Introduction to Trade Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Learning Goals Discuss the growing importance of the global market and the roles of comparative advantage and absolute advantage in global trade. Explain the importance of importing and exporting, and understand key terms used in global business. Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets. Evaluate the forces that affect trading in global markets. Debate the advantages and disadvantages of trade protectionism, define tariff and non-tariff barriers, and give examples of common markets. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

World Population by Area Europe 10.24% North America 4.88% Asia 60.11% Africa 15.69% Latin America and Caribbean 8.54% Oceania 0.54% Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson World Population by Area

The Global Market Canada represents a potential market of only 35.54 million customers. There are over 7.4 billion potential customers in 193 countries globally. Importing: buying products from another country. Exporting: selling products to another country. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Why Countries Trade No one country can produce all the products that its people want and need. Nations who cannot produce what they want and need will want to trade with countries who can and have a surplus. Some countries have an abundance of natural resources but lack the technological know-how to retrieve them. Other countries have the technology but lack the natural resources. Free trade is the movement of goods and services among nations without political or economic trade barriers. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Comparative Advantage Theory A country should sell to other countries those products that it produces most effectively and efficiently and but from those products it cannot produce as effectively or efficiently. Absolute Advantage The advantage exists when a country has a monopoly on producing a specific product or is able to produce it more efficiently than other countries. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

International Trade - Terminology Balance of Trade: a country’s ratio of exports to imports. Trade Surplus: occurs when the value of the country’s exports exceeds that of its imports (a favourable balance of trade). Trade Deficit: occurs when the value of the country’s imports exceeds that of its exports (an unfavourable balance of trade) Balance of Payments: the difference between money coming into the country and money leaving the country Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Export and Import Numbers 2014 Exports To: 2014 United States 403,070 China 19,388 United Kingdom 15,224 Japan 10,739 Mexico 5,515 Hong Kong 4,599 Korea, South 4,188 Italy (incl. Vatican City State) 4,171 Netherlands 3,844 Belgium 3,526 Sub-total 474,264 Others 50,734 Total All Countries 524,999 Imports To: 2014 United States 278,446 China 58,660 Mexico 28,832 Germany 15,963 Japan 13,287 United Kingdom 9,207 Korea, South 7,245 Italy (incl. Vatican City State) 6,422 France (incl. Monaco, French Antilles) 5,951 Taiwan 4,625 Sub-total 428,640 Others 83,418 Total All Countries 512,059 Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

The Canadian Trading Experience Almost 65% of our trade is with the US. 54% of our imports are from the US Traditionally we have been exporters of natural resources such as energy, forestry, agriculture and fishing. China, India and Brazil are becoming increasingly important as target markets for our exports. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Forces Affecting Trading in Global Markets Sociocultural forces Economic forces Legal and regulatory forces Technological forces Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Strategies for Reaching Global Markets Exporting Licensing Franchising Contract manufacturing International joint ventures Strategic alliances Foreign direct investment Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

International Trade Examples of Canadian international firms: BCE, Nortel, Magna, Royal Bank and Bombardier. In recent years the small business sector has become more involved in international trade due to improved technology. Foreign travel and immigration often reveal opportunities for trade. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Trade Protectionism The use of government regulations to limit the import of goods and services in order to protect domestic producers Dumping Tariffs Import quotas Embargos Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Producers’ Cartels Producers band together to stabilize or increase prices. OPEC is the most widely known cartel, but there are others for commodities such as copper, rubber, and tungsten. Cartels operate to restrict the free flow of goods and therefore control the prices. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Common Markets Common markets are a regional group of countries that have a common external tariff, no internal tariffs. For instance: The European Union (EU): 25+ European countries are removing tariffs and allowing the free flow of goods and travel throughout Europe by using a common currency (Euro) and a common passport. North American Free Trade Agreement (NAFTA): a 3-way trade agreement including Canada, the US and Mexico that removes trade barriers, and facilitates cross-border movement of goods and services between the three countries. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson