1. Fundamentals of International Business

CHAPTER 1:
What Is Trade?
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

2. Fundamentals of International Business
Key Terms
globalization
interdependence
primary industries
secondary industries
branch plant
tertiary industries
service sector
foreign direct investment
portfolio investment
culture industry
business
transactions
domestic business
international business
domestic market
foreign market
trade
foreign or international trade
trading partner
duty or tariff
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

3. Fundamentals of International Business
Chapter Objectives
By the time you finish this chapter, you should be able to:
Describe key concepts related to international business
Explain how and why Canada’s major international business relationships have evolved over time
Demonstrate an understanding of how globalization has affected international business
Describe ways in which international business activity develops interdependence among nations
Evaluate the benefits and drawbacks of international trade for Canada
Explain how the global market has affected consumer demand
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

4. International Business Defined
The manufacturing and/or sale of goods and/or services to satisfy the wants and needs of consumers to make a profit.
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

5. International Business Defined
Transaction
An exchange of things of value. $
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

6. International Business Defined
Domestic business
A business that makes most of its transactions within the borders of the country in which it is based.
A domestic business in Canada is:
owned by Canadians
relies on Canadian products and services
sells products and services to Canadians
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

7. International Business Defined
The economic system of transactions conducted between businesses located in different countries.
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

8. International Business Defined
Domestic transactions are made between two Canadian companies.
International transactions involve a Canadian company and a non-Canadian company.
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

9. International Business Defined
Domestic market
The customers of a business who live in the country where the business operates.
Foreign market
The customers of a business who live in a different country than the one where the business operates.
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

10. International Business Defined
Five ways for a business to be considered
an international business:
Own a retail or distribution outlet in another country
Own a manufacturing plant in another country
Export to businesses in another country
Import from businesses in another country
Invest in businesses in another country
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

11. International Business Defined
Trading partner
When a business in Canada develops a relationship with a business in another country, that country becomes a trading partner with Canada.
It is important to note that international trade takes place between businesses, not countries.
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

12. History of Canadian Trade
Explorers from France and England landed in what is now Canada in the 1600s
Traded with First Nations people, especially the Ojibwa and the Cree, for fur and food, then sent goods back to Europe
The success of this international business led to the establishment of colonies and outposts in Canada, notably the Hudson’s Bay Company and the North West Company
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

13. History of Canadian Trade
European Trade
Trade grew quickly after permanent settlements were established in Canada in the 1700s
Demand for raw materials (beaver pelts, fish, lumber) grew in Europe, where manufacturing took place
England defeated France in Seven Years’ War, which led to Canada’s reliance on England for finished goods
Many major cities were established near ports to facilitate export of raw materials and import of finished goods
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

14. History of Canadian Trade
Major fur trade routes used to travel between Canada and Europe
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

15. History of Canadian Trade
Trade with the United States
United States declared independence from Britain in late 1700s
Needed to become self-reliant
Invention of steam engine, cotton gin helped rapid growth of American industry
Canada supplied raw materials that were needed in the United States
United States became Canada’s largest trading partner—this remains true today
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

16. History of Canadian Trade
Trade with Asia
Canada began trading with Japan after
World War II
Japan became known for high-quality
electronics and automobiles
China has more recently become a trading
partner
Chinese-made products are inexpensive and well made, and popular with North American retailers
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

17. History of Canadian Trade
Trade with Mexico
Developed since signing NAFTA in 1993
Goods made in Mexico and the United States now enter Canada duty-free
Mexico has become one of Canada’s top five trading partners since 2000
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

18. History of Canadian Trade
Trade with Emerging Markets
The Middle East
Has traditionally centred on oil, but this commodity is not sustainable
Political instability, lack of industrialization in much of the region has limited trade
United Arab Emirates (Dubai), Israel, and Egypt have established trading relationships with Canadian businesses that do not depend on oil
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

19. History of Canadian Trade
Trade with Emerging Markets
India
Population of over one billion people
Workforce generally young and well educated
Has become major centre of outsourcing and manufacturing
Lack of infrastructure and widespread corruption are persistent problems
Indian companies are aggressively expanding into international markets
Used under license from Shutterstock, Inc.
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

20. History of Canadian Trade
© iStockphoto.com
Trade with Emerging Markets
Africa
African imports to Canada are very low
Business opportunities limited by unstable governments, lack of infrastructure, rural economies
Rich in primary resources
Some countries (Morocco, South Africa) are beginning to emerge as major trading partners
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

21. Fundamentals of International Business
Globalization
Globalization
The process whereby national or regional economies and cultures have become integrated through:
New global communication technologies
Foreign direct investment
International trade
Migration
New forms of transportation
Flow of money
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

22. Fundamentals of International Business
Globalization
History of Globalization
Began after World War II with establishment of the United Nations and fostering of trade relations between countries
Economic ties between countries strengthened—tax treaties were negotiated, tariffs abolished, global corporations developed
New technology allows international business to occur in real time, transforming the globe into one market
Has increased interdependence of all nations, blurring political boundaries
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

23. Fundamentals of International Business
Interdependence
Interdependence
The reliance of two or more nations on each other for products or services.
Three main areas of interdependence:
1. Primary industries
2. Secondary industries
3. Tertiary industries
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

24. Fundamentals of International Business
Interdependence
Primary industries
The sector of the economy characterized by the extraction of natural resources from the earth or sea.
Five major primary industries:
agriculture
fishing, hunting, and trapping
forestry and logging
energy
Mining
In Canada, water is sometimes included in this list as well
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

25. Fundamentals of International Business
Interdependence
© iStockphoto.com
Secondary Industries
Industries that create a finished, usable product.
Secondary manufacturing produces capital goods (products used by businesses) and consumer goods (products purchased by individuals).
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

26. Fundamentals of International Business
Interdependence
Branch plant
A factory owned by a company based in another country.
Canada has a branch-plant economy, based on businesses owned by foreign interests
National Policy of 1879, which stated that businesses wanting to reach Canadian consumers needed to build factories in Canada, led to this situation
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

27. Fundamentals of International Business
Interdependence
Example of a company with branch plants in Canada
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

28. Fundamentals of International Business
Interdependence
Tertiary industries (service sector)
Industries that do not make a product or extract resources from the earth, but provide necessary services to consumers and other businesses.
Examples include banking, construction, communications, transportation, and retail sales.
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

29. How International Business Helps Canadians
Variety of products
New markets, more jobs
Foreign investments
New processes and technologies
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

30. How International Business Hurts Canadians
Loss of culture/identity
Increased foreign ownership of companies in Canada
Foreign companies are loyal to investors and executives in home country
Research and development is usually carried out in the home country
Exports are reduced, as products manufactured in branch plants stay in Canada
Revenues leave Canada to pay head office costs
Economic destabilization
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

31. How International Business Hurts Canadians
Products commonly used in Canada are imported from countries around the world.
Chapter 1:
WHAT IS TRADE?
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.