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Chapter 2

International business involves cross-border trade and foreign investment activities. It includes exporting, importing, foreign direct investment, and portfolio investment. Companies engage in international business to access new markets and customers, lower costs, diversify risk, and gain competitive advantages. Recent developments have made international business easier by improving communication technologies, reducing trade barriers, and increasing global competition. Canada is an attractive location for international business due to its lower costs, skilled workforce, positive business climate, good infrastructure, and high quality of life. Preparing for international work requires gaining experience abroad or with international companies at home as well as developing intercultural skills.

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12 views

Chapter 2

International business involves cross-border trade and foreign investment activities. It includes exporting, importing, foreign direct investment, and portfolio investment. Companies engage in international business to access new markets and customers, lower costs, diversify risk, and gain competitive advantages. Recent developments have made international business easier by improving communication technologies, reducing trade barriers, and increasing global competition. Canada is an attractive location for international business due to its lower costs, skilled workforce, positive business climate, good infrastructure, and high quality of life. Preparing for international work requires gaining experience abroad or with international companies at home as well as developing intercultural skills.

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Spencer gaming
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Chapter 2: The Importance of International Business

Aspects of International Business

-I.B.: is all the business activities needed by producers to create, ship,


and sell goods and services to consumers; involves international trade,
the importing and exporting of goods and services, licensing the use of
assets in other countries, and foreign investment

-exporting: companies in one country fulfilling the needs and wants of Out
another country be selling products to companies, organizations, or
governments in that country

-importing: companies bringing in products and services to satisfy the IN


needs and wants of their own consumers

-products: can be either goods and services

-goods: consist of raw materials, semi-manufactured goods, or


manufactured goods
-raw materials: natural materials that have NOT been processed,
for example, lumber, fish, minerals
-semi-manufactured goods: goods that have been partially
manufactured, for example automotive parts or electronic
components
-manufactured goods: merchandise, for example toys, clothes

-services: are activities that individuals, groups, organizations, or


companies perform to advise or assist other individuals, groups,
organizations, or companies

Importing
-reasons to import:
-need products that are conveniently/economically
available/obtainable from foreign sources
-specialized products, better quality products
-make sure there is demand for the product
-contacting foreign suppliers
-finalize deal
-check order when it arrives
-know exactly what is allowed to be/can be sold - research,
specifications

Exporting
-find potential buyer, meet their needs, agree on sales terms, provide the
products or services, complete the transaction
-challenges: establish a presence in the country, developing sufficient
production capacity to manufacture, understand local business laws and
customs
-pack and ship according to weight and volume
-faster shipped = more cost
-shipments usually made in containers
-plays a key role in growth and prosperity

Starting an Import or Export Business


-review management commitment, competitive advantage, cash flow,
capacity to produce; strong financial and personnel support needed
-experience with marketing and servicing internationally - create a
business plan - viable plan
-invest time and money; choose market carefully
-gather information and arrange necessary assistance
-understand strengths and competitive advantage (SWOT)
-more markets = more involvement
-more aggressive the expansion plan = greater cash flow
-all sizes of companies can trade internationally

Trade Missions
-Outgoing Trade Missions: visits by selected Canadian firms to a
target foreign market
-Incoming Trade Missions: are visits to Canada by foreign buyers and
investors - source of supply, place to invest, arrange joint venture
-usefulness of trade missions:
-to get in touch with officials of the target countries
-gather information and insights
-Team Canada:
-government sponsored
-led by the prime minister
-includes federal ministers, provincial premiers, territorial gov.’t,
gov.’t agencies, interested Canadian businesses
-Export Development Canada
-Canadian financial institution
-provides trade finance services to Canadian exporters/investors
-200 markets, 130 of which are in developing countries

Trade Shows
-allow a potential purchaser to communicate with suppliers
-provide potential or newly established exporters with an opportunity to
promote their products and services, identify potential sales
opportunities, develop valuable business contacts, and locate local
agents and distributors
-often focus on one industry
-advertised on the Internet, in trade publication advertisements , and
through suppliers
-must declare product samples when brought to trade shows,
documentation, proof, customs, taxes
-GATS (General Agreement on Trade Services): gov.’t to gov.’t
agreement, international rules, legal structure

Exporting Goods and Services


-more companies are involved in importing and exporting goods than in
other types of international business (vs. services)
-Canadian companies import and export a wide range of products
-becoming more active in exporting services
-buying services = paying for knowledge, creativity, or manual work of
the provider
-technology allows Canadian companies to deal with foreign countries
without leaving the Canada
-private and public goods and services are exported
-many businesses sell both goods and services

Foreign Investments
-investments may be in partnership with other international institutions
or companies, public or private
-Public-sector investments: involves putting money in state or
government owned assets Schools, Hospital, power
-Private-sector investments: can be held in a variety public or privately
owned companies or through the creation of new companies of either
type
-two categories of foreign investments:
1. Foreign Direct Investment (FDIs):
-when a company in one country expands into another; setting up a
subsidiary, joint venture, controlling interest of foreign company -
influence management; obtain information, patents; purchase all or part
of a company to ensure source of supply or acquire new technologies
-can invest directly in land or property where permitted, construct
offices, plants, research facilities, infrastructures, projects
2. Portfolio Investment:
-investor buys a share of a foreign company but has no controlling
interest and little operational say; simply want to earn a share of profit
-may buy bonds or shares
-usually less risky than direct investment

Why Do Companies Expand Internationally?


-expanded markets and increased sales
-controlling expenses
-outsourcing: obtaining something by contracting it from another
source
-diversification
-competitiveness

Reasons for Recent Growth in International Business


•due to recent developments in:
-communications technology
-Internet, e-mail, conference calls, videoconferencing, Web sites,
fax, phone
-time zones and standard time have solved worldwide problems
regarding the movement of goods and services and communication
-transportation
-shipping by sea, rail, truck, tractor-trailer, air, pipelines
-freer boarders
-WTO, NAFTA, GATT
-increased business confidence
-less risky, less costly, and less time-consuming
-international institutions - banks, insurers, postal
-feel confident in searching the world for new ideas, products,
manufacturing processes, and intellectual property
-wireless communication is easier, safer, and more secure
-courier companies operate worldwide
-increased global competition
-result is better quality, more inexpensive products, variety
Advantages of Doing Business in Canada
-lower production and business costs
-see figure 2.10, page 59 - International Comparison of Business
Costs
-excellent human resources
-Organization for Economic Cooperation and Development
(OECD) - in Paris, France has stated Canada has the highest
computer literacy rate in the G8 (U.S., Japan, Germany, Britain,
France, Canada, Italy, and Russia - world’s eight most
industrialized countries)
-see figure 2.12, page 61 - Higher Education Achievement
-see figure 2.13, page 61 - Management Education
-a positive business climate
-business climate: a measure of the ease with which companies
can run their businesses - Canada’s rank is fourth
-International Policy Centre has ranked Canada first amongst G8
in terms of ethical business practices
-higher rate of unionization vs. U.S.; use less sick days vs. U.S.
-almost seamless North American markets
-Canada and U.S are the world’s largest trading partners ($)
-proximity
-NAFTA
-good business infrastructure
-the choice of such project priorities (environment, clean air and
water) and the qualities of these infrastructures and services in
Canada make the country very attractive to investors and
businesses; favouring of research and development; education
system; see figure 2.15, page 64, “Global Outlook Country
Forecast - Business Environment Scorings and Rankings
(Canada places in positions 2 and 3)
-quality of life
-1990's - best place to live by the U.N - 7 years in a row
-world reputation as a multinational country that welcomes
immigrants and has a humanitarian policy toward refugees
Preparing for the International Workplace
-getting experience abroad
-getting experience at home
-knowledge and skills
-general traits
-adaptation and coping skills
-inter-cultural communications skills and traits
-overseas work effectiveness skills
-see pages 66 to 70

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