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

2. 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

3. 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

4. The Global Market
Canada represents a potential market of only 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

5. 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

6. 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

7. 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

8. 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

9. 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

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

11. 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

12. 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

13. 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

14. 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

15. 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