Critical Thinking Activity

22F-Business Principles (SEC. 402)

Nilay Ashokkumar Vaishnav

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Chapter 3:

1. About 99 percent of the world's population lives outside Canada, but many Canadian
companies, especially small businesses, still do not engage in global trade. Why not? Do
you think more small businesses will participate in global markets in the future? Why or
why not?

 Among the reasons Canadian small enterprises don't participate in international

commerce is that the nation is unenthusiastic about going outside of its
boundaries. Canada is more focused on domestic trade, with its immediate
neighbours including U.S and Mexico being its primary international trading
partners.
 Trade expense being another barrier to international trade for small enterprises in
Canada. The price of establishing the adequate supply chains and distribution
networks necessary for international trade may be beyond of small enterprises'
financial reach.
 Some other reasons for non-engagement can be tariff and custom criteria, lack of
knowledge about foreign laws and regulatory norms, complex processes regarding
certification and product allowance.

More gates will open when it comes to international trade for small firms as they are
displaying curiosity in global markets and as the Canadian government participates in
more trade agreements like the Trans-Pacific Partnership (TPP). The ability of
Canada's small businesses to take advantage of international trade opportunities,
including those in emerging markets, which account for 50% of the world's GDP and
are driving 80% of its GDP growth, is crucial for Canada's present and future success
in international trade, according to the Canadian Senate Committee on Foreign
Affairs and International Trade (SCFAIT).

2. What can businesses do to prevent unexpected problems dealing with

sociocultural, economic, financial, legal, physical and environmental forces in
global markets?

 Economic & Financial Forces:

One of the primary causes of problems in global markets is that there is no
worldwide single currency to operate upon. Volatility of any currency can have a
significant impact on the global market. Market functions based on floating
exchange rates.
 Technological Forces:
These barriers include lack of computer and internet access in a particular area.
This could prevent all the businesses to connect with the outside world,
preventing them to gain the knowledge about various opportunities.
 Legal & Regulatory Forces:
The federal regulations and laws can heavily influence all the trade patterns linked
to a particular region. The restrictions imposed by certain laws can prove not
profitable for some businesses and can hence lower their interest.

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 3. Countries like Canada that have a high standard of living are referred to as
industrialized nations. Countries with a low standard of living and quality of life
are called developing countries. (Terms formerly used were underdeveloped or
less-developed countries.) What factors prevent developing nations from
becoming industrialized nations?

 The main factors which prevent developing nations from growing at a higher pace are
poverty and unemployment rates. Due to high poverty rates as compared to developed
nations, average per capita income is less. For example, in India even though GDP
growth is 8.7% as of FY 2022, due to high population and even higher population
density, per capita income is highly varied. Global MPI Reports 2019 and 2020 state
that there are 269.8 million poor people in the country, or 21.9% of the total
population.
 Since the developed countries have substantial reserves, they lend capital to the
developing countries to aid its development. But, in some cases, developing countries
become too much dependent on that capital and end up in big debts. For example,
China(developed) holds roughly 6.2 percent of Sri Lanka’s(developing) total
government debt –totalling around $7 billion. This is a big debt which Sri Lanka had
to repay in terms of land to China, allowing it to take military control over Sri Lankan
ports to gain geopolitical advantage.
 Moreover, low literacy rates in developing countries are a root cause of low growth
rates. Especially when digitalization is transforming lives every day, major population
of developing countries still struggles with the skills required to cope up with it.
 For many years to come developing countries still require continuous progression to
become developed nations. Since developing countries receive certain perks and
global advantages in trade over developed nations in forms of low tax rates and
charges, which, on a short-term perspective, proves to be profitable for developing
nations to stay at the same global status.
 Hereby, the transition from being a developing country to a developed country is a
matter of specificity in the country’s environment, profitability and the choices of its
government.

4. How would you justify the use of revenue or protective tariffs in today's global
market?
 Even with taxes imposed on imported goods and products, global trade is quite
prevalent nowadays. However, there could be instances where the tariff levied against
a certain product or products is excessive. Large tariffs are tariffs where a product is
subjected to a disproportionately high amount of taxes and levies. Targeted items
sometimes face high taxes to discourage imports. Due to the high cost of the goods
because of the high tariffs, buyers are compelled to look elsewhere for products at
lower rates. Reduced consumption of the commodity results in lower earnings or
losses for the product's importers, causing them to cease or scale back imports.

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References:

 Federal Reserve Bank of St. Louis. “Why Can't Developing Countries Catch up?”
Saint Louis Fed Eagle, Federal Reserve Bank of St. Louis, 15 Oct. 2021,
https://www.stlouisfed.org/on-the-economy/2015/december/why-cant-developing-
countries-catch-up
 Goldin, Ian. “Why Do Some Countries Develop and Others Not?” SpringerLink,
Springer International Publishing, 1 Jan. 1970,
https://link.springer.com/chapter/10.1007/978-3-030-11361-2_2
 “Floating Exchange Rate.” Corporate Finance Institute, 29 Jan. 2022,
https://corporatefinanceinstitute.com/resources/knowledge/economics/floating-
exchange-rate/