI Center for International Governance Innovation The Role of UN in International Business ● Purpose: Keep peace throughout the world ○ Develop friendly relations among nations ○ Work to help poor people better lives by eliminating disease, illiteracy, and respect of freedoms ○ Center for helping nations achieve these goals ● Peacekeeping and relief with International Labour Organization, IMF, WHO, and UNICEF ● Charter of the UN declares UN’s commitment to devote resources to help standards of living, unemployment rate, and economic conditions ● UN Economic and Financial Committee deals with International trade, sustainable development, globalization and poverty elimination Social Responsibility and NGOs What is Corporate Social Responsibility ● Corporate Social Responsibility (CSR): is defined as the duty of a company’s management to work in the best interests of the society it relies on for resources ○ It may take many forms like: Charitable donations, treating employees ethically, Being environmentally conscious, Ensuring safe working environments, sponsoring local teams, creating and promoting diverse workplaces ● Benefits of CSR ○ CSR as a marketing tool ○ Dissuades governments from implementing regulations that might interfere businesses ○ Attract and retain employees, especially if employees can make a say with practices ○ Nike and Gap traditionally had poor CSR practices ● Criticisms of CSR ○ Costs money to companies ○ Spending time and employee energy on CSR ○ Often distract customers from problems a company may be creating (Ie Tobacco company with good CSR detracts people from thinking smoking is good) ○ CSR looks good one one side, but does it bad in other countries ● CSR in a global company ○ Important to stay consistent in CSR strategies worldwide ○ Today’s consumers can easily look up bad practices ○ Companies need to tell employees about CSR practices too through codes of conduct etc. To prevent fraudulent activities or immoral practices ● Stakeholder Analysis ○ When a company wants to know how it’s doing, it asks stakeholders ■ Primary stakeholders: customers, investors, suppliers, competitors who have direct impact to the organization’s profitability and success ■ Secondary stakeholders: do not directly affect the company’s profit like community, media ■ When doing a stakeholder analysis, they must determine who has the most influence on the decision making process Business Ethics ● Business Ethics: refers to the set of rules or guidelines that management or individuals follow to make decisions for their company ○ Include laws, company’s code of ethics, and personal values of the decision maker ○ Is this honest? Will this be fair to stakeholders? How will this impact the company’s reputation? ● Global Ethical Reasoning: Ethical decisions are more complex for global companies ○ Ethical Imperialism: there is a universal truth standard across all cultures ■ If something is wrong in one country, it’s wrong in all countries ○ Cultural Relativism: Different cultures should be respected as one is not seen as better than another ■ For these, different countries will have different ethics or practices ○ The UN has Universal Declaration of Human rights that define minimum human rights Ethical Issues in International Business ● Environmental Issues: the ability to meet human consumption while maintaining the environment needs to be considered. ○ Natural environment is critical for businesses, it must be respected and sustained ○ Examples ■ 1984 gas leak from Union Carbide Plant in India killed 3000 ■ Oil Spills Exxon Valdez in 1989 and BP in 2010 ■ Canadian waterways polluted with mercury from coal-burning power plants ■ Ghana, Lake Songor is shrinking because of salt mining, diverting water for irrigation ○ Governments have agreements like Rio Declaration on Environment and Development and Kyoto Protocol agree to limit greenhouse gas emissions and other limits ■ US Canada and China have withdrew from it because it impedes with economic growth ○ Johannesburg World Summit on Sustainable Development seeked to preserve natural resources, and world consumption ■ Unfortunately, US president didn’t attend, making it hard to have decisions ○ In 2009, in efforts to maintain global temperature increase to 2 degrees, 100B were put in to help developing countries reduce emissions ● Sweatshops: factories of underdeveloped and developing countries where working environments are unsafe and employees treated unfairly ○ Often employs children age 14 ○ Paid very little with overtime pay cheated ○ Workers cannot take sick days, breaks, and work 12 hours a day ○ Hot environments and untrained workers make for dangerous work environments ○ Global competitiveness, corporate greed, and consumers expectation of low prices cause sweatshops ○ Companies shouldn’t stop using factories in developing countries, but instead make sure they do it right there and invest money in making more ethical ○ As consumers, we can boycott or buy only certain items from companies to reflect how we feel ● Corporate corruption: refers to the involvement in illegal activities to further one’s business interests ○ Livent ■ Garth Drabinsky and Myron Gottleib involved in accounting scheme were found guilty in overstating profits, under-representing costs and inflated value of assets ■ Sentenced in 2009 to jail ○ Hollinger Inc. Conrad Black was found guilty of fraud obstruction of justice by US Securities Exchange Commision (SEC) and misappropriated millions of dollars ■ Fined $125,000 and forfeited $6.1M and sentenced to 6.5 years in prison ○ Bernard Madoff: Spent years defrauding investors $50B in Ponzi scheme which pays returns to current investors using new investor’s money rather than profits. Sentenced to 150 years in prison ○ Corporate crimes (white collar crimes) impact the world more than real crimes ■ Gifts and Tips are not considered a bribe, just a low cost symbol of friendship ■ Grease: smaller payments to encourage faster negotiations and speed up business people are bribes ■ Commissions: Large payments made to facilitators or go between business negotiations. Not bribes and happens often (realtors, Best Buy) ■ Bribes: money presented to induce people to do things, are illegal ○ Corruption of Foreign Officials Act makes it illegal to accept a bribe in Canada or globally ● Dumping: selling products in a foreign country below the cost of production or below the price in home country ○ To get rid of excess production in home country without affecting home country prices ○ Predatory Dumping: reduces price of products and sells them in foreign country to remove competitors ○ Companies speak to CBSA (Canadian Borders Services Agency) or CITT about possible dumping ● Poverty: Biggest problem on earth, one quarter of population lives in poverty ○ Microcredit: when one family is given a small grant to start businesses (farming, small shop) ■ Lending circles have entrepreneurs make money and repay it, then lending it to someone else Non-Governmental Organizations: non-profit organizations made with a service and developmental focus ● NGO focus can be diverse and care about various things. ○ Ie Doctors without Borders, Greenpeace, Amnesty International, World Vision etc. ● Free the Children: Craig Keilburger’s NGO goes around the world spreading awareness about children in sweatshops and money ○ They also help build schools and infrastructure to get children to success ● Fairtrade Labeling Organizations International (FLO) ○ Improves trading relationships for producers around the world ○ Helps maintain a fair and honest trade between all members of the supply chain ● Ten Thousand Villages ○ Retail stores that sell fair trade products in N.America like handicrafts from artisans in underdeveloped countries ● The International Organization for Standardization (ISO) ○ Largest standards developing organization implementing 17500 standards worldwide ○ ISO helps ensure that all companies are able to produce the same way at the same level of quality and dimensions Marketing Marketing Activities ● Marketing: the sum total of all the activities involved in getting goods and services from original producer to the ultimate consumer ○ Includes market research, product development, pricing, advertising, promotion, sales, and logistics ○ Purpose is to sell the output of production. ● Market Research ○ Finds data to solve marketing problems ○ Primary Data: data collected first hand. Secondary Data: data collected by a third party ○ Statistics can be used to help determine how well a product will sell given different ways it could be produced ● Product Development ○ Companies use data as well as additional research to refine their products so it will appeal to the largest audience when released ● Pricing ○ Using data collected throughout the stages, companies can determine the best pricing for products to be sold attractively to the most amount of people ● Advertising and Promotion ○ After producing the product, companies will need to convince consumers that their products are worth their price ○ Ads can outline unique creative designs, environmental concerns, and other special features ○ It can take many forms like internet ads, billboards, posters, TV radio ads, newspaper ads, sponsorships, endorsements ● Sales ○ A company must know where to sell their products ■ Craft Shows attract alot of people to one location at once where products can be shown off ■ Retailers can be dealt so they’ll carry and sell your product ■ Own store can be setup to exclusively sell your product, although one can be expensive ■ Online mediums can reach a great audience and have transactions done easy and cheap ● Logistics ○ Management of the flow of goods and services both in and out of an organization ○ Companies must worry about packaging, warehousing, inventory, and management of goods 4 Ps of International Marketing ● Product: modifications must be made to adapt a foreign culture ○ Packaging weights: units must be converted ○ Packaging colors: some colors are more appealing or have special meanings in different countries ○ Legal Requirements: some countries require materials or restrict materials from being in products. ○ Label Requirements: Special product labeling rules may also apply ○ Language Requirements: translate your packaging ○ Ingredients: Some countries restrict the consumption of certain foods due to religious or other reasons. Also, some countries restrict the amount of harmful ingredients like MSG or salts in their imports ○ Style: ■ Some countries may have different styles or more advanced than others ■ Companies need to be aware of different traditions and current trends in foreign country before adapting or selling products there ● Place: Where to manufacture or sell specific products ○ Centralized Strategy: all manufacturing and marketing is performed in one location ■ This strategy limits foreign expansion as the central plant may become overly large ○ Decentralized Strategy: means they will setup manufacturing plant in another country, or hire sales force there to do everything in foreign country ○ E-Commerce: online distribution of goods make it the fastest way by far to carry out sales ■ E-Distribution: companies can use online distribution channels like EBay and Amazon to host their products for sale globally online ■ Customers can quickly and easily pay with methods like PayPal ■ E-commerce transaction types: ■ B2C: business to consumer operated by major retailers ■ B2G: business to government sells things to various governments ■ B2B: business to business sells things online to other businesses ○ Sales Agents: combines centralized strategy with decentralized one ■ Hire someone to go to foreign country with stocks and sell there ■ Sales agents go with customized marketing and sales processes suitable for foreign market ○ Trade shows: collection of manufacturers and distributors of similar products rent a space and display a booth ■ Attracts thousands of potential customers in and often quickly sells fast and make money ■ Between businesses, one can also get attention and make deals within a trade show ○ Branch Plants: most expensive way, but includes staffing a foreign location to do all it’s operations ■ Adv: Lower shipping costs ■ Import regulations and tariffs are no longer an issue ■ Product modifications are easier ○ Licensing Agreements ■ Companies can sell rights to use a patent or trademark for a fee as they take it to do other things with it ■ A Royalty is often paid as a percentage of the products sold ■ Manufacturing Agreement: anyone in a foreign country can have a contract to manufacture products of another company under their license ■ Some manufacturers can rebrand the product or market it as their own with more fees ■ Distribution Agreements: Retailers can pay royalties to carry someone else’s products and sell them in a foreign country. ■ In return, the retailer will promise not to sell a competitor’s product in the same store ■ If interest is high, the 2 can negotiate agreements for selling these products ■ Franchising Agreements: are a form of licensing agreement that turns the ownership of a manufacturing or distribution company over to a local franchisee. ■ Under certain restrictions and fees, a franchisee can use all the brands and products of the parent company ■ Acquisitions: To remove competitions in a foreign country, a larger company can choose to buy out a smaller company to make it part of them ■ Acquisitions may also be used to acquire new skills, patents, or key people ● Price: when picking a price for a product to sell in a foreign country, it’s important to consider the following factors ○ Labour Costs: when products are manufactured in foreign locations, it’s often lower than if it were to be produced in Canada ○ Shipping Costs: When shipping products to farther locations, it may be very expensive to do so if the distances are farther ○ Duties and Tariffs: taxes and fees when importing to another country can hike up the prices ○ Legal costs: Modifications for adaptation to foreign country and foreign country approvals may have taken some money so it’s good to consider those in as well ○ Competition and consumer interest in foreign country should also be considered ● Promotion: When doing ads in a foreign country, you should consider the following methods ○ Using existing ads: some companies may get away using the same ads for foreign nations because both countries are very similar in culture (Ie US & Canada) ○ Translating Ads: The same ads may work, but require some tweaking to translate the language or units to the foreign country ■ Companies should be careful translating slogans to foreign countries as translations often make them not mean the same thing ○ Creating the ads: it may be worthwhile just to scrap the old ads and make new ads unique for the foreign market The 2 Cs of International Marketing ● Consumers: Companies must know about the foreign target market before they do business there ○ Canadian businesses should avoid Ethnocentrism ■ Ethnocentrism: is a belief that your own culture is the right way of doing things and the values of others aren’t important ■ To avoid it, you should visit the foreign country and feel how it’s like to live there ■ Read country profiles on the Internet to see how it’s like there ■ Offer products in language to suit their demands ○ Market Size: tells companies if it’s worthwhile to sell products there to enough people ○ Demographic Information: is information about the people living in target country should also be considered before selling there ○ Culture, spending habits, and income levels should also be known ● Competition: It’s important to consider who you’ll be competing with in the foreign country ○ Direct Competition: are those who provide products or services that are almost identical to the products or services you provide ○ Indirect Competition: Any other product of service that is geared towards getting money from your target consumers are considered your indirect competition ○ Competitive Advantage: refers to the ability of one company to produce a product more cheaply than another company. ■ The following factors may cause a company to create products at a lower cost ■ Lower cost production: a competitor might have economies of scale that allows them to make products far cheaper ■ Lower distribution costs: companies may be more ahead and already has manufacturing plants in foreign country so they can do things cheaper ■ Product differentiation: Difference in flavor, quality, and packaging, color, scent, and so on can deter a customer to their product ■ Brand equity: is the value of a product’s brand in the market, essentially the number of consumers who can identify the brand. Foreign Marketing and Canadian Shopping Habits ● Canadian Consumers shop globally ○ Canadian consumers choose products from all over the world ○ This allows international businesses to be able to take advantage of Canadian consumers ● Opportunities for Canadian Businesses ○ People starting a new retail business needs to be careful when selecting merchandise in their stores ○ To guarantee uniqueness, an owner should visit a trade show to see what’s fresh and new ● Canadian consumers also shop locally ○ Canadians also like to look for local brands to buy from Canadian retailers. Logistics Logistics Defined ● Logistics: consists of the acquisition, transportation, and storage of materials from the point of origin to the point of consumption ● Military Logistics: refers to the science of planning, organizing, and managing the movement and maintenance of military forces. ○ French used foraging: taking foods and supplies from people they defeated ● Production Logistics: refers to logistic processes within a company, usually a manufacturing business. ○ It ensures all the materials arrive correctly in sync to be manufactured ○ Works in part with supply chains to make this happen ● Business Logistics: is responsible for ensuring a steady flow of needed materials and information, transportation, storage facilities, all move to the end consumer Supply Chain ● Supply Chain: is the sum total of all activities involved in moving raw materials, processed goods, and finished products into an organization, moving them out to be processed, and eventually to the consumer ○ Vertical Integration companies who own the entire supply chain (shipping, raw materials etc.) ■ Vertical integration requires lots of resources and attention that takes away from the quality ■ Many companies prefer to use third party logistics (3PL) so they can spend more time correcting problems instead of managing the huge animal ● Inventory Management: refers to the way inventory is gathered and used ○ SKU (stock-keeping units) are used to number and manage stocks ○ Retails often have point-of-sales terminal to get products out the door ○ Large companies need to coordinate the availability of product inventory from hundreds of suppliers as well as store inventory in hundreds of locations ○ If a company designs its own clothing, it also needs to find out if these materials are available before they choose to use that design ● Storage ○ Stored in 4 locations: place where it’s made, a warehouse, a distribution center, or place that receives the goods ○ Companies often use third party warehouses instead of their own to reduce costs ○ Due to high costs, many companies use Just In Time Inventory Systems so that everything arrives just in time to eliminate the need to store them for too long ○ Online retailers require a lot of warehouse space, but since warehouse spaces are cheaper than retail, online retailers smart with their Just In Time systems can compete with brick and mortar stores ● Cash-Flow management ○ They only need cash-flow management if the transaction take place between 2 businesses in 2 different countries ○ Involves negotiating payment terms, method of payment, and exchanging funds of the supply chain . ○ Often for large payments for products, machinery, transportation, and legal fees ○ A Letter of credit can be used to hold some money and guarantee that the funds will arrive once the deed is done. ■ However, in places where banks and financial institutions aren’t developed, this may be difficult ● Supplier Management ○ Refers to the sourcing and finding reliable sources for products and services a business needs ■ Suppliers and businesses can track the amount of resources as they are being utilized and start working to produce more in time using electronic data exchange (EDI). ○ Supply Managers also evaluating the supplier’s response and economic benefits of suppliers ■ Finding the cheapest and best suppliers can be beneficial to companies ● Outsourcing: refers to using outside resources to perform activities ○ Near Sourcing: employing companies nearby to do things smaller tasks for them ○ Insourcing: when companies use part of the company from within to do a certain task ○ Most businesses outsource the remaining tasks and concentrate on what gives them the greatest competitive advantage (such as supply chain management and efficiency). ○ Offshoring: does not contract out major business functions, but transfers that branch of the company to another country ○ Inshoring: Offshoring but putting functions out to other businesses within their own country ● Information Management: Software can be used to analyze large amounts of data which can be vital to monitoring and making decisions ○ Many companies use enterprise resource planning software to plan resources and connect global suppliers for them ● Physical Distribution: the movement of the finished product to customers ○ Inbound Distribution: deals with receiving the goods that are sent to the company ■ Responsibility rests to the buyer ■ At this point, the buyer takes possession of goods since it passed the FOB point ■ Receiving process: a process in which a company follows when shipments arrive ■ Check for damages, count them, assign SKUs, record location ■ Outbound Distribution: refers to arranging the shipment of goods for shipment ■ It’s a seller’s responsibility to arrange shipping the goods to customers ■ Ex Works (EXW): where the buyer responsible for all shipping related charges and chores ■ The shipping company, carrier, must present a bill of lading indicating that the company has accepted these good for shipment ■ FOB Point: defined by the ICC, is the point in which the costs, and risks with the shipment passes from the seller to the buyer ■ FCA: free carrier: The vendor places the products in the buyer's name after they have been approved for export. ■ FOB: free on board: where seller must load goods on ship nominated by the buyer, then it will be given rights to the buyer ■ CIF: cost, insurance, and freight: seller pays all costs including insurance to bring goods to the port of destination ■ CFR: cost and freight: same as CIF but risk is transferred once the goods have crossed the ship’s rail ■ CIP: carriage and insurance paid to: seller pays all insurance to the point but risk is transferred once the goods are handed to the carrier ■ DDU: delivered duty unpaid: At the location specified in the sales contract, the seller delivers the purchased products to the customer. At the place of destination, goods are not unloaded or cleared for import. Buyer is responsible for risks thereafter ■ DDP: delivered duty paid: Until the items are delivered or the duty is paid, the seller is responsible for all shipping costs and assumes all risk. best for the customer because the supplier covers all delivery charges Methods of Physical Distribution in the supply chain ● The method depends on (1) what is being shipped, (2) Weight of shipment, (3) Speed of delivery required, (4) Cost of carrier, (5) Destination of shipment ● Motorized Carrier: Trucks, cars, vans, motorcycles, bikes ○ Full truck load is less expensive than less than truckload ○ Freight Consolidation: places goods in a warehouse until a FTL is accumulated ○ Motor carrier is often most versatile ● Rail ○ Slower but can effectively carry for large distance and feasible for bulk items ○ Raw materials are often transported with rail ● Ocean Freight ○ Helps move things across oceans to different continents ○ Landlocked places may face problems as boats need to navigate into them ○ Cheap and bulk transfer is good ○ However they’re slow and often needs another transportation method as ships cannot go door to door ● Air freight: ○ Very fast international movement ○ Bulk cannot be carried, and very expensive ● Containerization: ○ Uses standard-sized metal boxes to ship freights ○ Cuts down on damage and limitations as the box is shipped and untouched generally ● Intermodal Shipping: ○ Means more than 1 mode of transportation may be used ○ This can take advantage of all the benefits from each method Issues in the supply chain: ● Reliability of sources: ○ If problems occur with one part of the chain, then the entire system may be interrupted and the operations delayed ● Oil Prices ○ As transportation requires oil, fluctuations with the oil prices can cause transportation costs to go up ● Unstable political climate ○ New taxes or political turmoil can cause conflicts and delayed with operations and customs inspections in other countries ● Piracy ○ Hijacking of shipments from Africa and other places can put seamen and goods at risk ● Optimization ○ Using full truck loads may be good but shipping more products mean they’ll need to produce more products and have warehouses. ○ Companies will need to balance and optimize the costs to the best of their abilities Getting help with the supply chain ● Department of foreign affairs and international trade ○ Helps assisting businesses in preparing to enter international markets ● Canadian Trade Index: is a buyer’s guide of thousands of companies in Canada. This helps businesses look for suppliers and supply chain members to incorporate into their business ● Frasers: online directory that helps companies search terms, help, and companies to aid their supply chains ● Customs Broker: is an expert in navigating the complicated rules when importing to Canada or other countries. ● Industry Canada: department of the government that helps businesses compete and succeed internationally with tools and analysis data to help them ● Canadian Border Services Agency (CBSA) ○ Operates border inspection operations around Canada and does inspection of goods as the come in ○ Promotes safety, prevent diseases, economic and businesses benefits, protection of Canadian industries from being dumped, and collecting tariffs and duties Canada and International business Canada’s Competitive Advantage ● By comparison on the global scale, Canada has very little that characterizes itself ● Some say Canada is known for lumber, which is not what Canada wants to be as it’s the least profitable section of a product cycle ● While Canada has many well known brands identified to be Canadian, there are some brands that identify themselves away from Canada (New York Fries and Boston Pizza) ● Canada’s Banking Industry ○ Canada’s banks were robust, and didn’t suffer the same drop as American banks did in 2008 ○ Canadian banks have bigger reserves than American and European competitors ○ There are strict policies in the Bank Act that dictate how banks should be operated ○ 4/10 of the largest NA Banks are Canadian. Many CDN banks have international presence ○ Canadian banks have good capital market divisions to raise money, access markets, manage risk, and purchase or dispose of assets. ● Canada’s cultural industry ○ Canada has strong cultural industry which includes theater, visual art, music, and film which not only entertain, but also inform the world of Canada’s identity ○ Canada’s exports of cultural items doubled between 1997 to 2006 ○ Cirque du soleil and countless authors like Margaret Atwood are famous worldwide ○ Many movies like “my big fat Greek wedding” are Canadian productions and many films are filmed in Canada ○ Movie producers who produce films in Vancouver is given a 25% tax credit ○ Canadian music artists have also been very successful ○ Live theater is also becoming increasingly popular with Stratford festival and large Toronto broadway productions ● Canada’s Technology Industry ○ RIM and Blackberry is one of the best known and successful technology firms from Canada ○ Ranked as world’s fastest growing company in 2008 ○ Canada also has strong software industry close to $1B with OpenText, Constellation Software, and Corel ○ EA, Radical Entertainment, and Ubisoft also are leaders of the Canadian video game industry employing 52,000 jobs. ○ Canada also exceeds in Chemical, Plastics, Environmental tech, Aerospace, engineering, medicine, and logistics Attracting Foreign Investment ● Countries seek foreign investments to better themselves in employment opportunities, and economic prosperity ● Canada attracts foreign investors with trade missions and it’s website “Invest In Canada” ○ This website provides information to educate about Canadian businesses ● Provincial governments can also hold trade missions to attract investors int specific cities ● Canada is appealing to investors as it has very little fluctuations in different economic rates ● A supportive business environment ○ Canada’s strong background in advanced industries, ties with many countries, and stable economic environments make it one of the best countries to invest in out of the G8 ● Gateway to the world ○ Canada and the US share a unique and strong relationship ○ Both economically and for physical convenience, US and Canada make great trading partners ○ NAFTA adds to the success of this trade relationship ○ Vancouver acts as the gateway to Asia as Canada is also a major part Asian trade (APEC) ● Infrastructure advantage ○ Being the second largest country in the world, Canada also has large and powerful infrastructures for transport, information, and facilities ○ Smart border accord: was an initiative to help travelers cross the borders more efficiently and faster ● Outstanding employees ○ Canada spends the most on education, and hence can produce some of the best educated employees in the world ○ Canadian Universities to study business are very supreme as well (Western, Rotman, Queens) ○ Canada’s cultural diversity ■ Canadian immigrants bring highly trained individuals as well as bring diversity to the workplace ■ Canada’s racial diversity also benefits us in doing international business ■ Hiring different races into a workplace can bring many points of views to the environment ● A great place to live ○ Canada ranks 4th in the UN Human Development Index ○ Canada has equal opportunities, safe place, fair justice, and addresses environmental concerns Canada’s Productivity ● Productivity: is defined as the amount of output with respect to amount of input ● High GDP means higher productivity ● USA GDP is higher than Canada because they invest more in businesses, resulting in higher GDP per capita ● Canada can increase productivity by investing in technology, post secondary education, research, and immigrations ● The changing Canadian Workplace ○ Canadian workplaces are turning towards higher paying jobs as companies outsources cheaper labor jobs elsewhere ○ ○ ○ ○ Canadian jobs now are different from jobs from a long time ago Entrepreneurship jobs are also increasing Manufacturing jobs are increasingly slimming Some companies like Google are introducing new ways to work combining work and play into the working environment International Business Trends The global marketplace ● Trends are moving towards smaller cars as gas prices are ever increasing ● International Markets ○ China has been a big market for Canada and a vital role in helping Canadian businesses have cheap labor ○ China’s manufacturing industry is enormous and continue to help western businesses drive down costs ○ After NAFTA, access to trade labor in Mexico help balance out the trades with China ○ India also competes with their high end tech industry in Bangalore ● International Finance ○ In order for markets to exist, there must be consumers willing to buy products being sold ○ Some people also save money and aren’t willing to buy products. ○ The economic growth spiral keeps going in order for foreign countries to continue prosper ○ Foreign business invests abroad, sells things there, government gets money and invests in other nations and leads to global success ○ Downward spiral of US financial crisis ■ Subprime mortgage: a riskier loan to people with lower income buying large items ■ In US, these loans were given out because they knew house prices kept rising ■ If the mortgage defaulted, then the house would be foreclosed or taken back and sold at a higher price to pay off the mortgage ■ The house became a collateral that guaranteed a loan ■ When housing prices began to drop in 2007, defaulting mortgages were in trouble as houses weren’t worth anything ■ Banks refused to lend credits out after and paused economic cycle, hence, the US financial crisis ■ Jobs began to be lost and many financial plans were held off ■ This had little effects on Canada as banks did not invest in subprime mortgages ■ However, as businesses began failing, Canadian corporations and banks received less investment and to some degree impacted their performance ● International labor ○ The crisis made many people complain about their low wages. ○ Unions and labor disruptions made companies lose productivity ○ Companies later considered outsourcing to other countries where the working culture lets them work well with low wages Global Trends ● The green revolution ○ Scientists are becoming aware that hydrocarbons will decrease the lifespan on planet earth ○ Businesses are beginning to realize this and keep environment in mind when they do things ○ New energy sources ■ When the Copenhagen conference needed countries to reduce carbon emissions, many countries were reluctant as they will have to limit the sales of their most valuable asset, oil. ■ As countries are reluctant to enter renewable energy industries, some countries have included feed in tariffs which guarantees that a company who makes renewable energy is given proper distribution networks and profit ■ Renewable energy sources are becoming an increasing concern for companies as pressure is on for competition and opportunities for tariff rewards are rolling in. ○ New car technology ■ High gas consuming cars are reducing in popularity and replaced by more environmentally friendly cars ■ However, technological barriers for new battery cars still put electric cars behind ■ New technology in hydrogen cars are advancing in research ■ So far, hybrid cars are the best solution ■ New competitors making very small, inexpensive cars are going to dominate future markets ■ They are no frills cars that are designed to only supply the necessary ○ Reducing carbon footprint ■ Countries are becoming increasingly aware of their responsibility for hurting the environment measured by their carbon footprint. ■ They are finding new ways and policies to reduce their carbon footprint as best they ca ● Protectionism ○ Concerns were raised when the US began trying to save their economy by asking people to buy America ● ● ● ● ● ○ This threatened the livelihood of NAFTA and impacted Canadian businesses catered to the US. Border security ○ After 9/11, border security between US and Canada were much tighter ○ This impeded with some travels and caused lots of confusion and time wasted Pandemic protection ○ After many counts of pandemic spreading worldwide due to international shipment,s global governments have been more sensitive about inspecting foreign items for their safety Contaminated products ○ Many products, particularly from China, have been contaminated with foreign items or not fitting with regulations. ○ As a result, other nations are more stringent when it comes to making sure we know what’s inside and tracking the items throughout, often costly and easy to bypass The fluctuating price of oil ○ Fluctuating price of oil impacts every aspect of a business, from materials, transport, and storage, it impacts the price and consumer interest in a product Sustainability ○ The quest for maintain a steady supply of oil and good environment have made many companies go off and change their businesses to suit the criteria needed The global traveler ● Passports ○ All travelers should bring a passport that says where you are from ● Visas ○ In order to work of study, you will need to apply for a visa to a specific country ○ Residence visa: permits you to live in a foreign country, usually to accompany a study visa for a foreign school ○ Work visa: will allow you to work abroad if you meet the requirements of your home country and possess the necessary abilities. ● Restricted goods ○ You frequently encounter limitations on the quantity of baggage you are permitted to bring when visiting other nations. ○ Duty free stores allow you to buy some restricted items without duties as you cross the borders Working abroad ● Working abroad might mean the following ○ You work in other countries as part of your job ○ Work in other countries full time ○ Work in other countries part time ○ Advantages ■ Learning new culture and languages ■ Paid a higher salary ■ Valuable to a resume ○ Disadvantages ■ Leave your family ■ Need to learn a new language ■ Different living conditions ■ Unstable governments ○ You might find help from universities with sister universities abroad ○ Foreign affairs and international agreements to help aid permits and coop opportunities