2 The Five Ps of International Business ProductPriceProximityPreferencePromotion
3 ProductA country’s resources determine what goods and services it producesCanada’s larger forests provide lumber to countries that don’t have an abundance of them (I.e. Japan - small country with high population per capita)
4 PriceCost of producing goods and services varies from country to countrySometimes more profitable for businesses to produce products overseas and then ship them here to sell to consumersLower foreign wages, taxes, and material costs make it cheaper to produce products abroad
5 ProximitySometimes advantageous and profitable for some businesses to sell products and services to consumers near a neighbouring country’s borderFor example, 80% of the Canadian population lives within 170 km of the American border - makes for easy transferMany Canadian businesses trade extensively with Americans due to closeness (and high population in comparison to Canada - 316M vs 35M)The reverse is also true: Americans trading with Canadians
6 PreferenceConsumers often purchase foreign goods and services based on their reputation and specializationOccurs even though similar products are produced domesticallyExamples are Swiss watches, German cars and Belgium chocolates
7 PromotionTechnology, especially the Internet, makes it easy for businesses to promote their products and services internationallyNow develop brand name internationally in three years, before computers would take decades
8 Costs of International Trade The hidden or social costs often associated with international trade include offshore outsourcing, human rights or labour abuses, and environmental degradation.
9 Offshore OutsourcingOccurs when businesses decide to produce all or part of their goods in countries where labour costs are lower (contracting out) but remain in current countryAdvantages: proximity to natural resources, more efficient technology, indigenous innovation, and favorable tax structuresDisadvantages: salaries, benefits, training, recruitingtransnational corporations operate in several countries to produce their goods and services
10 Human Rights Issues and Labour Abuses Some workers in poor countries face labour exploitation, such as physical and sexual abuses, forced confinement, non-payment of wages, denial of food and health care, and excessive working hoursETHICS!!!!Child labour—the regular employment of boys and girls under the age of 16—is commonly practiced in poor countries where the workforce is often exploited
11 Environmental Degradation Sustainable developmentprocess of developing land, cities, businesses, and communities that meet the needs of the present generation without compromising those of the future.Environmental degradationconsumption of natural resources, such as trees, water, earth, habitat, and air, faster that nature can replenish them.
12 Barriers to International Trade Government use barriers, often referred to a roadblocks (red tape), to help protect domestic businesses and consumersChina just announced that the government is advocating for the use of domestic products over international, making it harder for international companies to sell their goods in ChinaUsed to protect existing industries, protect consumers from problematic imports (cars not conforming to Canadian safety standards)
13 1. Tariffs (Customs Duties) A form of tax on certain types of importsFinished imported goods include tariffs, which increase their prices.Canadian products do not carry such tariffs, and, therefore, may be sold at lower prices (Buy Local!!)In an effort to protect their domestic industries, countries put up tariff barriers by increasing the cost of imported goods.
14 2. Non-tariff BarriersAre controls or standards for the quality of imported goods set so high that foreign competitors cannot enter the market (High emission controls on cars)Can be a licence application to sell goodsSometimes a customs inspection at the border (i.e European ban on hormone treated beef products)
15 3. Costs of Importing and Exporting Price of a product or service must take the landed cost into consideration (manufacturing, storage, marketing, shipping, advertising, overhead, profits)Shipping is one of the largest components of costlanded cost is the actual cost of an imported purchased item, composed of the vendor cost, transportation charges, duties, taxes, broker fees, and any other charges.
16 4. Excise TaxesA tax on the manufacture, sale, or consumption of a particular product within a countryUse to raise money (10 cent per liter on gasoline raises $4 billion per year)Used to discourage people from certain activities (tobacco tax)Can be used to increase the cost of imported goods
17 5. Currency Fluctuations currency rates fluctuate on a daily basis, an international purchase made on one day may cost less or more than another purchase on the following dayShifting currency exchange rates vary as the economic strength of the two countries change on a daily or weekly basis
18 Flow of Goods and Services Imports, such as raw materials, processed material, semi-finished goods, and manufactured products, flow into CanadaGoods and materials also leave Canada as exports
19 Balance of TradeTo maintain a healthy balance of trade (relationship between the value of imports and the value of exports), countries try to import the same total value of products that they export.An imbalance of the two results in the following:a trade deficit in which a country pays more for imports than it earns from exportsa trade surplus in which a country earns more from exports than it pays for importsDo you remember what Canada’s trade was with China, Japan and Korea?
20 Imports Five Ways to Offset the Risk of Importing Measure consumer interest.Use care when selecting foreign suppliers.Learn about a foreign partner’s culture.Carefully scrutinize the purchase agreement and then sign it.Check goods for quantity and quality upon arrival.
21 ExportsDirect exporting is exporting a product directly to an importer without using an intermediaryIndirect exporting is exporting a product to an intermediary who then conveys the product to the importerLarger established companies usually use direct exporting while newer ones utilize indirect exporting
22 Canada’s Major Trading Partners Canada’s number one trade partner is the United States.Three major reasons for trading with the United States includelow cost shipping due to proximitysimilar cultures (language, interests, product interest, and so on)a market that is 10 timers larger than the domestic one
23 Canada and International Trade Agreements Two Main Advantages to Reducing Trade BarriersDomestic business can sell their products abroad at lower prices since duties are not added.Consumers have access to new foreign products that may result in lower costs and quality improvement of domestic products.Trade agreements between countries allow goods and service to flow more freely across borders.
24 World Trade Organization (WTO) 1947, the General Agreement on Tariffs and Trade (GATT) was signed by 23 nations who were allies in World War II.The trade agreement came into effective in 1948.Eventually, GATT grew to 115 member states before it was replaced by the World Trade Organization (WTO) in 1995.Today the WTO is the principal international organization that deals with rules of trade between nations (governs 97% of all world trade)
25 North American Free Trade Agreement (NAFTA) Canada-U.S. Free Trade Agreement (FTA) came into effect in January 1989In 1994, Mexico, the United States, and Canada formed the North American Free Trade Agreement (NAFTA)Reduced the number of tariff barriers
26 Other Free Trade Agreements Bilateral agreements involve Canada and one other country or groupA trading bloc is a group of countries that share trade interests.See page 138 of textbook
27 The Group of Eight (G8)-now G7!! an association of the world’s most powerful industrialized democracies.Meeting annually, the G8 deals with economic and political issues facing their own countries and those of the larger international communityTopics discussed include energy, employment, the environment, human rights, and arms controlOf note: Russia was booted from the G8 in March 2014 due to the ongoing crisis in Crimea, Ukraine - is now the G7!!
28 European Union (EU)1993, the European Union (EU) united 12 member states into a true single marketToday the EU has 28 members and over 500 million people - Croatia joined in 2013Produced single currency market (Euro)Not just a trading bloc, it has elected government and allows citizens to move freely between countries