Big Ideas Exam - 2024F - PDF

1 Adv of intl trade ​ Canadians can choose from a wider variety of products ​ Lower wages and costs of production abroad leads to lower prices for Canadian consumers. ​ Canadian businesses can access new markets and resources, attract capital investment, and share in the new dis...

1 Adv of intl trade ​ Canadians can choose from a wider variety of products ​ Lower wages and costs of production abroad leads to lower prices for Canadian consumers. ​ Canadian businesses can access new markets and resources, attract capital investment, and share in the new discoveries of other countries. ​ International business fosters exchange of culture and ideas between countries and promotes diversity. Dis of intl trade ​ Loss of Culture and Identity Foreign Ownership Issues: ​ Job loss - Managers of foreign companies operating branch plants in Canada often want to please the executives and investors at home and will cut jobs here before cutting back at home. ​ Revenue drain from Canada - Administration costs of the business operations at head-office level are also apportioned to the Canadian subsidiary. Profits are often directed back to the home country. ​ Research and Development - jobs and programs are often conducted in the home country. ​ Reduced Exports - Exports to other markets are usually not part of the subsidiary business plan. ​ Economic Destabilization - global economic conditions/events may have significant impact on Canadian operations. Positive Effects of Globalization Outsourcing - Other countries present opportunities to access cheaper raw materials and labour. These lower costs allow companies to be more competitive and, therefore, offer customers lower prices. Lower prices - Increased competition from foreign firms causes domestic companies to be more competitive and decrease prices to attract customers. 3. Decrease in poverty - There has been significant progress on reducing poverty over the past few decades. 4. Innovation - Businesses that operate internationally can exchange technological know-how. Open borders allow ideas to flow from one country to another, stimulating creativity. 5. Optimal use of resources - when countries produce the products in which they have a comparative advantage their productivity rises. Increased productivity leads to an improved standard of living. 6. Better jobs - Export jobs usually require higher education and a high skill level; therefore, these workers are paid more. 7. Increased capital flow - Being connected to foreign countries allows companies, especially those in smaller countries, to borrow money from financial institutions in other countries. Negative Effects of Globalization Lost jobs - many Canadians have lost their jobs to outsourcing. The jobs that they find to replace them often have lower pay. Fear of job loss - many Canadians work with the fear that they may soon lose their jobs to countries with cheaper labour sources. 3. Loss of Canadian productivity - Some Canadian companies will lose their comparative advantages to countries with cheaper labour. 4. Exploitation of cheap labour - Children, prisoners, and the uneducated are forced to work in substandard conditions. 5. Increased pollution - companies move their factories to countries with limited pollution regulations so they can cut costs. 6. Safety concerns - many of the products sold by international businesses have an adverse effect on citizens’ health. Businesses in other countries do not work under the same strict regulations as Canadian companies. 7. Spread of disease - Diseases such as Ebola and Zika virus are contracted by travellers and taken back to their home countries. 8. Increase in income gap - The gap between the rich and the poor is widening. The erosion of the “middle class” is a common concern in many countries. 9. Influence of multinationals on governments - powerful corporations can manipulate global politics. MNC’s play one country against one country/region against another to obtain the best deal and maximize profit. 2 Tariffs Taxes or duties charged on imported products or services. A tariff raises the cost of imported goods so that consumers will purchase locally manufactured products instead of imports. Winners and losers of Tariffs Trade Quotas A trade quota is a government-imposed limit on the amount of product that can be imported in a certain period of time. This protects domestic producers by limiting the amount of product imported and decreasing foreign competition. Canada holds quotas on many products it imports. These include agricultural products, firearms, steel, textiles, shoes, and clothing. Trade Quotas vs Tariffs Both tariffs and quotas provide protection for domestic producers and cause an increase in Prices. The difference between the two is that the extra revenue generated by a tariff goes to the domestic government, whereas with a quota, the increase in revenue is kept by the producers. Trade Sanction Trade sanctions are often referred to as partial embargoes and may involve limiting trade of specific products or with specific companies or individuals. Trade Embargo ​ When trade between countries is banned completely. Trade Embargo & Sanctions Trade embargoes and sanctions are intended to pressure foreign governments to change their policies or to improve their human rights records. When another country imposes a trade sanction on Canadian products, there is surplus domestic supply. Canadian companies must find alternate markets to buy their products, or decrease production and close factories. Winners and losers from low C$ Factors Affecting the Exchange Rate 1.​ Countries with relatively low rate of inflation have stronger currency 2.​ Countries with high employment levels support a currency 3.​ Counties with high GDP (total goods and services produced) attract investment and this strengthens a currency 4.​ In general a strong and stable economy will lead to a strong and stable currency 5.​ Countries with high interest rates attracts investors and this increases demand for the currency  6.​ Countries with a stable government and political system leads to greater business confidence and supports the currency 7.​ A country with consistent trade deficits will contribute to a weakening of the currency (to pay for imports) 8.​ Willingness of government to intervene in currency markets to support currency will lead to confidence in currency 3 Reasons Canada Attracts Foreign Investment Supportive Business Environment Geographic Location Infrastructure Advantage Quality of Life Cultural Diversity productivity Productivity measures the efficiency with which an economy transforms inputs into outputs. Input includes labour, raw materials, capital, and innovation. Outputs are goods and services. Productivity can be improved through improved technology and equipment, a more educated workforce, entrepreneurship, or innovation. Why is productivity important? Business perspective: the more productive a company is, the more profitable it is. National perspective: increasing productivity would increase taxes, allowing for a tax cut, improved health care, education and social services. Individual perspective: Individuals would have more disposable income. How could Canada improve its productivity? Increasing investment in machinery and equipment Attracting more foreign investment Expanding Canadian investment in foreign countries Rationalization (downsizing, outsourcing) Increasing spending on science and technology Initiating government programs in science and technology Graduating more Canadians in the fields of science, math, computer science, and engineering Encouraging employers to increase and improve their training programs Increasing post-secondary funding Creating mentorship programs to help immigrants become qualified in their fields of expertise The Changing Workplace  1.​ One statistic suggests that you will have between 10 and 14 jobs before you reach your 40s 2.​ Technological developments have also had a major effect on the way we work, increasing the rate of change in businesses. 3.​ Companies are restructuring and becoming leaner 4.​ Contract job opportunities 5.​ Telecommuting: the use of computers and other tech to work from one’s home for a company located anywhere in the world 6.​ Literacy in language, tech, interpersonal skills, team work, etc. 4 Culture defined Culture encompasses the knowledge, experience, beliefs, values, attitudes, religion, arts, symbols, and possessions acquired by a group of people over time. Some aspects are transmitted from one generation to the next through education and by example. Other aspects are acquired through changes in beliefs and norms, and through exposure to new ideas and influences. Subculture A cultural group within a larger or predominant culture, distinguished from it by factors such as class, ethnic background, religion, or lifestyle. Generally unified by shared beliefs and interests Canada is considered a multicultural nation because it encourages and supports hundreds of different cultural groups within the overall Canadian cultural fabric - a “cultural mosaic”. Counterculture defined A culture that has values or lifestyles that oppose mainstream values and attitudes, usually with a view to influence change Countercultures openly reject established cultural values Mainstream culture often has difficulty accepting counterculture movements, and may react violently or with prejudice toward counterculture members, or toward people with differences of any kind. Factors that affect doing business internationally 1.​ Control of foreign operations - A company that has branch plants or distribution outlets in other countries that are managed by local people doesn’t require a great deal of time learning about cultural differences, as the local employees will have that knowledge. 2.​ Extent of foreign operations - A Canadian business that strictly exports a commodity, such as oil or gold, requires less cultural awareness than a business that operates a manufacturing plant, corporate office, retail store, or restaurant in partnership with foreigners. 3.​ Number of foreign operations - The more operations a business has in foreign markets, the greater the need for cultural knowledge.  4.​ Degree of cultural difference - When the language, habits, beliefs, and attitudes of a culture are markedly different from Canada’s, it is very important to study the culture of the new market Working Effectively with Indigenous Peoples (Geert) Hofstede’s Six Cultural Dimensions Aspects of culture identified to help those doing business in other countries 5 Market vs Command vs mixed (canada…) Adv and dis of eco systems Index of Economic Freedom Measures the economic freedom of individuals in a country, factoring in issues such as property rights, government integrity, judicial effectiveness, labour freedom, and investment freedom. Stages of the business cycle - expansion - peak - contraction - trough Economic Indicators of the Business Cycle Leading Indicators - indicators predict where the economy is headed. These indicators adjust before the economy actually experiences the change. These indicators are critical because they help to guide investors, businesses, and governments to act according to what is about to happen. (housing starts, retail sales, stock market) Lagging Indicators - indicators that do not adjust until after the economy has experienced the change. It may take two or three quarters of economic change to influence a lagging indicator (employment rate, corporate profits, GDP). Coincident indicators - move at the same time with the business cycle. Coincident indicators are often used along with leading and lagging indicators to get a full view of where the economy is, has been, and how it is expected to change in the future (imports, real wages, average hours worked). Governments have two tools to use to manage and adjust performance of the economy: Monetary Policy is a set of decisions a country’s federal government makes through its central bank by adjusting interest rates and the money supply. E.g., The Bank of Canada, the Federal Reserve (U.S.) Fiscal Policy is the way the government at all levels (municipal, provincial, and federal) taxes and spends government money Fiscal Policy - government will spend $ on programs and reduce taxes to put $ in hands of consumers & businesses to increase consumption Monetary Policy - government will lower interest rates and increase the money supply to promote consumption Fiscal Policy - government will cut $ on programs and increase taxes to take $ out of hands of consumers & businesses to slow down consumption Monetary Policy - government will raise interest rates and decrease the money supply to reduce consumption Absolute Advantage A country has an absolute advantage if it makes a product or service more productively than another country Absolute advantage - manufacture more products with the same amount of resources The country with an absolute advantage has better technology or labour, or higher quality resources. Opportunity Cost & Comparative Advantage A country has a COMPARATIVE ADVANTAGE over another when it can produce a good or service at a lower specialize in the fruit for which they have a comparative advantage (lower opportunity cost)OPPORTUNITY COST International Trade Theory - If countries produce items in which they have a comparative advantage, and import from other countries the products in which those other countries have a comparative advantage, both countries benefit. Some ways government affects trade and international business: Establishing import and export laws Setting tariffs Maintaining membership in trade organizations and negotiating trade agreements Establishing immigration laws Determining monetary policy (interest, exchange rates, money supply) Determining fiscal policy (tax and government spending) Signing tax treaties with foreign governments Military systems Establishing environmental policies Building infrastructure, such as roads and sewer systems Ordering embargoes 6 Globalization: the process whereby national or regional economies and cultures have become integrated through new global communication technologies, foreign direct investment, international trade, immigration, and the flow of money Globalization Strategies Companies use three major types of globalization strategies: 1.​ Global Strategy- Key decisions are centralized at corporate headquarters in the business’s home countryThis strategy has an ethnocentric view—that is, the idea that all people want the same products and will respond in a similar fashion to the marketing strategies used in the home market. Allows companies to take advantage of economies of scale (proportionate savings gained by producing larger quantities), develop products faster, and coordinate activities 2.​ Multidomestic Strategy - This strategy tries to customize products, services, and marketing for the local culture, and is effective when cultural differences are prominent. This strategy has a decentralized polycentric view, which is the idea that local management is most capable of determining what is best for the local subsidiary. Advantages of a multidomestic strategy include less political and exchange-rate risk, increased product differentiation, and greater responsiveness to local needs 3.​ Transnational Strategy - This strategy tries to combine the best elements of the global and multidomestic strategies. It attempts to respect the needs of the local market while maintaining the efficiencies of a global strategy This strategy has a geocentric view that values both local differences and what is best for the company - efficiency and profitability direct decisions.  Products are manufactured at the least expensive source, while human resources and marketing are managed at a local level Benefits of USMCA: Increase in trade Lower prices Economic growth Job creation Costs of CUSMA: Lost jobs and lower wages Human rights issues Environmental damage Euro Advantages: Reduce exchange-rate fluctuations Elimination of transaction costs Easy billing Economic stability Price transparency Price stability Increased markets Increased trade and travel Enhanced labour movement Euro Disadvantages: Centralization Initial costs Lack of national control Loss of tradition World Trade Organization (WTO) Established in 1995, the WTO promotes economic, social development and trade liberalization (easing trade restrictions) throughout the world. Now includes 166 member countries The three main purposes of the WTO: Establish Trade Rules Forum for Negotiations Dispute Settlement System Criticism of the WTO: Destabilizes Markets Environmental degradation Favours powerful nations/corporations Lack of enforcement/effectiveness The World Bank provides loans and grants to poor countries to assist with education, health, infrastructure, farming, environmental issues, resource management, and other economic concerns Critics say that its policies and plans have caused many countries to suffer because of the rules it imposes in order to receive a loan, environmental impact of the projects it supports, displacement of peoples… The IMF is an organization that tracks economic trends, analyzes countries’ financial performance, warns governments of potential financial problems, provides expertise to governments, and provides a forum for discussion It accomplishes this through three activities: Encouraging countries to adopt responsible economic policies Lending money to emerging and developing countries Providing technical training in areas such as banking regulations and exchange-rate policies IMF loans often come with strict conditions that emphasize inflation controls and limit government spending. This can result in governments having to cut back on social program spending in such areas as health and education. 7 Corporate Social Responsibility (CSR) defined The duty of a company’s management is to work in the best interests of the society it relies on for its resources (human, material, and environmental), to advance the welfare of society, and to act as a good global citizen through its policies. Some Benefits of Corporate Social Responsibility Companies use CSR as a marketing tool - many consumers are interested in supporting/buying from businesses that reflect their values Being socially responsible dissuades governments from implementing regulations that might interfere with businesses Companies can attract and retain excellent employees if they have solid CSR practices Some Criticisms of Corporate Social Responsibility Being socially responsible costs companies money, which reduces profit - “stealing from shareholders” Companies spend valuable time and employee energy on CSR. Instead, they could concentrate on maximizing shareholders’ wealth Good corporate practices can be used to distract customers from problems a company may be creating “greenwashing” Companies may use CSR to enhance their reputation with domestic consumers, but may not act ethically in other countries An ethical dilemma - arise when moral issues raise questions that cannot be answered with a simple clearly defined rule, fact or authoritative view How to deal with an ethical dilemma  Companies can consider the “test of disclosure” method to solve an ethical dilemma. They can ask themselves, “How would we feel if everyone knew about the decision we made?” If they are not concerned, they have likely made an ethical decision. If they are concerned, they have probably not made the right choice. You can also solve ethical dilemmas at work by asking: Am I being honest? Is my choice fair to the company’s stakeholders? Will my choice enhance the reputation of the company? Ethical imperialism: From this viewpoint, certain universal truths or values are standard across all cultures. In other words, if something is wrong in one country, it is wrong in all countries. Critics of this viewpoint state that ethical imperialism wrongly forces the values of one culture onto another. Cultural Relativism: At the opposite end of this continuum is cultural relativism. It says the values of different cultures should be respected, as the ethics of one culture are not seen as better than those of another. Companies that follow the idea of cultural relativism make decisions in the context of the cultural values of the countries in which they are doing business. 8 The Four P’s : Product Place Price Promotion The Two C’s: Consumers Competition Market Research Market research can be used to better understand customers and their preferences (the four P’s and two C’s), identify growth and profit opportunities, detect changes and trends in the market, and observe the competition In international markets research can identify differences in culture, language, government regulations, economics, etc. Primary research: when the company collects its own data. Examples include surveys, questionnaires, observations, focus groups, and interviews… Benefits of Primary Research: Control - you control how you collect data and how it will be used. Relevance - you can ensure the questions are relevant to your area of interest. Ownership - The data belongs to you, and it’s information your rivals won’t be able to access. Accuracy and timeliness - You have confidence that responses are relevant to the present-day consumer and market conditions. Disadvantages of Primary Research: Cost - Most types of primary market research cost more than secondary research methods. From the design and set-up to interpreting results, it all comes at a cost Time - Primary market research takes longer to plan, do, and review than secondary research Bias - An individual might be biased based on previous experience. Or, they might not fully understand the questions being asked (esp. International markets) Secondary research: when the data comes from other sources (research companies, government reports, trade reports, etc.). Benefits of Secondary Research: Cost - Usually costs less vs. primary research or no cost from government, NGO’s… Time - data is readily available and often updated Disadvantages of Secondary Research: Lack of Control - research is not customized Relevance & Accuracy - may not be credible Ownership - competition has access Timeliness - data may be dated Marketing Strategies - (...globalization strategies) When companies decide to expand internationally, they need to formulate and execute an appropriate strategy. There are three main international marketing strategies that may be used: Acquisition marketing strategy - When a company purchases another company in a foreign country “Eliminate the competition” Benefits from purchase of employees, management, and cultural expertise Fewer cultural blunders occur Centralized marketing strategy - when a company sells the same products worldwide with few or no modifications to the global brand The advantages of this strategy include cost savings and an opportunity to build a global brand danger of ethnocentrism Decentralized marketing strategy - when a company tailors marketing elements specifically to each country The parent company often hires local advertising agencies, market research firms, and sales representatives.