BBB4M – Grade 12 International Business – Chapter 5 and 6 Test

Chapter 5 – 6 Notes

 

Chapter 5: International Trade Agreements and Organizations

 

Globalization and International Trade

  • Globalization: movement of goods, services, technology, investment, ideas, and people around the world
    • Happened when trade barriers are reduced after WWII
  • Positive aspects of globalization:
    • Outsourcing:
    • Lower Prices
    • Improved human rights
    • Increased productivity
    • Innovation
    • Better jobs
    • Increased capital flow
  • Negative Aspects
    • Lost/fear of lost CDN jobs
    • Loss of CDN productivity
    • Exploitation of cheap labour
    • Increased pollution
    • Unhealthy products
    • Spread of disease
    • Increased income gap
    • Influence of MNCs (Multination corporations) on government
  • Globalization strategies: companies use different strategies with different parts of the world
    • Global Strategy: regards world as one big market with decisions made in headquarters
      • Adv: massive economic scale (produce bulk quantities)
      • Disadv: require rapid syncing of global countries, and little care for individual cultures
      • Ethnocentric: the idea that everyone will want and respond to the product the same way
    • Multidomestic strategy: customizes products and marketing for local culture
      • Decisions made decentralized
      • Adv: better political, product, and responsiveness from local people
      • Polycentric: local management is best strategy for whats best
    • Transnational strategy: combines the best of global and multidomestic
      • Maintains needs of local culture, but still stay cohesive to the global scale
      • Products made cheap centrally, then marketing customizes locally
      • Geocentric: values both local differences and whats best for company
      • Often very difficult to maintain the balance between the 2 however

 

Trade Agreements

  • Trade Agreement: enforceable treaty between 2 or more countries that addresses the movement of goods and services, eliminates trade barriers, terms of trade, and encourage foreign investment
    • Canada’s trade agreements: NAFTA, EFTA, Canada-Chilie FTA, Canada-Israel FTA
  • NAFTA: sets rules surrounding movement of goods, services, investments in N.America
    • Adv: Higher prosperity and efficiency for many companies
      • Higher paying engineering jobs in Canada
      • Free flow of resources makes NA a stronger competitor to Asia markets
      • Trade has tripled for partners (894B) and exchange rate doubled
    • Disadv: Many manufacturing jobs were lost to Mexico
      • Mexico’s corn, beans, milk industry felt lack of tariffs made it hard to compete
      • Mexico increased pollution
      • Factory jobs were often poor in standards
  • FTAA (Free trade Agreement of the Americas)
    • N/S America free trade zone making it the largest in the world
    • Agreement fell through because of Brazil and Venezuela
    • In 2010, Canada still has pending agreements with Morocco, EU, Korea etc.
  • Tax Treaties: created to prevent double taxation and tax evasion for people who pay taxes in Canada and other countries for income
    • Canada has tax treaties with 92+ countries
    • Tax treaties give businesses more predictable and easily to move things across borders
    • Taxation framework makes developing countries more favourable
  • EU: formed to remove many obstacles between movement through small EU countries
    • Has it’s own currency, financial policies, anthem, and flag
    • Belgium, France, GB, Ireland, Luxembourg, Portugal, Denmark, Germany, Greece, Italy, Spain, Netherlands, Cyprus, Estonia, Latvia, Malta, Slovakia, Czech Republic, Hungary, Romania, Bulgaria, Lithuania, Poland, Finland, Sweden, and Slovenia
    • Members must be stable, democratic, and has positive human rights record
    • Purpose: promote peace, economic growth, cooperation, people bonds, and political integration
    • Single market allows borders, goods, and investments to flow a lot easier
    • Collectively the largest GDP, 19.5 Trillion
    • Leaders switch once every 6 months, most votes majority but some unanimous
    • Council of EU > European parliament (laws, budgets) > European Commission (day to day)
  • The Euro
    • Some members do not use Euro, while some do.
    • New members are expected to use Euro, and meet strict policies on inflation, stability, etc.
    • Adv: Decrease exchange rate fluctuations
      • Price transparency for comparisons
      • Eliminate transaction costs
      • Billing Ease
      • Large markets
      • Stability
      • Labour movements (easier to pay)
    • Disadv: Initial costs (implements accounting software, signs, etc.)
      • National control (nations can’t control certain rates)
      • Loss of tradition
    • Canada + Euro
      • EU is CA’s 4th largest Foreign investment & 2nd largest export partner @ $90B trades in 2008
      • Metals, stones, oil, machinery
      • In 2009, agreements were made to start free trade (EFTA)

 

Trade organizations

  • Trade organizations: established to help free flow of goods and services
  • World Trade Organization (WTO): promotes free trade throughout the world
    • Main Purpose: settle trade disputes
    • 153 members and decisions made by consensus
      • Purpose: A forum for negotiation
      • Purpose: Set global rules
      • Purpose: Dispute Settlement
    • WTO also provides protection of intellectual properties
    • Invites government to lower protectionist policies
    • Lower global cost and rise standards of living
    • Criticisms: WTO destabilizes markets, and drains resources from developing countries
      • Ie. Producing beans in USA faster then Madagascar can buy them at lower price
        • Leads to lowering the already low underdeveloped countries
      • Overprotection of IP (intellectual properties) make it hard to use them for generic items (Ie generic AIDS drugs)
      • WTO decisions aren’t clear and definitive. Ie Canada US Softwood lumber import duties disputes in 2006
    • Canada + WTO
      • It’s been vital to Canada’s success as it helps alleviate most of the treaties
  • Asia-Pacific Economic Co-operation (APEC): created in 1994 to unite countries in Asia
    • Main Purpose: Promote trade in Pacific Rim countries
    • 21 members represents 40.5 % of the world’s population
    • Foster free trade among it’s members, increase prosperity and economic growth
    • Trade, investments, business facilitation, economic and technical cooperation
    • Asides from business, APEC also discusses climate change, and security
    • Since APEC, countries have increased trade by 400%
  • The group of eight (G8): comprises of major economies of the world
    • Main Purpose: Discuss Macroeconomic issues
    • GB, Germany, Canada, France, Italy, Japan, USA, Russia
    • Purpose to discuss macroeconomics such as growth, trade freedom, and helping developing countries
    • Also discusses terrorism, technology, arms, and crime/drugs, N.Korea, and nuclear weapons
  • The group of 20 (G20): established in 1990s to discuss major economies of the world
    • Main Purpose: Discuss financial stability and growth of developing countries
    • Build to go beyond the G8 to include India, Brazil, and China
    • To strengthen ties throughout the world, growth, and eliminate trade barriers
    • Also discusses restructuring global financial organizations like IMF and World Bank
  • Canada + G8 and G20
    • There’s been talks to rank Canada lower in the G20 and replace them in the G8
    • Plays a very small role in comparison
  • Organization for Economic Co-operation and Development (OECD)
    • Main Purpose: promote democracy
    • Established for the advancement of democracy and market economies
    • Promote economic growth, expand employment, improve Stand. Of Living,
    • Financial stability, helping countries’ economic development, and enhance world trade
    • Provides publication on topics like sustainable development, world health data, statistics etc.
    • Their report “Economic Survey of Canada” is especially useful to Canadian businesses
  • World Bank: organization of 186 members that provides monetary support for developing countries
    • Main Purpose: Lend money for developing countries
    • International Bank for Reconstruction and Development (IBRD)
      • Works with developing underdeveloped countries
    • International Development Association (IDA)
      • Assists the least prosperous countries
    • Provides loans and grants to poor countries with issues
    • Helps these countries get proper infrastructure
    • Canada and other countries donate to the WB
    • Some say many countries suffered because of the rules it makes for taking loans
      • They take advantage of the countries they loan to, so that when they’re working well, they’ll be advantageous to the countries in the WB
  • The International Monetary Fund (IMF)
    • Main Purpose: Track and analyze economic trends
    • Tracks economic trends, analyzes countries’ financial performances, and warns governments of financial problems
    • 186 member including Canada
    • Purpose to encourage countries to adopt responsible economic policies
    • Lending money to emerging developing countries
    • Provide technical training in banking regulations and policies
    • In 1997 Asian economic crisis, IMF’s suggestion to increase interest rates made the crisis deepen
      • Loans also often come with strict regulations for inflation and other economic constraints
  • Other organizations: Organization of Petroleum Exporting Countries (OPEC), World Economic Forum (WEF), International Chamber of Commerce (ICC), Canadian International Trade Tribunal (CITT)
  • Canada Trade Assistance Organizations: GLOBE Foundation of Canada, The Fraser Institute, C.D Howe Institute, CIGI Center for International Governance Innovation

 

The Role of UN in International Business

  • Purpose: Keep peace throughout the world
    • Develop friendly relations among nations
    • Work to help poor people better lives by eliminating disease, illiteracy, and respect of freedoms
    • Center for helping nations achieve these goals
  • Peace keeping and relief with International Labour Organization, IMF, WHO, and UNICEF
  • Charter of the UN declares UN’s commitment to devote resources to help standards of living, unemployment rate, and economic conditions
  • UN Economic and Financial Committee deals with International trade, sustainable development, globalization and poverty elimination

 

Chapter 6: Social Responsibility and NGOs

 

What is Corporate Social Responsibility

  • Corporate Social Responsibility (CSR): is defined as the duty of a company’s management to work in the best interests of the society it relies on for resources
    • It may take many forms like: Charitable donations, treating employees ethically, Being environmentally conscious, Ensuring safe working environments, sponsoring local teams, creating and promoting diverse workplaces
  • Benefits of CSR
    • CSR as a marketing tool
    • Dissuades governments from implementing regulations that might interfere businesses
    • Attract and retain employees, especially if employees can make a say with practices
    • Nike and Gap traditionally had poor CSR practices
  • Criticisms of CSR
    • Costs money to companies
    • Spending time and employee energy on CSR
    • Often distract customers from problems a company may be creating (Ie Tobacco company with good CSR detracts people from thinking smoking is good)
    • CSR looks good one one side, but does it bad in other countries
  • CSR in a global company
    • Important to stay consistent in CSR strategies worldwide
    • Today’s consumers can easily look up bad practices
    • Companies need to tell employees about CSR practices too through codes of conduct etc. To prevent fraudulent activities or immoral practices
  • Stakeholder Analysis
    • When a company wants to know how it’s doing, it asks stakeholders
      • Primary stakeholders: customers, investors, suppliers, competitors who have direct impact to the organization’s profitability and success
      • Secondary stakeholders: do not directly affect the company’s profit like community, media
      • When doing a stakeholder analysis, they must determine who has the most influence on the decision making process

 

Business Ethics

  • Business Ethics: refers to the set of rules or guidelines that management or individuals follow to make decisions for their company
    • Include laws, company’s code of ethics, and personal values of the decision maker
    • Is this honest? Will this be fair to stakeholders? How will this impact the company’s reputation?
  • Global Ethical Reasoning: Ethical decisions are more complex for global companies
    • Ethical Imperialism: there is a universal truth standard across all cultures
      • If something is wrong in one country, it’s wrong in all countries
    • Cultural Relativism: Different cultures should be respected as one is not seen as better than another
      • For these, different countries will have different ethics or practices
    • The UN has Universal Declaration of Human rights that define minimum human rights

 

Ethical Issues in International Business

  • Environmental Issues: the ability to meet human consumption while maintaing the environment needs to be considered.
    • Natural environment is critical for businesses, it must be respected and sustained
    • Examples
      • 1984 gas leak from Union Carbide Plant in India killed 3000
      • Oil Spills Exxon Valdez in 1989 and BP in 2010
      • Canadian waterways polluted with mercury from coal-burning power plants
      • Ghana, Lake Songor is shrinking because of salt mining, diverting water for irrigation
    • Governments have agreements like Rio Declaration on Environment and Development and Kyoto Protocol agree to limit greenhouse gas emissions and other limits
      • US Canada and China have withdrew from it because it impedes with economic growth
    • Johannesburg World Summit on Sustainable Development seeked to preserve natural resources, and world consumption
      • Unfortunately, US president didn’t attend, making it hard to have decisions
    • In 2009, in efforts to maintain global temperature increase to 2 degrees, 100B were put in to help developing countries reduce emissions
  • Sweatshops: factories of underdeveloped and developing countries where working environments are unsafe and employees treated unfairly
    • Often employs children age 14
    • Paid very little with overtime pay cheated
    • Workers cannot take sick days, breaks, and work 12 hours a day
    • Hot environments and untrained workers make for dangerous work environments
    • Global competitiveness, corporate greed, and consumers expectation of low prices cause sweatshops
    • Companies shouldn’t stop using factories in developing countries, but instead make sure they do it right there and invest money in making more ethical
    • As consumers, we can boycott or buy only certain items from companies to reflect how we feel
  • Corporate corruption: refers to the involvement in illegal activities to further one’s business interests
    • Livent
      • Garth Drabinsky and Myron Gottleib involved in accounting scheme were found guilty in overstating profits, under-representing costs and inflated value of assets
      • Sentenced in 2009 to jail
    • Hollinger Inc. Conrad Black was found guilty of fraud obstruction of justice by US Securities Exchange Commision (SEC) and misappropriated millions of dollars
      • Fined $125,000 and forfeited $6.1M and sentenced to 6.5 years in prison
    • Bernard Madoff: Spent years defrauding investors $50B in Ponzi scheme which pays returns to current investors using new investor’s money rather than profits. Sentenced to 150 years in prison
    • Corporate crimes (white collar crimes) impact the world more than real crimes
      • Gifts and Tips are not considered a bribe, just a low cost symbol of friendship
      • Grease: smaller payments to encourage faster negotiations and speed up business people are bribes
      • Commissions: Large payments made to facilitators or go between business negotiations. Not bribes and happens often (realtors, Best Buy)
      • Bribes: money presented to induce people to do things, are illegal
    • Corruption of Foreign Officials Act makes it illegal to accept a bribe in Canada or globally
  • Dumping: selling products in a foreign country below the cost of production or below the price in home country
    • To get rid of excess production in home country without affecting home country prices
    • Predatory Dumping: reduces price of products an sells them in foreign country to remove competitors
    • Companies speak to CBSA (Canadian Borders Services Agency) or CITT about possible dumping
  • Poverty: Biggest problem on earth, one quarter of population lives in poverty
    • Microcredit: when one family is given a small grant to start businesses (farming, small shop)
      • Lending circles have entrepreneurs make money and repay it, then lending it to someone else

Non-Governmental Organizations: non-profit organizations made with a service and developmental focus

  • NGO focus can be diverse and care about various things.
    • Ie Doctors without Borders, Greenpeace, Amnesty International, World Vision etc.
  • Free the Children: Craig Keilburger’s NGO goes around the world spreading awareness about children in sweatshops and money
    • They also help build schools and infrastructure to get children to success
  • Fairtrade Labelling Organizations International (FLO)
    • Improves trading relationships for producers around the world
    • Helps maintain a fair and honest trade between all members of the supply chain
  • Ten Thousand Villages
    • Retail stores that sell fair trade products in N.America like handicrafts from artisans in underdeveloped countries
  • The International Organization for Standardization (ISO)
    • Largest standards developing organization implementing 17500 standards worldwide
    • ISO helps ensure that all companies are able to produce the same way at the same level of quality and dimensions