Chapter Review
Key Takeaways
- Globalization is the process of increasing economic and social integration between countries, and the increased flow of goods, services, and people across borders.
- A country has an absolute advantage if (1) it’s the only source of a particular product, or (2) it can make more of a product using fewer resources than other countries.
- A comparative advantage exists when a country can produce a product at a lower opportunity cost compared to another nation.
- An opportunity cost indicates what must be given up to obtain something that is desired.
- A country’s balance of trade is calculated by subtracting the value of its imports from the value of its exports. If a country sells more products than it buys, it has a favourable balance, called a trade surplus. If it buys more than it sells, it has an unfavourable balance, or a trade deficit.
- A nation’s deficit is when a government spends more money than it receives in revenue over a period of time.
- Balance of payments is the difference, over a period of time, between the total flow of money coming into a country and the total flow of money going out.
- Importing is buying products overseas and reselling them in one’s own country.
- Exporting is selling products to another country.
- An international licensing agreement allows a foreign company (the licensee) to sell the products of a producer (the licensor) or to use its intellectual property (such as patents, trademarks, copyrights) in exchange for what is known as royalty fees.
- Under an international franchise agreement, a company (the franchiser) grants a foreign company (the franchisee) the right to use its brand name and to sell its products or services. The franchisee is responsible for all operations but agrees to operate according to a business model established by the franchiser. The franchisee pays royalties to the franchiser. In turn, the franchiser usually provides advertising, training, and new-product assistance.
- Because of high domestic labour costs, many U.S. companies manufacture their products in countries where labour costs are lower. This arrangement is called international contract manufacturing, a form of outsourcing.
- A strategic alliance is an agreement between two companies (or a company and a nation) to pool resources in order to achieve business goals that benefit both partners. A strategic alliance and a joint venture are both collaborative business arrangements between companies, but they differ in structure, commitment, and goals.
- Foreign direct investment (FDI) refers to the formal establishment of business operations on foreign soil—the building of factories, sales offices, and distribution networks to serve local markets in a nation other than the company’s home country
- A company that operates in many countries is called a multinational corporation (MNC).
- Economic development refers to the process through which a region, country, or community improves the well-being of its citizens by increasing income, reducing poverty, creating jobs, and expanding access to healthcare and education.
- Culture is a system of collective programming (values and norms) shared by a group of people, which, when taken together, determines a society’s way of living.
- Values are shared ideas of what a group considers good or bad, right or wrong. Individuals get values from groups in which they are members.
- Norms are social rules and guidelines that define appropriate behaviour in a specific situation.
- The cultural environment is the set of factors that shape the way people interact with each other and their physical and social environment.
- Geert Hofstede divides cultural differences across countries into six dimensions: power-distance index, collectivism vs. individualism, uncertainty avoidance index, femininity vs. masculinity, short-term vs. long-term orientation, and restraint vs. indulgence. Hofstede’s cultural dimensions are used in multiple areas, including business dealings and communication.
- High-context and low-context cultures refer to different approaches to communication. High-context cultures rely on implicit messages, body language, and context. High-context cultures are often found in Asia, the Middle East, and Latin America. Low-context cultures prioritize explicit verbal communication and clarity. Low-context cultures are typically associated with Western countries like the United States and Germany.
- Transparency International annually rates nations according to “perceived corruption” and defines corruption as “the abuse of entrusted power for private gain.” A score of 100 would be perfect (corruption-free), and anything below 30 establishes that corruption is rampant.
- Trade controls are policies that restrict free trade, and governments continue to control trade.
- Tariffs are taxes on imports.
- A quota imposes limits on the quantity of a good that can be imported over a period of time.
- An extreme form of quota is the embargo, which, for economic or political reasons, bans the import or export of certain goods to or from a specific country.
- Dumping is the practice of selling exported goods below the price that producers would normally charge in their home markets (and often below the cost of producing the goods).
- The World Trade Organization (WTO) encourages global commerce and lower trade barriers, enforces international rules of trade, and provides a forum for resolving disputes.
- CUSMA is a free trade agreement between Canada, the United States, and Mexico, which replaced the NAFTA free trade agreement.
- Today, the European Union (EU) is a unique economic and political union between 27 countries that have eliminated trade barriers among themselves
End-of-Chapter Exercises
- Japan’s Value of Money. Use the Internet to research how expensive things are to buy in Japan. Why has Japan become one of the cheapest countries in the developed world (compared to the 1980s when Japan was very expensive)? Compare costs in Japan to costs in Canada. Share your findings with your class and/or professor.
- Cultural Intelligence. What’s your cultural intelligence? Take this Cultural Intelligence Quiz to find out. When doing global business, interacting with various cultures, it is a good idea to learn a bit about the cultures and people you will be interacting with.
- Foreign Market. Imagine you own a furniture store in Canada that specializes in handcrafted dining room tables and chairs. You would like to sell your product to countries in Western Europe. What would be a good mode of entering the foreign market for your company? Use the Internet to research the possibilities. Discuss with the class and/or professor.
- Developing Nations. Countries like Canada and the U.S. have high standards of living and are referred to as industrialized nations. Countries with a lower standard of living are called developing nations (or sometimes underdeveloped or less developed countries). What factors prevent developing nations from becoming industrialized nations? Discuss with the class and/or professor.
- Intellectual Property. With the growth of online businesses comes new legal challenges where intellectual property is concerned. Patents, brand names, copyrights, and trademarks are difficult to monitor because of the boundaryless nature of the Internet. What steps could a business take to protect its trademarks and brands in this environment? List at least five suggestions and compare your list with those of your classmates.
- Global 500. Use the most recent edition of the Fortune Global 500 list. What is the Global 500 ranking based on? List the home countries of the world’s 10 largest corporations. Discuss with the class and/or your professor.
- International Company. Visit the website of a major global company such as Coca-Cola (or another as assigned by your professor) and enter some of its international sites. Choose countries from various parts of the world. What are some of the differences and similarities you can identify on the websites? Share your findings with the class and/or professor.
- The World Bank. The World Bank uses per-capita income to make distinctions among countries. Research and identify at least three countries in the following categories for last year: high-income countries, upper-middle-income countries, lower-middle-income countries, and lower-income countries. In addition, identify the source of the data that you used to draw these conclusions. Share your findings with the class and/or professor.
- Foreign Investment. What attributes of your province or region (cultural, geographical, economic, etc.) would be of interest to a foreign firm thinking about locating there? Visit provincial government sites and locate resources that are available for businesses to help them invest in your province (region). Identify a company that has recently invested in your area. What reasons did the company provide for its decision? Share your findings with the class and/or professor.
- CUSMA. What does the CUSMA agreement entail? Which countries are involved? What other trade agreements exist that involve Canada? Share your findings with the class and/or professor.
- Strategic Alliance. Use the Internet to search for a recent joint venture or strategic alliance between two or more companies. Summarize why the alliance came about and what the final results were. Share your findings with your class and/or professor.
- Failed Adaptations. Use the Internet to search for an example of a company that attempted to adapt its product to a foreign market only to fail. Summarize what happened and share your findings with the class and/or professor.
- Corruption. Visit Transparency International’s Corruption Perception Index for last year and determine which country is most corrupt among Canada, the U.S., and Australia (or other countries as assigned by your professor). Review how these countries were ranked and determine the similarities and differences between them. Summarize your findings and share them with the class and/or professor.
- Trading Blocs. Use the Internet to research the differences between the CUSMA and the European Union agreements. Share your findings with the class and/or professor.
- Canada’s Free Trade. Use the Internet to research which free trade agreements Canada is a member of. Choose one not explained in the chapter, explain which countries are members, and provide a few details about the agreement itself. Share your findings with the class and/or professor.
Self-Check Exercise: Global Business Quiz
Check your understanding of this chapter’s concepts by completing this short self-check quiz.
Concept Review: International Business (Dialogue Cards)
Review this chapter’s concepts by going through their definitions.
Additional Resources
- Trading Economics: Canada’s Exports by Category
- Trading Economics: Canada’s Exports: Summary
- International Trade Statistics
- Statistics Canada: Canadian International Merchandise Trade: Annual Review 2023
- Trading Economics: Canada, World Bank Development Indicators
- International Monetary Fund
- WTO Explained. YouTube Video.
- USMCA Agreement. YouTube Video.
- Your 6-Step Guide to Starting and Import Export Business. YouTube Video.
- What is Globalization? Understand Our Interconnected World. YouTube Video.
- HSBC Funny Culture Ads (Subway, Bart, Golf), YouTube Video.
Attributions
This chapter compiles content from various Open Educational Resources (OER). For details, please refer to the Attributions page.
