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Transcript of Chapter 2 Copyright © 2011 by Nelson Education Ltd. 1 Prepared by Norm Althouse University of...
Ch
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Copyright © 2011 by Nelson Education Ltd.1
Prepared byNorm Althouse
University of Calgary
Prepared byNorm Althouse
University of Calgary
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Learning Outcomes
Copyright © 2011 by Nelson Education Ltd.2
1 Show why global trade is important to Canada, and how it is measured.
2 Explain why nations trade.
3 Describe some of the barriers to international trade.
4 Discuss how governments and institutions foster world trade.
5 List some of the international economic communities.
6 Explain how companies can enter the global marketplace.
7 Explain some of the threats and opportunities in the global marketplace.
8 Discuss some of the advantages of multinational corporations.
9 List some of the trends in the global marketplace.
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GLOBAL COMPETITION
Copyright © 2011 by Nelson Education Ltd.3
GlobalGlobalVisionVisionGlobalGlobalVisionVision
Recognizing and reacting tointernational business
opportunities
Being aware of threats fromforeign competitors
Effectively using internationaldistribution networks
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The Importance of Global Business for Canada
Copyright © 2011 by Nelson Education Ltd.4
Offers expanded markets for our products
Enhances the quality of Canadian life Canada exports approximately 45% of what it produces
Approximately 33% of all jobs in Canada rely on exports
Helps to maintain our high standard of living
Exports = 30% of Canada’s GDP
Exports = 76% of Saskatchewan’s GDP
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Key Measures of International Trade
Copyright © 2011 by Nelson Education Ltd.5
Balance ofPayments
Balance ofPayments
ImportsImportsExportsExports
Balance of Trade
Balance of Trade
ExchangeRates
ExchangeRates
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Measuring devices
Copyright © 2011 by Nelson Education Ltd. 6
Balance of Tradetrade surplus (more exports than imports)trade deficit (more imports than exports)
Balance of Paymentsthe difference between total payments to and
total receipts from other countries
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Copyright © 2011 by Nelson Education Ltd. 7
Value of Currenciesfloating exchange rates price one country’s
currency in terms of another country’s currency
long-term imbalance of trade will tend to stimulate a currency rate correction
Governments can also correct currency exchange rates by buying and selling foreign currency; by changing interest rates; by strict financial controls; and by forced revaluations.
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Canada / U.S. Foreign Exchange Rate
Copyright © 2011 by Nelson Education Ltd. 8
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An underlying cause?
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WHY NATIONS TRADE
Copyright © 2011 by Nelson Education Ltd.10
Absolute Advantage• A country can produce and sell products
at a lower cost
• A country is the only provider of a product
Comparative Advantage
A country should specialize in the products that it can produce most readily and cheaply, and trade these for goods that foreign countries can produce most readily and cheaply (The textbook’s definition)
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Comparative advantage
Copyright © 2011 by Nelson Education Ltd. 11
Comparative Advantage
A country should specialize in the products that it can produce most readily and cheaply, and trade these for goods that foreign countries can produce most readily and cheaply
Comparative Advantage
A country should specialize in the products that it is the most best at producing, and trade these for those goods that foreign countries are least worst at producing
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Costs and benefits of free trade
Copyright © 2011 by Nelson Education Ltd. 12
Ricardo’s theory of comparative advantage indicates that the standard of living is improved by free trade between countries.
There are several costs however.
Specialization in what you are most best at or least worst at implies that each country will stop producing something that it produced before free trade started. This has two main effects.
First, people who were employed in that sector will no longer be employed . If their skills are very specific, they may be unable to work elsewhere. This is why labour groups are anti-free trade.
Second, each country is now no longer self-sufficient – each is dependent on the other country for the supply of the traded products. This interdependence discourages war, e.g. in the EEC.
Some countries want to remain self-sufficient, and not be dependent on others for strategically important goods. Japan, for example, maintains its own rice growing industry despite the fact that foreign rice is 10 times cheaper.
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BARRIERS TO TRADE
Copyright © 2011 by Nelson Education Ltd.13
distance, language, culture, legal and regulatory
distance, language, culture, legal and regulatoryNatural BarriersNatural Barriers
import taxes, protective tariffs import taxes, protective tariffs Tariff BarriersTariff Barriers
quotas, embargoes, buy-national regulations, custom regulations,
exchange controls
quotas, embargoes, buy-national regulations, custom regulations,
exchange controlsNon-Tariff BarriersNon-Tariff Barriers
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FOSTERING GLOBAL TRADE
Copyright © 2011 by Nelson Education Ltd.14
Antidumping Lawsprevent charging a lower price in foreign markets
than in the home market for the same product
Antidumping Lawsprevent charging a lower price in foreign markets
than in the home market for the same product
The Uruguay Roundagreement signed in 1994 by 117 nations to lower trade barriers
The Uruguay Roundagreement signed in 1994 by 117 nations to lower trade barriers
The World Bank and International Monetary Fundlend money to developing nations and troubled nations
The World Bank and International Monetary Fundlend money to developing nations and troubled nations
The World Trade Organizationprovides lower trade barriers among member nations,
and helps resolve trade disputes
The World Trade Organizationprovides lower trade barriers among member nations,
and helps resolve trade disputes
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INTERNATIONAL ECONOMIC COMMUNITIES
Copyright © 2011 by Nelson Education Ltd.15
North American Free Trade Agreement (NAFTA)
North American Free Trade Agreement (NAFTA)
The European UnionThe European Union
ASEANASEAN
Mercosur
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Copyright © 2011 by Nelson Education Ltd. 16
Current EU Members
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THE GLOBAL MARKETPLACE
Copyright © 2011 by Nelson Education Ltd.17
Potential for cost savingsPotential for cost savings
Saturated domestic marketsand excess capacity
Saturated domestic marketsand excess capacity
Possess exclusive market informationPossess exclusive market information
Leverage a unique product ortechnological advantage
Leverage a unique product ortechnological advantage
Earn additional profitsEarn additional profits
Why Why “Go Global?”“Go Global?”
Why Why “Go Global?”“Go Global?”
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Entering the Global Marketplace
Copyright © 2011 by Nelson Education Ltd.18
HighHighrisk/risk/highhighreturnreturn
LowLowrisk/risk/lowlowreturnreturn
Risk
Return
Exporting Licensing
ContractManu-
facturing
JointVenture
DirectForeignInvest-ment
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Entering the Global Marketplace
Copyright © 2011 by Nelson Education Ltd.19
LicensingLicensing Legal process allowing use of manufacturing/patents/knowledge.
Legal process allowing use of manufacturing/patents/knowledge.
ContractManufacturing
ContractManufacturing
Private-label manufacturing by a foreign country.
Private-label manufacturing by a foreign country.
Joint VentureJoint Venture Domestic firm buys/joins a foreign company to create new entity.
Domestic firm buys/joins a foreign company to create new entity.
ExportExport Sell domestically produced products to buyers in other countries.
Sell domestically produced products to buyers in other countries.
Direct InvestmentDirect Investment Active ownership of a foreign company/manufacturing facility.Active ownership of a foreign
company/manufacturing facility.
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Entering the Global Marketplace
Copyright © 2011 by Nelson Education Ltd.20
A form of internationaltrade in which part or all of the payment of goods
or services is in the form of goods and services.
A form of internationaltrade in which part or all of the payment of goods
or services is in the form of goods and services.
CountertradeCountertrade
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THREATS AND OPPORTUNITIES
Copyright © 2011 by Nelson Education Ltd.21
PEST = the Political, Economic, Social and Technological environments that interact with business.
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MULTINATIONAL CORPORATIONS
Copyright © 2011 by Nelson Education Ltd.22
Corporations that move resources, goods, services, and skills across national boundaries
without regard to the country in which theirheadquarters are located.
Corporations that move resources, goods, services, and skills across national boundaries
without regard to the country in which theirheadquarters are located.
Multinational CorporationsMultinational Corporations
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The Multinational Advantage
Copyright © 2011 by Nelson Education Ltd.23
Overcome trade problems Sidestep regulatory problems Shift production from one plant to another Tap new technology from around the world Save in labour costs
Social issues Cultural issues Economic and financial issues Legal and regulatory issues Environmental issues
The Multinational Challenges
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Trends in Global Competition
Copyright © 2011 by Nelson Education Ltd.24
Emergence of China and IndiaEmergence of China and India
Resource acquisitionResource acquisition
Market expansionMarket expansion
Trends inTrends inGlobalGlobal
CompetitionCompetition
Trends inTrends inGlobalGlobal
CompetitionCompetition