Competing in Global Markets

What Is Globalization?•An interconnected and

interdependent world economyoGlobalization of markets: Not a local or

national market, but the whole world

oGlobalization of production: Moving production to locations to take advantage of lower costs or better qualityoOffshore outsourcing (offshoring):

Movement of production away from a domestic production site to a foreign location

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Exporting and Importing

•Exporting – Selling products to another country

•Importing – Buying products from another country.

• A currency is weak when it devalues against currencies of major trading partnero Exporters typically prefer a weak dollar

because their products are more affordable to foreigners

• A currency is strong when its value improves compared to trading partners’ currencieso Importers prefer a strong dollar because

the cost of importing foreign goods is less

Currency

Why trade with other nations?

•No country is self – sufficient•Other countries need products that

prosperous countries produce

•Natural resources and technological skills are not distributed evenly around the world

Absolute Advantage• Absolute advantage means that a country has a

monopoly on a certain product or can produce the product more efficiently than any other country can.

• Ex. U.S produces 700 million gallons of wine per year, while Italy produces 4 billion gallons of wine per year.

• Italy has an absolute advantage because it produces many more gallons of wine (the output) in the same amount of time (the input) as the United States.

What kinds of products can be imported or exported?

Prohibited and Restricted Goods• Countries will allow only

specified quantities of items, dollar values of good to be imported – known as quotas.

• Restrictions are also imposed to protect the health and safety of a country’s inhabitants.

• Canada is strict with:▫ Pets/animals▫ Plants/ Soil▫ Agricultural Products▫ Firearms/explosives

Trade protectionism

•The use of government regulations to limit the import of goods and services.

•This allows domestic producers to survive and grow, producing more jobs.

•Tariff – a tax imposed on imports

The tools of protectionism

▫Protective tariffs- raise price of foreign products

▫Revenue tariffs- raise money for government

▫Non – tariffs barriers include safety, health, and labeling standards, embargo, import quota

Examples of barriers

•Denmark requires butter to be sold in cubes not tubs

•Ban on Canadian beef

Common market

•A regional group of countries that have a common external tariff, no internal tariff, and a coordination of laws to facilitate exchange.

•Ex. European Union – 28 countries

•What are the benefits of International Trade?

•What are the negative aspects of International Trade?

Legal International Business Challenges•Laws•Regulatory standards•Access to unbiased judicial system

•No universal laws, regulatory standards, or global court exist to settle disputes in the global economy

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Political International Business Challenges•Not always a free market•Not always stable, democratic governments

•Possible market failure•Possible government failure

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Questions

•If there were no international trade in Canada, what do you think the impact on Canadians would be?

•What might be some of the consequences if Canada removed its restrictions on the importation of plants and soils?

Assignment

•With a partner or group, choose a country you are interested in. Research what it is like to do business in that country and compare this with doing business in Canada. Examine factors such as:▫Standard of living, weather, politics,

education, housing, economy and others that affect the way in which business is conducted.