Factors Affecting
International Trade
1.The Business Environment in The
Host Country
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Currency Values – exchange rates and currency fluctuation
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Transportation Costs
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Language and Culture
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Trade Agreements:
a) regional - NAFTA, EU, APEC (Asia-Pacific Economic Cooperation.
b) bilateral – reciprocal agreement between 2 countries
Currency Values and Exchange Rates
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When companies purchase goods from foreign suppliers they
must be aware of differences in denomination and currency
values
Example:
An Indian Company would like to purchase goods from a
Canadian supplier. The Rupee is a commonly used
denomination in India; however, in Canada it does not hold
any value. Therefore, a need arises to convert the
denomination of rupee into dollars. The mechanism by which
the currency of one country gets converted into another is
known as foreign exchange.
Currency Values and Exchange Rates Continued
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The conversion of currency is done by the banks
that deal in foreign exchange.
The term Exchange rate refers to the rate at
which one currency is converted into the currency
of another.
The exchange rate is determined by a number of
factors like inflation, national income, natural
resources, interest rates technical and market
forces.
Transportation Costs
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The cost of moving goods between markets will influence
international trade
Canada and the U.S. have a close trading relationship
because of proximity to each others’ markets
The development and improvement of transportation
networks allows for increased integration
Transport efficiency has increased significantly because of
innovations and improvements in the modes and
infrastructures. As a result, the transferability of commodities
has improved.
Transportation
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Transportation infrastructure. Concerns physical
infrastructures such as terminals, vehicles and networks.
Efficiencies or deficiencies in transport infrastructures will
either promote or inhibit international trade.
Transportation services. Concerns the complex set of
services involved in the international circulation of
passengers and freight. It includes activities such as
warehousing, logistics, finance, insurance and marketing.
Transactional environment. Concerns the complex legal,
political, financial and cultural setting in which international
transport systems operate. It includes aspects such as
exchange rates, regulations, quotas and tariffs, but also
consumer preferences.
Language and Culture
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Cultural differences between nations can have a
dramatic impact on trade
Businesses must be well informed and make the
necessary adjustments when doing business in
foreign countries
Language remains a significant barrier to
international trade. Canada and The U.S. share a
common language and culture making trade much
easier.
Trade Agreements
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Regional and Bilateral trade agreements
allow for trade in goods and services with
few restrictions
Regional trade agreements include blocks
of countries e.g. EU and NAFTA
Bilateral agreements are between two
individual nations e.g. Canada-Costa Rica
Free Trade Agreement (CCRFTA)
2.Government
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How Can Government Have an Effect
International Business?
Investment Restrictions
Rules and Regulations
Tariffs
Foreign Relations/Trade Sanctions
Investment Restrictions
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Restrictive ownership
Restricted investment
ICA – Investment Canada Act – the Canadian
government will review an acquisition or
investment in Canada if it exceeds a certain
dollar amount or is in a particular industry
Rules and Regulations
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Government may prohibit or impose controls on
imports/exports
Ex: endangered animals, weapons, certain
technology
Environmental and safety regulations
Tariffs
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Is a tax imposed on imported goods or services.
Customs duties are placed on imports to make
prices close to those of competing domestic
products
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Example:6403.20.00 00 -Footwear with outer soles of leather,
and uppers which consist of leather straps across the instep and
around the big toe Duty - 18%
Foreign Relations/Trade Sanctions
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Governments may place restrictions on
citizens partaking in certain types of trade
travel and investment with particular
countries. (example: embargo)
The United States has a long standing
trade embargo with Cuba
3.Organizational Forms of
International Business
How do the business environment in the host country and
the government influence the organizational form a
company would choose?
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Import/Export
Licensing Agreements
Joint Ventures
Global Sourcing
Wholly Owned Subsidiary
Merger
Homework
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Homework: Page 35 1a Page 38 K/U 1, 3
Page 38 T/I 1, 2
Read p.28-37 p.35 ICE 2a 3a due Lesson
10