International Trade: Disadvantages & Foreign Ownership

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Questions and Answers

How can increased foreign ownership of companies negatively impact a country's cultural identity?

  • By increasing the diversity of cultural products available.
  • By encouraging cultural exchange programs that strengthen local cultures.
  • By overshadowing local traditions with global brands and products. (correct)
  • By promoting local languages and traditions through international exposure.

Which of the following scenarios best illustrates the 'Revenue leaves Canada to pay for head-office' disadvantage of international trade?

  • The Canadian government imposes higher taxes on foreign companies operating within its borders.
  • A Canadian branch plant's profits are used to cover expenses at its foreign head office. (correct)
  • A Canadian company exports a significant amount of goods to other nations, increasing its revenue.
  • A Canadian company invests in a new factory in the United States, boosting the U.S. economy.

What is a potential consequence of branch plants showing less profit than their head office expects?

  • Increased investment in the branch plant to improve performance.
  • Transfer of the head office to the location of the branch plant.
  • Closure of the branch plant and subsequent job losses. (correct)
  • Greater autonomy for the branch plant in decision-making.

How might the dominance of certain languages, like English, in international business contexts pose a threat to local cultures?

<p>By leading to the extinction of less frequently spoken local languages. (C)</p> Signup and view all the answers

Which outcome is LEAST likely to be a direct result of increased foreign ownership of companies within a nation?

<p>Strengthened domestic control over economic policies. (A)</p> Signup and view all the answers

A hypothetical country, 'Eldoria', heavily depends on foreign companies for employment. Which trade-related risk is Eldoria MOST vulnerable to?

<p>Economic instability due to the potential relocation of foreign companies. (D)</p> Signup and view all the answers

How does the expansion of global fast-food chains like McDonald's and Starbucks exemplify a disadvantage of international trade?

<p>By displacing traditional food practices and local eateries. (B)</p> Signup and view all the answers

What is a key difference between a local independent business and a branch plant in the context of international trade?

<p>Local businesses typically reinvest profits within the local economy, while branch plants may send revenue to a foreign head office. (D)</p> Signup and view all the answers

How does locating research and development (R&D) primarily in the home country of a foreign-owned firm most directly affect the subsidiary country, such as Canada?

<p>It channels the majority of profits generated from R&amp;D back to the home country, limiting economic benefits for the subsidiary. (C)</p> Signup and view all the answers

What is the most typical export behavior of a foreign branch plant operating in Canada as a subsidiary?

<p>Primarily serving the Canadian market without significant export activities. (C)</p> Signup and view all the answers

How might a significant change in the global marketplace most likely affect Canada, given its reliance on foreign business?

<p>Canada could experience economic instability due to its dependency on international markets. (B)</p> Signup and view all the answers

What was the primary economic impact on Alberta following the drop in oil prices between 2014 and 2017, due to foreign oil companies laying off workers?

<p>A recession in the province due to reduced economic activity and increased unemployment. (C)</p> Signup and view all the answers

A Canadian branch plant remits a significant portion of its profits to its foreign head office. What is a likely consequence of this practice for the Canadian government?

<p>Decreased tax revenue as a result of lower profits being reported in Canada. (B)</p> Signup and view all the answers

How could a manufacturing firm benefit from investing in research and development (R&D)?

<p>By increasing efficiency and profit through innovation and improved processes. (C)</p> Signup and view all the answers

In what way might heavy reliance on foreign business pose a risk to Canada's economic stability?

<p>It makes Canada susceptible to economic downturns in other countries. (D)</p> Signup and view all the answers

What is one potential disadvantage for a nation when foreign-owned firms prioritize conducting new product development and marketing innovation in their home country rather than in the host country?

<p>Reduced economic benefit and slower development of local expertise in the host country. (A)</p> Signup and view all the answers

Flashcards

Head-office Impact

Less profit for the Canadian branch, which results in less tax revenue for the Canadian government.

R&D Importance

Essential for increasing efficiency and profit, but often centralized in the home country for foreign-owned firms.

R&D Staffing

They staff their R&D departments from the home country, leading to more profit in the home country rather than the subsidiary.

Reduced Exports

Branch plants primarily serve the Canadian market as subsidiaries, limiting their export activities.

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Economic Destabilization

Canada's dependence on foreign business makes it vulnerable to major changes in the global marketplace.

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Predicted Globalization Benefits

Globalization was predicted to benefit the US economy, but trends in international trade and events seem to be proving these predictions wrong.

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Globalization Harm

The question of whether globalization harms workers’ interests in the US and the support for government protection.

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Adverse Effects of Trade

International trade can negatively impact a nation in several ways.

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Increased Foreign Ownership

When international trade leads to more companies in a nation being owned by foreign entities.

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Increased Foreign Competition

When international trade intensifies competition for local businesses.

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Threats to a Nation's Economy

The risk that industries in one country may be negatively impacted by the growth/practices of economies from other countries with international trade.

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Loss of Culture and Identity

Erosion of unique traditions, customs, and languages due to the influence of global brands and products.

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Job Loss

Job losses occur when branch plants close because the head office expects to take the majority of the profit.

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Revenue Leaves the Country

Profits earned by a branch plant are spent in another country.

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Branch Plants

A subsidiary factory or business that belongs to one country, but headquarter in another.

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Local Language Extinction

When local languages or customs become less frequent, and may lead to extinction when other languages become dominant within international trade.

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Study Notes

  • Disadvantages of International Trade:
    • Increased Foreign Ownership of Companies
    • Increased Foreign Competition
    • India & China - Threats to the U.S Economy

Foreign Ownership Impact on Canada

  • Foreign ownership leads to a loss of culture and identity.
  • There is increased foreign ownership of companies in Canada.
  • Job loss is a consequence of foreign ownership.
  • Revenue generated in Canada goes to pay for the head-office expenses.
  • There are R&D challenges.
  • Reduced exports are another disadvantage.
  • The economy can become destabilized.

Loss of Culture and Identity

  • Global brands and products can overshadow local traditions and customs.
  • Fast food chains, like McDonald's and Starbucks, expand worldwide and displace traditional food practices and local eateries.
  • The dominance of certain languages (like English in business) can lead to local languages being spoken less frequently and eventually dying out.

Job Loss

  • Branch plants belong to one country but are headquartered in another.
  • A Canadian branch plant may be closed if it doesn't show as much profit as the head office desires.
  • Example: Burger King merged with Tim Hortons in a $12.5 billion deal, resulting in job cuts at Tim Hortons offices in Canada.

Head-Office Payments

  • Money earned by the branch plant in Canada helps pay expenses (salary, advertising, accounting, marketing, etc.) in the head-office in another country.
  • Less profit for the Canadian branch plant leads to less tax paid to the Canadian government.

R&D Challenges

  • Research and development are essential to a manufacturing firm and help increase efficiency and profit for a service business.
  • New product development, tech, marketing approaches, and innovation are mainly conducted at the head office in another country.
  • Most foreign-owned firms staff their R&D department from the home country, so the ideas they produce lead to more profit in their home country rather than in the subsidiary country.

Reduced Exports

  • Canadian branch plants serve the Canadian market as subsidiaries of the parent company.
  • Exporting is usually not the subsidiary's plan.
  • Branch plants usually only sell to their own country not another.
  • This results in less export leaving Canada.

Economic Destabilization

  • Canada relies heavily on foreign business.
  • Canada will be adversely affected if there are major changes in the global market.
  • Many foreign oil companies laid off workers from 2014-2017, and the province of Alberta experienced a recession due to the fall in oil prices.

Impacts on the U.S. Economy

  • Economists predicted that globalization would benefit the U.S. economy.
  • Need to state the reasons for their prediction.
  • Need to discuss the trends in international trade and developments that seem to prove their predictions wrong.
  • Need to debate if ‘globalization’ harming workers’ interests in the U.S and whether should they be protected by the US government.
  • Need to discuss the remedial measures that the U.S government should take.

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