International Business Benefits Markets Labour Goods Resources
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The document provides an overview of international business, including: - Benefits of international business like access to larger markets, cheaper labor, and increased quality/quantity of goods - The five Ps of international business: product, price, proximity, preference, and promotion - Potential costs like outsourcing, human rights issues, and environmental degradation - Barriers to international trade such as tariffs and non-tariff barriers - Canada's major trading partners and trade agreements - The future of international trade bodies and increasing globalization and cultural integration.
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- International transactions ( foreign trade ) involve creating, shipping, and selling foods and services across national boarders. The global economy is the exchange of goods and services among people in different countries throughout the world.
- BENEFITS FOR BUSINESS? Access to Markets Examples of standardized, or global product are pencils, soccer balls, and cameras. Packages food items are not generally global products. Cheaper Labour Canadian businesses, in an attempt to lower costs of production, use cheap foreign labour to maximize profits.
- BENEFITS FOR BUSINESS? Increased Quality of Goods Products such as luxury cars as parts manufactured in many different countries come together to form the finished product. Increased Quantity Companies may have to increase production to meet demand, this may means increased efficiency, longer hours of operation or the establishment of new facilities. Access to Resources Natural Resources : bamboo from China to make furniture Human Resources : cheap factory labour in India Capital Resources : specialized machinery made in Germany
- THE FIVE Ps OF INTERNATIONAL BUSINESS As businesses expand internationally they create jobs at home and overseas. Knowledge that is exchanged, as a result of international business, it results in new approaches to production, marketing, and selling that benefits domestic consumers as well as producers. Political benefits also materialize, dialogue and understanding are improved and communication and respect are enhanced.
- THE FIVE Ps OF INTERNATIONAL BUSINESS Product Due to out geographical location and seasonal climate change Canada imports crops (such as citrus all year and strawberries in the winter) from other countries. Canada exports products such as timber and grain that we have an abundance of. Price Lower production costs may mean lower prices for consumers, causing increased units sold, therefore improved profits. Proximity Historically trade between countries was heavily dependant on proximity; the closer a business or individual that you traded with the greater an asset they were to you or your business.
- THE FIVE Ps OF INTERNATIONAL BUSINESS Preferences Some foreign products that Canadian consumers purchase due to preference are Belgian chocolate, Swiss watches, Australian wine, German cars, and Cuban cigars. Promotion Before global communication methods (such as satellite broadcasting and the Internet) businesses found it difficult to let others far away know about themselves. According to Interbrand Corp.’s website a business can develop a global brand name in three years by using the Internet. Easy promotion is an incentive for companies to create an international presence.
- COSTS OF INTERNATIONAL TRADE Offshore Outsourcing Also, known as contracting out, offshore outsourcing is the practice of subcontracting work to other companies to lower costs or to focus on tasks done better. High-tech jobs and customer support services are commonly outsourced to India, China, and Costa Rica. Cost associated include salaries, benefits, training, and recruiting. Services (bookkeeping and accounting) can also be outsourced. Time differences allow work to be done overnight and submitted in the morning. Transnational ( multinational ) corporations operate in several nations.
- COSTS OF INTERNATIONAL TRADE Human Rights Issues and Labour Abuses Sometimes the Canadian company outsourcing is not aware to the abuses. The International Labour Organization (ILO) is the UN specialized agency that seeks the promotion of social justice and internationally recognized human rights. The ILO estimates that there are nearly 700 000 child domestic workers in Indonesia. According to the the ILO girls under 16, doing housework and child care, is the largest category of child labour. Environmental Degradation Sometimes businesses ignore the damage growth causes in the name of business goals. Businesses should be aware of the impact that their procedures and policies have on the environment and invest in solutions.
- BARRIERS TO INTERNATIONAL BUSINESS Canada prohibits the entry of goods such as illegal narcotics, certain weapons, and products made from endangered animals; print material that is obscene or that promotes hatred or treason. Goods coming into Canada have to inspected, accompanied by a valid permit, or have special packaging and labeling. The Canadian Food Inspection Agency tests of antibiotics, drugs, and hormones in meat, allergens and pesticides in good, and other threats to food safety. See Table 4.1, “Imported Goods That Require Permits, Inspection, or Special Packaging” on page 124. Tariffs Custom duties (tariffs) are an amount added by a country to the cost of an imported product. The duty is usually a percent of the price of the product, depending on the tariff of the country. Finance Canada monitors Canadian, and international, tariff polices to ensure the development of new polices that will best serve the Canadian economy. Effective January 1, 2005, the government eliminated tariffs on fibre, yarn, and textile inputs used by the apparel industry imports. This change saved the domestic industry more than $90 million.
- BARRIERS TO INTERNATIONAL BUSINESS Non-tariff Barriers Standards for safety and environmental controls can limit the competition because of the cost to comply. Another barrier is the requirement of an expensive licence to sell goods in the country’s market. Customs inspections at a country’s border can also impose barriers. Costs of Importing and Exporting Price is based on the cost of manufacturing, plus the costs of storage, marketing, shipping, advertising, overhead, and the profit margins. Some examples of import/export costs include airfreight, translator, interest charges, labeling costs, etc. A foreign purchase is not always a better deal than a domestic purchase.
- BARRIERS TO INTERNATIONAL BUSINESS Excise Taxes The Canadian government charges an excise tax of 10 cents per litre on gasoline ($4 billion per year) and provincial governments charge about 14.5 cents per litre. Excise taxes depend on the quantity or mass of an item. Excise taxes are used to raise money, sometimes to discourage purchase as in the case of tobacco (smoking), and to encourage consumers to buy Canadian. Currency Fluctuations Currency exchange rates have a big impact on doing business internationally.
- The importation of goods and materials provides, more or less, jobs for Canadians. See Figure 4.2, “Canadian Imports and Exports for 2005”, on page 129. BALANCE OF TRADE Countries usually try to reduce high trade deficits because it means money is flowing out and fewer jobs are being provided. A manufactured good surplus can be good because the domestic production process means more Canadian jobs. In 2005, Canada had a trade surplus of just under $65 billion; as a result of the $85 billion trade surplus with the U.S. that countered the $20 billion trade deficit from all other international trading.
- IMPORTS See figure 4.3, “Five Ways to Offset the Risks of Importing”, on page 130. EXPORTS Established companies usually export directly . Businesses that export directly often set up offices and sales staff in foreign countries or send a sales representative to the country. Many new companies use indirect exporting as they do not have the resources to establish abroad. Intermediaries are familiar with regulations, restrictions and culture. Intermediaries handle paperwork, collect money, and can assume risk. Some countries such as the Middle East, Central America, and Asia do not allow direct exporting, probably to create domestic jobs.
- EXPORTS Offsetting Risks Sources of information to reduce risk include: Foreign Affairs International Trade Canada Internet Asia Pacific Foundation of Canada Canadian Manufacturers and Exporters Canadian Association of Importers and Exporters Canadian Embassies See questions that embassy staff suggest foreign clients might ask, on page 131. CANADA’S MAJOR TRADING PARTNERS A Canadian product or service sold in both the Canadian and U.S. markets will be far more profitable than a product sold only in Canada. See Table 4.2, “Canada’s Top 10 Export & Import Markets by Country, 2005”, page 133.
- Initial trade agreements usually start out dealing with importing and exporting. Agreements usually address tariff elimination or reduction, and processes for resolving disputes. Agreements should also include issues such as when and why people will be permitted to work across international boarders, qualifications needs, standards applied to their work, and how intellectual property will be protected. Intellectual property is a business’s trade secrets or the ideas or talent of its workforce. WORLD TRADE ORGANIZATION (WTO) An international organization was set up to help GATT negotiate trade deals, resolve problems, and collect data. An important WTO agreement is the 1995 General Agreement on Trade in Services (GATS) that sets guidelines for the trade of services (such as banking). The WTO governs about 97% of all world trade.
- NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA) Canada hoped to gain, with the FTA , stable access to U.S. markets, clarify government assistance to industry, ability of Canadian companies to bid on U.S. government contracts, and allow Canada an equal say in disputes. The U.S. wanted to clarify rules regarding services and intellectual property, reduce restrictions on investment in Canadian industries, and increase exports to Canada with the FTA . See Table 4.3, “Canada-U.S. Free Trade Agreement (FTA) (1989)”, on page 136. NAFTA created a continent-wide free-trade zone. Products made within the free-trade zone could be traded across the boarders without tariffs. Each day, Canada, U.S., and Mexico conduct nearly $1.7 billion in trilateral trade. See Table 4.4, “North American Free Trade Agreement (NAFTA) (1994)”, on page 136. OTHER FREE TRADE AGREEMENTS Canada has bilateral free trade agreements with Chile and Israel. Canada is negotiating agreements with Costa Rica and a trading bloc made up of Guatemala, El Salvador, Honduras, and Nicaragua. See Table 4.5, “Other Free Trade Agreements”, on page 138. THE GROUP OF EIGHT (G8) The G8 (1975) is made up of Britain, France, Germany, Italy, Canada, United States, Japan (original Group of Seven (G7)), and Russia (joined in 1998).
- APEC is based on consensus and voluntary participation. EUROPEAN UNION (EU) EU members in 1993 were Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, and the United Kingdom (UK). In 1993 Austria, Finland, and Sweden joined the EU. A single currency, the euro, is used by member countries except the UK and Denmark. The EU has its own elected government and citizens can move freely from one country to another. The EU members could be 28 countries by 2010. EVOLUTION OF NAFTA A single market would mean American and Mexican workers could vie for Canadian jobs in Canada. A single currency could also evolve.
- IMPACT OF CULTUREAL DIFFERENCES Culture influences what can and can not be done, of what is acceptable and unacceptable. Culture can be learned. Operating in different cultures requires research that looks at important social and environmental issues and demographic characteristics that shape the market. Greetings Handshakes are common in most countries, but they are not all done the same way. A single shake in France is acceptable. Eye contact is polite in most cultures, in some however averting your eyes is a sign of respect.
- IMPACT OF CULTUREAL DIFFERENCES Nonverbal Communication Signals Asian businesspeople often do not say “no”, they use body language especially to convey a negative response. People in Bulgaria say “yes” with a side-to-side shake of the head, while “no” is a nod up and down. The “okay” sign, is an offensive gesture in Brazil and the symbol for money in Japan. Proximity and touching are also communication signals interpreted differently from country to country. Good Manners Asian and Latin America are countries were the three Fs of business – family, friends, and favours, have a very strong influence on the business decisions people make. Decision Making Latin America uses the typical top-down approach. When many people, from the bottom up, are consulted decisions may take longer to make. GLOBAL DEPENDENCY Global communication (television, movies, satellite communications, and the Internet) aid in global awareness. Global dependency will increase, as communication technology advances.