Chapter 2: TRADE IN THE MODERN WORLD Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc CHAPTER 2: Trade in the Modern World

Chapter 2: TRADE IN THE MODERN WORLD Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Key Terms  importing  global sourcing  exporting  value added  licensing agreement  exclusive distribution rights  franchise  joint venture  foreign subsidiary  protectionism  trade quotas  trade embargo  trade sanctions  exchange rate  floating rate  currency revaluation  currency devaluation  terms of trade  hard currencies  soft currencies  currency speculating

Chapter 2: TRADE IN THE MODERN WORLD Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Chapter Objectives By the time you finish this chapter, you should be able to:  Identify the types of international businesses  Describe the impact technology has had on the international business environment  Identify the factors that affect foreign exchange rates  Explain how changes in the value of the Canadian dollar can affect business opportunities  Identify the types of products that trade freely into and out of Canada and those that are restricted in their movement  Identify and locate on a map Canada’s major trading partners

Chapter 2: TRADE IN THE MODERN WORLD Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. International Business Practices Reasons that Canada trades:  Company growth  Entry into new markets  Expanded customer base  Increased profits  Access to inexpensive supplies  Lower labour costs  Access to financing © iStockphoto.com

Chapter 2: TRADE IN THE MODERN WORLD Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. International Business Practices Photos: © iStockphoto.com

Chapter 2: TRADE IN THE MODERN WORLD Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. International Business Practices Licensing agreement An agreement that grants permission to a company to use a product, service, brand name, or patent in exchange for a fee or royalty. Exclusive distribution rights A form of licensing agreement that grants a company the right to be the only distributor of a product in a specific geographic area or country.

Chapter 2: TRADE IN THE MODERN WORLD Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. International Business Practices Joint venture A common type of international business, in which a new company with shared ownership is formed by two businesses, one of which is usually located in the country where the new company is established.

Chapter 2: TRADE IN THE MODERN WORLD Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. International Business Practices Foreign subsidiaries Often referred to as a wholly owned subsidiary, a branch of a company that is run as an independent entity in a country outside of the one in which the parent company is located. The parent company often sets financial targets, and allows the subsidiary to manage its own day-to- day operations as long as those targets are being met.

Chapter 2: TRADE IN THE MODERN WORLD Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Trade Barriers

Chapter 2: TRADE IN THE MODERN WORLD Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Trade Barriers Protectionism The theory or practice of shielding domestic industries from foreign competition, often through trade barriers such as tariffs.

Chapter 2: TRADE IN THE MODERN WORLD Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Trade Barriers Foreign investment restrictions  Canadian law with the greatest impact is the Investments Canada Act  Ensures that all foreign investments are reviewed to determine how they will benefit Canada

Chapter 2: TRADE IN THE MODERN WORLD Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Trade Barriers Standards  Countries have different standards for products in areas such as environmental protection, voltage, and health and safety  The ISO (International Organization for Standardization) is a network of standardization groups from over 170 countries established to set quality regulations

Chapter 2: TRADE IN THE MODERN WORLD Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Currency Fluctuations Exchange rate The amount of one country’s currency in relation to the currency of another country. The Canadian dollar (CAD) is most often quoted against the U.S. dollar (USD) because the two countries are the largest trading partners in the world.

Chapter 2: TRADE IN THE MODERN WORLD Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Currency Fluctuations Currency revaluation The increase in value of a currency because the demand for that particular currency is greater than the supply. Currency devaluation The decrease in value of a currency because the supply of that particular currency is greater than the demand for it.

Chapter 2: TRADE IN THE MODERN WORLD Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Currency Fluctuations Factors Affecting the Exchange Rate  Economic conditions in Canada—inflation rate, unemployment rate, GDP, interest rates  Trading between countries—the more favourable the terms of trade (comparison of exports to imports), the higher the currency exchange  Politics—political tension and instability or the threat of terrorism decreases the demand for a currency  Psychological factors—historical significance and stability change the way currencies are viewed

Chapter 2: TRADE IN THE MODERN WORLD Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Currency Fluctuations Currency speculating Buying, holding, or selling foreign currency in anticipation of its value changing in order to profit from fluctuations in the price of currency. Used under license from Shutterstock, Inc.

Chapter 2: TRADE IN THE MODERN WORLD Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Time Zones  Communication technology allows the world of international business to operate twenty-four hours a day  Certain methods of communication can be used at any time ( ); other methods (telephone) require knowledge of time zones  Some methods offer immediate feedback and interaction; others do not

Chapter 2: TRADE IN THE MODERN WORLD Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Time Zones Used under license from Shutterstock, Inc.