Bus106 wk9 ch8 Competing in Global Markets


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BUS106 Competing in Global Markets - from UNDERSTANDING CANADIAN BUSINESS, 7th Canadian Edition (custom publication for Seneca) ; published by McGraw-Hill

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Bus106 wk9 ch8 Competing in Global Markets

  1. 1. Week 9, Chapter 8 Competing in Global Markets
  2. 2. Agenda
  3. 3. Learning Objectives Globalization - increasing importance and the role of comparative and absolute advantage Exporting/importing – key terms Strategies for reaching markets - and the role of multinationals Forces that affect global trading The advantages and disadvantages of trade protectionism Tariff and non-tariff barriers
  4. 4. Globalization: companies manufacture, finance, and market worldwide Canada represents a potential market of only 33.6 million customers There are over 6.8 billion potential customers globally.
  5. 5. Source: Nations Online, “Current World Population, 2009,” www.nationsonline.org/oneworld/world_population.htm. World Population by Continent - Figure 8.1
  6. 6. Why trade? To get goods that are not available locally. In Canada, we do not produce citrus fruit, so we trade for it. We produce other goods, like lumber, beyond our ability to consume, so we export these goods.
  7. 7. Theory of Comparative Advantage: Countries export those goods and services that they produce most effectively and efficiently. Countries import those goods and services where they do not have this comparative advantage. In practice, many countries ignore this economic principle. They inhibit the free flow of goods using duties and tariffs. They attempt to give their producers a competitive advantage.
  8. 8. Comparative Advantage Output per Unit of Input Canada Japan Cars, electronics Canada Japan Forestry products
  9. 9. Absolute Advantage = virtual monopoly Diamond Production (Output per Unit of Input) South Africa The Rest of the World
  10. 10. 30 cents Canadian International Trade Canada has a small population, but ranks high in terms of nations that export. In Canada, small businesses account for 48% of the total private labour force and about 85% of exports. Exports alone generate 30 cents out of every $ earned and account for 1/5 Canadian jobs
  11. 11. Imports < Exports = Trade Surplus (Favourable) Balance of Trade: the relationship between exports and imports. Imports > Exports = Trade Deficit (Unfavourable) Image source: http://www.tradingeconomics.com/
  12. 12. Cashflowin exports foreign tourist spending in Canada foreign investments in Canada earnings from Canadian investments outside of Canada Cashflowout imports Canadian tourist spending outside of Canada Canadian investments outside of Canada earnings of foreign investments in Canada foreign aid, military expenditure outside of Canada $ $ Current account: the difference between money coming in and going out of the country from all sources. Balance of Payments - difference between money coming into the country (from exports) and money leaving the country (imports)
  13. 13. Dumping - selling cheaper in foreign markets than at home. Image source: http://www.flickr.com/photos/dnorman/
  14. 14. Protectionism using government regulations to keep foreign goods out.
  15. 15. MNC - Multinational corporation Image source: http://www.flickr.com/photos/balu/
  16. 16. Trading in Global Markets: The Canadian Experience North America Europe Asia-Pacific esp. Japan and China As a country, we rank 11th in the world as both exporter and importer in world merchandise trade. Over 73% of our exports and a little under 69% of our imports are with the United States. No other modern industrialized country is so dependent on one country for trade and investments.
  17. 17. The simplest way of going international is to export your goods and services. Success in exporting often leads to licensing with a foreign company to produce the product locally to better serve the local market.
  18. 18. A firm (the licensor) may decide to compete in a global market by licensing the right to manufacture its product or use its trademark to a foreign company (the licensee) for a fee (a royalty). Source: http://www.youtube.com/watch?v=ogw3NaRgr90
  19. 19. Franchising - someone with a good idea for a business sells the rights to use the business name and sell a product or service to others in a given territory. Franchisors have to be careful to adapt their good or service in the countries they serve. Image source: http://www.flickr.com/photos/kungpaochicken/ Thailand
  20. 20. Contract Manufacturing - a foreign company’s production of private-label goods to which a domestic company then attaches its own brand name or trademark…enables a company to experiment in a new market without incurring heavy start-up costs such as a manufacturing plant. Image source: http://www.itechnews.net/; http://kotaku.com
  21. 21. Joint Venture - a partnership in which two or more companies (often from different countries) join to undertake a major project or to form a new company “A newly announced venture with Himachal Futuristic Communications Ltd. was formed to bring Ottawa firm DragonWave's work into India… Himachal, billed as one of it's country's top telecommunication equipment manufacturers and turnkey service providers, will have a 49.9 per cent stake in the joint venture. The agreement will use Himachal's expertise in India for sales and marketing, and was timed to take advantage of the country's completion of 3G and BWA radio-access spectrum options.” Source: http://www.obj.ca; Image sources: http://www.dragonwaveinc.com/ ; http://hfcl.com
  22. 22. Strategic Alliances - a long-term partnership between two or more companies established to help each company build competitive market advantages. do not typically involve sharing costs, risks, management, or even profits Image source: http://www.flickr.com/photos/marcn/
  23. 23. FDI (Foreign Direct Investment) - buying permanent property and businesses in foreign nations FDI provides benefits to Canadian firms through the transfer of knowledge, technology and skills, and increased trade related to investment, all of which contribute to productivity growth and competitiveness. Image sources: http://www.potashcorp.com/; http://www.bhpbilliton.com Is this a good deal for Canada?
  24. 24. Strategies for Reaching Global Markets – Figure 8.5 Where do subsidiaries and countertrading or bartering fit in?
  25. 25. Forces Affecting Trading in Global Markets - Cultural Differences http://www.youtube.com/watch?v=Cj0aVNQrR1M In India, never pat someone’s head as it’s the seat of the soul. In Turkey, it’s rude to cross your arms while you are facing someone. The Chinese associate gifts such as straw sandals, clocks, and handkerchiefs with funerals.
  26. 26. Forces Affecting Trading in Global Markets - Economic Forces exchange rates can have important implications in global markets. global financial markets operate under a system called floating exchange rates
  27. 27. Forces Affecting Trading in Global Markets - Technological Forces Technological constraints may make it difficult given the nature of exportable products. Computer and Internet usage in many developing countries is rare or nonexistent.
  28. 28. Protectionism - using government regulations to keep foreign goods out. "We must guard against and redress all forms of covert protectionist activities. As an active participant in economic globalization, China will never engage in trade or investment protectionism…“ (China's Premier Wen Jiabao) Source: http://news.xinhuanet.com/english/2009-09/12/content_12041603.htm; Image source: http://www.flickr.com/photos/worldeconomicforum/
  29. 29. Trade Protectionism Colonialism: the “Mother Country” would export finished goods to the colonies. The colonies provided raw materials and a market for finished goods. Mercantilism: (16th and 17th centuries): exports are good; imports are bad. Trade protectionism: is based upon these same ideas.
  30. 30. Protectionism Practices Tariffs and quotas to limit imports. Revenue tariffs to generate funds for the government. Regulatory trade barriers: labelling, health, safety, emission standards can be used as trade embargoes. Restrictive paperwork or port facilities can act as non-tariff barriers.
  31. 31. Protectionism Practices Non-tariff barriers are not as specific or formal as tariffs, import quotas, or embargoes but can be as detrimental. It’s common for nations to set restrictive standards that detail exactly how a product must be sold in a country. Image source: http://nestle.ca
  32. 32. Protectionism in Use 1929: During the Great Depression the U.S. acted to restrict imports and others retaliated, thus worsening the Depression. 1980s: Canada and the U.S. pass laws to protect auto industry from Japanese competition with negative results for American consumers. Trade embargoes: used for political purposes; e.g., Iraq, Cuba, South Africa, Burma.
  33. 33. International Trade Organizations As a result of the serious consequences of the 1930s protectionism era, changes were made to facilitate trade. The World Trade Organization has over 150 members. The IMF and the World Bank Group lend money to less-developed nations to finance trade. Image source: http://www.flickr.com/photos/worldbank/
  34. 34. 153 member nations negotiate trade agreements and resolve trade disputes - successor of GATT, but more power Agricultural subsidies controversial some protest against trade liberalization Image sources: http://www.wto.org/; http://www.flickr.com/photos/world_trade_organization/
  35. 35. Source: wikipedia.org European Union (EU) Largest free marketplace in the world 27 countries Eliminated quotas and set uniform tariffs within the union
  36. 36. NAFTA - a free-trade area among Canada, the United States, and Mexico eliminate trade barriers and facilitate cross-border movement of goods and services among the three countries. promote conditions of fair competition in this free- trade area. increase investment opportunities in the territories of the three nations. provide effective protection and enforcement of intellectual property rights (patents, copyrights, etc.) in each nation’s territory. establish a framework for further regional trade cooperation. improve working conditions in North America Source: wikipedia.org
  37. 37. Global trade opportunities grow more interesting, yet challenging, each day. To remain competitive, Canada must stay aware of the global challenge and focus on innovation and entrepreneurship. China: > 1.3 billion people India: > 1.1 billion people 36.8% of the world population
  38. 38. Chapter Summary • Nations should trade globally because: no country is self-sufficient, other countries need products that prosperous countries produce, and natural resources and technological skills are not distributed evenly around the world. Globalization: • Just about any kind of product can be imported and exported.Exporting/importing: • joint ventures, strategic alliances Strategies for reaching markets:
  39. 39. Chapter Summary • Cultural differences • Economic forces • Technological forces Forces that affect global trading: The advantages and disadvantages of trade protectionism. Tariff and non- tariff barriers.
  40. 40. 41 Homework