Chapter 5b Revised Fall 2024 - Global Context PDF

INTRODUCTION TO BUSINESS Week 5 CHAPTER 5 The Global Context of Business  Globalization It is important for firms to have a presence beyond Canadian borders. The real rewards for Canadian business lie outside the nation. Globalization...

INTRODUCTION TO BUSINESS Week 5 CHAPTER 5 The Global Context of Business  Globalization It is important for firms to have a presence beyond Canadian borders. The real rewards for Canadian business lie outside the nation. Globalization The integration of markets globally The world is becoming a single interdependent system benefits to countries and investors technology makes it easy criticized for exploiting less developed countries expands trade, opens global supply chains and provides access to natural resources and labor markets from around he world. 5-2  WHY NATIONS TRADE  Greater total output  Lower Prices  Wider variety of  Increasedlocal goods competition  Expanded markets  Economies of scale  The Rise of International Business  Globalization  Interdependent system  Countries benefit from the increased trade which increases their GDP. Consumers benefit from having greater choice  Technology makes it easier (communications, travel, online presence…)  Criticized for various reasons (exploitation of developing countries and natural resources, destruction of the environment, 4 loss of cultural diversity…)  Major World Marketplaces (economic zones have been grouped into geographic clusters) Three major marketplaces that represent the world’s largest economies biggest multinational corporations, most influential financial markets, and highest-income consumers.  North America  Canada’s largest trading partner is the U.S.  Europe (European Union)  Pacific Asia  Japan, China, India 5 Copyright © 2017 Pearson Canada Inc. Emerging Markets-fastest growing economies  Originally BRIC, now BRICS  Brazil = agriculture  Russia = energy  India = call centers/ engineering  China = manufacturing  South Africa = minerals 6 Copyright © 2020 Pearson Canada Inc. Forms of Competitive Advantage  Absolute Advantage When a country can produce something more efficiently than any other country.  Comparative Advantage When a country can produce certain items more efficiently (cheaper) than it can produce other items Agenda  Course Information and Announcements  Global Business Today  “Going International”  Barriers to Trade  Overcoming Barriers (Free Trade Agreements) Going International 9 Copyright © 2020 Pearson Canada Inc. “Going International” Consider: the business climate of other nations cultural, legal, and economic roadblocks the demand for products abroad the need to adapt products 5-10 THE GLOBAL BUSINESS ENVIRONMENT Opportunities Challenges  Growth potential  Laws and customs  Increased sales  Consumer preferences  Operating efficiencies  Ethical standards  New technologies  Labour skills  More consumer choice  Politics and economics  International Business Management Multinational Firm (assets, factories, International mines, sales offices, Firm and affiliates (significant portion of in 2 or more Exporter business is conducted foreign countries; (producing in one abroad; domestic firm planning and country and selling with international decision-making are to others) operations) geared at Importer international (buy products in markets) foreign markets for 12 resale International Business Management  Exporter  makes products in one country and sells to others  Importer  buys products in foreign markets for resale at home  International Firm  conducts much of its business abroad  basically, a domestic firm with international operations  Multinational Firm  controls assets, factories, mines, sales offices, and affiliates in two or more foreign countries  planning and decision making are geared to international markets International vs. Multinational  An international firm sells products abroad without significant operations in other countries (e.g., Ferrari), while a multinational firm has business operations and facilities in multiple countries (e.g., Coca-Cola). 14  Forms of Competitive Advantage  Balance of Trade  the difference in value between total exports and total imports the nation exports more than it Trade Surplus imports the nation imports more than it Trade Deficit exports Independent Agent   Why have an independent agent? Independent agent: Local individual or company who represents the firm’s interests Will often sell products, collect payment, and ensure customer satisfaction Understands the local culture and language 16. Licensing Arrangements  Gives exclusive rights to a foreign company to produce and sell products in exchangeSource: http://animaljam.wikia.com/wi for royalties or fees ki/File:KFC_bucket.jpg  Franchising is a type of licensing  Allows use of:  Image, trademark and brand name  “Secret recipes”  Entry point in a foreign market Branch Offices  Office in a foreign country  Having a local presence in the foreign market may increase sales  More direct control over how the product is sold, used, produced, etc.  May be a foreign legal requirement to conduct business in the chosen country Copyright © 2020 Pearson Canada Inc. 18 Strategic Alliances  Strategic alliance  “Joint venture” or “partnership” between two independently owned firms  May be mandated in some countries (foreigners may not be allowed to own property)  Allows the firm both firms to gain knowledge and expertise  Offers greater control over operations 19 Copyright © 2020 Pearson Canada Inc. Foreign Direct Investment  A company buys or establishes tangible assets in a foreign country  Example: building a manufacturing plant in Brazil  Brings foreign investment to a local economy  Can be encouraged or discouraged by the government in that specific country  Provides local employment 20 Copyright © 2020 Pearson Canada Inc.  Barriers to Trade Source: http://marbethvelasquez.wikispaces.com/World+Trade+Organization %28WTO%29  Social and cultural differences  Economic differences (extent of government involvement)  Legal and political differences  Quotas/tariffs/subsidies  Local content laws 21  Business practice laws Copyright © 2020 Pearson Canada Inc. Social & Cultural Differences  Language: negotiations  Population demographics and physical characteristics  Religious differences  Shopping habits  Social beliefs  Companies need to adapt their products or services to local preferences  Example: http://www.businessinsider.com/mcdonalds-international-menu-items- 2016-9?op=0#/#mcdonalds-indias-veg-pizza-mcpuff-1 22  https://news.starbucks.com/news/frappuccino-blended-beverage-flavo Copyright © 2020 Pearson Canada Inc.  Legal and Political Differences  Quotas  Limits on importing a specific product class (often to protect domestic industries)  Embargo  Forbidding export/import from a nation (US vs. North Korea) or of a particular good  Example: Embargo on Canadian beef after finding cases of mad cow disease in 2003  Iranian oil embargo last year Source: 23 http://www.usageorge.com/Wallpapers/Cartoons/Mad- https://www.cnbc.com/2018/06/26/oil-buye Cow.html rs-must-cut-all-iranian-crude-imports-by-n Copyright © 2020 Pearson Canada Inc.  Legal and Political Differences (2)  Tariff: a tax on imported goods  Can be to protect domestic producers  Raises government revenues as well  Example: Over the past years, the U.S. added hefty tariffs on Canadian lumber. Canada countered, adding tariffs on US goods. This year, the US has focused its “tariff attention” on China.  Subsidy  Government financial assistance for domestic firms of a particular industry to compete favourably in the global market  Often used in agriculture  Could be low-interest loans or other forms of government help  Example: Bombardier has received many subsidies in recent years: http://nationalpost.com/opinion/andrew-coyne-the-odd-merger- 24 of-bombardier-and-the-canadian-government Copyright © 2012 Pearson Canada Inc. Local Content Laws  Requires that at least part of the product be made in the foreign country  May result in joint ventures or foreign direct investment (manufacturing facility in the foreign country) 25  Business Practices  Dumping  The practice of selling goods abroad for less than a firm charges at home is illegal in most nations  Also defined as goods sold at less than fair market value  Seen as an unfair business practice toward domestic producers  Cartels  Very powerful influencers of inventory and price often attempting to lessen competition  Associations of producers created to control supply and price (OPEC for oil)  NB: A cartel that is government run 5-26 is accepted, but a cartel of private companies is NOT Copyright © 2020 Pearson Canada Inc. Example: Dumping  Your company is a Norwegian toothpick manufacturer, Whalepicks  In Norway, you sell them for $0.75 per box  Your biggest competitor is an Australian company, Oy Mate  This company sells toothpicks for $0.75 per box in Australia  The Australian manufacturer recently entered the Norwegian market  Toothpicks are being sold for $0.25 per box in Norway  Who is dumping what where? Source: http://www.acupuncturebrooklyn.co m/acupuncture/what-is-wrong-with- toothpick-acupuncture Trade Agreements  Any contractual arrangement between states/countries concerning their trade relationships. Copyright © 2020 Pearson Canada Inc. 28  General Agreement on Tariffs and Trade (GATT)  The GATT (General Agreement on Tariffs and Trade): framework for international trade  Goal: To reduce or eliminate trade barriers (ex. quotas and tariffs)  Established after WW II, in 1947; revised in 1994  92 countries signed GATT  The organization was replaced by the WTO in 1995 = more power and 164 member nations  The WTO negotiates trade agreements and resolves disputes  European Union (EU)  Goal: free movement of capital, people and goods.  Largest free marketplace in the world (1993)  At one point there were 28 countries, with more wanting to join, but now 27 remain  In June 2016, the UK voted to leave the EU → BREXIT  http://europa.eu/about-eu/countrie s/index_en.htm#20  Eliminated most quotas 5-30 and set uniform tariffs Copyright © 2020 Pearson Canada Inc. North American Free Trade Agreement (NAFTA now USMCA)  Came into effect in 1994  Goal: progressively remove tariffs and trade barriers among the three countries  Renegotiations gave way to the new USMCA last year  Key highlights include:  Opens up to 3.59% of the Canadian dairy market to the US  Revised automotive rules of origin 31 require higher levels of North-American content Copyright © 2020 Pearson Canada (from Inc. 62.5% to 75%)