CH5 - The global context of business Flashcards
Globalization def
how trade and technology have made the world into a more connected and interdependent place
What sparked globalization (3)
- governments and businesses became more aware of the benefits of globalization to their countries and shareholders
- technology - communication, travel and commerce has become easier, faster and cheaper (+Internet, social media)
- cost of overseas calls and seaborne shipping costs per ton have both declined sharply over the past several decades
Criticism of globalization
businesses exploit workers in still-industrializing countries and avoid domestic environmental and tax regulations, globalization leads to the loss of cultural heritage and benefits the rich more than the poor
Distinguishing based of wealth (4)
1- High Income countries (Canada, US, most of Europe, etc.)
2- Upper-middle-income countries (China, Colombia, Lebanon, South Africa, etc.)
3- Low-middle-income countries (ex. Ukraine, Philippines, Algeria, Pakistan, Vietnam, etc.)
4- Low-income countries (ex. Malawi, Haiti, Togo, Afghanistan, etc.)
Major World Marketplaces
North America, Europe, Asia Pacific
BRICS
Brazil, Russia, India, China, South Africa (added later on)
- began to to act like a unit, holding unofficial summits and discussing common strategies
- countries have risen in international trade (Brazil - commodities, agriculture, Russia - energy, China - manufacturing, India - service providing)
- not relying on “old world” economies → have their own independent agenda
Forms of Competitive Advantage
Absolute Advantage and Comparative Advantage
Absolute Advantage
when a country can produce something more efficiently than any other country (larger output, fewer input)
Comparative Advantage
when a country can produce one good more efficiently than other goods (has a lower opportunity cost)
National Competitive Advantage (4 conditions)
- theory of national competitive advantage has become a more widely accepted model of why nations engage in international trade
- based on 4 conditions :
1) Factor : factors of production (labour, capital, natural resources etc.)
2) Demand : large domestic consumer base that promotes strong demand for innovative products
3) Related and supporting industries : strong local / regional suppliers or industrial customers
4) Strategies, structures and rivalries : firms that stress cost reduction, product quality, higher productivity, innovation
=> motivate companies to excel
Balance of Trade
Def = (for a country) the difference in value between its total exports and its total imports
- exports > imports = favourable balance of trade = surplus
- exports < imports = unfavourable balance of trade = deficit
Balance of Payments
Def = (for a country) it is the difference between money flowing into the country and money flowing out because of trade and other transactions = a record of all international economic transactions made by a country’s residents, including trade in goods and services, as well as financial capital and financial transfers.
-> Even if a country has a favourable balance of trade, it can still have an unfavourable balance of payments (more money flowing out than in)
How does money flow in / out of a country
Money flowing in - exports + foreign tourist spending + foreign investment + earnings from foreign investments
Money flowing out - imports, Canadian tourist spending overseas, foreign aid grants + military spending abroad + investments made by Canadian firms abroad + earnings of foreigners from investments in Canada
Exchange Rates
Def = rate at which the currency of one nation can be exchanged for another
- value of one country’s currency relative to another varies with market conditions
- value of a currency rises with the demand for that country’s goods
- most significant developments in foreign exchange has been the introduction of the euro (19/27 members of the EU)
What happens when the value of a currency rises/decreases ?
1) value of a currency rises = companies based in the country find it harder to export products to foreign market + easier for foreign companies to enter local markets
- more cost efficient for domestic companies to move production to lower-cost sites in foreign countries
2) value of a currency decreases = opposite happens
- balance of trade improves because domestic companies should experience a boost in exports
- decrease in the incentives for foreign companies to ship products into the domestic market
