Chapter 1 NOTES: WHAT IS TRADE?
Domestic vs International Business
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Business: is the manufacturing of goods or services in order to make a profit
o Term “trade” is used interchangeably with business
Transactions: exchange of things of value
Domestic Business: business that transacts mainly in the country it was base din
o ie owned by Canadians, in Canada, selling to Canadians (Rare)
International Business: economic system of transactions conducted between businesses in
different countries
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Domestic Transaction: between 2 Canadian companies
International Transaction: between Canadian + non Canadian company
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Domestic Market: the customers of a business who are in the same country as the
business
Foreign Market: the customers of a business who are in a different country as the
business
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5 Ways for businesses to must be international
o MUST own retailers or distributors in another country
o MUST own manufacturing plant in another country
o MUST export to other countries
o MUST import from others
o MUST invest in other country businesses
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Trading Partner: Canada businesses make relationship with businesses in another
country, so they would be Canada’s trading partner.
History of Canadian Trade
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European Trade
o 1700s – trades grew fast after permanent Canadian settlement
o Demand for raw materials (beaver pelts, fish, lumber)
 Europe manufactured Canada’s raw materials
o After 7 years war, England and Canada made trade agreements (help war torn
France)
 near-port cities used to facilitate trade import/exports
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US trade
o Late 1700s, US independence and self reliant
o Steam engine 1775 James Watt: revolutionized manufacturing and transporting
o Cotton Gin by Eli Whitney: made cotton fibers, traded cotton with Canada
o USA did most of Canada’s raw material manufacturing
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To this day, US remains as Canada’s biggest trading partner
Mexico
 NA Free Trade Agreement (NAFTA) made duty free trade in North
America
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Asian Trade
o 1940s – Traded with Japan for electronics and cars
o China manufacturing (Wal-Mart $15B to China)
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Trade with Middle East
o Oil
o Politics, lack of industrialization, and technology limited trade
o Dubai, Egypt, Israel have trades asides from oil
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Indian Trade
o High, educated population
o Outsourcing and manufacturing
o Although open government, lack of infrastructure and issues troubled trades
o India aggressively expanded internationally
 Imports: Linen, Rice, diamonds, clothes
 Exports: fertilizers, vegetables, newspaper, copper
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African Trade
o Very low exchange with Canada (1% import, 3% export)
o Corrupt government, infrastructure problems loom
o Lots of primary resource potential
o South Africa (no-oil) and Morocco (oil/fruits) trading partners:
Globalization and Interdependence
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Globalization: where economies and cultures have become integrated through new
global communication, investments, trade, and transport
o easy to globalize nowadays
o global sales, finance, marketing, manufacturing, transportation = globalization
o international business IS NOT globalization
 businesses can operate internationally but not globally
o global businesses can be affected by global events
 2008 recession
 Banks lent at low rates
 not getting returned, lost money
 closure of operations forced
History: Globalization began after WW2
o United Nation first sign of globalization
 Helps negotiate treaties and tariffs
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Technology: Internet/cellular made trades nearly instant, quick, even at remote places
Social Issues
o China – India building big economies
o Large companies want to expand in China/India
 Workers, moneyflow from huge population
o Blur of political boundaries
 EU collaborated all Europe nations
 Agreements merge borders
Interdependence: reliance between 2 or more nations for each other’s products and
services
o eg US relying on China to make goods
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Primary Industries: Mainly Raw materials
o Agriculture, Hunting, Fishing, Energy/Mining, Forestry (FEFAH)
o Western Canada: oil, gas, metals, beef
o Eastern Canada: oil, offshore oil, minerals
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Secondary Industries: manufacturing or processing capital goods or consumer goods
o Canada as good manufacturing paper, oil refining, diamond, paper
o Canada relies on US and China for making other goods
 Branch Plant: a factory located outside of host country
 Canada branch plant policy saying you must have a factory to conduct
business here
 Disadvantages of branch plants (3)
 Business reduction in roles mainly R&D and execs
 Innovation follows parent company
 Exports lack – made in Canada for Canadians
 Non-Canadian Materials – uses imported materials often
 Foreign secondary + domestic secondary can add value to raw materials
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Tertiary Industries: provides services for consumers and businesses
o Retail is the largest (banking, construction, communication)
 Canadian retail depend on imports
 Most Canadian retails are owned by foreign places
How International business help Canadians
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Variety of products
o most products made in USA, but we have access to those
o experiences from around the world
o electronics mostly imported
o benefit from cheap labour and materials in China and India
New Markets, More Jobs
o 34 M pop’n in Canada, 100M pop’n in USA, 1B+ pop’n in China
o BL: make products that suit Chinese demographics
o Tim Hortons USA locations mean they hire more people
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Foreign companies in Canada spend more money on R&D
Foreign Investments
o (1) Foreign Direct Investments (FDI): done to control all or some of business’
operations (startups)
o (2) Foreign Portfolio Investments: stocks/bonds/funds issued by companies to
own a part of it
o HBC went bankrupt if it wasnt for foreign investments backing them up
New processes and Technology
o medical, consumer electronics
How International business hurts Canadians
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Loss of culture/identity
o Movies are mostly representing American culture, rare about Canada
 CRTC regulates how much Canadian TV shows are shown in Canada
 35% of radio music must be canadian
 M – Music
 A – Artist
 P – Produced
 L – Lyrics
 Canadians are often aware of Canadian books and TV shows due to
recognition
o Increased foreign ownership of Canadian companies
 Foreign companies are likely to stay loyal to their come country
 often leaves Canada in the dark when corporate problems rise
 R&D is often left in home country, making such jobs not in Canada and
lowered profits
 Reduced Exports: foreign branch in Canada does things for Canada and
doesnt export
 Revenues leave Canada pay head offices: Canadian branch helps pay head
office costs
 This lowers actual income and lesser taxation.
 High jobs like accounting, advertising, and marketing is done in
home country
 Economic destabilization, Global events can influence and impact
Canadian economy due to many plugins from foreign businesses
 Eg 2008 American “Buy American” campaign negatively affected
CDN economy.