Globalization - increasing importance and the role of comparative and
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
Globalization: companies manufacture, finance, and market
Canada represents a potential market of only 33.6 million customers
There are over 6.8 billion potential customers globally.
Source: Nations Online, “Current World Population, 2009,” www.nationsonline.org/oneworld/world_population.htm.
World Population by Continent - Figure 8.1
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
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
Output per Unit of Input
Absolute Advantage = virtual monopoly
Diamond Production (Output per Unit of Input)
The Rest of
Canadian International Trade
Canada has a small
population, but ranks
high in terms of
nations that export.
In Canada, small
for 48% of the total
private labour force
and about 85% of
Exports alone generate 30 cents
out of every $ earned and account
for 1/5 Canadian jobs
Imports < Exports
= Trade Surplus
Balance of Trade: the relationship between exports and imports.
Imports > Exports
= Trade Deficit
Image source: http://www.tradingeconomics.com/
foreign tourist spending in
foreign investments in Canada
earnings from Canadian
Canadian tourist spending
outside of Canada
Canadian investments outside
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)
Dumping - selling cheaper in foreign markets than at home.
Image source: http://www.flickr.com/photos/dnorman/
regulations to keep
Trading in Global Markets: The Canadian Experience
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.
The simplest way of going international is to export your goods
Success in exporting often
leads to licensing with a
foreign company to produce
the product locally to better
serve the local market.
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).
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
Franchisors have to be
careful to adapt their
good or service in the
countries they serve.
Image source: http://www.flickr.com/photos/kungpaochicken/
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
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
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
Source: http://www.obj.ca; Image sources: http://www.dragonwaveinc.com/ ; http://hfcl.com
Strategic Alliances - a long-term partnership between two or
more companies established to help each company build
competitive market advantages.
or even profits
Image source: http://www.flickr.com/photos/marcn/
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
Image sources: http://www.potashcorp.com/; http://www.bhpbilliton.com
Is this a good deal for Canada?
Strategies for Reaching Global Markets – Figure 8.5
Where do subsidiaries and countertrading or
bartering fit in?
Forces Affecting Trading in Global Markets - Cultural Differences
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.
Forces Affecting Trading in Global Markets - Economic Forces
exchange rates can have
important implications in
global financial markets operate under a
system called floating exchange rates
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.
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/
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.
Tariffs and quotas to limit imports.
Revenue tariffs to generate funds for
Regulatory trade barriers: labelling,
health, safety, emission standards
can be used as trade embargoes.
Restrictive paperwork or port
facilities can act as non-tariff
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
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
Trade embargoes: used for political purposes; e.g., Iraq,
Cuba, South Africa, Burma.
International Trade Organizations
As a result of the
of the 1930s
changes were made to
The World Trade
Organization has over
The IMF and the World
Bank Group lend money
nations to finance
Image source: http://www.flickr.com/photos/worldbank/
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/
European Union (EU)
marketplace in the
set uniform tariffs
within the union
NAFTA - a free-trade area among Canada,
the United States, and Mexico
eliminate trade barriers and
movement of goods and
services among the three
promote conditions of fair
competition in this free-
opportunities in the
territories of the three
provide effective protection
and enforcement of
intellectual property rights
(patents, copyrights, etc.) in
each nation’s territory.
establish a framework for
further regional trade
improve working conditions
in North America
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
• 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.
• Just about any kind of product can be imported
• joint ventures, strategic alliances
Strategies for reaching
• Cultural differences
• Economic forces
• Technological forces
Forces that affect
Tariff and non-