Chapter Three

1
Chapter Three

• Business in aBorderless World

2
International Business

• Refers to the buying, selling, and trading of
  goods and services across national boundaries

4-1
3
International Business

• We will look at two perspectives
• Effects on a society
• Effects on businesses

4
1. Internationalization at the Society Level
5
Why Internationalize?

• Countries trade with other nations to obtain
  goods and raw materials otherwise unavailable, to
  sell surplus materials and to increase
  competitiveness of local industry.

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Internationalization

• Advantages
• Greater Wealth
• Higher employment
• Greater product choice
• Lower prices
• Improved technology
• Increased competitiveness

• Disadvantages
• Possible loss of sovereignty/identity
• Competitive disadvantage
• Possible loss of wealth
• Loss of control

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Exporting and Importing

• Exporting
• The sale of goods and services to foreign
  markets.
• Importing
• Purchase of goods and services from foreign
  sources
• Balance of Trade
• Exports - Imports

8
International Business

• Absolute advantage exists when a country is the
  only source of an item, the only producer of an
  item, or the most efficient producer of an item.
• Comparative advantage occurs when a country
  specializes in products that it can supply more
  efficiently or at a lower cost than it can
  produce other items.

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INTERNATIONAL TRADEComparative Advantage

• Principle of Comparative Advantage
• Export Products with Greatest Advantage
• Import Products without Advantage in Producing
• Canada exports Natural Resources, e.g., wheat,
  oil
• Canada imports manufactured goods, e.g.,
  computers and tractors

10
CANADA AND INTERNATIONAL TRADE Principal Exports
and Imports

• Motor vehicles and parts both leading export and
  import (Canada-US Agreement on Auto Parts)
• Exports are dominated by Unfinished goods, e.g.,
  wheat, lumber, wood, pulp, minerals
• Imports are dominated by Finished goods, e.g.,
  tractors, office machines, computers, TVs

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Top 5 Countries Canada Traded with in 2000
4-5
Source Statistics Canada and US Census Bureau,
http//strategis.ic.gc.ca/sc_mrkti/tdst/tdo/tdo.ph
p
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Imports and Exports
Source Statistics Canada
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2. Internationalization at the Firm Level
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Opportunities of International Business

• New Markets/Customers
• Possible low competition
• Possible tax incentives
• Possible loose regulations
• Higher Sales
• Low labour costs

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Risks and Benefits

• International Expansion requires a careful
  assessment of the risks and benefits of each
  potential market
• E.g. Economic Strength, socio-cultural fit,
  political stability

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Challenges of InternationalBusiness

• Economic
• Legal/political
• Social/cultural
• Technological

4-6
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Economic Barriers

• Level of Economic Development (e.g. Wealth)
• Infrastructure (Schools, roads,
  telecommunications, Power, etc..)
• Education Levels
• Exchange Rate
• Ratio at which one currency can be exchanged for
  another nations currency

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E.g. Exchange Rates Dollar to British Pound
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A Comparative Economic Analysis of Canada,
Switzerland, andthe United States
4-7
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Legal and Political Barriers

• Laws and Regulations
• Tariffs, quotas and anti-dumping laws
• Number and complexity of laws
• Intellectual property laws
• Political Barriers
• Political Instability
• Violence and Insecurity
• Corruption

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Social and Cultural Barriers

• Communication challenges
• Body language
• Spoken language
• Gender and family roles
• Religious norms
• Corruption (non-political)
• Sophistication of customers

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Country Corruption Perception Index
Top 10 Least Corrupt Countries
Top 10 Most Corrupt Countries

• 1. Denmark
• 2. Finland
• 3. Sweden
• 4. New Zealand
• 5. Iceland
• 6. Canada
• 7. Singapore
• 8. Netherlands (tie)
• 8. Norway (tie)
• 10. Switzerland

1. Cameroon 2. Paraguay 3. Honduras 4. Tanzania
(tie) 4. Nigeria (tie) 6. Indonesia 7. Colombia 8.
Venezuela (tie) 8. Ecuador (tie) 10. Russia
4-8
Source Transparency International, The
Transparency International 1998Corruption
Perceptions Index. www.transparency.de
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Technological Barriers

• Telecommunications
• Wireless and Cell-phone
• New Technologies
• Internet Access
• Manufacturing technology
• Robotics, Computer-assisted Manufacturing

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Increasing GlobalInvolvement
4-13
Multinational Corporation Direct Investment Joint
Ventures Contract Manufacturing Licensing Trading
Companies Exporting
25
International BusinessStrategies

• Multinational Strategy
• Customized products, promotion and distribution
• Global Strategy
• Standardized products, promotion and distribution
  (as much as possible)