Business Essentials: Tenth Canadian Edition

Business Essentials
Tenth Canadian Edition
Chapter 5
The Global Context of

Business
Copyright © 2023 Pearson Canada Inc. 5-1

Learning Objectives
• Describe the growing complexity in the global
business environment and identify the major world
marketplaces.
• Identify the evolving role of emerging markets and
highlight the important role of the BRICS nations.
• Explain how different forms of competitive advantage,
import–export balances, exchange rates, and foreign
competition determine the ways in which countries
and businesses respond to the international
environment.
• Discuss the factors involved in deciding to do
business internationally and in selecting the
appropriate levels of international involvement and
international organizational structure.
• Describe some of the ways in which social, cultural, Maciej Bledowski/Alamy
economic, legal, and political differences act as Stock Photo
barriers to international trade.
• Explain how free trade agreements assist world
trade.

The Contemporary Global Economy
(L O 5.1) (1 of 3)
• Total volume of world trade $19 trillion/year
• Globalization
‒ the integration of markets globally
‒ the world is becoming a single interdependent system
Meunierd/Shutterstock SiljeAO/Shutterstock

(L O 5.1) (2 of 3)
• Imports Figure 5.1 Attributes of
‒ products purchased in national competitive
Canada that are advantage
manufactured in other
countries
• Exports
‒ products made in
Canada that are
purchased by
consumers in other
countries

(L O 5.1) (3 of 3)
Major World Marketplaces
• North America
‒ Canada’s largest trading
partner is the United States
‒ trade with Mexico is increasing
• Europe
‒ traditional view (West v s.
East) Dangote Industries Limited is a diversified
company from Nigeria with annual sales of more
‒ emerging view (North v s. than $4 billion operating in a wide range of
South) industries, including cement, energy, port
operations, and petrochemicals. Aliko Dangote
• Pacific/Asia and his team have a mission to move toward a
fully self-sufficient Africa.
‒ Japan, China, and India Andrew Gombert/EP A-EF
E/Shutterstock

Emerging Markets (L O 5.2)
Other important emerging
markets include:
• South Korea
• Thailand
• Indonesia
• Ukraine
WindVector/Shutterstock

Forms of Competitive Advantage
(L O 5.3) (1 of 4)
• Absolute Advantage
‒ a country can
produce something
more efficiently than
any other country.
• Comparative Advantage
‒ a country can Renovacio/Shutterstock
produce certain items
more efficiently
(cheaper) than it can
other items.

Copyright © 2023 Pearson Canada Inc. 5 - 10
(L O 5.3) (2 of 4)
• Theory of National Competitive Advantage
– focus on four key conditions
▪ Factor Conditions
▪ Demand Conditions
▪ Related and Supporting Industries
▪ Strategies, Structure, and Rivalries

(L O 5.3) (3 of 4)
• Balance of Trade
– the difference in value between total exports and total
imports
• Trade Surplus
– the nation exports more than it imports
• Trade Deficit
– the nation imports more than it exports

(L O 5.3) (4 of 4)
• Balance of Payments
– the flow of money into or out of a country
• cash flow in • cash flow out

– exports – imports
– foreign tourist – Canadian tourist spending
spending in Canada overseas
– foreign investments – foreign aid grants
in Canada – military spending abroad
– earnings from – Canadian investment abroad
investments outside – earnings from foreign
of Canada investment in Canada
Foreign Exchange Rate (L O 5.3)
• Ratio of one currency to another
‒ “strong” Canadian ($) when high demand for

Canadian $$ and
products
‒ when the value of the Canadian ($)
depreciates
 exports increase and imports cost more
‒ when the value of the Canadian ($)

appreciates
 exports decrease and imports cost less

International Business Management
(L O 5.4) (1 of 9)
Figure 5.3 Going international

(L O 5.4) (2 of 9)
McDonald’s adapts its menu offerings in different regions of the world to address unique tastes and expectations and to
better satisfy its consumers.
Bill Bachmann/Alamy Stock Photo

(L O 5.4) (3 of 9)
• Exporter
‒ makes products in one country and sells to others
• Importer
‒ buys products in foreign markets for resale at home
• International Firm
‒ conducts much of its business abroad
‒ basically, a domestic firm with international operations
• Multinational Firm
‒ controls assets, factories, mines, sales offices, and affiliates
in two or more foreign countries
‒ planning and decision making are geared to international
markets
(L O 5.4) (4 of 9)
International Organizational Structures
Importing or Exporting via Independent Agent
Licensing Arrangement
Establishing a Branch Office
Choosing a Strategic Alliance
Foreign Direct Investment

(L O 5.4) (5 of 9)
Why have an Independent Agent?
• Local individual or organization who represents exporter’s
interests
• Often sells products, collects payments, and ensures
customer satisfaction
• Understands the language, culture, and market

(L O 5.4) (6 of 9)
Why create a licensing arrangement?
• Exporter gives a foreign company the exclusive right to
manufacture or sell its product for a royalty or fee
• Franchising is a special form of a licensing arrangement

(L O 5.4) (7 of 9)
Why build a Branch Office?
• Established in foreign country
• Increased sales due to local presence
• More direct control
• May be a foreign legal requirement

(L O 5.4) (8 of 9)
Why form a Strategic Alliance?
• May be mandated in some nations
• Get knowledge and expertise of the foreign partner
• Greater control

(L O 5.4) (9 of 9)
Why choose Foreign Direct Investment?
• Companies buy or establish tangible assets in a foreign
country (location benefits)
• Brings foreign investment to local economy
• Provides local employment

Barriers to International Trade (L O 5.5)
(1 of 6)
• Social and cultural

differences
• Economic differences
• Legal and Political
Differences
This beautiful view from Summerland, British Columbia,

overlooking Okanagan Lake was part of the escalating
trade battleground. The United States accused British
Columbia of unfair trade practices because of the rules
governing wine sales in the province. This issue was
resolved with the USMC A deal providing better access for
U S wine producers.
Stan Jones/Shutterstock

(2 of 6)
Social and Cultural Differences

• Language
• Population demographics
• Religious differences
• Social beliefs
• Shopping habits

(3 of 6)
• Economic Differences
‒ the role of
government in the
economy
‒ planned vs. market
economies
 capitalist
 socialist
 communist
Maciej Bledowski/Alamy Stock
Photo

(4 of 6)
Legal and Political Differences

• Quotas
‒ limitations on importation of
a product class
‒ embargo-forbidding
export/import from a nation
 United States v s. Cuba
The announced deal between Canadian Pacific
• Tariffs Railway and Kansas City Southern for US$27.2
billion potentially creates a fully integrated rail line
‒ a tax on imported goods that would operate over 32,000 kilometres of rail
with 20,000 employees and annual sales of about
‒ raises government US$8.7 billion.
revenues as well Ian Dewar Photography/Shutterstock

(5 of 6)
Legal and Political

Differences
• Subsidy
‒ government financial
assistance for domestic
firms
• Protectionism The Lexus R X mid-size luxury SU V is made in
Canada at the Cambridge, Ontario, plant. That is
one of two facilities (the other is in Woodstock)
‒ protects local business that Toyota operates here. In 2018, Toyota
invested $1.4 billion in this region and the
at the expense of free company employs more than 8,000 people. The
company also received aid from the Canadian
market competition government of $110 million to support this
investment.
Khairil Azhar Junos/Shutterstock

(6 of 6)
• Local-Content Laws
– requires that at least part of the product be made in
the foreign country (possible joint venture)
• Business Practices
– Bribes: seen as “gratuities” to officials in some nations
– Dumping: selling goods abroad for less than a firm
charges at home; illegal in most nations
– Cartels: associations of producers created to control
supply and demand (e.g., O PE C)

Overcoming Barriers to Trade (L O 5.6)
(1 of 7)
• General Agreement on Tariffs and Trade (GAT T)

• World Trade Organization (WT O)
• European Union (E U)
• The North American Free Trade Agreement (NAFT A) United
States-Mexico-Canada Agreement (USMC A)
• Other Free Trade Agreements (e.g., CPTP P, CET A, ASEA N,
Mercosur)

(2 of 7)
• World Trade Organization (WT O)

– 153 member nations
– negotiate trade agreements and resolve trade disputes
▪ successor of GAT T, but more power
▪ agricultural subsidies controversial
• Many people protest against trade liberalization

(3 of 7)
• European Union (E U) Figure 5.4 The nations of

‒ largest free marketplace the European Union
in the world
‒ 27 countries, plus more
waiting to join
‒ The United Kingdom left
the E U in 2020 (Brexit)
‒ eliminated most quotas
and set uniform tariffs
within the union

(4 of 7)
North American Free Trade Agreement
Came into effect in 1994
Goal to remove tariffs and other trade barriers between

Canada, the United States, and Mexico

(5 of 7)
• Opponents of Free Trade • Supporters of Free Trade

– Job losses – access to U S market
– Market flooded with – more exports = jobs
goods made in Mexico – No threat to:
– Loss of control over: ▪ Environment
▪ environmental ▪ Natural resources
standards ▪ Cultural sovereignty
▪ natural resources
▪ Canadian cultural
sovereignty

(6 of 7)
• United States-Mexico-Canada Agreement (USM C A)
– Initially signed on September 30, 2018
– Replaces NAFT A with some revisions
– Key highlights in USMC A:
▪ Opens up to 3.59% of the Canadian dairy market to
the U S
▪ Revised automotive rules of origin require higher
levels of North-American content (from 62.5% to
75%)

(7 of 7)
Major New Agreements in the Works (CPTP P and CET A)

• Comprehensive and Progressive Agreement for Trans-
Pacific Partnership
– Originally 12 states: Canada, U.S, Australia, Brunei
Darussalam, Chile, Japan, Malaysia, Mexico, New Zealand,
Peru, Singapore & Vietnam.
– The U.S. walked away in 2016
• Canada–European Union Comprehensive Economic and
Trade Agreement (CET A)
– The 27 member E U states account for 500 million people
– 98 percent of Canadian goods are now duty-free in the E U
(only 25 percent were duty free before the deal)
Midterm
Exam
• 2 hours
• 30-35 MC
• 4-6 Written Questions
• Chapter 1-5 plus HBR Assignment

Chapter 1 - Learning
Objectives
• Define the nature of Canadian business and identify its main goals.
• Describe different types of global economic systems, according to the means by

which they control the factors of production through input and output markets.
• Describe the interactions between business and government in Canada.
• Show how demand and supply affect resource distribution in Canada.
• Identify the elements of private enterprise and explain the various degrees of
competition in the Canadian system.

Objectives
• Explain organizational boundaries & multiple organizational environments
• Explain the economic environment
• Describe these environments and their role in business:

– Technological
– Politcal-legal
– Socio-cultural
– Business
• Identify emerging challenges and opportunities in the business environment
• Understanding recent trends in the redrawing of corporate boundaries

Objectives
 Explain how individuals develop their personal codes of ethics and why ethics are
important in the workplace.
 Distinguish ethics from social responsibility and identify organizational stakeholders.
 Show how the concept of social responsibility applies both to environmental issues
and to a firm’s relationships with customers, employees, and investors.
 Identify four general approaches to social responsibility and describe the four steps a
firm must take to implement a social responsibility program.
 Explain how issues of social responsibility and ethics affect small businesses.

Objectives
• Explain the meaning and interrelationship of the terms small business, new venture creation and
entrepreneurship
• Describe the role of small and new businesses in the Canadian economy
• Explain the entrepreneurial process and describe its three key elements
• Describe three alternative strategies for becoming a business owner - starting from scratch, buying an
existing business, and buying a franchise
• Identify four key reasons for success in small businesses and 4 key reasons for failure
• Describe four forms of legal organization for a business and discuss the advantages and
disadvantages of each

Midterm
Exam
Next Week
– Covers chapter 1 through 5, the Business Model Canvas You will be given
120 minutes (2 hrs) in-class starting at around 2:35pm.
– [Exam Specifics]
▪ 30-35 Multiple choice from textbook/lectures/HBR articles
▪ 4-5 short answer questions (point form is okay)
– Bring Pencil to the exam (for the scantron)
– Pen/Pencil is okay for the written questions

Short Answer Question -
Example
The funding for most entrepreneurs or start ups often comes from personal savings, debt, or
venture capitalists. Briefly explain each of these funding sources. Identify one advantage and one
limitation for using each to fund a startup.

Multiple Choice Question -
Example
Since the increase in the unemployment level in a small Atlantic Canadian town, retailers have
noticed that sales have decreased. The retailers are being affected by which element of the
external environment?
A) Socio-cultural
B) Economic
C) Environmental
D) Global
E) Political-legal

Multiple Choice Question -
Example
Your business is considering launching a new soft drink. You have done some initial
research and established that there is demand for your drink. It is now a matter of
determining the market equilibrium price for your soft drink. You are given the
following supply and demand schedules. Which is the market equilibrium price?
Price Quantity supplied Quantity demanded

A)$2 $2 100 400
B)$3 $3 140 320
$4 180 280
C)$4 $5 220 220
D)$5 $6 260 180
E) The market equilibrium price cannot be determined with the information given

Questions
?
Next
Week
• To Do List
Thank you! • Study for midterm
• Individual Assignment (due
tonight)
Have a great week


Business Essentials: Tenth Canadian Edition

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Business Essentials: Tenth Canadian Edition

Uploaded by

Copyright:

Available Formats

Business Essentials

Tenth Canadian Edition

The Global Context of

Copyright © 2023 Pearson Canada Inc. 5-1

Copyright © 2023 Pearson Canada Inc. 5-2

Copyright © 2023 Pearson Canada Inc. 5-5

Copyright © 2023 Pearson Canada Inc. 5-6

Copyright © 2023 Pearson Canada Inc. 5-7

Copyright © 2023 Pearson Canada Inc. 5-8

Copyright © 2023 Pearson Canada Inc. 5-9

Copyright © 2023 Pearson Canada Inc. 5 - 11

Copyright © 2023 Pearson Canada Inc. 5 - 12

• cash flow in • cash flow out

‒ “strong” Canadian ($) when high demand for

‒ when the value of the Canadian ($)

Copyright © 2023 Pearson Canada Inc. 5 - 15

Copyright © 2023 Pearson Canada Inc. 5 - 17

Bill Bachmann/Alamy Stock Photo

Copyright © 2023 Pearson Canada Inc. 5 - 18

Establishing a Branch Office

Choosing a Strategic Alliance

Foreign Direct Investment

Copyright © 2023 Pearson Canada Inc. 5 - 21

Copyright © 2023 Pearson Canada Inc. 5 - 22

Copyright © 2023 Pearson Canada Inc. 5 - 23

Copyright © 2023 Pearson Canada Inc. 5 - 24

Copyright © 2023 Pearson Canada Inc. 5 - 25

• Social and cultural

This beautiful view from Summerland, British Columbia,

Copyright © 2023 Pearson Canada Inc. 5 - 26

Social and Cultural Differences

Copyright © 2023 Pearson Canada Inc. 5 - 28

Copyright © 2023 Pearson Canada Inc. 5 - 29

Legal and Political Differences

‒ raises government US$8.7 billion.

revenues as well Ian Dewar Photography/Shutterstock

Copyright © 2023 Pearson Canada Inc. 5 - 30

Legal and Political

Khairil Azhar Junos/Shutterstock

Copyright © 2023 Pearson Canada Inc. 5 - 31

Copyright © 2023 Pearson Canada Inc. 5 - 32

• General Agreement on Tariffs and Trade (GAT T)

Copyright © 2023 Pearson Canada Inc. 5 - 33

• World Trade Organization (WT O)

Copyright © 2023 Pearson Canada Inc. 5 - 34

• European Union (E U) Figure 5.4 The nations of

Copyright © 2023 Pearson Canada Inc. 5 - 35

North American Free Trade Agreement

Came into effect in 1994

Goal to remove tariffs and other trade barriers between

Copyright © 2023 Pearson Canada Inc. 5 - 36

• Opponents of Free Trade • Supporters of Free Trade

Copyright © 2023 Pearson Canada Inc. 5 - 37

Copyright © 2023 Pearson Canada Inc. 5 - 38

Major New Agreements in the Works (CPTP P and CET A)

• 4-6 Written Questions

• Chapter 1-5 plus HBR Assignment

Copyright © 2023 Pearson Canada Inc. 5 - 50

• Describe different types of global economic systems, according to the means by

• Describe the interactions between business and government in Canada.

• Show how demand and supply affect resource distribution in Canada.

Copyright © 2023 Pearson Canada Inc. 5 - 51