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Understanding
Canadian
Business
Chapter 3
Competing in Global
Markets
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Learning Goals
1.
Discuss the growing importance of the global
market and the roles of comparative
advantage and absolute advantage in
global trade.
2.
Explain the importance of importing and
exporting, and understand key terms used in
global business.
3.
Illustrate the strategies used in reaching
global markets and explain the role of
multinational corporations in global markets.
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Learning Goals
4.
Evaluate the forces that affect trading in
global markets.
5.
Debate the advantages and disadvantages
of trade protectionism, define tariff and nontariff barriers, and give examples of common
markets.
6.
Discuss the changing landscape of the global
market and the issue of offshore outsourcing.
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The Global Market
 Canada
represents a potential market of
only 32 million customers.
 There
are over 6 billion potential
customers in 193 countries globally.
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The Global Market
Importing

Buying products from
another country.
Exporting

Selling products to
another country.
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Why Countries Trade
1.
No one country can
produce all the products
that its people want and
need.
2.
Nations who cannot
produce what they want
and need will want to
trade with countries who
can and have a surplus.
3.
Some countries have an
abundance of natural
resources but lack the
technological know-how
to retrieve them.
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Why Countries Trade
4.
Other countries have
the technology but
lack the natural
resources.
5.
Free trade is the
movement of goods
and services among
nations without political
or economic trade
barriers.
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Theories of Advantage
Comparative
U. S.
China
China
U. S.
Output per
Unit of Input
Software
Clothing
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Theories of Advantage
Absolute = Virtual Monopoly
Zambia
Output per
Unit of Input
The Rest of
the World
Copper Production
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International Trade

Examples of Canadian
international firms: BCE,
Nortel, Magna, Royal
Bank and Bombardier.

In recent years the small
business sector has
become more involved in
international trade due to
improved technology.

Foreign travel and
immigration often reveal
opportunities for trade.
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International Trade - Terminology
 Balance
imports.
of Trade: a country’s ratio of exports to
 Trade
Surplus: occurs when the value of the
country’s exports exceeds that of its imports (a
favourable balance of trade).
 Trade
Deficit: occurs when the value of the
country’s imports exceeds that of its exports (an
unfavourable balance of trade)
 Balance
of Payments: the difference between
money coming into the country and money
leaving the country
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The Canadian Trading
Experience
 Almost
 57%
84% of our trade is with the US.
of our imports are from the US
 Traditionally
we have been exporters of
natural resources such as energy,
forestry, agriculture and fishing.
 China,
India and Brazil are becoming
increasingly important as target markets
for our exports.
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Strategies for Reaching
Global Markets
oExporting
oLicensing
oFranchising
oContract
manufacturing
oInternational joint
ventures
oStrategic alliances
oForeign direct
investment
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Forces Affecting Trading in
Global Markets
 Sociocultural
 Economic
 Legal
forces
forces
and regulatory forces
 Technological
forces
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Trade Protectionism

The use of government regulations to
limit the import of goods and services in
order to protect domestic producers
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Dumping
•
Tariffs
•
Import quotas
•
Embargos
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The IMF and
The World Bank
 The
International Monetary Fund makes shortterm loans to countries experiencing problems
with their Balance of Trade.
 The
World Bank borrows from more prosperous
countries and lends at favourable rates, to lessdeveloped countries to pay for developing the
country’s infrastructure.
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Producers’ Cartels

Producers band together to stabilize or
increase prices.

OPEC is the most widely known cartel,
but there are others for commodities
such as copper, rubber, and tungsten.

Cartels operate to restrict the free flow
of goods and therefore control the
prices.
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Common Markets
o
Common markets are a regional group of
countries that have a common external
tariff, no internal tariffs. For instance:
•
The European Union (EU): 25+ European countries
are removing tariffs and allowing the free flow of
goods and travel throughout Europe by using a
common currency (Euro) and a common
passport.
•
North American Free Trade Agreement (NAFTA):
a 3-way trade agreement including Canada, the
US and Mexico that removes trade barriers, and
facilitates cross-border movement of goods and
services between the three countries.