3 Explain the role of Canadian businesses and diverse consumers in a global economy.
3.1 Define Factors in the International Trade Environment That Influence Business
Global Trade: Opportunities and Challenges
In today’s interconnected world, advances in internet technology, online finance, transportation, and communication have made it as easy to do business globally as it is locally. As a result, international trade has become a crucial topic for business students.
But why is global trade so important? Can Canadian businesses compete on the world stage? These are some of the key questions we will explore in this learning outcome.
The Complexities and Benefits of International Business
Business is already a multifaceted endeavor, and when taken to an international level, both the challenges and rewards multiply. Global trade introduces new regulations, terminology, and unforeseen hurdles—but it also presents incredible opportunities.
Consider Spotify, a massive corporation that has expanded globally. However, international trade isn’t just for large companies—small businesses can also thrive in the global market.
How Global Trade Helps Small Businesses: The Rise of Micro-Multinationals
Many small businesses have turned to international markets to stay competitive, especially in times of economic downturn. This concept is known as Micro-Multinationals, where small firms leverage global trade to expand beyond their local customer base.
Key factors driving this trend:
When local demand weakens or retail costs become unsustainable, exporting can help businesses stay profitable.
The global population is approaching 8 billion, creating vast opportunities for trade.
Canada, with a population of only 37 million, is sparsely populated over a vast landmass (~10 million km²).
In contrast, India has nearly 1.4 billion people within a landmass about a third the size of Canada.
Densely populated or wealthy markets provide immense potential for businesses looking to export.
This shift is no longer exclusive to large corporations, as e-commerce platforms have opened new doors for small businesses.
📺 Video: How Global Trade Saves Small Businesses
The Role of E-Commerce in Global Expansion
E-commerce platforms like eBay, Etsy, Amazon, and AliBaba enable small businesses to reach international customers through established global marketing channels. These platforms:
Help bridge language barriers and regulatory challenges
Provide guaranteed payment tools
Offer streamlined logistics to simplify international sales
The Impact of COVID-19 on Globalization
The COVID-19 pandemic accelerated the need for global trade while also increasing its complexity. Supply chain disruptions became a major challenge, forcing businesses to rethink how and where they source materials and manufacture products.
Outsourcing and Trade: Why Businesses Look Abroad
Businesses seek to maximize profit while minimizing costs. Sometimes, outsourcing production to another country makes economic sense due to lower manufacturing costs. Similarly, sourcing raw materials internationally can be essential when local supplies are insufficient or more expensive.
📺 Video: How Outsourcing Shapes Global Trade
Key Economic Theories: Absolute vs. Comparative Advantage
Absolute Advantage
A country has an absolute advantage if it is the most efficient producer of a good—meaning it can produce more of that good using the same resources compared to other countries.
In 1776, Adam Smith championed the free-enterprise system, arguing that international trade benefits all nations by allowing specialization. This was the foundation for modern trade theory.
Comparative Advantage
In the early 1800s, David Ricardo expanded on Smith’s theory, introducing comparative advantage—the idea that even if a country is better at producing everything, it should specialize in the goods it produces at the lowest opportunity cost.
This principle ensures that global production is optimized, reducing resource waste while maximizing output.
📺 Video: Understanding Comparative Advantage
A Simple Example of Comparative Advantage
Imagine two countries:
Country A can produce both apples and oranges efficiently.
Country O can produce both, but excels in oranges due to its climate.
Now, consider:
Country A sacrifices 3 bushels of apples to produce 1 bushel of oranges.
Country O sacrifices only 2 bushels of apples for 1 bushel of oranges.
Best strategy?
Country A specializes in apples and imports oranges from Country O.
Country O specializes in oranges and imports apples from Country A.
This arrangement maximizes efficiency and allows both countries to enjoy more apples and oranges overall.
Trade Deficits & Surpluses: Where Does Canada Stand?
A trade deficit occurs when a country imports more than it exports.
A trade surplus happens when exports exceed imports.
Canada has historically been an exporting economy, but in recent years, imports have grown significantly.
📊 Research Activity: Explore Canada’s trading partners, imports, and exports using this real-time database: Canada Trade Profile
3.2 Explain the importance of diversity in a global business world.
Embracing Workforce Diversity: A Business Imperative
Watch this short video from Apple, one of the world’s leaders in workplace inclusion and diversity. As the video states, “Humanity isn’t singular. It is plural.”
With the rapid growth of global trade, businesses must reflect the diversity of their customer base within their workforce. In today’s business world, diversity is no longer just an option—it’s a necessity.
As future business owners, leaders, and managers, embracing workforce diversity is imperative. For some, this may be a learning curve due to limited exposure, but we must get there. It’s not just about profitability—it’s about ethics, fairness, and sustainable success.
Understanding Diversity in the Workplace
Diversity extends beyond what many initially consider. The Apple video you watched earlier highlights several dimensions of diversity, including:
Culture
Race and ethnicity
Religion
Gender
Physical abilities
Sexual orientation
Age groups
Educational backgrounds and work experience
Political beliefs
Family situations
Physical location
Economic status
Each of these factors shapes how people view and solve problems. A diverse workforce fosters innovation, creativity, and adaptability by bringing together unique perspectives.
“As workforce demographics shift and global markets emerge, workplace diversity inches closer to becoming a business necessity instead of a banner that companies wave to show their commitment to embracing differences and change.” — Mayhew (2019)
The Business Case for Diversity
There are countless benefits to actively fostering a diverse workforce. Watch this short video from Australia on why diversity matters, particularly for small and medium businesses: Watch the video.
As you watch, note the following key benefits:
Diverse backgrounds often generate innovative business ideas that lead to job creation.
Workforce diversity strengthens connections with diverse customers, driving global sales.
The business world has evolved from relying on physical strength to mental agility—and the future belongs to empathy, inclusion, and social impact.
Diverse teams foster synergy—where the whole is greater than the sum of its parts. In today’s business world, teamwork is crucial.
Additionally, consider these factors:
Enhanced reputation: Stakeholders value businesses committed to diversity and inclusion.
Improved profitability: Diversity drives productivity, leading to greater financial success.
Overcoming Challenges in Workplace Diversity
While diversity brings immense benefits, it also presents challenges. Read this insightful article from the Fraser Dove Institute on the Top Challenges of Diversity in the Workplace: Read the article.
As you review, consider the following common challenges and their solutions:
Communication barriers – Encourage bilingualism and the use of a common language. Ask for clarification when needed.
Conflicting opinions – Ensure everyone is heard and facilitate consensus-building.
Fear of the unknown (hostility) – Foster genuine connections among employees.
Lack of leadership support – Leaders must model inclusive behaviors.
Concerns about hiring quotas – Hire based on skills and qualifications, not to meet a quota.
How to Build an Inclusive Workplace
Entire books and courses exist on fostering workplace diversity, but here are a few actionable strategies inspired by Indeed.com:
1. Start with Your Hiring Practices
Assess your current workforce diversity to identify areas for improvement.
Train HR teams in cultural awareness, inclusive hiring, and sensitivity.
Align employee benefits with diversity needs.
Establish clear diversity policies (e.g., review SaskPolytech’s Diversity and Inclusion Strategy Map).
2. Foster an Inclusive Workplace Culture
Regularly survey employees to ensure open communication.
Adapt workplace traditions to accommodate diverse preferences.
Embrace flexibility in team activities and engagement strategies.
3. Implement Diversity Mentorship Programs
Ensure that no employee feels isolated due to their differences.
Provide mentorship opportunities to support career growth.
Remember: promotions should be based on merit and what diversity brings to the table, not diversity itself.
Want to see diversity done right? Check out Canada’s Top Diversity Employers: See the list.
Final Thought: Diversity Drives Growth
The Apple video emphasized that stepping out of our comfort zone is necessary for growth—in life and business. Diversity challenges us, but it also strengthens us. By embracing an inclusive workforce, you’re not just making a smart business decision—you’re doing the right thing.
3.3 Interpret barriers to international trade.
Understanding International Trade Barriers
As discussed in previous learning steps, global business operations are far more complex than conducting business locally. Several factors contribute to these challenges, including economic, legal, political, and socio-cultural barriers.
Economic Barriers
Engaging in international trade means dealing with vastly different income levels, infrastructure, and economic systems compared to Canada.
Level of Economic Development
A country’s economic development can be evaluated by estimating annual income per citizen. However, a low per-capita income does not necessarily mean an unattractive business environment. For instance, India is classified as a lower-middle-income country, yet its large, educated population makes it appealing for business opportunities (Andres et al., 2018).
Infrastructure
Understanding a country’s infrastructure is crucial for business success. This includes communication systems (telephone, Internet, media), transportation (roads, railways, airports), energy (power plants, gas, electricity), and social facilities (schools, hospitals). Underdeveloped infrastructure can pose logistical challenges that businesses must address.
Technology
Technological capabilities vary significantly across countries. Internet reliability, banking systems, and digital payment methods may be less advanced and influenced by climate, civil unrest, or regulatory limitations.
Political Climate
Political instability increases risks in global trade. Civil unrest, government policies, and diplomatic relations impact business decisions.
Exchange Rates
Fluctuations in currency value affect international trade:
Stronger CAD benefits imports but makes Canadian exports more expensive.
Weaker CAD benefits exports as foreign buyers can afford more Canadian products.
Example: In the 1950s, 1 USD equaled 4.2 German marks and over 350 Japanese yen. Today, 1 CAD equals approximately 0.77 euros. These shifts illustrate the impact of changing exchange rates on global trade.
Effects of a Declining CAD
Negative: Increases costs for Canadians purchasing foreign goods and travel.
Positive: Encourages foreign purchases of Canadian products, improving trade balance over time.
Legal Barriers
International businesses must navigate differing legal frameworks, as no universal legal system exists. Key areas like contracts and copyright laws vary across jurisdictions. Companies must comply with both Canadian laws and the regulations of their target markets.
Approaches to managing legal challenges:
Hiring local legal experts.
Partnering with experienced local business professionals.
Political Barriers
Governments impose trade restrictions to protect domestic industries. Examples include:
Quota: Limits on dairy imports to support Canadian farmers.
Tariff: Taxes on imports, such as U.S. tariffs on Canadian steel in 2020.
Embargo: Trade suspensions, such as Canada’s restrictions on Venezuela.
Regulations: Coca-Cola’s Italian labeling issue demonstrates the importance of adhering to foreign regulations.
Dumping: Selling products at unfairly low prices, as the U.S. accused China of doing with aluminum foil in 2017.
Socio-Cultural Barriers
Culture encompasses shared values, beliefs, and behaviors that shape business interactions. It influences informal business norms, shaped by history, religion, and environment. Cultural misunderstandings can create significant trade obstacles.
Cultural Differences in Business Practices
Gifts & Relationships: Business cultures vary in acceptable gift-giving practices. In some regions, personal relationships matter more than financial negotiations.
Social Norms: Physical proximity, decision-making styles, and work schedules differ. For instance, many European businesses close in August for vacations.
Language Barriers: Poor translations can lead to branding failures, such as Mitsubishi’s Pajero or Toyota’s MR2 in France.
Case Study: Home Depot in China
Home Depot entered China in 2006 but failed due to a lack of market research. The company’s DIY model did not align with Chinese culture, where homeownership is relatively new, labor is cheap, and storage space is limited. By 2012, all Home Depot stores in China had closed.
Key Takeaways
Successful global business requires understanding and adapting to diverse cultural and economic landscapes.
Viewing cultural differences as unique rather than inferior enhances communication and effectiveness.
Global competence requires time, effort, and an open mind to appreciate different business environments.
Discussion Activity
Leverage the cultural diversity in this class! Share examples from your home countries of business practices that differ from those in Canada. Consider factors such as:
Business etiquette
Negotiation styles
Work-life balance
Gift-giving customs
Business Simulation Activities
Global Awareness: Understanding international market entry challenges.
Cultural Dos and Don’ts: Recognizing and adapting to cultural norms in business settings.
3.4 Summarize organizations and agreements that facilitate international trade.
After exploring the benefits of international trade and the potential challenges it can face, it becomes clear why significant effort has been dedicated to establishing rules and governing bodies to facilitate this process. In this section, we will examine the major agreements and organizations that regulate international trade between nations. Without these frameworks, globalization as we know it would not be possible.
Despite a recent trend toward nationalism and protectionism in some countries, economists argue that international trade remains essential for raising global living standards. Protectionism, the practice of restricting trade through measures like tariffs and quotas, has seen a resurgence in recent years. While the reasons for this shift are beyond the scope of this course, those interested can explore the topic further in SaskPolytech’s ECON121 Macroeconomics course.
Until recently, policymakers widely recognized that trade barriers hinder economic growth. Nations have collaborated to reduce tariffs, quotas, and other restrictions, leading to the creation of numerous organizations and agreements that promote free trade. Below, we will explore some of the most influential ones.
Group Activity:
Break into five groups and research the following free trade organizations and agreements. Afterward, summarize your findings for the class:
GATT
WTO
World Bank
International Monetary Fund (IMF)
Other relevant agreements or organizations
GATT: The Foundation of Modern Trade
The General Agreement on Tariffs and Trade (GATT) marked the beginning of modern international trade regulation. After World War II, policymakers recognized that protectionist measures, particularly those adopted by the U.S., had reduced global trade and worsened the Great Depression. In 1947, representatives from various nations convened to create GATT, the first global agreement aimed at reducing trade barriers. Over the years, multiple rounds of negotiations took place, and by 1994, GATT had 128 member nations. In 1995, it was replaced by the World Trade Organization (WTO) following the Uruguay Round of negotiations.
WTO: Resolving Trade Disputes
Headquartered in Geneva, Switzerland, the WTO is the only global organization that adjudicates international trade disputes. It serves as a powerful force against protectionism. When a country believes it is being treated unfairly in trade—whether due to breached agreements, unreasonable quotas, or other issues—it can bring the dispute to the WTO. The organization employs advanced dispute resolution mechanisms and some of the world’s most skilled arbitrators. Remarkably, WTO rulings have not only promoted economic growth but have also helped prevent conflicts. Approximately 90% of its rulings are voluntarily complied with, though sanctions may be imposed in rare cases.
For example, Canada has frequently faced WTO challenges over its subsidization of Bombardier, its national aircraft manufacturer. Countries like the U.S., Germany, and Brazil argue that such subsidies create an unfair advantage. Similarly, Canada has brought the U.S. to the WTO multiple times over softwood lumber disputes. As of October 2020, the U.S. has several ongoing WTO cases against China, highlighting the organization’s role in managing complex trade relationships.
The World Bank: Reducing Poverty Through Trade
The World Bank’s primary mission is to reduce global poverty. It provides low-interest loans to developing nations, initially to fund infrastructure projects like roads, power plants, schools, and hospitals. Today, its focus has expanded to include debt relief and support for private enterprise. To qualify for loans, countries must commit to lowering trade barriers and fostering economic growth. Beyond financial assistance, the World Bank serves as a key source of advice and information for developing economies.
The International Monetary Fund (IMF): Stabilizing the Global Economy
The IMF monitors the global economy and intervenes during financial crises. It provides loans to countries facing economic turmoil, such as Mexico in the 1980s and 1990s, and Russia and Argentina in the late 1990s. However, IMF loans come with conditions: borrowing nations must implement economic reforms, which can include privatizing industries, deregulating markets, and liberalizing trade policies. For instance, Mexico’s financial relief in the 1980s was contingent on privatizing certain industries and opening its markets to trade.
These organizations and agreements play a critical role in shaping the global economy. By fostering cooperation, reducing barriers, and resolving disputes, they help ensure that international trade continues to drive growth and improve living standards worldwide.
3.5 Discuss the international trade strategies used by businesses.
Discussing the Two Basic International Trade Strategies Used by Businesses
When businesses expand internationally, they face two primary pressures that shape their strategies:
The pressure to adapt their offerings to local markets.
The pressure to save time and costs by standardizing their products and processes globally.
These pressures give rise to two fundamental strategies: the multinational (multi-domestic) strategy and the global strategy. In this section, we will explore these competing approaches and their implications for businesses.
1. Multinational Strategy (Multi-Domestic Approach)
In a multinational strategy, businesses customize their products, services, and marketing to align with the preferences, culture, and traditions of each local market they enter. This approach is highly effective for building strong inroads into new regions but can be costly and complex to manage, especially for smaller businesses.
Key Characteristics:
Tailored products and marketing for each region.
Focus on local culture, preferences, and regulations.
Historically effective for gaining market share in new areas.
Higher operational costs due to customization.
Examples:
Danone Corporation: Danone successfully employs a multinational strategy by tailoring its products to local tastes. For instance, in Russia, Danone introduced four new yogurt brands specifically designed for Russian consumers. The company even acquired a Russian dairy company, becoming the country’s largest milk producer and a key educator for local dairy farmers.
7-Eleven: This convenience store chain adapts its product selection, payment methods, and marketing to suit each country’s values and regulations. For example, in Japan, customers can pay utility bills at 7-Eleven stores, reflecting local needs and preferences.
2. Global Strategy (Mega-National Approach)
In contrast, a global strategy involves offering the same products and services across all markets, with minimal adaptation to local preferences. Businesses using this approach centralize their operations, including marketing and production, to achieve economies of scale and reduce costs.
Key Characteristics:
Standardized products and processes worldwide.
Centralized management from the home country.
Economies of scale leading to lower costs.
Views the world as one large, unified market.
Examples:
Ford and General Motors (GM): These automobile manufacturers use a global strategy, sourcing components from around the world, assembling them in global factories, and distributing the finished products internationally.
Apple: Apple’s products, such as the iPod and iPhone, are standardized globally. While software and language settings may vary, the core design and functionality remain consistent across markets.
Domino’s Pizza: While toppings may vary slightly to cater to local tastes, the core menu and business model (carryout or delivery) remain the same worldwide.
3. Transnational Strategy: The Middle Ground
A transnational strategy combines elements of both multinational and global strategies. It seeks to balance the need for efficiency and cost savings with the flexibility to adapt to local market conditions. This approach is challenging to implement but can be highly effective for businesses operating in diverse markets.
Key Characteristics:
Balances standardization with local adaptation.
Achieves economies of scale while responding to local preferences.
Requires a high level of coordination and flexibility.
Examples:
McDonald’s and KFC: These fast-food chains maintain a consistent global brand and core menu but make localized adjustments. For example, McDonald’s offers wine in France, reflecting the cultural significance of wine in French diets.
Starbucks: Starbucks uses a transnational strategy by creating a standardized global brand ambiance while adapting its product offerings to local tastes. For instance, it introduces region-specific beverages and food items to cater to local preferences.
Key Takeaway: Think Globally, Act Locally
The most successful international businesses keep the global market in mind while making strategic adjustments to cater to local needs. This balance allows them to achieve efficiency and consistency while remaining relevant and competitive in diverse markets.
Activity: Identifying International Trade Strategies
Which of the three strategies—multinational, global, or transnational—are exhibited by the following businesses? Provide a brief example to illustrate your answer:
Danone:
Strategy: Multinational (multi-domestic)
Example: In Russia, Danone introduced four new yogurt brands tailored to local tastes and acquired a Russian dairy company to become the country’s largest milk producer.
Ford & GM:
Strategy: Global
Example: Auto components are sourced globally, assembled in international factories, and sold worldwide with minimal customization.
Starbucks:
Strategy: Transnational
Example: Starbucks maintains a consistent global brand ambiance but adapts its menu to include region-specific beverages and food items.
Homework Assignment
Watch the following video to deepen your understanding of international trade strategies:
Video: International Trade Strategies Explained (5:48 minutes)
Instructions:
Watch the video as homework.
Come to the next class prepared to discuss the key takeaways.
Submit a brief summary or reflection for attendance marks.
LO3 – Business Case