Chapter 2: Importance of International Business
2.1 ASPECTS OF INTERNATIONAL BUSINESS
Pg 4-8
International business is all the activities needed to get a product to consumers. It
involves trade, importing, exporting, licensing, use of foreign assets and foreign
investment.
International Trade
The main premise of business is trade. International trade is the basis of international
business. It involves companies in one country fulfilling the needs and wants of another
by selling products (exporting) to groups. It also involves companies bringing in
products (importing) to satisfy the needs and wants or their own consumers.
Goods consist of raw materials, semi-manufactured goods or manufactured goods.
Services consist of activities that businesses perform to advise or assist individuals or
groups.
Companies must carefully select the product they choose to import and export.
Agricultural products may be rejected. Manufactured goods must meet the country’s
standards.
Importing
Canada may need products that are only available, or can be obtained more
conveniently and economically, from foreign sources. Higher quality products may also
be obtained.
There must be a known demand for a product before it is imported. Importer must
contact foreign suppliers. Next the purchase needs to be finalized—who pays for
shipping, delivery date, method of payment. Order must be checked when it arrives.
Sufficient research must be done to know if the product, its quality and cost will sell in
Canada.
Exporting
Exporters need to find businesses and/or customers who need the product. The
exporter needs to establish a presence in that country, have enough production
capacity, cope with the higher international costs and understand how business is done
in that country.
Exports are shipped according to weight and volume. Speed of shipment affects the
cost.
Ontario accounts for almost ½ of Canada’s export revenue. 93% of its exports went to
the U.S.
Starting an Import or Export Business
Being ready means having i) management commitment, ii) competitive advantage, iii)
cash flow, iv) capacity to produce.
Marketing and servicing experience will be useful in creating a viable business plan for
use internationally. Essential is the investment of time, money and proper market
selection.
Trade Missions
Selected Canadian firms visit a targeted foreign country. Incoming trade missions
welcome foreigners to Canada. Missions increase the visitor’s knowledge of the
country as a potential source of supply and a place to arrange a joint venture. Mission
organizers can help link potential exporters with officials in target countries and handle
the logistics of the mission.
Team Canada promotes Canada as a good place to do business. It contains the Prime
Minister, provincial premiers and representatives from government and business. It is
also important to maintain important contacts with foreign governments, banks and
businesses.
Over 2800 Canadian business people created over $30 billion in new business from ‘94
to ’02.
Trade Shows
Shows allow a potential purchaser to communicate with suppliers. Fairs provide
exporters with potential sales opportunities, promotion of their products, and to develop
valuable contacts.
Trade shows often focus on one industry.
Companies attending foreign trade shows must declare product samples to customs.
Calling customs ahead of time can help in terms of any payments and documentation
required.
Exporting Goods and Services
Most international businesses deal with importing and exporting goods. Canadian
exports include lumber, textiles, clothing, fur, aircraft, trains, minerals, and chemicals.
Canadian imports include machinery, vehicles, and electronic components.
Canada’s export services are growing. The purchaser pays for the knowledge,
creativity, or manual work of the provider. Business functions can now be performed
without leaving Canada, i.e. call centres, on-line courses.
Many businesses sell both goods and services. Montreal-based Cirque du Soleil
provides circus arts (services) to 3 continents. It is branching into other entertainment
activities.
Cirque du Soleil also sells DVDs, videos and souvenirs (goods) that are made in China
and Taiwan and imported into North America.
Foreign Investments
Public-sector investments involve putting money in government-owned assets. Privatesector investments are usually held in shares on the stock market.
Foreign direct investments (FDIs) occur when a company established a subsidiary
operation or a joint venture in another country.
A company can invest into foreign land or property, construction or finance of many
projects.
One example is Walt Disney’s building of Disneyland Paris. Controlling interest of
EuroDisney is held by the parent American Walt Disney company.
In a portfolio investment, an investor buys a share of a foreign company for a share of
the profit and not a say in how the company is run. Bonds may be purchased. Banks
may also make loans. These are less risky investments.