International Business Concepts and Global Trade Dynamics

Posted on Oct 8, 2025 in Economy

Fundamentals of International Business

Core Business Definitions

Business: The manufacture and sale of goods and services (G&S) to satisfy the wants and needs of consumers to make a profit.
Transaction: An exchange of things of value.
Domestic Business: A business making most of its transactions within the country in which it is based.

A domestic business in Canada is typically:

Owned by Canadians.
Relies on Canadian products and services (P&S).
Sells products and services to Canadians.

International Business: The economic system of transactions conducted between businesses located in different countries.
Domestic Transaction: A transaction from Canada (CAN) to Canada (CAN).
International Transaction: A transaction from Canada (CAN) to the USA.
Domestic Market: Customers of a business who live in the country where the business operates.
Foreign Market: Customers of a business who live in a different country than where it operates.

Ways a Business Becomes International

A business is considered an international business if it:

Owns a retail or distribution outlet in another country.
Owns a manufacturing plant in another country.
Exports to businesses in another country.
Imports from businesses in another country.
Invests in businesses in another country.

Trading Partner: When a business in Canada develops a relationship with a business in another country.

History of Canadian International Trade

Early Trade and European Influence (1600s)

Explorers from France and England landed in what is now Canada in the 1600s.
They traded with First Nations people (Ojibwa and Cree) for fur and food, and sent goods back to Europe.
The success of this trade led to the establishment of colonies and outposts in Canada, notably the Hudson’s Bay Company and North West Company.

European Trade Growth (1700s)

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 the Seven Years’ War, which led to Canada’s reliance on England for finished goods.
Many major cities were established near ports to facilitate the export of raw materials and the import of finished goods.

Trade with the United States

The U.S. declared independence from Britain in the late 1700s and needed to become self-reliant.
The invention of the steam engine and the cotton gin helped the growth of American industry.
Canada supplied the U.S. with raw materials, and the U.S. became Canada’s largest trading partner.

Trade with Asia

Canada began trading with Japan after WWII. Japan became known for high-quality electronics and automobiles.
China has more recently become a trading partner. Chinese-made products are inexpensive, well- made, and popular with North American retailers.

Trade with Mexico

Trade developed significantly since the signing of NAFTA in 1993.
Goods made in Mexico and the U.S. now enter Canada duty-free.
Mexico has become one of Canada’s top five trading partners since 2000.

Trade with Emerging Markets

The Middle East

Trade has traditionally centered on oil, but this commodity is not sustainable. The region faces political instability and a lack of industrialization, limiting trade. However, countries like the UAE (Dubai), Israel, and Egypt have established trading relationships with Canadian businesses that do not depend on oil.

India

Population of over one billion people.
Workforce is generally young and well educated.
Has become a major center of outsourcing and manufacturing.
Lack of infrastructure and widespread corruption are problems.
Indian companies are aggressively expanding into international markets.

Africa

African imports to Canada are very low.
Business opportunities are limited by unstable governments, lack of infrastructure, and rural economies.
The continent is rich in primary resources.
Morocco and South Africa are beginning to emerge as major trading partners.

Globalization and Interdependence

Globalization: The process whereby national or regional economies and cultures have become integrated.

This integration occurs through:

New global communication technologies.
Foreign direct investment.
International trade.
Migration.
New forms of transportation.
Flow of money.

History of Globalization

Globalization began after WWII with the establishment of the UN and the fostering of trade relations between countries. Economic ties between countries strengthened:

Tax treaties were negotiated.
Tariffs were abolished.
Global corporations developed.

New technology allows international business to occur in real time, transforming the globe into one market. This has increased the interdependence of all nations, blurring political boundaries.

Interdependence: The reliance of two or more nations on each other for products or services.

The three main areas of interdependence are:

Primary industries.
Secondary industries.
Tertiary industries.

Industry Classifications

Primary Industries: Extraction of natural resources from the earth or sea. Major industries include: agriculture, energy, mining, forestry and logging, fishing, hunting, and trapping.
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).
Tertiary Industries: Provide necessary services to consumers and other businesses. Examples include banking, transportation, and retail sales.

Impact of International Business on Canadians

Benefits for Canadians

International business helps Canadians by providing:

A greater variety of products.
New markets, which create more jobs.
Foreign investments.
New processes and technologies.

Challenges for Canadians

International business can hurt Canadians through:

Loss of cultural identity.
Increased foreign ownership of companies in Canada.
Foreign companies are loyal to investors and executives in their home country.
Economic destabilization.
Revenues leaving Canada to pay head office costs.
Reduced exports, as products manufactured in branch plants often stay within Canada.

Trade Mechanisms and Investment

Reasons Canada Engages in Trade

Reasons that Canada trades include:

Company growth.
Entry into new markets.
Access to financing.
Expanded customer base.
Increased profits.
Low labor costs.
Access to inexpensive supplies.

Foreign Portfolio Investment: Investment in businesses located outside of Canada through stocks, bonds, and financial instruments. This allows Canadians to spread out their investments, which is less risky than investing in just one area, and provides greater choice and opportunity.
Importing: To bring products or services into a country, for use by another business or for resale.
Global Sourcing: The process of a company buying equipment, capital goods, raw materials, or services from around the world.
Exporting: To send goods or services to another country, for use by a business or for resale.
Value Added: The amount of worth that is added to a product at each stage of processing. It is the difference between the cost of the raw materials and the finished goods.

International Business Structures

Licensing Agreement: An agreement that grants permission to a company to use a product, service, brand name, or patent in exchange for a fee or royalty.
Exclusive Distribution Rights: A form of licensing agreement that grants a company the right to be the only distributor of a product in a specific geographical area or country.
Franchise: An agreement granted to an individual or group by a company to use that company’s name, services, products, and marketing. For a fee, the franchisor provides support to the franchisee in areas such as financing, operations, human resources, marketing, advertising, and quality control.
Joint Venture: A common type of international business in which a new company with shared ownership is formed by two businesses, one of which is usually located in the country where the new company is established.
Foreign Subsidiaries: Often referred to as a wholly owned subsidiary, a branch of a company that is run as an independent entity in a country outside of the one in which the parent company is located. The parent company often sets financial targets and allows the subsidiary to manage its own day-to-day operations as long as those targets are being met.

Trade Barriers and Regulations

Tariffs: The most common type of trade barrier; these are taxes or duties put on imported products or services. Tariffs raise the cost of imports so that locally manufactured products are less expensive and more appealing to consumers.
Protectionism: The theory or practice of shielding domestic industries from foreign competition, often through trade barriers such as tariffs.
Trade Quotas: A government-imposed limit on the amount of a product that can be imported in a certain period.
Trade Embargo: A government-imposed ban on trade of a specific product or with a specific country, often declared to pressure foreign governments to change their policies.
Trade Sanctions: Economic action taken by a country to coerce another to conform to an international agreement or norms of conduct.

Foreign Investment Restrictions and Standards

Foreign Investment Restrictions: Canadian law with the greatest impact is the Investment Canada Act, which ensures that all foreign investments are reviewed to determine how they will benefit Canada.
Standards: Countries have different standards for products in areas such as environmental protection, voltage, and health and safety. The ISO (International Organization for Standardization) is a network of standardization groups from over 170 countries established to set quality regulations.

Currency and Exchange Rates

Exchange Rate: The amount of one country’s currency in relation to the currency of another country. The Canadian dollar (CAD) is most often quoted against the U.S. dollar (USD) because the two countries are the largest trading partners in the world.

Impact of a High Canadian Dollar

Winners of a High Canadian Dollar:

Importers.
Major league sports teams in Canada.
Canadian travelers.

Losers of a High Canadian Dollar:

Exporters.
Canadian tourism.
Canadian retailers.

Floating Rate: An exchange rate that is not fixed in relation to other currencies. The price at which currency with a floating rate is bought and sold fluctuates according to supply and demand.
Currency Revaluation: The increase in value of a currency because the demand for that currency is greater than the supply.
Currency Devaluation: The decrease in value of a currency because the supply of that currency is greater than the demand for it.

Factors Affecting the Exchange Rate

The exchange rate is affected by:

Economic Conditions in Canada: Inflation rate, unemployment rate, GDP, and interest rates.
Trading Between Countries: The more favorable the terms of trade (comparison of exports to imports), the higher the currency exchange.
Politics: Political tension and instability or the threat of terrorism decreases the demand for a currency.
Psychological Factors: Historical significance and stability change the way currencies are viewed.

Hard Currencies: Stable currencies such as the Euro and the U.S. and Canadian dollars, which are easily converted to other currencies on the world exchange markets.
Soft Currencies: A currency belonging to a country with an economy that is usually weak or that fluctuates often, and is difficult to convert into other currencies, such as the Russian ruble or the Chinese Yuan.
Currency Speculating: Buying, holding, or selling foreign currency in anticipation of its value changing to profit from fluctuations in the price of currency.

Time Zones and Global Communication

Communication technology allows the world of international business to operate 24 hours a day. Certain methods of communication (e.g., email) can be used at any time; other methods (e.g., telephone) require knowledge of time zones. Some methods offer immediate feedback and interaction; others do not.

Cultural Impact on International Business

Culture: The knowledge, experience, beliefs, values, attitudes, religion, symbols, and possessions acquired by a group of people who have lived in the same region or country for generations. Culture is transmitted from one generation to the next through education and by example.
Subculture: A cultural group within a larger or predominant culture, distinguished from it by factors such as class, ethnic background, and religion, and unified by shared beliefs and interests.
Counterculture: A culture that has values or lifestyles that are in opposition to those of the currently accepted culture. Members of a counterculture openly reject the established cultural values that surround them. Examples include punk, emo, nu metal, and gangsta rap.
Cultural Determinants: The main factors that shape the culture of a specific group. These include religion, politics, topography, climate, and history.

Examples of Cultural Differences

Culture of Saudi Arabia: Revolves around the religion of Islam. People pray five times a day. Friday is a holy day, and the weekend is Thursday to Saturday. Clothing is loose because it is hot; women hide everything except hands, feet, and face. Criminal cases are tried under Sharia (Sunni Islam) courts.
Culture of Japan: Shintoism and Buddhism are the predominant religious beliefs. Society has a hierarchical status structure and a definite sense of etiquette and rules of behavior.

Cultural Awareness and Business Strategy

Canadian firms that want to “go global” must determine the extent and importance of cultural differences between Canada and their target nations. They must decide whether and to what extent products and processes can be adapted to a foreign environment. Some cultural traits can be studied and learned; others only by living in a country and experiencing the culture firsthand.

Factors Influencing Required Cultural Awareness

Extent of Foreign Operations: The level of cultural awareness depends on how much business a company does in a foreign country. Primarily domestic operations that export to only one or two foreign markets do not need to be as conscious of cultural differences as businesses that have manufacturing, retail, and other interests in another country.
Control of Foreign Operations: Companies that have branch plants or distribution outlets in other countries managed by local people do not need to have as much knowledge about cultural differences. If all of a business’s foreign dealings are handled domestically, the required level of cultural awareness is high.
Degree of Cultural Differences: If the culture of the foreign market is similar to Canadian culture, companies do not need to spend much time examining cultural differences. When the language, habits, beliefs, and attitudes of a culture are markedly different from Canada’s, it is important to study the culture of the foreign market.
Number of Foreign Operations: Companies conducting business in several foreign markets must be aware that each country has a distinct culture. The more operations a business has in foreign markets, the greater the need for cultural knowledge.

Direct Impact of Culture on Business

Culture’s role in business can be as important as the influence of tariffs, legal regulations, and competition. Failure to consider that influence could ruin negotiations, derail a marketing campaign, and cause labor unrest.

Culture has a direct impact on products: It is important to consider factors such as climate and religious beliefs when considering entering a foreign market. For example, there is no market for Canadian pork in Israel, as Jewish culture forbids eating this product.
Culture also has a direct impact on services: Canada’s financial service industry has successfully entered foreign markets. As attitudes towards money are often culturally determined, Canadian banks in foreign countries must understand their clients’ culture to meet their savings goals. For example, many Japanese families save for specially made kimonos for their daughters.

Labor and Workplace Values

The Canadian government, influenced by labor unions and cultural values, regulates the labor force. It:

Provides minimum wage mandates.
Mandates workplace safety.
Prevents discrimination.
Legislates holidays and hours of work.

Rationalization: Any attempt to increase a company’s effectiveness or efficiency, including downsizing, cutbacks, layoffs, and relocating corporate functions and activities to countries that have cheaper labor and few to no union problems.

Not all countries share Canada’s values in terms of labor and the workplace. Canadian businesses may encounter differences in the following areas:

Child labor.
Discrimination.
Wages.
Standards and practices.
Indigenous cultures.

Meeting Culture and Time Perception

Every country has a meeting culture that is based on the following factors:

Time Perception: Monochronic or polychronic.
Spatial Perception: Individual comfort levels with personal space and physical contact.
Non-verbal Communication: Eye contact and body language.
Business Etiquette: Appropriate topics of conversation, and whether you should present a gift.

Members of different cultures perceive time in one of two ways: monochronic or polychronic.

Monochronic: Time is seen as linear and sequential, and the focus is on one thing at a time in a logical progression.
Polychronic: Time is seen as involving many things happening simultaneously with the participation of many people. Time is flexible, and schedules are not of primary importance.

Hofstede’s Cultural Dimensions

Cultural dimensions identified by Geert Hofstede:

Power Distance (PDI): How the difference in power between people is perceived.
Uncertainty Avoidance (UAI): How various cultures adapt to change.
Masculinity vs. Femininity (MAS): The degree to which a culture values assertiveness, competitiveness, ambition, and the accumulation of material goods.
Individualism vs. Collectivism (IDV): The extent to which people are expected to make their own decisions regarding their choice of education, job, etc.
Long-Term Orientation (LTO): The degree to which cultures value short- or long-term goals.

Economic and Political Systems

Economic System: The way a country organizes its resources and distributes goods and services to its citizens.

The answers to the following questions define a country’s economic system:

What the country should produce and in what quantities.
How scarce resources such as labor and capital should be allocated.
How goods and services should be distributed throughout the country.
What should be the price of the goods and services.

Market Economy

Market Economy: An economic system determined by free competition, in which businesses, consumers, and government act independently of one another, and market forces and self-interest determine what goods are created and sold.

In a market economy:

Corporations and people are encouraged to own private property.
Profit belongs to business owners, and they can choose how to spend it.
Companies compete in terms of quality, services, price, reputation, and warranties. Consumers have greater selection, and companies have an incentive to innovate.

Centrally Planned Economy

Centrally Planned Economy: An economic system in which the government controls all elements of the economy, including prices, wages, and production.

In a centrally planned economy:

Ownership of property is restricted.
All profit belongs to the government; all workers are employed by the government.
Competition is limited; the government determines price, quality, style, and amount of goods and services.

Mixed Economy

Mixed Economy: An economic system that sits between a market economy and a centrally planned economy, combining government intervention and private enterprise.

In a mixed economy:

Property is owned by individuals, corporations, or governments.
Profit is encouraged, but taxed to support government projects and programs.
There is strong competition amongst corporations; the government may also be a competitor.

Political System: The type of government by which a country is run.

Types of Government

Democracy: A state governed by all eligible members of the population through elected representatives. Characterized by free and fair elections, the rule of law, free speech and press, the right to assembly, and freedom of religion. Politicians may be more concerned with re-election than the good of the country.
Autocracy: A state governed by a single individual or a small group of people with unlimited power. Usually has a strong military presence, strives to control all aspects of citizens’ lives, and citizens have no influence on government.

Economic Development and GDP

Underdeveloped Countries: Also referred to as the least-developed or Third World countries, these nations are characterized by: severe poverty, lack of social services, poor infrastructure, low levels of literacy, limited access to technology, agriculture or resource-based economies, and long-term political issues, such as dictatorships and war.
Developing Countries: Also known as emerging or Second World countries, these nations are in transition from a poor economy to a prosperous one. They are characterized by: improved literacy rates, increased access to health care and other social services, technological advancement, a move away from a resource-based economy to a manufacturing base, and a population moving from rural areas to cities.
Developed Countries: Also known as industrialized or First World countries, these nations are characterized by a high per capita income or strong Gross Domestic Product (GDP). Developed countries are characterized by: a reliance on secondary and predominantly tertiary industries, high standards of living, high literacy rates, and major advancements in health care and technology.

Gross Domestic Product (GDP): The total goods and services produced in one country in one year.

The Business Cycle

Business Cycle: Recurring periods of increased and decreased economic activity, or expansions and contractions. The business cycle is characterized by four stages: Recession, Trough, Expansion, and Peak.

The Four Stages of the Business Cycle

Recession: Defined by two consecutive quarters of decline in GDP. The economy slows down. There is a decline in consumer purchasing, an increase in unemployment, and businesses contract or close.
Trough: Production and unemployment reach their lowest levels. The economy completes the recession and turns towards prosperity.
Expansion: The economy begins to grow again. Employment, wages, production, and profits expand.
Peak: The top of the business cycle. The economy stops expanding and begins contracting.

Economic Indicators

There are three types of economic indicators of the business cycle:

Leading: Adjust before the economy experiences a change and predict where the economy is going.
Lagging: Do not adjust until after the economy has experienced a change. The unemployment rate is an example.
Coincident: Move in conjunction with the business cycle. International trade is an example.

Trade Advantage and Government Influence

Absolute Advantage: The ability of one country to use its resources to make a product or service more efficiently than other countries.
Opportunity Cost: The value of what is foregone, or the cost of giving something up to get something else. For example, the opportunity cost of being in class is the money a student could earn working a job.
Comparative Advantage: The ability to produce a good at a lower opportunity cost than another country. Comparative advantage is the foundation for specialization and trade.

Government’s Role in International Trade

Some of the ways government affects international trade and business include:

Establishing import and export laws.
Setting tariffs.
Maintaining membership in trade organizations and negotiating trade agreements.
Determining monetary policy, including currency exchange rates.
Determining fiscal policy, including taxation laws.
Building infrastructure, such as roads and sewer systems.

The government establishes:

Regulations that businesses must comply with.
Trade offices, government embassies, high commissions, and consulates.
Trade missions.

Corporate Influence on Government

Corporations influence governments in several ways:

Contribute large amounts to political campaigns.
Participate in trade missions with politicians.
Pressure government to change policies that will benefit businesses.

Lobbying: The process through which companies, special interest groups, or individuals attempt to influence government officials and persuade them to endorse public policy favorable to these groups. For example, the NRA is a powerful group in the U.S. that lobbies the government on gun-control issues.

Globalization Strategies

Globalization (Economic Context): The movement of goods, services, technology, investment, ideas, and people throughout the world.

Companies use three major types of globalization strategies:

Global Strategy

Regards the world as one big market—all people want the same product and will respond to marketing in a similar way.
Product and marketing are uniform around the world.
Takes advantage of economies of scale (proportionate savings gained by producing larger quantities).
Does not respond to individual cultures.

Multidomestic Strategy

Customizes products, services, and marketing for the local culture.
Local management is most capable of determining what is best for the local subsidiary.
Effective when cultural differences are prominent.
Involves less political and exchange-rate risk.

Transnational Strategy

Combines the best elements of the global and multi-domestic strategies.
Respects the needs of local markets while maintaining the efficiencies of a global strategy.
Manufacturing takes place at the least expensive source.
Human resources and marketing take place at the local level.

Trade Agreements and Organizations

Trade Agreement: An enforceable treaty between two or more countries that involves the movement of goods and services, elimination of trade barriers, establishment of terms of trade, and encouragement of foreign investment. Agreements may be multilateral (involving three or more parties) or bilateral (involving two countries).

The North American Free Trade Agreement (NAFTA)

Launched in January 1994 between Canada, the USA, and Mexico, NAFTA created the world’s largest free trade area. It sets rules surrounding the movement of goods, services, and investment across North America, eliminates tariffs and other trade barriers, and promotes fair competition.

Advantages of NAFTA

Has helped create higher-paying jobs in education, engineering, and banking sectors in Canada.
Allows freer flow of goods and services across North America, providing better access to raw materials, talent, capital, and technology.
Trade has tripled between the three members since NAFTA’s inception.

Disadvantages of NAFTA

Manufacturing jobs have been lost to Mexico, where labor costs are lower.
Without tariffs, many Mexican farmers could not compete and lost their livelihoods.
Canadian companies were sold to foreign investors.

Tax Treaties: A tax treaty is created to prevent double taxation and tax evasion for people who would pay taxes in Canada and another country. The treaty determines how much tax each country can collect.

The European Union (EU)

The EU is a trade agreement signed in 1993 that now encompasses 27 countries in Europe and a population of almost half a billion people. It has its own flag, anthem, and currency, and common financial, security, and foreign policies.

The Euro: The European currency unit adopted by the European Union and used in most EU countries.

Advantages of a Common Currency (Euro)

Decreased risk of exchange-rate fluctuations.
Price transparency.
Elimination of transaction costs.
Increased markets.

Disadvantages of a Common Currency (Euro)

Initial costs of implementation.
Lack of national control over monetary policy.
Loss of tradition.

Trade Organization: Groups established to help with the free flow of goods and services. They may be global in scope or national organizations created by individual governments to help domestic companies expand into international markets.

Major Global Trade Organizations

World Trade Organization (WTO): An international organization established in 1995 (now with over 150 member countries) that promotes trade liberalization throughout the world.

The main purposes of the WTO are:

To act as a forum for negotiations.
To provide a set of rules that have been negotiated and signed by the governments of member countries.
To offer a forum for dispute settlement.

Asia–Pacific Economic Co-operation (APEC): A trade organization created in 1989 that unites 21 of the countries surrounding the Pacific Ocean to cooperate on regional trade. Its goals are to foster open and free trade among its members, increase prosperity and economic growth, and develop the Asia-Pacific community.

Economic Forums

The Group of Eight (G8): A trade organization encompassing the major economies of the world, which meet to discuss macroeconomic issues such as economic growth, trade liberalization, and helping developing countries.

Member countries are: Germany, Japan, Russia, France, USA, Canada, Great Britain, and Italy.

The Group of Twenty (G20): A trade organization established during the economic crisis of the 1990s to provide a discussion forum for the major economies of the world beyond the G8.

The G20 focuses on:

Economic and employment growth.
Elimination of trade barriers.
Reforming financial institutions and regulations.
Restricting global financial organizations.

Canada’s Place in the G8 and G20

Canada’s GDP and population are low compared to other G8 and G20 countries. Talk of replacing Canada in the G8, and placing it as a second-tier country in the G20, would be detrimental to Canada, as its needs, concerns, and interests would not be given the same consideration as in the past.

Organization for Economic Co-operation and Development (OECD): A trade organization with 30 member countries, established in 1961 to promote the advancement of democracy and market economies. OECD members have worked together to eliminate bribery, money laundering, and fraud, and to create a code of conduct for multinational companies.

Financial Institutions

The World Bank: An organization with 186 member countries that provides monetary and technical support for developing countries. It provides loans and grants to assist with education, health, infrastructure, farming, environmental issues, resource management, and other economic concerns.
International Monetary Fund (IMF): An organization whose purpose is to promote financial stability, prevent and solve economic crises, encourage growth, and alleviate poverty.

The IMF achieves this by:

Encouraging countries to adopt responsible economic policies.
Lending money to emerging and developing countries.
Providing technical training in areas such as banking, regulations, and exchange rate policies.

The United Nations (UN)

The UN has four main purposes:

To keep peace throughout the world.
To develop friendly relations among nations.
To work together to help poor people live better lives, to conquer hunger, disease, and illiteracy, and to encourage respect for each other’s rights and freedoms.
To be a center for helping nations to achieve these goals.

The Role of the UN in International Business:

The UN is responsible for organizations that influence international business, including the International Labour Organization (ILO), the International Monetary Fund (IMF), and the World Bank.
The UN devotes resources to improving the standard of living, the unemployment rate, and economic conditions throughout the world.
The UN Economic and Financial Committee deals with issues such as international trade, globalization, and poverty elimination.

Business Ethics and Social Responsibility

Corporate Social Responsibility (CSR): The duty of a company’s management to work in the best interests of the society it relies on for its resources (human, material, and environmental), to advance the welfare of society, and to act as a good global citizen through its policies.

Corporate social responsibility can take many forms, including:

Making charitable donations.
Treating employees ethically.
Being environmentally conscious.
Ensuring safe working environments.
Sponsoring local sports teams.
Creating and promoting diverse workplaces.

CSR Benefits and Criticisms

Benefits of CSR:

Can be used as a marketing tool.
Dissuades governments from implementing regulations that could interfere with business.
Helps companies attract and retain excellent employees.

Criticisms of CSR:

Costs money and detracts from profits.
Uses employees’ time and energy.
Can distract customers from problems a company creates.
A company may act ethically in one country, but not in another.

Stakeholder Analysis: Used to determine which groups’ interests are most important when a company is faced with an ethical dilemma. Primary stakeholders directly affect the company and its profitability; secondary stakeholders have an impact on the company but do not directly influence its success or contribute to profitability.
Business Ethics: A set of rules or guidelines that management or individuals follow when making decisions facing their company.

The guidelines used when making decisions include:

Domestic and international laws.
The company’s code of ethics and corporate governance.
The personal values of the individual making the decision.

Ethical Frameworks in a Global Context

There are two methods of thinking about ethical issues in a global context:

Ethical Imperialism: A view of culture based on the idea that there are certain universal truths or values that are standard across all cultures; if something is wrong in one country, it is wrong in all countries.
Cultural Relativism: A view of culture based on the idea that a culture’s different values should be respected, as the ethics of one culture are not better than those of another.

Ethical Imperialism Characteristics:

One set of values for all cultures.
Right and wrong are the same in all cultures.
A person’s ethics are not situational.

Cultural Relativism Characteristics:

Values are dependent on the culture.
Right and wrong depend on local values.
When in Rome, do as the Romans do.

Key Ethical Issues in International Business

Ethical issues in international business arise in the following areas: environmental issues, corporate corruption, sweatshops, dumping, and poverty.

Sustainable Development: Is the ability to meet human consumption while maintaining the environment. This is a critical issue for businesses. Many companies have been responsible for pollution and resource depletion; companies and governments often resist environmental plans that will impede economic growth.
Sweatshops: Factories in underdeveloped and developing countries in which employees work in unsafe environments, are treated unfairly, and have no chance to address those conditions.

Why do sweatshops exist?

Global competitiveness.
Corporate greed.
Consumer expectations of low prices.

Corporate Corruption: The involvement in illegal activities such as bribery and fraud, to further one’s business interests.
Dumping: Selling products in a foreign country below the cost of production or below the price in the home country.
Predatory Dumping: An anti-competitive business practice in which foreign companies price their products below market value to increase sales and force domestic competition out of business, then raise their prices.
Poverty: Over one quarter of the world’s population lives in intense poverty—accompanied by hunger, lack of shelter, medical care, limited access to education, and high rates of disease.
Microcredit: The granting of very small loans to spur entrepreneurship—is one way that poverty is being addressed. Microcredit loans are mainly granted to women, who use the loans to start small businesses and their earnings to support their families.
Non-Governmental Organizations (NGOs): Non-profit organizations with a service and development focus that are composed mostly of volunteers and are predominantly funded through charitable contributions. NGOs may center on trade education, youth, improving the environment, human rights, or other issues.

Competitive Advantage and Market Strategy

Typical Competitive Advantages

Lower Production Costs: According to the theory of economies of scale, the more products you can make in one factory, using the same labor and sharing overhead costs, the cheaper each individual unit is to make.
Lower Distribution Costs: Companies with factories in their target market have lower costs.
Product Differentiation: Differences in flavor, quality, packaging, scent, etc.
Brand Equity: The number of consumers that can identify the brand.

Canadian businesses must stock goods from around the world to compete with online retailers. Retailers must guarantee a unique selection of products by visiting international trade shows or accessing online distributors. The increase in foreign ownership of Canadian manufacturers means it is more difficult to buy Canadian-made goods. Canadian businesses must remind shoppers that they sell and produce Canadian goods.

International Marketing: The 4 Ps

Marketing: The sum total of all the activities involved in getting goods and services from the original producer to the ultimate consumer.

These activities include:

Market research.
Product development.
Pricing.
Advertising and promotion.
Sales.
Logistics.

Marketing Activities Defined

Market Research: Finds or collects data to help solve marketing problems. Secondary data is collected by someone other than the user (e.g., censuses and surveys). Primary data is observed or collected by a business and relates specifically to its needs or problems.
Product Development: Most companies use market research to help develop new products, taking consumer reaction into account. Market research is a major part of product development, as companies don’t want to risk the high costs involved without some assurance that they will be successful.
Pricing: The price of a product must consider the amount of labor, the cost of materials, and overhead (such as electricity). Items that are sold in stores are marked up, as the retailer needs to make money on the items it sells.
Advertising and Promotion: Are needed to convince the customer to buy the product. Businesses must identify the best way to reach their target market, taking into consideration the cost of different methods. For example, an Internet ad or brochure is much less expensive than a magazine ad or television commercial.
Sales: Businesses must determine the best way to sell their product. Sales methods or venues may include: selling products to retailers, opening their own retail store, or selling online.
Logistics: Logistics consist of the flow of goods and services both into and out of an organization. It consists of transportation, inventory management, warehousing and storage, and packaging.

The 4 Ps of International Marketing

1. Product

Canadian products sold outside of Canada must usually be modified to adapt to the culture, language, or laws of the foreign market. These modifications usually occur in the following areas:

Packaging: Weights, colors, and legal labeling and language requirements.
Ingredients.
Style.

2. Place (Distribution and Entry)

Centralized Strategy: A marketing strategy in which all of a company’s manufacturing and marketing is performed in one location.
Decentralized Strategy: A marketing strategy in which a company sets up a manufacturing plant in another nation, or hires a sales force there, or even licenses its brand to a local manufacturer, rather than performing all manufacturing and marketing in one location.
E-commerce: The use of the Internet by businesses to sell products and services to customers in a much larger area than could be reached through a traditional retail location. Using e-distribution, any business anywhere in the world can be an international business.
Sales Agent: An individual hired and paid a commission by a company to market its product to potential buyers and distributors, often in a foreign country.
Trade Show: A collection of manufacturers and distributors of similar products who rent space, set up display booths, and sell to registered buyers seeking products for their retail businesses.
Branch Plants: Building and staffing a branch plant is the most expensive market entry strategy but could be the most effective. The three major advantages to owning a branch plant in a foreign country are: shipping costs are lower, import regulations and tariffs are not an issue, and product modifications are easier.
Licensing Agreement: A contract giving someone the right to use a patent or trademark. Manufacturers pay the owner of the trademark a fee, usually a royalty, which is a percentage of the sale of the licensed product.

Three types of licensing agreements:

Manufacturing Agreements: The rights to manufacture a product.
Distribution Agreements: The rights to sell a product.
Franchising Agreements: Grants the ownership of a manufacturing or distribution company to a local franchisee.

Acquisitions: The most effective way for a company to deal with competition in a foreign or domestic market is to buy the company it competes with, then close it or use its marketing connections to expand its market.

3. Price

Companies that use a centralized market entry strategy find that they must increase the price of their product when selling in foreign markets. Sometimes the price of their product increases to the point that it is no longer competitive. These increases in price arise because of added expenses in the following areas:

Labor Costs: Labor in foreign countries is often much cheaper than in Canada.
Shipping Costs: The cost to ship goods long distances must be factored into their price.
Duties and Tariffs: Some countries charge a tax on imports to protect local industries.
Legal Costs: Modifications to conform to standards in a foreign market can be expensive.

4. Promotion

There are three ways to promote and advertise products when selling in a foreign market:

Use Existing Ads: Saves money, but markets must be similar.
Translate Ads: Replicating an ad campaign in another language is difficult.
Create New Ads: Expensive, but the internet has made customizing promotions much easier.

Demand and Competition (The 2 Cs)

After a company has decided on its product, price, place, and promotion, it must ensure that there is enough demand for its product. Demand involves two factors (often referred to as the 2 Cs of international marketing): consumers and competition.

1. Consumers

A business must determine its target market. This is the segment of the consumer market to which a particular good is targeted. Target markets are typically defined by demographic information, which is statistical data about various aspects (age, gender, etc.) of the population.

Canadian businesses wanting to sell abroad must avoid ethnocentrism, the belief that your own culture, values, beliefs, and customs represent the right way of doing things, and that other value systems are not important.

Ways to Avoid Ethnocentric Thinking:

Visit the country you want to include in your marketing plan.
Read country profiles.
Offer your product on the Internet.

Discretionary Income: Is the money remaining from an individual’s salary or wages after all essential living expenses, including rent and groceries, have been paid.

2. Competition

Similar products that already exist in a foreign market are a major marketing problem. There are two types of competition:

Direct Competition: Businesses that provide products or services that are almost identical to those offered by the company are direct competitors.
Indirect Competition: Consumers in every country have a certain amount of discretionary income and regular spending habits. Any product that vies for consumers’ spending money is competition.

Competitive Advantage (Marketing): In marketing, the ability of the company to produce a product more cheaply than another company.