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International Business
RWA CHAPTER 7
Learning Objectives
 Explain why countries trade
 Explain why countries export and import
 Explain how and why countries restrict international
trade
 Describe the strategies organizations use to compete
in the global economy
McDonald’s
The golden arches of McDonald’s are a familiar sight
in 119 countries around the world.
The fast food restaurant’s international expansion is a
good example of business practices that will become
more prevalent in the global economy of the 21st
century.
McDonald’s is able to operate successfully in foreign
countries by offering consistent standards for
“quality, value, and convenience.”
International Trade
International Trade consists of the exchange of
goods and services between countries. For example,
in Canada we can purchase coffee from Columbia,
chocolate from Europe, toys from China, cosmetics
from France, cars from Germany, clothing from Italy,
etc., which are just of few of the goods that we import
into Canada to satisfy the needs and wants of the
Canadian consumer. Likewise, in China or any of the
other countries mentioned above, you will be able to
find goods imported from Canada, especially sea
food, lumber, and wheat.
Why do countries trade?
 Countries trade to get access to goods that meets the
needs of their citizens, who are the consumers.
 Countries also trade to get access to materials that are
not available in their own country. For example, France
has an abundance of fresh drinking water but no oil;
Saudi Arabia has an abundance of oil but scarcity of fresh
drinking water—the two countries may trade oil for
water. In both countries there is a need for the product.
 Trading also opens up many other doors for countries
and gives them exposure to world markets that they
wouldn’t otherwise be exposed to.
Why countries trade, cont’d.
 Absolute Advantage—some countries are
abundant in some resources but scarce in others or
are unable to produce others. For example, Great
Britain has less fertile soil than Honduras and
doesn’t have the climate to grow coffee. On the other
hand, the Honduras has the climate, the fertile land,
and the cheap labor to grow coffee. Therefore, the
Honduras has an absolute advantage over Great
Britain to grow coffee and sell it to them.
Comparative Advantage
Some countries may be less efficient at producing all
goods that its citizens need.
The law of Comparative Advantage states that
some countries should produce the goods that they
are most efficient at producing and import from
others goods that they cannot produce at home. For
example, Canada has an absolute advantage in
forestry products, but not in labor. China has an
absolute advantage in labor; therefore, it would be
more efficient if Canada shipped its lumber to China
to have furniture built there rather than in Canada.
Why do companies export?
 To increase their sales abroad
 To introduce their products to other countries
 To diversify—engage in a variety of operations to
bring in more revenue
 To develop innovative brands—create new
products—which can be later marketed back home
Identifying Export Markets
 Analyze demographic figures, economic data,
country reports, consumer tastes, etc., is how
companies identify export markets.
 They also visit the countries and conduct surveys to
assess consumer demand and to find out what
restrictions they may face.
 To find out if there are specific requirements on
packaging, labeling, and product safety
Exporting
Exports:--goods and services that are sold abroad.
Fact:--the US is the world’s largest exporter; it exports
about $700 billion worth of goods and services
annually.
Exports represent an important source of revenue for
many companies; for example, IBM earns about 40%
of its revenue outside the US;
Air Canada flies to many countries outside Canada and
earns a substantial portion of its revenue from
international flights paid for by clients in the
countries it services.
Imports
 Imports—goods and services that are purchased
abroad—such as German and Japanese cars; French
wine; Swiss chocolate; luxury handbags from Italy;
shoes from England, just to name a few.
 Fact:--the US is the world’s largest importer, it
purchases about $900 billion worth of foreign goods
and services annually.
Import of Materials
 Many companies import materials from other countries
because they are cheaper to produce elsewhere, they
could be better quality, and they may not be available in
their own country.
 Many companies import goods because they can resell
them in their own country for a higher profit; for
example, cars made in Japan and Germany are sold at
car dealerships in the US and Canada because consumers
want these products versus North American made cars;
consumers are willing to pay more money for a car which
they consider to be of better quality.
The Balance of Trade
 The Balance of Trade is the difference between the
value of the goods a country exports and the value of
goods it imports.
 Trade Surplus happens when a country exports more
than it imports;
 Trade Deficit occurs when a country imports more
than it exports—this means that the value of goods and
services it sells to other countries is less than the value of
the goods and services that it exports
 Countries, such as Japan, usually run huge trade
surpluses because it exports much more than it imports,
especially in cars, machinery, and electronic goods.
Protectionism
 International trade can benefit all trading partners; but, it
may also hurt some domestic producers. For example, a
Canadian manufacturing company may be forced to shut
down because it is cheaper to have the goods made in Taiwan
where there is an abundance of cheap, skilled labor.
 Tariff is a tax on imports which is put in place by the
government to raise the price on foreign goods so that local
manufacturers can compete.
 Quotas are restrictions on the quantity of a good that can
enter a country. This is again done by the government to
protect local businesses.
 Embargo is a complete or total ban on the importation of a
particular good, such as ivory from South Africa or coral from
the Philippines, etc.
Page 161
Please answer the following questions.
Under Fact and Idea Review
Numbers: 1, 2, 3, & 4
Under Critical Thinking
Number 1 & 2
Assessing Math Skills
Do the assignment.
Be sure to put your name and date on the assignment.