International Business topics
|2008 Oct 27th, Prof. Richardson
created a 9 minute video which summarizes the main points of this webpage.
Students are encouraged to view the video first, then scroll down the webpage to read the summary.
For students in BUS106 at Seneca, this webpage serves as a summary of the main points in Chpt 6 of the text BUSINESS: IT'S NATURE AND ENVIRONMENT; 6th Canadian Edition
All Business is International Business
The reason we say that "All
Business" is "Int'l Business" is that we mean all business, even domestic
companies that do not directly exporting or import, are effected by international
circumstances which can positively and negatively effect their business
is International Business
is International Business
reported in The Toronto Star
"sales at Harvey's fared badly as the fast-food burger concept coped with the mad cow scare and increased competitive pressures. System sales fell 4.2 per cent to $62 million, while same restaurant sales fell 3.4 per cent. Six restaurants closed in the quarter. The company ended the quarter with 339 Harvey's."
Business effected by Natural Disasters
During the 3rd week of December 2005, Richardson was interviewed live on air for the Report on Business television (ROB TV) program by host Howard Green for a segment about how natural disasters effect international business. Richardson explained that it is important to have a contingency plan and business continuity strategy which could be employed without delay. While the competition is struggling to recover after a disaster, your enterprise can be more operational and you'll achieve a competitive advantage that may yield months of favourable business until others catch up.
point I was trying to establish is that you can pretty well count on a
natural disaster having a big impact on your business, either effecting
your supply of component parts, or effecting the region in which your customers
live - and therefore one could say that your ability to be a successful
business person depends not exclusively on doing the right things in terms
of marketing and customer relations, but also being prepared for a bad
event cause sooner or later we all get hit by something so it is the businesses
that can recover faster that will survive and thrive.
The segment was recorded
and a .mpeg clip is available
Canada's major international
o forest products
o dimension lumber (2x4, 2x6 etc.)
o wood pulp for making newsprint and cardboard
o paper in giant rolls for cutting and processing
o processed wood, like plywood, fiberboard, mouldings, shingles, etc.
o grains and oilseeds (wheat, canola)
o marine products (frozen fish, roe, crustaceans)
o mining and minerals
o ore and ore concentrates
o coal (metallurgical and thermal)
o processed metal products (sheets of aluminium, steel. copper)
o precious metals such as gold and silver
o agricultural products (cheese, beef, maple syrup, etc.)
o automobiles, automotive parts (GM and Ford cars from Oshawa and Oakville to the U.S.)
Canada's major international
o consumer products (VCR's, computers, cell phones)
o processed food products
o automobiles, automotive parts
o Canada used to have a strong garment industry in Quebec
but competition from Asia shut that down in the late 1990's
Now that we know have a bit of a short intro to "what is" international business, let us keep in mind the title of this course, it is "International Business Management" - meaning understanding management (or, being the boss of other people) in the context of international business.
International Business Management
requires us to not only have a grounding in what the key sectors are, but
we must also know some of the players.
Canada's Largest Corporations: FP500 for 2007 (selected list)
taken from http://www.canada.com/nationalpost/financialpost/fp500/charts/data1.html on Sept 5th 2007
|2006||2005||Company||Amount 2006 $000s||Amount 2006 $000s|
|1||4||Royal Bank of Canada, Toronto||36,045,000||4,728,000|
|2||2||Manulife Financial Corp., Toronto||34,194,000||3,970,000|
|3||1||General Motors of Canada Ltd., Oshawa.||33,340,112||n.a.|
|4||3||George Weston Ltd., Toronto||32,167,000||121,000|
|6||6||Magna International Inc., Aurora, Ont.||27,420,120||598,752|
|7||8||Alcan Inc., Montreal||26,808,894||2,029,860|
|8||5||Imperial Oil Ltd., Calgary||24,505,000||3,044,000|
|9||9||Sun Life Financial Inc., Toronto||24,287,000||2,144,000|
|10||14||The Bank of Nova Scotia, Halifax||22,482,000||3,579,000|
|11||13||The Toronto-Dominion Bank, Toronto||22,302,000||4,603,000|
|12||10||DaimlerChrysler Canada Inc.||20,534,000||n.a.|
|13||12||Canadian Imperial Bank of Commerce,||20,166,000||2,646,000|
|16||17||EnCana Corp., Calgary||18,596,466||6,409,368|
|17||19||Bank of Montreal, Montreal||18,153,000||2,663,000|
|18||11||BCE Inc., Montreal||17,713,000||2,007,000|
|19||15||Bombardier Inc., Montreal||16,830,976||304,448|
|20||20||Shell Canada Ltd., Calgary||14,651,000||1,738,000|
|21||33||Suncor Energy Inc., Calgary||14,342,000||2,971,000|
|22||22||Wal-Mart Canada Corp.,||14,300,000||n.a.|
|23||21||Ford Motor Co. of Canada, Ltd.,||13,809,000||n.a.|
|26||24||Nortel Networks Corp., Toronto||12,948,012||31,752|
|27||29||Husky Energy Inc., Calgary||12,664,000||2,726,000|
|28||23||Honda Canada Inc., Toronto||12,600,000||n.a.|
|34||39||Enbridge Inc., Calgary||10,644,500||622,300|
|35||38||Canadian Natural Resources Ltd.,||10,398,000||2,524,000|
|36||34||Falconbridge Ltd., Toronto||9,867,228||1,055,992|
|39||41||Costco Wholesale Canada Ltd., Ont.||9,049,005||n.a.|
|40||44||Rogers Communications Inc., Toronto||8,838,000||622,000|
|41||40||Telus Corp., Vancouver||8,681,000||1,122,500|
|44||43||Canadian Tire Corp. Ltd., Toronto||8,269,100||354,600|
banks and the oil companies appear
to be the big players in the Canadian economy
Both kinds of companies (operating in a monopolistic environment) are, in a sense, companies which make money off of other companies.
The phrase "economic pimps" was used by one student and he dared me to use it on the web site.
re: Physical and Environmental Forces
|In order for
you, as a Canadian student of International Business, to be successful
in finding a job in international business in Canada, it is very helpful
for you to have an appreciation for what types of business most large and
medium sized Canadian companies are involved in. The geographical size
of Canada, and the "gifts" of our natural resources means that Canadians
companies are doing international business on a large scale, are mostly
involved in the following
|Key Points||It is important
to acknowledge, and understand the effect of the environmental forces on
international business because business does not happen in a vacuum - there
is always things - which you can do nothing about - which will effect your
success or failure. Being aware of these environments, and dealing with
them, will allow you to survive and thrive.
|Physical and Environmental Forces influencing and effecting Int'l business in Canada?||
minerals to mine, gold, silver, coal, copper, nickel, uranium, etc.
- forcing competition
- opportunities for small companies
- sustainable development
- worldwide protests against globalization
- growing power of MNCs
- OECD Guidelines for MNCs
- specific consequences
- globalization and the environment
|"The great challenge
facing political leaders today is to persuade the public that continuing
to liberalize trade will bring more benefits than costs. Distrust of globalization
has probably never been higher in the past 60 years....China and India
are among the reasons. There is widespread fear that globalization means
job losses and lower wages as the export power of these huge nations grows.
So countries are becoming more protectionist, more unwilling to deal with change and make adjustments."
The debate over the positive
and negative effects of globalization is a hot topic for many individuals,
agencies, organizations and government departments who find themselves
in a position to defend or attack the current globalization trends. We
can have an interesting debate in class about the merits of globalization
but in the end whether we like it or not, it is a situation within which
we, as international business people, have to deal with successfully.
Definition of Globalization
o People around the globe are more connected to each other
than ever before.
o Information and money flow more quickly than ever.
o Goods and services produced in one part of the world are increasingly available in all parts of the world.
o International travel is more frequent.
o International communication is commonplace.
This phenomenon has been titled "globalization."
From Keith Porter http://globalization.about.com/cs/whatisit/a/whatisit.htm
term “globalization” describes the increased mobility of goods, services,
labour, technology and capital throughout the world.
is a term for the horizontal and vertical integration of manufacturing
and trade on an international level"
."Globalization forces everyone to compete with the cheapest producers."
Is this a good thing or a bad thing?
"In the early 1990s, bleached hardwood pulp cost
- therefore the cutting down of the rainforest in Brazil !
- $78 per ton to produce in Brazil,
- $156 per ton to produce in eastern Canada, and
- $199 per ton to produce in Sweden."
by George Draffan, Public Information Network, Seattle
Globalization, some specific examples of the consequences
U.S. company in Mexico
In Mexico, a U.S. waste disposal company, Metalclad, was awarded $16.7 million in damages after the state of San Luis Potosi blocked its waste site in the village of Guadalcazar. Local residents complained the Mexican government was not enforcing environmental standards and that the project threatened their water supply. Metalclad's victory established that NAFTA's dispute mechanism reaches to subnational governments, including municipalities."
"... in a small town in the
Mexican state of San Luis Potosi, a California firm -- Metalclad -- a commercial
purveyor of hazardous wastes, bought an abandoned dump site nearby. It
proposed to expand on the dumpsite and to haul toxic waste material and
other hazardous stuff and dump it in San Luis Potosi. The people in the
neighbourhood of the dump site protested. The municipality, using powers
delegated to it by the state, rezoned the site and forbid Metalclad to
extend its land holdings.Concerned about the potential hazards of the reopened
dump to the local water supply, the state conducted an environmental
impact study. As a result, it rezoned the property and forbid any extension
of Metalclad's land holdings. Metalclad, under Chapter 11 of the NAFTA,
then sued the Mexican government for damage to its profit margins
and balance sheet as a result of being treated unequally by the people
of San Luis Potosi. A trade panel, convened in Washington, agreed with
big companies forcing small companies to compete at an unfair level
Tire's overseas sourcing
led to a Canadian icon
a significant part of Woods business was supplying Canadian Tire - in fact the two companies had a supplier - retailer relationship more than 80 years.
Earthy explained Woods had to shut down operations following "...a decision by the Company’s largest customer, Canadian Tire, to discontinue purchasing domestically manufactured sleeping bags."
It has been suggested by others in the industry that Canadian Tire (facing competition from Wal-mart and other big vendors of camping equipment) had to further cut costs and was simply geting cheaper sleeping bags from suppliers in China.
Walmart's low price policy was accused of shutting down a
North American manufacturing company
|An example of
North American workers losing jobs to cheaper labor overseas
Over a period of time, Wal-mart became Schrade's largest customer to the point where 80% of Schrade's product was going to the large discount chain.
Then, Wal-mart squeezed Schrade by asking them to compete with low priced knives they were beginning to source in China. Schrade could not match the very low price from China so Wal-mart abruptly cut their business with Schrade. Faced with the loss of its largest customer, Schrade crashed in 2004 barely reaching the 100th anniversary of the founding of the company before all its assets were sold at auction as it was forced in bankruptcy.
There are a number of "walmart sucks" sites on the web that have this story recounted by walmart insiders, and other similar tales, check http://www.freewebs.com/wallmartsucks/
Foreign Exchange Topics
last updated 2007 Oct 03
|This web page has audio clips - just click on the icon (like the one to the left) and you can hear Prof. Richardson's voice adding additional information to topics on the page.||turn on your speakers to hear audio clips|
unit will discuss issues regarding the upward and downward movement of
the Canadian dollar, and the consequent effect on companies exporting and
importing. It is not intended to be an ongoing thorough treatment of the
topic since this topic changes almost weekly, rather it is intended to
be a basic resource to support students understandings of the current issues.
there are only three things that can happen
the dollar is very high, ie. high 80's to low 90's - which means
the dollar is very low, ie. high 60's - which means
image: cbc.ca website October 2007, data: Pacific Exchange Rate Service
indicators" of why the Cdn dollar is strong, and may stay strong
|"Some of the
reasons for the Canadian dollar's strength have been around for years.
Commodity prices have been soaring in the last few years. Oil, copper,
gold, wheat — you name the resource and Canada seems to produce and export
it in abundance.
The loonie is also drawing strength from the comparative strength of the Canadian economy. Canada has healthy budget and trade surpluses; the U.S. runs big deficits in both. The Canadian economy is still generating jobs, while the American economy is shedding workers.
The Canadian housing picture is also much healthier, with little evidence of the subprime meltdown that's shaken the U.S.
The weakness south of the border has the U.S. Federal Reserve slashing interest rates, while the Bank of Canada may soon be raising rates to rein in inflationary pressures.
That divergence has been noticed by currency traders. The futures markets show that speculators are increasingly betting that the Canadian dollar will extend its gains.The U.S. dollar, on the other hand, has been limping through historic weakness. It's now at an all-time low against the euro."
CBC news on CBC.ca September 20, 2007
indicators" of why the Cdn dollar is strong, and may stay strong
PRO: "Canadian importers
have more leverage with a stronger Canadian dollar, because it has more
buying power south of the border. U.S. goods - from apples to auto
parts - become more affordable for Canadians."
"At the same time, a stronger Canadian dollar will drive down U.S. buying power, resulting in fewer foreign orders. The resulting downturn in sales will have manufacturers looking to implement cost-cutting measures.
CON: "A high
dollar makes Canadian exports more expensive to foreigners"
|Why would you want to get involved in the Foreign Exchange Market?||"If
you are a Canadian business that has suppliers or customers outside of
Canada, then you face foreign exchange risk. If you have accounts
payable in another currency and the Canadian dollar weakens by the time
they come due, it will cost you more to pay those accounts than you had
originally anticipated. If you have accounts receivable in another currency
and the Canadian dollar strengthens by the time you collect them, then
the funds you receive will be worth less than you had planned."
this quote was at www.tdbank.ca/business/foreign/info_foreign.html
the exchange rate
"Canada has a floating exchange rate. .. The exchange rate is affected by supply and demand for Canadian dollars in international exchange markets. If demand exceeds supply, the value of the dollar will go up. If the supply exceeds demand, its value will go down. On an average day, CAN$37 billion is bought and sold on the international exchange markets. Several factors influence the supply of and demand for Canadian dollars. If interest rates are higher in Canada than in other countries, investors may choose to invest in Canada, increasing demand for the dollar, providing that the expected rate of inflation is not higher in Canada than among our trading partners. If our inflation rate is higher, investors are less likely to prefer Canada — even with higher interest rates — because of the expectation that the value of the dollar will be eroded by inflation. "
RBC also have a short page with examples of situations a company would be in that require using 4X instruments. They call this page grandly "Foreign Exchange Case Studies"
it used to be at www.royalbank.com/sme/guides/foreign_exchange/case_studies.html but that link is not working in 2005
RBC also had a helpful page which has a good lead in to the topic of 4X risk, saying
"The globalization of business and interdependence of world markets has increased the chances of severe and unpredictable currency fluctuations. These trends open a category of risk for all Canadian businesses that can be new and unfamiliar. What's more, foreign exchange losses come straight out of your profits, often without tax deductibility and the possibility of recovery. When your profit margins are already slim, foreign exchange losses can make or break your business in any given financial period."
was posted previously at www.royalbank.com/sme/guides/foreign_exchange/risk.html
o Why Companies Grow
o Why Companies get involved in International Business
o Reactive Reasons, Proactive Reasons for exporting
are forced into international selling due to the competitive environment.
While it might be wonderful to stay the same size and just focus on quality,
the problem is that the competitive environment creates situations where
your competition continues to grow - so, if you do not grow and expand
you will lose customers.
Your former customers will move to larger vendors that can offer lower prices (because they sourced components internationally and can offer economy of scale).
|Why Companies Have to grow||The main purpose
of business is to make money for the people who own the business. All other
objectives are secondary to achieving this goal - it may sound heartless,
but it is the essence of capitalism.
Achieving this goal obviously means making enough money to stay in business several years in order to pay back any money you borrowed to get started, and make enough money that it is worth your while to have developed the endeavour. Therefore managers seek to increase or to stabilize profits, which partly depends on
Why can't a business just stay the same size?
Why does a business have to sell outside the territory of its original customers?
Why does a business have to access resources outside the territory of its original base?
The answer to these questions is the answer to why International Business exists - and will be explained in the lecture.
A big part of the answer to why business has to grow is simply based on the fact that business cannot stay the same size - if your business does not grow, the competitors will grow, and soon you will lose your customers to competitors who grew, and had more selection, or made cheaper products.
So you have to grow because the nature of the competitive environment will not let you stay the same size
|Why Companies do IB..||Why
Companies get involved in International Business
There are 4 major operating
objectives that may cause companies to develop International Business
Which, if you do #3 and #4
o Management Contracts
o Turnkey Operations
o Licensing Technology
o Joint Venture
- Co-op Joint Venture
- Equity Joint Venture
- Strategic Alliances
- Equity Alliances
o Contract Manufacturing
or, subtitled "reasons why companies get involved in complicated ways with other companies"
costs to other companies
vertical and horizontal links
location specific assets
the list to the left, some of these ways involve collaboration, some do
The majority of the "Ways
to get involved in Intl Business" involve co-operation and collaboration
in our increasingly competitive and "globalized" world.
|Types of collaborative
Foreign Direct Investment
a well known American tire manufacturing company.
Bridgestone is a well known Japanese tire manufacturing company.
As Japanese auto companies began to develop FDI situations in North America in the 1980's, the Japanese companies supplying parts and accessories, for cars, also began to seek out FDI in the U.S. and Canada. Firestone Inc. was acquired for $2.6 billion in 1988 by Bridgestone Corp. of Japan, which invested another $1.5 billion modernizing Firestone factories.
Bridgestone / Firestone then began to sell tires to the Japanese auto assembly plants in the U.S., as well as to the existing customers of the old Firestone corporation. By selling tires in the U.S. (made in the U.S.) to Japanese assemblers, Bridgestone / Firestone could avoid circumstances of tariffs or 4X [foreign exchange] problems.
Foreign Direct Investment in Canada
examples of FDI by other countries in Canada
to attract Foreign Direct Investment is a validation of international opinion
on the attractiveness of an economy. If you cannot successfully attract
FDI then it is bad because you will miss out on developments in the technological
environment and you will suffer in a competitive economic environment.
The Dept. of Foreign Affairs exist mostly to help Canadian companies export, Industry Canada has sub-departments that work on attracting investment in to Canada.
Provincial governments and large municipalities also work at attracting foreign investment into their territory because of the belief that the investment will increase job opportunities and increase the corporate tax base.
parts maker shuts down plant in Canada
500 Canadian autoworkers lose jobs to Mexico
- the story line in Sept 2007 when the newspaper described how U.S. auto-parts maker ArvinMeritor Inc. arvinmeritor.com was shutting down a 500 employee Toronto plant and shifting the work to Mexico.
One of the reasons why Canadians want to ATTRACT FDI is to attract the jobs that are associated with such investments - and when the investment turns out to be too expensive to continue, the foreign company may withdraw, and many Canadians will be left unemployed.
ArvinMeritor, which makes shock absorbers, said on their website "The company must operate from a global manufacturing footprint that optimizes capacity and reduces costs"
Employee cuts by auto parts makers follows trends in te economic environment in North America which has seen the BIG 3 auto makers cut tens of thousands of jobs in recent years to deal with falling sales and the consequence of consumers shift to Asian cars.
- bought out by foreigners
My grandfather and great-grandfather
shopped at the Hudson Bay Stores in Manitoba in the 1800's. "...at one
point the Hudson's Bay Company owned most of Canada, and it was only after
Confederation in 1867 that negotiations were undertaken with the goal of
transferring ownership of lands west of Kenora, Ont., to the government
In January 2006, American billionaire Jerry Zucker finally put together a large enough offer that the Bay's board of directors agreed to sell the company. This is somewhat sad since many of the other large Canadian companies like Eatons and the Canadian Pacific Railway hotels are also sold off foreigners.
In the 4th week of January 2006 the story of the Bay being sold got a lot of press in the newspapers. Why would an American want the Bay? Well, it has 100 Bay department stores and 290 Zellers discount all in prime areas of real estate in all the large and medium sized Canadian cities - that in itself is quite valuable.
Some people think this situation of foreign FDI in Canada is bad for Canada and they note that Dominion Bond Rating Service, which kept HBC "under review with negative implications," reiterating concern that Zucker, who is paying $1.06 billion to buy the company might gut the retailer of its real-estate assets which have an estimated value of between $700 million and $900 million.
- dairy farmers, corn farmers
- automotive & airplane manufacturing subsidies
the giving of money to stressed industries, or the allowing of tax cuts,
or other favours - are techniques used by national and regional governments
to help make vulnerable businesses more competitive.
In Canada there are several
subsidies that cause Americans and Europeans to criticize us. The controversial
Canadian subsidies are the ones we provide to our agricultural industries,
forest products, and mining and steel. All of these sectors are noted for
the geographic concentration of their activity, which translates into a
local constituency which may or may not re-elect the local member of parliament
- depending on whether that person "can keep the saw mill running...".
still a sensitive issue in Canada since we still have a significant number
of members of parliament elected from rural ridings - which means elected
by farmers. Subsidies are government support for many things but often
it is most "political" when it regards agricultural products.
In Canada, despite the growth of immigration to Toronto, there are still a large number of Canadian living and working on farms in Western Canada and rural Ontario and rural Quebec. The products from these farms are expensive to produce at a competitive cost and therefore the provincial and federal governments have many programs to support the farmers.
The dairy industry is a big
industry in Canada - to know more about this, read the federal government's
||The dairy industry
in Canada is very big in Quebec, and also in Ontario and many Quebec federal
politicians feel a lot of pressure to support the dairy farmers.
Subsidies Illegal: WTO"
was a June 2002 story in the Financial Post section of the National Post
written by Ian Jack
the story covered the WTO ruling June 24th, 2002, that the Canadian government is illegally subsidizing dairy farmers.
"The decision, if is stands, will force the government and industry to revisit the quota system... about $200 million in exports are effected"
"IN a case that goes back to 1988, [N.Z. and U.S.A.] argued that Canada's complex pricing system in fact allows exports at a lower price than domestic milk and cheese. A WTO panel ruled against Canada in 1999 and a year later Ottawa introduced changes it said fixed the problems. No they didn't says New Zealand and the United States and a second case [against Canada] was launched. They again defeated Canada but and appeal panel said there wasn't enough evidence one way or the other"
in the U.S. effecting
|The topic of
subsidies is obviously something that depends upon which side you stand.
If you are a producer, you will argue that you need subsidies, to some
degree, because other parts of the world do things too cheaply, which means
if you have to compete directly, you'll be selling your product for a price
So producers use various arguments to convince the government to protect them so they can keep their costs reasonably low and sell their product at a price which makes it possible to keep producing.
Manufacturers, on the other hand, always want to cut costs - even from the suppliers in their own country. Cutting costs means trying to squeeze producers to sell for less, or find other sources that are cheaper.
Post reported in April 2006 that
"Canadian Corn Farmers Protest U.S. Subsidies"
Canadian corn producers (farmers of corn) say they are having a hard time selling corn at low prices to Canadian customers because the U.S. farmers are selling corn into Canada at lower prices.
The Canadian farmers claim that the U.S. farmers receive heavy U.S. government support in the form of subsidies and additionally, U.S. corn producers are selling corn in Canada for a price lower than in the U.S. - which is technically the definition of dumping.
Canadian users of corn - such as pet food manufacturers and corn processors that make corn starch, like Casco Inc. say that they want the Canadian government to cut tariffs on U.S. corn so they can obtain this resource at lower prices.
The Canadian corn producers want to maintain the levy on imported U.S. corn.
CBSA - Canada Border Services Agency www.cbsa-asfc.gc.ca is the Canadian federal ministry that rules on such tariffs. The CBSA takes many factors into account including rulings by other national and transnational agencies.
CITT - the Canadian International
Trade Tribunal www.citt-tcce.gc.ca
ruled the levy on U.S. corn should be repealed.
The Pet Food Association of Canada said the CITT decision was good for their pet food producers because it allowed then to compete against U.S. rivals.
So you have an interesting situation in which one group of Canadians want a tariff on incoming grain corn.
Another group want the tariff removed - because, cheaper corn will allow them to make something with that corn at a competitive price, which they can export back to the U.S.
- the effects and influences of the
|COMMENT||Dumping is like the term
- if they are an asset of the United States, they are "Freedom Fighters",
- if they are against the United States, they are "Terrorists".
Dumping is the term when
it happens to you, ....
It is a sensitive issue and virtually every one of the OECD member countries does it. The main motivation of politicians is to get re-elected. Many politicians have to support legislation that will allow them to get re-elected. A number of business sectors and industries, such as dairy products, clothing, steel, wood products, etc. have all been involved in dumping and these are sectors in which a lot of votes can be won or lost by the politician vulnerable to that business in her/his constituency.
|In Feb 2005
CBSA Canada Border Services Agency concluded an anti-dumping re-investigation
concerning women's leather boots imported from China (PRC).
from the CBSA site
|Why is it useful to know
these details from CBSA cases?
If you were a business manager involved in the clothing business and part of your product line included women's footwear - including some from China, you should be aware that you will be forced to make a high increase to your retail price based on the countervailing tariff being applied.
The consequence of this CBSA decision will then effect your marketing promotional activities since you will have to consider how your advertising will handle the effects of a high price increase.
|W T O|
WTO is essentially a world trade referee for countries wanting to grieve
that parties to trade agreements have broken the agreements. Some
people have commented that the participants in the WTO have behaved as
extreme and sensational as that other international organization with three
initials that also begins with the letter "w".
|In the 2nd week of December
2000, the major Canadian newspapers reported the WTO ruling that
backed Canada in its argument with Brazil over aircraft subsidies.
Many Canadians know that Bombardier of Quebec has been building snowmobiles for decades and that the company branched out into personal watercraft, subway cars and light aircraft.
A large number of Canadians may not know that through a combination of growth and acquisition (eg. they bought Lear Jet) Bombardier has become the third largest aircraft manufacturer in the world.
A large number of Canadians may not know that Brazil has a vibrant automotive and aircraft manufacturing sector and is now competing with Canada for the international aircraft market.
C A N A D A
Canada the green light to impose sanctions against Brazilw
"The WTO has given Canada the green light to impose sanctions worth $2 billion against Brazil ... the approval followed an arbitrator's ruling that the sum was worth the amount Canada was losing because of Brazil's ProEx export subsidies program to aircraft maker Embraer SA. ...Bombardier says it lost international sales because of the subsidies program"
explained in a Toronto
Star story in Dec 2000 by Madhavi Acharya business reporter
commentary on Canada / Brazil aircraft dispute
|In the second
week of December 2000, the subject of WTO backing Canada in the aircraft
subsidy challenge with Brazil, was noted on the front page of the WTO website.
"Canada’s retaliation against Brazil approved in aircraft case"
"The WTO Dispute Settlement Body on 12 December 2000 approved Canadian trade sanctions in retaliation for Brazil’s failure to implement a ruling on aircraft export subsidies. "
The use of the word retaliation means that as a result of finding that Brazil broke the rules in subsidizing aircraft production (which negatively effected Canadian aircraft producers), Canada will be authorized to impose high tariffs on Brazilian products being imported into Canada.
The consequences are daunting for Canadian importers who wish to continue importing products from Brazil because any price advantage they might have previously enjoyed (importing from a low production cost Latin American country) will be lost since the newly imposed tariffs will make it too costly to profitably import some consumer products and processed food products from Brazil.
"The WTO Dispute Settlement
Body on 12 December 2000 agreed to let Canada impose trade sanctions
of up to C$344.2 million per year on imports from Brazil in retaliation
for Brazil’s failure to implement a ruling on aircraft export subsidies."
- effect on
|A CANADIAN PRESS
story carried by the Toronto Star
"WTO Ruling costs 62 jobs at Saputo"
Saputo Inc. www.saputo.com
The Toronto Star story is brief so we will quote direct from the press release on Saputo's site.
"Saputo Inc. announces the closing of a plant in its Cheese Division (Canada) located in Cookstown, Ontario, ... 62 employees are affected by this decision. These announcements come in the wake of ... the recent decision by the World Trade Organization  concerning the Canadian system of the supply of milk to be used in products for the export market. In order to comply with that decision, Canadian dairy processors are required to export their products at prices that make the exporting of dairy products from Canada non-competitive. The Cookstown, Ontario, plant, which employs 26 people, will definitively cease its operations on August 1, 2003."
Saputo is the leading cheese producer in Canada - it has 7,000 employees and 47 plants and distribution centres. It would be considered a large company by Canadian standards but medium sized company by global standards.
|- when they [Saputo] say
"make the exporting of dairy products from Canada non-competitive"
it means Dairy companies cannot sell for a low price which might be lower
than what Canadians pay - if you export a product at a price lower than
what you sell to the customers in your own country this is called dumping.
The reason this is bad is because it is presumed the domestic consumers have no choice but to pay the higher price because tariff & non-tariff barriers keep out foreign milk and milk products. In essence the higher prices Canadians pay for dairy products produces a profit for companies like Saputo, which help subsidize their ability to offer lower more competitive prices internationally. This is like Japanese camera companies selling cameras for high prices in Tokyo, but low prices in New York.
Update Oct 2003
|Saputo got around
the WTO restrictions by buying a large dairy company in Argentina. This
company already exports so Saputo can reach its Intl customers by exporting
out of the Argentine company.
see entry for Saputo on www.witiger.com/internationalbusiness/outlineMGTC44c.htm
Free Trade Agreement
"Canada Must Rethink Trade
Ties With Mexico"
Crane begins by stating that "Despite the North American Free Trade Agreement, there's something of a disconnect between Canada and Mexico. Both countries are obsessed with their relationship with the United States, but pay much less attention to one another."
"Canada-Mexico trade represents
less than 1 per cent of total North American trade flows."
Crane adds "Mexico has become much more competitive, especially in the motor vehicle, electrical and electronics and machinery industries and is poised to become more of a competitor to Canada in the U.S. market. Moreover, while Canada's share of U.S. manufacturing imports has remained flat, Mexico's share has risen sharply. Canada's share of U.S. imports has remained just under 20 per cent in the 1990s but Mexico's share increased from 6 per cent in 1990 to 10.7 per cent in 1999."
"With Mexican exports growing at almost 16 per cent a year in the 1990s, compared to 9 per cent a year for Canada, it's easy to see why trade analysts expect at some point in the future that Mexico will eventually replace Canada as the Number 1 trading partner of the United States."
FYI - using a search engine,
it is possible to find many references on the web to the activities of
Aaron Sydor and Gary Sawchuk in conferences and speeches about Canadian
internationl business, particular related to competitiveness issues
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