1. Chapter 4

2.  THE BENEFITS OF INTERNATIONAL BUSINESS: Access to resources – international connections can give a business access to human resources, natural resources, and capital resources in other countries Access to markets – trading abroad gives Canadian businesses access to 6.5 billion people in other markets – roughly 200 times the size of the domestic market Cheaper labour – producing goods in other countries allows businesses to reduce their costs of production and in the process maximize their profits Increased quality of goods – doing business internationally can help producers improve the quality of the products they sell by taking advantage of what ever other countries have to offer Increased quantity – access to international markets can increase sales and therefore increase production to meet growing demand

3.  THE FIVE PS OF INTERNATIONAL BUSINESS  Promotion – todays technology makes it simple for businesses to promote their products anywhere in the world. Ease of promotion is an incentive for companies to reach beyond their domestic market for customers  Product – a county’s resources determine what goods and services it can produce. Doing business internationally allows access to products not available locally  Price – if the cost of wages, taxes, and raw materials lower in another country, it may be less expensive to produce some goods overseas and ship them to Canada than produce them domestically. This may allow businesses to reduce prices and increase sales by selling a greater number of units  Proximity – close proximity to an international market can influence a business’s products and services because they can reach more people or tailor its goods or services to meet the needs of the international market  Preference – some countries specialize in certain types of goods and services that have a reputation for quality around the world. Even though similar products can be made domestically, many people still prefer to buy foreign specialties

4. 3) Social costs are hidden costs of doing business that have a negative impact on people or the environment. They include offshore outsourcing, human rights or labour abuses, and environmental degradation 4) Outsourcing is a business decision that is made to lower costs or allow the business to focus on the tasks that it dose better. It also allows a business to move production facilities closer to natural resources, to take advantage of more efficient technologies, or to profit from another country’s innovations or tax structures. Many high-tech jobs, customers support services, and bookkeeping services are outsourced

5. 5. Human rights issues and labour abuses are two ethical problems that can result from offshore outsourcing. Abuses in the workplace can take the form of labour exploitation, including physical and sexual abuse, force confinement, non-payment of wages, denial of food and health care, excessive working hours with no days rest, and child labour 6. Sustainable development is a process of developing land, cities, businesses, and communities that meet the needs of the present without compromising the ability of future generations to meet their own needs. If businesses fail to pay attention to sustainable development, environmental degradation may occur, and nature’s resources, such as trees, habitat, earth, water, and air, may be consumed faster that nature can replenish them

6. 7. Tariffs, tariff barriers and non-tradeoff barriers, increased costs of importing and exporting, and excise taxes are barriers to international businesses. The Canadian government uses such barriers to help protect domestic businesses and consumers, to assist a new business in getting started, to protect and existing industry struggling in a competitive global market, and to protect consumers from problematic imports 8. Tariffs are a form of tax on certain types of imports, levied on a percentage-of-values basis or on a specific basis. Because domestically produced goods are not subject to tariffs, they can be sold for a lower price compared to foreign goods, which need to account for tariffs in their price. This could give price advantage to Canadian businesses, which would allow them to compete with foreign competitors

7. 9. Tariff barriers are charges added to imports, non-tariff barriers are standards for the quality of imported goods that are set so high that foreign competitors cannot enter the market. A country can impose non-tariff barriers by requiring an international business to apply for a license to sell goods in the market. Non-tariff barriers can also be imposed at the border, where goods have to pass a customs inspection in order to enter the country

8. 10. Landed cost is the actual cost for an imported purchased item, composed of the vendor cost, transportation dues, duties, taxes, broker fees and any other costs. The total landed cost determines whether a foreign purchase is a better deal that a domestic purchase 11. The government mainly uses excise taxes to raise money. It also applies excise tax to discourage people for engaging in certain activities, such as smoking, or to increase the cost of imported goods, such as wine, to encourage consumers to but Canadian products

9. 12. Fluctuating exchange rates means that the costs of doing business internationally can vary from one year to another. What might have been a low-cost trade at one time may no longer be financially viable

10. a) Your diet: if we only eat locally produced foods, we would have less selection on our grocery store shelves. Also, the cost of produce would rise in the winter months because it would have to be grown indoors, which is more expensive. If the cost of produce is too high, we might not be able to afford it, and we would have to change our diet to buy the things we can afford b) There would be limited options for entertainment, as many sources of entertainment are imported. This includes concerts and theatre performances as well as movies and books. We would have to rely on the internet of international entertainment. However, we would also have more Canadian-based sources for entertainment, and this would enhance our local arts

11. c) If fuel could no longer be imported, the cost of filling up a gas tank would probably increase as there would be less competition and less supply for the same demand. We would also be able to purchase only cars manufactured in Canada, which would limit our options and would likely increase the costs of available cars because of decrease competition

12. 2. The Japanese yen is worth the least compared to the Canadian dollar 3. The United Kingdom pound sterling is worth the most compared to the Canadian dollar

13. 1. Goods coming into Canada include raw materials, processed materials, semi-finished goods, and manufactured products that are ready for sale 2. Governments usually try to reduce a high cost trade deficit because it means that money is flowing out of the country and fewer jobs are being provided. Trade surpluses are beneficial to a country’s economy, especially if the surplus is made up primarily of manufactured goods, which means that many workers are employed in the production process

14. 3. Direct exporting means the exporter deals directly with the importer and does not use an intermediary. Indirect exporting means the goods move from the exporter to an intermediary and then go on to the importer. Established companies usually export directly. While many new companies rely on indirect exporting because they don’t have the resources to establish themselves abroad, as more-established companies do

15. 4. To offset the risks of importing, a business should take the time to measure consumer interest; choose foreign suppliers who can provide the right goods at the right price at the right time; make an effort to learn the culture it will be dealing with; give careful thought to the purchase agreement before signing it and make sure to word the agreement so it covers every eventuality; when goods arrive, make sure everything ordered is in good condition

16. 5. Foreign Affairs and International Trade Canadian embassies can help a business locate potential customers. The Asia Pacific Foundation of Canada, Canadian Manufacturers and Exporters, and the Canadian Association of Importers and Exporters may also be helpful 6. The close proximity between the United States and Canada allows for cheaper shipping costs. Also, Canadians and Americans share many of the same interests, so the same products and services will likely appeal to both groups. The U.S. population is approximately 10 times greater than Canada’s allowing Canadian businesses to sell their products and services to a much larger market

17. Trade deficit/ surplus United states Surplus JapanDeficit United Kingdom Deficit Surplus European Union Deficit Other OECD Deficit Other Countries Deficit

18. 2. A) During this six year period, Canada had a trade surplus in its trading with the United States, as exports to the United States were substantially greater than imports into Canada from the United States. The trade surplus increased in some years and decreased in others B) During this six year period, Canada had a trade deficit in its trading with Japan. Imports from Japan were consistently greater than exports to Japan. The trade deficit increased in some years and decreased in others

19.  C) Canada’s trading relationship with the United Kingdom shifted from trade between 2001 and 2004 to trade surpluses in 2005 and 2006. The trade deficit steadily decreased from 2001 until it became a surplus in 2005. the trade surplus grew in 2006  D) During this six year period, Canada had a trade deficit in its trading with countries in the European Union. Imports from the EU have consistently been greater than exports to the EU. During this time, the trade deficit consistently increased from year to year

20. 3. Canada enjoys a trade surplus with the United States and a surplus in its overall trading. Canada faces a trade deficit with most of its other trade partners. However, this deficit is offset by the U.S. trade surplus because of the volume of trading between the two countries is large.

21. 1. Reducing trade barriers allows domestic business to sell the products and services abroad at lower prices since customers duties are not added to the cost of domestic businesses’ exports. If revenues from foreign sales are greater than the costs of shipping and marketing the product abroad, then profits increase and businesses grow. Another advantage is that consumers have access to new products, and domestic producers must improve the quality or reduce the price of their products in order to compete with imported goods

22. 2. A trade agreement usually deals with importing and exporting products. The agreement states which tariff each country will drop or reduce and may include a process for resolving disputes. It also answers questions such as when and why people will be permitted to work across international borders, what qualifications they will need, what standards will be applied to their work, and how businesses’ intellectual property will be protected

23. 3. GATT stands for General Agreement on Tariffs and Trade. It’s a trade agreement that was signed by 23 nations after WWII in order to strengthen trade relationship, and it eventually grew to include 115 member states. An international organization was set up to help GATT member nations negotiate trade deals, resolve problems and collect data about world trade 4. The World Trade Organization was established to replace the earlier GATT administration. It governs 97% of all world trade as it deals with the rules of trade between its 139 member nations

24.  To be able to bid on U.S. government contracts  To clarify rules about government assistance to industry  To allow stable access to U.S. markets  To create a dispute settlement tribunal  To increase exports to the United States  To remove restrictions on U.S. investment in Canada  To clarify rules on intellectual property and service industries  To increase exports to Canada

25. 6. A) 1.Economic growth is up to at least 30% in all three countries since NAFTA 2. Export sales to NAFTA partners from Canada have increased by 104% 3. Exports from Canada to the United States increased by 250% and now account for 87.2% of all Canadian Exports

26. B) 1. The agreement gives the United States and Mexico too much access to Canada’s natural resources, and this may lead to the gradual depletion of these resources 2. Canada’s cultural industries are gradually becoming Americanized 3. Canada and Mexico are perceived to be taking jobs from Americans 4. Canada and the United States are perceived as exploiting Mexico for its low wages 5. Trade agreements give businesses and transnationals power over elected governments, and, in time, these agreements will erode democracy

27. 7. A regional trade agreement involves groups of countries, while a bilateral agreement involves one country and another country or group 8. A trading bloc is a group of countries that share the same trade interests. Guatemala, El Salvador. Honduras and Nicaragua compose a trading bloc in Central America

28. 9. The G8 is an association of the world’s most powerful industrial nations: Britain, France, Germany, Italy, Canada, the United States, Japan, and Russia. Leaders of these countries meet annual summits to deal with major economic and political issues facing their own countries and the broader international community. Topics dealt with include energy, employment, the environment, human rights, and arms control. The summits set new priorities and directions and define new issues for the international community. In this way the G8 provides guidance and support to established international organizations

29. 10.Canada would be able to increase trade with smaller nations in Central America, South America and the Caribbean if the Free Trade Area of the Americas (FTAA) were signed into law. Canada is not a member of the Central America Free Trade Agreement (CAFTA) but supports it because it may lead to more support of the FTAA. The European Free Trade Association (EFTA) makes it easier to import agricultural products from EFTA countries to Canada. The Asia-Pacific Economic Cooperation (APEC) links many countries for tariff-free trade, including Canada

30. ProductTrading countriesRelevant trade agreement T-shirtsCanada and MexicoNAFTA GoldCanada and NorwayEFTA ShoesChina and Unite StatesAPEC ChocolateSwitzerland and IcelandEFTA CoffeeBrazil and MexicoFTAA BooksCanada and United StatesNAFTA ElectronicsJapan and ChinaAPEC RumJamaica and the BahamasFTAA ShrimpEl Salvador and BelizeCAFA and FTAA Aircraft partsUnited States and MexicoNAFTA

31. Company ownershipCountry of manufacture Country of exportWill duty apply? CanadaMexicoUnited StatesNo CanadaChinaMexicoYes Mexico United StatesNo United States CanadaNo United StatesBelgiumCanadaYes JapanChinaUnited StatesYes Canada United StatesNo FranceTaiwanMexicoyes

32. 1. While NAFTA is only a trading bloc, the EU has its own elected government and allows citizens to move freely from country. The EU also has its own official currency, the euro, although not all countries in the EU have adopted it. There is n such currency for NAFTA countries

33. RankFactorExplanation 1Punctuality In north American cultures punctuality is important. In other cultures time is considered to be flowing, flexible, and beyond people’s control. If you find out how important punctuality is in a country you are about to visit, you can set an acceptable pace, impress others with your good manners, and avoid long waits 2Greetings Knowing how to properly shake hands and whether or not to make eye contact are important details because the impression you create first is usually the one that stays with people over time 3 Nonverbal communication Familiar gestures and cultural rules about touching other people vary from country to country. In a business situation, its important to know these rules so as not to be rude or insulting 4Good manners Specific rules and expectations of good manners differ from one culture to the next. Because its hard to predict what people will expect form you, it’s a good idea to do some research about etiquette before you travel to a foreign country 5Decision- making processes In North American business, decision making is typical a top-down process. In some cultures, however, decisions are mad form the bottom-up, meaning that everyone who will be effected by an important decision needs to be consulted. As a result, decisions may sometimes take longer to make

34. 3. Global dependency exists when consumers in one country begin to demand items that are created in other countries. Over time, the products are incorporated into the culture of the people who buy them. A McDonald’s in Moscow is an example of global dependency

35. Across 1. Decision 5. Manners 7. Gesture 10. Respect 11. Nonverbal 12.NAFTA 13. Handshake Down 2. Community 3. Dependency 4. Culture 6. European 8. Punctual 9. Greetings

36. 1. The tariff could cost retail jobs, force up bike prices, and hurt both consumers and the environment 2. The CITT suggested imposing a tariff barrier because Canadian bicycle manufactures were losing out to foreign competition. The barrier was meant to help Canadian bicycle manufacturers compete against foreign -produced bicycles because prices would be more similar with the addition of the tariff

37. Arguments for implementing the tariffArguments against the tariff -Without the tariff, manufacturers might have to close factories and lay off up to 600 workers -Domestic bike manufacturers can’t match the prices of foreign imports -gasoline, smog and traffic congestion are on the rise, and bicycles are part of the solution, so taxing a clean form of transportation is not a good idea -A tariff will drive customers away and cut up to 5000 retail jobs -Bicycle tariffs in Canada are already the highest in the world, with two levels of tariff already in place

38. 1. Domestic transaction 2. Foreign trade 3. Global economy 4. Global products 5. Five Ps 6. Social costs 7. Transnational 8. International Labour Organization (ILO) 9. Sustainable development 10. Environmental degradation 11. Tariffs 12. Non-tariff barrier 13. Landed cost 14. Balance of trade

39. 15. Trade deficit/trade surplus 16. Direct exporting/indirect exporting 17. Trade agreements 18. World Trade Organization 19. NAFTA 20. Bilateral 21. Trading bloc 22. Group of eight (G8) 23. Culture 24. Global dependency