International business UNIT 1 TEST.pdf

Globalization is a process whereby national or regional economies and cultures become integrated through new global communication technologies, foreign direct investment, international trade, immigration, and cash flow. It is relatively easy for companies with sufficient resources to expand into cou...

Globalization is a process whereby national or regional economies and cultures become integrated through new global communication technologies, foreign direct investment, international trade, immigration, and cash flow. It is relatively easy for companies with sufficient resources to expand into countries where labour, materials, office space, and manufacturing facilities are inexpensive and plentiful. types of industries 1. Primary The sector of the economy characterized by the extraction of natural resources from the earth or sea. - Agriculture - Fishing, hunting and trapping - forestry and logging - Energy - Mining 2. Secondary - industries that create a finished, usable product. - Secondary manufacturing produces capital goods (products used by businesses) and consumer goods (products purchased by individuals) 3. Tertiary - Industries that do not make a product or extract resources from the earth, but provide necessary services to consumers and other businesses. - Examples include banking, construction, communications, transportation, and retail sales - Domestic Business vs International Business Domestic: - forces behind - criticism - branch plants : A factory owned by a company based in another country. - interdependence : The reliance of people on each other for goods, services, or ideas is known as interdependence. International: - reasons to engage in it allows companies to expand their markets and reach a global customer base, increasing their potential for growth and profitability. - ways to enter it.  - Import and export: The import in international business involves the selling of commodities from one country to another.... - Licensing: Licensing in international business makes the contract of trading between the countries. - advantages and disadvantages of international business Advantages : 1. Variety, prices, and foreign markets 2. Cultural development, and more jobs 3. Foreign investment Disadvantages 1. Loss of culture and identity 2. Increased foreign ownership of companies in Canada Interdependence - The reliance of people on each other for goods, services, or ideas is known as interdependence. advantages, disadvantages of international trade Advantages: 1. Variety, prices, and foreign markets 2. Cultural development, and more jobs 3. Foreign investment Disadvantages: 1. Loss of culture and identity 2. increased foreign ownership of companies in Canada Protectionism Although trade is beneficial for all countries, it is not always easy. Governments set up rules and regulations to protect local businesses, generate revenue, and protect citizens from harmful products.The shielding against foreign competition is called protectionism. types of international business Canada trades for a variety of reasons: company growth, entry into new markets, expanded customer base, increased profits, access to inexpensive supplies, lower labour costs, and access to financing. Types of international business: 1. FDI - foreign direct investment: controls some of or all of business operations 2. Importing - To bring products or services into a country, for use by another business or for resale. - The majority of the goods that Canada imports come from the United States  - Global sourcing: The process of a company buying equipment, capital goods, raw materials, or services from around the world 3. Exporting - To send goods or services to another country, for use by a business or for resale. - The majority of goods that Canada exports go to the United States. - Value added: The amount of worth that is added to a product at each stage of processing. It is the difference between the cost of the raw materials and the finished goods. - Our Canadian companies focus on the extraction of primary goods and this does not make as much money as companies that do the processing of them 4. Licensing agreements - An agreement that grants permission to a company to use a product, service, brand name, or patent in exchange for a fee or royalty. - Exclusive distribution rights: A form of licensing agreement that grants a company the right to be the only distributor of a product in a specific geographic area or country. - Advantage = little risk - Disadvantage = limited money gains 5. Franchising - An agreement granted to an individual or group by a company to use that company’s name, services, products, and marketing. - For a fee, the franchisor provides support to the franchisee in the areas of financing, operations, human resources, marketing, advertising, quality control, etc. - Advantage = for franchisee who buys and runs it, less risk, access to expert knowledge and research and financial aid. - Disadvantage = less profit, stringent guidelines and loss of control 6. Joint ventures - A common type of international business, in which a new company with shared ownership is formed by two businesses, one of which is usually located in the country where the new company is established. - Advantages: - Allow companies to gain access to markets, products and customers. - Sharing of financing, managerial expertise, technology, cultural information, economies of scales and risk reduction. - Disadvantages:  - Takes longer to negotiate and establish because needs and wants of two companies must be considered 7. Foreign subsidiaries - Often referred to as a wholly owned subsidiary, a branch of a company that is run as an independent entity in a country outside of the one in which the parent company is located. - The parent company often sets financial targets, and allows the subsidiary to manage its own day-to-day operations as long as those targets are being met. - Advantages: - Parent company provides opportunities to host country in terms of variety of products, use or resources. - Disadvantages: - Host country must meet targets, goals are set from abroad, profits are shared with parent company whereit is put towards R&D and other parent divisions 8. Global sourcing : The process of a company buying equipment, capital goods, raw materials, or services from around the world 9. value added :The amount of worth that is added to a product at each stage of processing. It is the difference between the cost of the raw materials and the finished goods. 10. exclusive distribution rights : A form of licensing agreement that grants a company the right to be the only distributor of a product in a specific geographic area or country. trade barriers 1. Tariffs - Tariffs, the most common type of trade barrier, are taxes or duties put on imported products or services. - Tariffs raise the cost of imports, so that locally manufactured products are less expensive and more appealing to consumers 2. Trade quotas A government-imposed limit on the amount of product that can be imported in a certain period of time 3. Trade embargoes and sanctions - A government-imposed ban on trade of a specific product or with a specific country, often declared to pressure foreign governments to change their policies. - Economic action taken by a country to coerce another to conform to an international agreement or norms of conduct 4. Foreign investment restrictions - Canadian law with the greatest impact is the Investments Canada Act  - Ensures that all foreign investments are reviewed to determine how they will benefit Canada 5. Standards - Canadian law with the greatest impact is the Investments Canada Act - Ensures that all foreign investments are reviewed to determine how they will benefit Canada currency fluctuation (winners / losers, floating rate, factors affecting exchange rates, soft / hard currency, currency revaluation / devaluation) Winners of a low CAD: Exporters Canadian tourism Canadian retailers Losers of a low CAD: Importers Canadian travellers Major league sports teams in Canada Floating rate: meaning an exchange rate that is not fixed in relation to other currencies. The price at which currency with a floating rate is bought and sold fluctuates according to supply and demand factors affecting exchange rates, soft / hard currency: 1. Economic conditions in Canada—inflation rate, unemployment rate, GDP, interest rates 2. Trading between countries—the more favourable the terms of trade (comparison of exports to imports), the higher the currency exchange 3. Politics—political tension and instability or the threat of terrorism decreases the demand for a currency 4. Psychological factors—historical significance and stability change the way currencies are viewed Hard currencies - Stable currencies, such as the euro, and the U.S. and Canadian dollars, which are easily converted to other currencies on the world exchange markets. Soft currencies - A currency belonging to a country with an economy that is small, weak, or that fluctuates often, and is difficult to convert into other currencies, such as the Russian ruble or the Chinese yuan. Currency revaluation: - The increase in value of a currency because the demand for that particular currency is greater than the supply. Currency devaluation: - The decrease in value of a currency because the supply of that particular currency is greater than the demand for it. economics of trade (key terms opportunity cost, comparative advantage, absolute advantage, competitive advantage - countries, companies - how do they achieve this, balance of trade) Opportunity cost: - the amount of another good or service that might otherwise have been produced with those resources. comparative advantage : An economic theory developed by David Ricardo and states that agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost. Absolute advantage: - When Canada can produce more output with the same input that another country can, it has an absolute advantage in the production of that good comparative advantage: - An economic theory developed by David Ricardo and states that agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost - The ability of a country and its businesses to produce goods at a lower opportunity cost than another country and its businesses. absolute advantage: - When Canada can produce more output with the same input that another country can, it has an absolute advantage in the production of that good. - If the other country has an absolute advantage in producing goods that Canadians want, both countries will be better off if they specialize in those specific items and trade. competitive advantage: - A product that a country or company is better at producing than its competitors How do companies achieve a competitive advantage? - The country in which a business operates creates a foundation for the company’s growth and future success. - There are many factors that contribute to a country’s competitive advantage: 1. Infrastructure 2. Currency and Exchange Rates 3. Natural Resources 4. Workforce Characteristics 5. Societal Characteristics 6. Entrepreneurship 7. Government Involvement Why do countries have different absolute advantages? - Climatic Advantages - Plentiful natural resources  - More efficient workers - More investment capital (e.g. equipment) Balance of Trade: - The difference between a country’s exports and imports is known as its balance of trade. - Trade surplus = Exports > Imports - ]’Trade deficit = Exports < Imports Canada's global presence and how we perform globally What makes canada attractive? Education Healthcare Society Innovation Economy Environment 1) Challeng 1) Challe. Innovation is key The unemployment es nges to canada's rate is quite low, 1) Air - Wait times: Regional success as a but there are some quality / Canadians often disparities in global player and parts of Canada pollution face long wait crime and investment experiencing main times for Society destination. It higher rates of no challeng specialist Income keeps canadian jobs. Unemployed es Consultations inequality and products + percent of the. Atmospheric and surgeries- racial inequity services labor force for a pollutants such lead to delayed High cost of competitive and year or longer is as energy diagnoses and living and opens doors to 0.5%, lower than transportation treatments. housing news markets and OECD average of and energy OverWhelmed affordability. opportunities 1.3%. consumption Emergency 1) Challenges (fossil fuel), and Rooms: Several. House market / industrial patients at a affordability processes time, lack of. Canada has a. Canada is a nurses and slow productivity major producer doctors growth compared of oil, and a Lack of access to the Us. This major consumer to family often attributed to of electricity doctors: Most lower business (makes it very graduate investment in hard to control doctors/nurses technology and emissions leave the innovation produced) country. 2) Improvemen. Canada is Healthcare ts ranked 12th in Workers in an Sustainability GHG enormous Initiatives: Canada emissions, strain: Working is working producing over to many hours, towards reducing 685 million  underpaid, greenhouse gass metric tons of privatization, emissions and GHG high fire rates increasing. Canada is in renewable energy the top 3 souras countries for forest fires meaning air is constantly being filled with smoke 2) How can they improve this:. Substitute dirty fuels for cleaner ones. Reduce consumption or polluting products by adopting cleaner technologies. Incentivize lifestyle changes Text Breakdown PART A: KNOWLEDGE/UNDERSTANDING (MULTIPLE CHOICE 20 MARKS) PART B: THINKING (3 SHORT ANSWER 10 MARKS) PART C: APPLICATION (2 SHORT ANSWER 10 MARKS) PART D: COMMUNICATION (ESSAY 10 MARKS)