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Summary Study guide for Understanding Canadian Business by William Nickels

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Course
Perspectives on Canadian Business (1A3)

Institution
McMaster University (mcmasteru)

Book
Understanding Canadian Business

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CHAPTER 3 COMPETING IN GLOBAL MARKETS

Key Terms:
Absolute advantage: occurs when a country has a monopoly on producing a specific product or
is able to produce it more efficiently than all other countries
Balance of payments: the difference between money coming into a country (from exports) and
money leaving the country (for imports) plus money flows coming into or leaving a country from
other factors such as tourism, foregin aid, military expenditures, and foreign investment
- Favourable balance: more money flowing into the country than flowing out
- Unfavourable balance: more money flowing out of the country than coming in
Balance of trade: a nation’s ratio of exports to imports
Common market (trading block): a regional group of countries that have a common external
tariff, no internal tariffs, and the coordination of laws to facilitate exchange among member
countries
Comparative advantage theory: states that a country should sell to other countries those
products that it produces most effectively and efficiently, and buy from other countries those
products it cannot produce as effectively and efficiently
Contract manufacturing: a foreign country’s production of private-label goods to which a
domestic company then attaches its brand name or trademark; also called outsourcing
Countertrading: a complex form of bartering in which several countries may be involved, each
trading goods for goods or services for services
Culture: the set of values, beliefs, rules, and institutions held by a specific group of people
Devaluation: lowering the value of a nation’s currency relative to other countries
Dumping: selling products in a foreign country at lower prices than those charged in the
producing country
Embargo: a complete ban on the import or export of a certain product of the stopping of all
trade with a particular country
Ethnocentricity: an attitude that one’s own culture is superior to all others
Exchange rate: the value of one nation’s currency relative to the currencies of other countries
Exporting: selling products (i.e. goods and services) to another country
- Competition in exporting is very intense and Canadian companies face aggressive rivalry
from exporters around the world who have the same objectives of growing their business
Foregin direct investment (FDI): the buying of permanent property and businesses in foreign
nations
- As the size of a foreign market expands, many firms increase FDI and establish a foreign
subsidiary
Foreign subsidiary: a company owned in a foreign country by the parent company
Free trade: the movements of goods and services among nations without political or economic
barriers
General Agreement on Tariffs and Trade (GATT): a 1948 agreement that established an
international forum for negotiating mutual reductions in trade restrictions

, - Global forum for reducing trade restrictions on goods, services, ideas, and cultural
programs
Import quota: a limit on the number of products in certain categories that a nation can import
- Canada uses it for textiles and clothing, agricultural products, steel and softwood lumber
- Goal: to protect Canadian companies and preserve jobs
- Canadian Export and Import Control Bureau: sets various regulations regarding import
controls (goods and services entering Canada) and export controls (exiting Canada) in
accordance with the Export and Import Permit Act (EIPA)
Importing: buying products from another country
Investment Canada Act: legislation that provides rules to review significant investment in
Canada by non-Canadians
- Has loosened rules and approved various purchases
International Monetary Fund (IMF): an international bank that makes short-term loans to
countries experiencing problems with their balance of trade
Joint venture: a partnership in which two or more companies (often from different countries)
join to undertake a major project
Licensing: a global strategy in which a firm (the licensor) allows a foreign company (the
licensee) to produce its product in exchange for a fee (a royalty)
Multinational corporation: an organization that manufactures and markets products in many
different countries and has multinational stock ownership and multinational management
Producers’ cartels: organizations of commodity-producing countries that are formed to stabilize
or increase prices to optimize overall profits in the long run
Strategic alliance: a long-term partnership between two or more companies established to help
each company build competitive market advantages
Tariff: a tax imposed on imports
Trade deficit: unfavourable balance of trade, when the value of a country’s imports exceeds that
of its exports
Trade protectionism: the use of government regulations to limit the import of goods and
services
Trade surplus: favourable balance of trade, when the value of a country’s exports exceeds that
of its imports
United States-Mexico-Canada Agreement (USMCA): the agreement among three
member-countries that coordinates trade. Replaces the NAFTA agreement
World Bank: an autonomous United Nations agency that borrows money from the more
prosperous countries and lends it out less-developed countries to develop their infrastructure
World Trade Organization (WTO): the international organization that replaced the General
Agreement on Tariffs and Trade, and was assigned the duty to mediate trade disputes among
nations

The dynamic global market

,LO1: Describe the importance of global market and the roles of comparative advantage and absolute
advantage in global trade
Why trade with other nations?

The theories of comparative and absolute advantage
LO2: explain the importance of importing and exporting, and define key terms in global business
Importing goods and services
Exporting goods and services
Measuring global trade
Trading in global markets: the canadian experience
Canada’s priority markets
LO3: illustrate the strategies used in reaching global markets, and explain the role of multinational
corporations in global markets
Licensing
Exporting
Franchising
Contract manufacturing
International joint ventures and strategic alliances
Foreign direct investment
LO4: evaluate the forces that affect trading in global markets
Sociocultural forces
Economic and financial forces
Legal forces
Physical and environmental forces
LO5: debate the advantages and disadvantages of trade protectionism, define tariff and non-tariff barriers,
and give examples of common markets
The GATT and the WTO
The IMF and the World Bank
Producers’ Cartels
Common markets
The United States-Mexico-Canada Agreement (formerly the north american free trade agreement)
The European Union
LO6: Discuss the changing landscape of the global market

Podcasts:
1. Illustrate the strategies used in reaching global markets and explain the role of multinational
corporations in global markets
The Dynamic Global Market
● Globalization is the development of an increasingly integrated global economy marked
especially by free trade, free flow of capital, and the tapping of cheaper foreing labour markets
● While Canada is a market of more than 37.74 million people (39th largest in the world), there are
over 7.82 billion potential customers in 194 independent countries with estimates that the world’s
population will grow by 81 million people per year to reach 10 billion by 2057

, ○ The largest countries are China (1.44 billion), India (1.38 billion), and the U.S. (331.67
million)
● Progressive companies are continuously looking for opportunities in the global markets, at the
same time as they are also looking for threats

Global competitiveness touches us all
● The economic welfare of our nation is significantly affected by the degree to which those in other
nations buy our products, invest in our country and lend us funds as we require them
● When we sell products to other nations, jobs are created, and incomes are earned
● When investment comes to Canada, businesses expand and improve, technology is developed and
applied, and jobs can be created
● Our ability to borrow and the interest rate we will have to pay will depend on the confidence
foreing lenders have in our economy

General facts
● Exports alone account for 1 in 5 Canadaian jobs generate 30 cents out of every dollar earned
● The US is Canada’s largest trading partner
● The BRIC (Brazil, Russia, India, and China) economies, especially China and India, are growing
and emerging markets due to their size and economic transformation
● To remain competitive, Canada must focus on innovation and entrepreneurship
● By studying foreign languages, learning about foreign cultures, and taking business courses, you
can develop a global perspective in your future

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