Business in a

Borderless World

Chapter 3

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 Learning Objectives
3-1 Explore some of the factors within the international trade
environment that influence business.
3-2 Investigate some of the economic, legal, political, social,
cultural, and technological barriers to international business.
3-3 Specify some of the agreements, alliances, and organizations
that may encourage trade across international boundaries.
3-4 Summarize the different levels of organizational involvement in
international trade.
3-5 Contrast two basic strategies used in international business.

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 The Role of International Business 1
International Business
• Buying, selling, and trading of goods and services
across national boundaries
Why Nations Trade
• Absolute advantage
• Comparative advantage
• Outsourcing

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 Outsourcing

Many companies choose to outsource manufacturing to factories in

Asia due to lower costs of labour.
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 The Role of International Business 2
Trade between Countries
• Exporting
• Importing
Balance of Trade
• Trade deficit
• Balance of payments

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 Table 3.1 Canada’s Trade Balance – 2012-2017
(in millions of dollars)

2012 2013 2014 2015 2016 2017

Exports   461,511 479,225 529,334 524,972 521,470  549,618

Imports 474,800 487,370 524,661 548,707 547,341  573,573

Trade
surplus/  -13,289   -8,145   4,673  -23,735 -25,871  -23,955
deficit

Table 3.1: Adapted from Statistics Canada. Table  12-10-0011-01   International merchandise trade for all countries
and by Principal Trading Partners (x 1,000,000). http://www.statcan.gc.ca/tables-tableaux/sum-
som/l01/cst01/gblec02a-eng.htm (accessed November 26, 2018).

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 International Trade Barriers 1
Economic Barriers
• Economic development
• Industrialized nations
• Developing Nations

• Infrastructure
• Physical facilities that support that support activities such as:
• Railroads, highways, ports, airfields, utilities, power plants, schools,
hospitals, communication systems, and commercial distribution
systems

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 International Trade Barriers 2
Economic Barriers continued
• Exchange rates
• Vary daily and affect the cost of imports and exports
• A decline in the value of the Canadian dollar increases
exports
• Governments may intentionally alter the value of their
currencies through fiscal policy

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 International Trade Barriers 3
Ethical, Legal, and Political Barriers
• Laws and regulations
• Differ in other countries
• Restrictions on currency
• Copyright and patent laws
• Some countries fail to honour Canadian laws may be less strict
than those in Canada

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 International Trade Barriers 4
Ethical, Legal, and Political Barriers continued
• Tariffs and trade restrictions
• Import tariffs
• Exchange controls
• Quota
• Embargo
• Dumping

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 Tariffs and Trade Restrictions

Dumping can spark trade wars. After the United States imposed tariffs
on Chinese-made tires it alleged were being dumped on the U.S.
market, China retaliated by slapping tariffs on U.S. chicken products
exported to China. 11
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 International Trade Barriers 5
Ethical, Legal, and Political Barriers continued
• Political barriers
• Seldom in writing
• Change rapidly
• Cartels

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 International Trade Barriers 6
Social and Cultural Barriers
• Differences in spoken and written language
• Differences in body language and personal space
• Family roles differ in different societies
• Perceptions of time differ in other nations
• National and religious holidays and customs must be
respected
• Most nations use the metric system

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 Table 3.3 Cultural Behavioural Differences

Gestures Viewed as Rude or

Country
Unacceptable
Japan, Hong Kong, Middle East Summoning with the index finger
Middle and Far East Pointing with index finger
Thailand, Japan, France Sitting with soles of shoes showing
Brazil, Germany Forming a circle with fingers (the “O.K.” sign in
the United States)
Japan Winking means “I love you”
Buddhist countries Patting someone on the head

Source: Adapted from Judie Haynes, “Communicating with Gestures,” EverythingESL (n.d.),
www.everythingesl.net/inservices/body_language.php (accessed April 7, 2017).

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 International Trade Barriers 7
Technological Barriers
• Lack of technological infrastructure can create
opportunities for business
• Technological advances also create global marketing
opportunities
• Changing technologies also create new challenges
and competition

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 Trade Agreements, Alliances, and Organizations
1

General Agreement on Tariffs and Trade (GATT)

• Signed by 23 nations in 1947
• Provided a forum for tariff negotiations and a place
where international trade problems could be discussed
and resolved
The World Trade Organization (WTO)
• Created in 1995 by the Uruguay Round
• International organization dealing with rules of trade
between nations

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 Trade Agreements, Alliances, and Organizations
2

The North American Free Trade Agreement

(NAFTA)
• Went into effect January 1, 1994
• Virtually eliminated all tariffs on goods produced and
traded among Canada, Mexico, and United States
• Despite its benefits, NAFTA has been controversial
• More recently, NAFTA has been reviewed and a new
agreement has been renegotiated and renamed
USMCA

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 Trade Agreements, Alliances, and Organizations
3

The European Union (EU)

• A union of European nations established in 1958 to
promote trade among its members
• Working toward standardization of business
regulations and requirements and the creation of a
standardized currency for use by all members
• The long-term goals are to eliminate all trade barriers
within the EU, improve the economic efficiency of the
EU nations, and stimulate economic growth, thus
making the union’s economy more competitive.

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 Trade Agreements, Alliances, and Organizations
4

Asia-Pacific Economic Cooperation (APEC)

• An alliance of 21 member countries, established in
1989, representing approximately 40% of the World’s
population
• Differs from other international trade alliances
regarding the business and private sectors
• APEC companies increasingly competitive
• China’s export market has consistently outpaced its
import growth in recent years

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 Trade Agreements, Alliances, and Organizations
5

Association of Southeast Asian Nations (ASEAN)

• Established in 1967
• Promotes trade and economic integration among
member nations in Southeast Asia
• Goals include the promotion of free trade, peace, and
collaboration between members
• ASEAN faces challenges in becoming a unified trade
bloc

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 Trade Agreements, Alliances, and Organizations
6

World Bank
• Established by industrialized nations in 1946 to loan
money to underdeveloped and developing countries
International Monetary Fund (IMF)
• Established in 1947 to promote trade among member-
nations by eliminating trade barriers and fostering
financial cooperation

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 Getting Involved in International Business 1

Exporting and Importing

• Countertrade agreements
• Export Agents
Trading Companies
• Buys goods in one country and sells them to buyers in
another country
Licensing and Franchising
• Enable a company to enter international marketplace
without spending large sums of money or hiring or
transferring personnel

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 Figure 3.1 Top Exporting Countries
(in billions of US$)

Source: Central Intelligence Agency, “Country Comparison: Exports,” https://www.cia.gov/library/ publications/the-

world-factbook/ rankorder/2078rank.html (accessed April 2, 2017).

Access the text alternative for these images. 23

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 Table 3.4 Top 10 Global Franchises
Ranking Franchise
1 McDonald’s
2 KFC
3 Burger King
4 Pizza Hut
5 7 Eleven
6 Marriott International
7 RE/MAX
8 Dunkin’ Donuts
9 InterContinental Hotels and Resorts
10 Subway

Source: “Top 100 Global Franchises – Rankings (2018),” Franchise Direct,

https://www.franchisedirect.com/top100globalfranchises/rankings/ (accessed April 1, 2018).

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 Getting Involved in International Business 2

Contract Manufacturing
• When a firm hires a foreign company to produce a
specified volume of the firm’s product to specification
• Final product carries the domestic firm’s name
Outsourcing
• Transferring manufacturing or other tasks where
labour and supplies are less expensive
• Insourcing—foreign companies transfer tasks to U.S.
companies

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 Getting Involved in International Business 3

Offshoring
• Relocation of a business process by a company, or a
subsidiary, to another country
Joint Ventures and Alliances
• Joint venture: finding a local partner to share costs
and operations of the business
• Strategic alliance: partnerships formed to create a
competitive advantage on a worldwide basis

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 Getting Involved in International Business 4

Direct Investment
• Ownership of overseas facilities
• Multinational corporation (MNC)
• Operates on a worldwide scale without significant ties to any
one nation or region

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 International Business Strategies
Developing Strategies
• Multinational strategy
• Global strategy (globalization)
Managing the Challenges of Global Business
• Managers must meet the challenges of creating and
implementing effective and sensitive business
strategies for the global marketplace

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