COMM 4SA3 – International Business: Winter 2025

Week 1: Intro to Course:

Materials:

- Week 2 participation.
- Term Project: pick a company (not a F500, smaller with international potential)
o EX. M&M food market, Loveabrie (kids toy company)
o Big enough to find financial reports
o Find an opportunity in a country, THEN pick a country.
o PART A: SWOT analysis (what is their transferrable strength)
o PART B: ideal host countries (3) to expand into, has to connect to the SWOT
 Is there opportunity, market
 End of part b: conclude the best one.
o PART C: describe chosen country in a presentation
o PART D: Presentation

Week 1: Introduction – Why Do Firms Go Abroad:

International Business: firm in international (cross-border) economic activities (business abroad)

- Two Categories of International Business:

o international trade: g/s flow cross- border
 EX. NX, foreign manufacturing, retailing, wholesaling, mass communication.
o International Investments: where money flows across border(s)

Globalization: process where economic, political, cultural, social, other relevant systems of nations are
coming together and becoming similar by integrating into world systems.

- Three types of Globalization: markets, products, consumers

- Degree of Globalization: Extent of Globalization are actually integrated
- Trend of globalization: increases overall, there has been dips (ex. 2009, 2020)
o Reasons for shocks: econ policy, Political Nationalistic attitude (focus independence)
- Graph: “international trade as a share of GDP” per country
- Drivers:
o Decline in trade and investment barriers
o Technological change
- Implications: firms can locate core activities in different countries, investments sourced
elsewhere, firms invest in other countries.

Week 2 – International Trade Theories and Their Implications

International trade: one of the categories of international business (recall ch1).

- Direction: exports (selling abroad) and imports (buying from abroad)

- Components being traded: merchandise (goods – tangibles), service (intangibles)
- Measures: trade deficit (IMP > EXP), trade surplus (EXP > IMP)
- Cross-Border Trade: growth in int. trade over last 70 years, acceleration in value of services
 o Gains from trade:
 specialize in production/exporting g/s they most efficient.
 Import goods cannot produce/export efficiently
o Shift from free trade to managed trade: use gov policy (quota, tariffs, duties control NX)

Overview of Trade Theory:

- Free trade: gov no influence (quotas, duties) what citizens can buy, product, or sell int.
o Free market system (AKA)
o Let firm decide who is the best seller, price, etc.
- Trade theory: should a country trade, with who, what goods, competitive advantage,
competitiveness.
o Explains why int trade is beneficial for products a firm can produce itself

Mercantilism: x

- Emerged in 16th century England:Gold and silver are mainstays of national wealth.
- Argues that it is in a country’s best interest to maintain a trade surplus—to export more than it
imports.
- Advocates government intervention to achieve a surplus in the balance of trade.
- Flaw is that it views trade as a zero-sum game: A gain by one country results in a loss by another.

Absolute Advantage: specialization used followed by trade.

- Adam Smith
- Attacked the mercantilist assumption of the zero-sum game
- Promotes:
o Country has absolute advantage in producing product when it is more efficient than any
other country at producing it
o Countries should specialize in production for their abs advantage and then trade the
goods produced by other countries
o Both countries benefit from specialization and trade
- Example slide 11: *understand flow, not the calculations*
o Two countries only
Each country has 200 units
Cocoa and rice are potential products
Resource to produce goods
o Ghana abs ad at cocoa (less resources to produce), South Korea has rice
o Global availability rose due to specialization (now they only have one good each)
o Increase in consumption resulting from trade and specialization
- Potential issues:
o Assume only two countries
o Assume only two products
o What if the country is efficient in BOTH

Comparative Advantage:
 - David Ricardo
- Promotes:
o Country should specialize in production of good it produces most efficiently and buy the
goods it produces less efficiently from other countries, even if it can produce those
goods more efficiently itself.
- Porters:
o Competititve rivaly makes an industry in a country more competitive when go
international.
- Example slide 13:
o Ghana more efficient than South Korea in BOTH goods
 They are most efficient in Cocoa, and slightly less efficient in Rice (compare to
SK)
 Ghana would assign more resources to Cocoa (not full specialization)
 150 cocoa and 50 Rice
 SK: will use 200 for rice (no cocoa)
o Without trade: the total production for each good is the same.
o With specialization: everyone benefits (even without the trade)
- Potential issues: when we make static assumptions (changes occur)
o Simple world: 2 countries 2 goods
o No transportation costs
o No difference in price of resources
o Resources move freely
o Constant returns to scale
o Each country has fixed stock of resources and free trade does not change the efficiency
with which a country uses its resources
o Immobile Resources
o Dynamic gains
- EXAM: Ghana requires 4 units resources to produce 1 tonne cocoa. SK requires 2 tones to
produce 1 tonne of cocoa.

Heckscher–Ohlin Theory: x

- Factor Endowments: comparative advantage from differences in national factor endowments

(rather than productivity differences)
o Extend to which a country is endowed with resources (EX. land, labor, capital)
- Countries will export goods that make intensive use of factors that are locally abundant & import
goods that make intensive use of locally scarce factors
- The Leontief Paradox: raised questions about validity of the theory found that US exports less
capital intensive than US imports.
o Even though capital is abundant in US (productivity may be more important than merely
factor availability.

Modern theory - The Product life-Cycle Theory:

- Raymond Vernon’s
 o Intro: For 20th century (most of it), new products were made and sold in US
o Over time demand grows and products standardize, price becomes competitive.
 Other countries can now produce at lower costs, limiting the potential for US
exports.
st
o In 21 century:
 Dynamic: accounts for change in pattens over time, focus on product life cycle
 New products developed in US exported to advanced economies. US imports
same products once that are exported (in later stages)
- product lifecycle: stages of product over time, time varies from industry
o introduction: sales low
o growth: adaption, sales rise
o maturity: status quo, growth slows
o decline: sales
- Problems:
o US Centric: not all products only developed and exported in US (not always the early
stages)

New Trade Theory: accounts for economies of scale and first-mover advantages

- Economies of scale: per unit costs of production decrease with increased production
o EX. 10 units resources to make 1 ton coco
o How: Fixed costs spread, learning affects
- Cost reductions associated wit hlarge-scale production
- Can have important implications for international trade
o Trade can increase the variety of good available to consumers and decrease the average
cost of those goods.
o The global market may support only a small number of enterprises for industries in
which the output required to attain economies of scalerepresents a significant
proportion of total world demand.
- Increasing Product Variety and Reducing Costs:
o Without trade: vriety goods country can produce are limited by the market size
 Low volume and higher costs
o With trade:
 Individual national markets are comined into a larger world marker
 Each nation can increase variety of goofd and lower the costs of those goods
- First-mover advantages:
o Economic and strategic advantages accruing to the first to enter a market
o Gain a scale-based cost advantage, later entrants find it almost impossible to match.
- Combining first mover and economies of scale can determine trade patterns

New Trade Theory:

- Not aligned with free trade: recommends gov intervention

- Pointer believed existing theories only told part of the story
o Wanted to explain why a nation achieves international success in a particular industry.
 o From broad attributes of a natin shape the enviromnment in which local firms compete
 Factor endowment
 Demand conditions: demand level for products in that industry
 Related supporting indutryies: EX. steel can support auto
 Firm strat, structure, rivalry: excellence of strategy, competition

The Determinants of National Competitive Advantages: Porter’s Diamond:

- Factor Endowments
o Basic factors: Natural resources, climate, location, demographic. Can provide an initial
advantage.
o Advanced factors: Communication infrastructure, sophisticated and skilled labor,
research facilities, and technological know-how. Are a product of investment by
individuals, companies, and governments.
- Demand Conditions
o Firms gain competitive advantage if their domestic consumers are sophisticated and
demanding.
o If increasing demand in country for some kind of product, the country is becoming gl
- Related and Supporting Industries
o Investments in advanced factors of production by related and supporting industries can
help the industry achieve a strong competitive position internationally.
o Successful industries within a country tend to be grouped into clusters of related
industries.
- Firm Strategy, Structure, and Rivalry
o Different nations are characterized by different management ideologies, which may or
may not help them build national competitive advantage.
o Strong association between vigorous domestic rivalry and the creation and persistence
of competitive advantage in an industry.

Four attributes constitute a diamon x

- Firms likely to succeed in industries or industry segments where the diamond is move
favourable.
- Chance and government are other factos that push the diamond

Week 3 – How Firms Operate Globally – What Determines their Global Strategy
Today: how firms rprefer to compete in the market (what is strategy, reason behind expansion) Business
strategy on two levels.

Strategy and Firm:

- Profitability: grow profit by increasing revenue (sell existing markets, new markets)
- Perceived value to customer is usually > than price
- EX. Uniqlo
- Two main strategies: low cost (price) or differentiation (products, unique)
o Firms need to decide, hard to compete otherwise
- Curve: cost vs value differention
o Starwood: they are charging too little. They could charge more.

Value Chain: value creation activities (includes cost reduction too)

- R&D and Marketing and Sales creates value

- Production and Marketing and Sales can reduce costs.
- Must instill them all in the strategy: use all value chain activities to support

Why Firms Go International – Global Expansion, Profitability, Profit Growth: x

1. Expand potential size of market for domestic products:

o Think about core competencies and go somewhere that cannot copy/replicate
2. Realize location economies
o Locate customer service in other countries for cheaper labour
o Choosing to locate value chain activities in different places
o Problems:
3. Realize greater cost economies from experience effects:
-
4. Earn a greater return-on-investment

Cost Pressures: WRT Reduction

- In places where product is homogeneous (EX. generic products, standardized)

- Must compete on cost.
- EX. Commodity
- Also, if competitors are in low-cost locations
- Or excess capacity

….

Four Basic Strategies: x

- Global Standardization Strategy:

o Fast fashion: standardized to achieve low cost
o Tim Hortons
- Transnational: pressures for cost reduction and local responsiveness, complex to achieve
o EX. Costco in different location (process: Stocking items.
- Localization:
 - EX. a newer company: first international entry, would likely go to the
o Not global standardization: don’t have economies of scale (cant get low cost)

Week 4 – International Finance:

Recall:

- 2 strategies: diff, low cost

- 2 types of pressures faces:
o Cost pressures: pressure to reduce cost
o Local responsiveness: adapt more to what locals needo compete effectively
 High:

Where FX happens: x

- If want to invest/buy in another country, we need their currency.

- OTC or centralized markets (where to do it)
- Can be spot transactions or FX markets
- Currency market mechanics: Green and Blue people trading. They swapped $1 for 3 Yuan at US$
1 = 3 Chinese Yuan. Orange person thinks Yuan is worth more. Green heard and thought to take
advantage and swapped 2 Yuen for $1 US (arbitrage).
o

FX Rate: price of one currency in terms of another

- Appreciation/depreciation: increase/decrease in value of the currency

- US $ is the base currency: economic power, liquidity, political stability, historical precedent
o Reserves of US$ in several international countries
- Spot Rate: transaction today rate
- Forward Rate: quoted rates for period going forward. Enter contract

Businesses using FX market: x

- Purpose to use FX (currency conversion): mainly for payments, ST and LT investments

o Sourcing
o Investments: dividends, invest in companies, invest in FX itself (arbitrage).
 ST: currency speculation: immediate st cash
 LT:
o Hedging: against exchange risk

EXAMPLE: description is int ehe txt (EXAM EXAM EXAM)

- Camera price in Japan is Yen 200000

- Spot rate is $ = 120 Yen (Japan)  camera is $1667 (200k/120)
- Unlikely buyer will pay entirely without camera even being made yet.
o Take 30 days for transaction to complete.
- Sale price of camera: if sell it for $2000 will profit.
- E shifted to E ($/Yen) = $1 = 95 Y
- Now after 30 days they incur a loss.
 - If Forward E at t=0. $1 = Y 110

Nature of FX Market:: x

- Use: payments or hedging

- How: currency markets everywhere (London, NY, Zurich, Tokyo, Singapore)
- Effectively create a single market:
o Most markets open 24 hours, information transfer is quick, markets equilize and remove
arbitrage.

What determines FX rates:

- Same sweater is cheaper in Canada: make profit by buy in Cad, sell in US.
o Sustainable: price will fall eventually fall and arbitrage disappears.
- Law of one price: wrt currencies. Absence
- BIG MAC
o Currency market: 6.14 Y = $1 (should be able to buy whatever 1$ can buy you.)
o However relative to reality, the rate is 3.49
o We see that Yuen is undervalued.
o to correct the market for real PP (relative prices)
o Graph:
 Red line: $0
 Left/right is increase/decrease valuation
 2 days in red and blue
 CAD supports the PPP theory
 Denmark: moving towards removing the undervaluation
 Turkey, Sweden (it was overvalued, but the extent is increasing)
 These ones defy the PPP theory (assumptions/simplifications)
- Consider
o pound 0.75 = 1 $ (reality)
o Pound 0.78 = $1 (currency market)
o Currency market assign lower value to pound than normal Undervalued
 PP of currency is more than it can actually buy  overvalued
o STEP 1) which country has more PP?
o STEP 2) Is the PP greater than reality?
o CONSIDER:
 PP of 1 pound:
 1 pound = 1.33 $ (reality)
 1 pound = 1.28 $ (currency)
 Since currency is lower than reality > it is undervalued

Inflation Rates and Money supply:

- High interest rates motivate saving: interest rate is cost of debt and investment
- Inflation:
o Excess Ms (same demand)  price rise 
 - Floating:

Investor psychology:

- Bandwagon effect
- Capital flight

QUIZ EXAMPLE: DEFINITIONS. NOT NAMES AND LOCATIONS. (classes 1-4)

- CH1 and 11 – Slides is sufficient (essentials only: globalization)

- Read all chapters once then study slides.
o Trade theory
o Business strategy
o FX: functions of FX market, factors influence currency value (did not choose everything
to talk about in class. Will not quiz on things not taught in class.
o NOT: 360
- Tophat questions good representation
- 40 mins; 15 MC, 2 short answer
- No calculations required. EX. over/under valued.

After Mercantilism, they did a fixed valuation where each currency had to peg to US which related to
golf. Then they moved to floating.

IMF – MP advice to countries, funded by member country quotas (they buy their share in IMF)

World Bank – reduction in poverty, security, etc.

Week 5 – National Differences in Political, Legal, and Economic Systems and their Implications:

Understanding Institutions:

- Institutions: rules that govern any country, reduce uncertainty, lower cost economic transactions
o Formal: official, legal, written out
 3 systems (interdependent & influence each other): legal, political, economic
o Informal: culture, ethics, norm

Political Systems: systems of government

- Two dimensions:
o Emphasis on individualism or collectivism
 Individualism: ensure individual rights, laws favor individuals pick for self
 EX. CAD: healthcare, education, rights, tax
 Collectivism: greater good of society, gov lays down rules for society (hard &fast)
 EX. US: private, more state ownership of companies
o Degree of democratic or totalitarian:
 Democratic: people elect gov reps
  Totalitarian: one person/party with absolute rule (communist, theocratic,
rightwing, tribal)
 Pseudo-democracies: partial democracy

Legal System: rules, laws in nation that govern behavior and processes through which laws are enforced

- Type of law followed:

o Civil law: codified law (based on statutes and codes)
 Law setting: through passing laws and bylaws
 Less adversarial: cant argue it
 EX. Argentina, Brazil, Switzerland, Sweden, France, Quebec
o Common Law: use precedent setting cases to redefine the state of law.
 Argue cases back to prove it’s the same situation
o Theocratic law: based on religious teachings, rules based on scripture
- Which countries follow: depends where they are based from (colonization)
o EX. Canada follows common as did UK
- Implication on Businesses:
o Contract Law: common law contracts more detailed than civil law
 Reason: there are loopholes so we write everything out
o Product safety and liability: safety standards must follow, they are accountable
 EX. FDA in USA: strongest certified org for medical.
o Property rights: legal rights over use to which a resource is put and over income derived
from that resource.
 Corruption: if gov takes away property rights
 EX. need to pay gov to keep property
 Blackmail/theft: groups taking your stuff (is blackmail, theft, etc)
 Weak: buy land want to build plant. Gov can suddenly claim 50% of the land
randomly.
 Intellectual property: critical in ‘information age’ ‘knowledge economy’.
 Sustainable competitive advantage wrt fast growth industry (ex. tech)
 Patents: products
 Copyright: artistic creations
 Trademarks: designs or names of companies
 WIPO (World International Property Organization): sign treaties
- Read slide 8 later: UN convention on contracts for international sale of goods (CISG):
o CISG countries required to abide by basic rules to ensure reliability overall
- Slide 10 skipped tbh
- Rankings of corruption by country:
o Expanding into corrupted countries: harder
 If can handle it you might have easier access to resources.
 Risk: what will the government do? How much profit can retain? Political factors.
o Expanding into non-corrupt countries: easier
 Government wont bother you

Economic Systems: x
 - Market economy: production activities (companies) are privately owned
o
- Command economy: gov allocates resources and plans production selling of g/s
- Mixed economy: some sectors are privately owned, while others have state ownership
o Consumer benefit: some Gov intervention curves competition (preventing monopolies)
- Top 10 of top fortune 500+: some market economy (public) and some (gov).

RECAP SO FAR: we looked at formal instutions (political, legal, economic)

- Tophat Q: state ownership higher in COLLECTIVISTIC ECONOMY

o In command economy

Culture (Information Institutions): what drivers

- 6 Determinants of Culture:
o Religion:
 Secular countries:
 Some think: religion is not supported, absense
 Some think: inclusion, allow all to have space
o Social Structure:
 Degree of Heircharchy and inequality
 EX. India Caste
 Social mobility: moving between classes (determined with education)
o Language:
 Although Chinese/mandarin most common, English has highest global output
 English is the lingua franca: a global business language
o Education :
 Literacy rate in country determines how you market
- Implication:
o Cultural awareness without ethnocentrism (your culture is the only right one, prevents
knowing other cultures work better)

Framework to understand cultural differences:: x

- Power distance: inequality is the norm (agree boss holds more power)
o Impact: harder to speak up
o Difference to elders
o Income inequality is higher
- Collectivism (identify as a group) / individualism (identify with self):
o Homepage nike in south korea and US
- Masculinity/Femininity:
o Masculine: gender roles defined
o Feminine: anyone any role
- Uncertainty avoidance:
o High avoidance: not easily starting up, job security > growth job
o Low avoidance: innovation and creativity, risk
 o EX. Germany (high) and India (low – lack of strong systems, used to flexibility)

PART B ASSIGNMENT: PESTEL and CAGE.

PESTLE: describe the dimensions that are important.

- Political: tax policy, tariffs, ease of doing business, is gov reliable/stable

- Economy: immigration rates, disposable income, GDP, interest rates
- Sociocultural: demographics, population size, cultural trends
o EX. Plant based
- Technological: infrastructure, advancements, automation
- Environmental: physical, weather patterns, climate, sustainability
o EX. Indonesia developing capital city being sustainable asf
- Legal: is product legal,
o EX. cannabis

CAGE: bi-lateral analysis (both home and target company analyzed the difference) DISTANCE ANALYSIS

- The greater the cage difference, the riskier it is to do business in this country
o Gping to similar countries as home country make easier to succeed and establish self
in country.
- Cultural: difference btw two countries in the dimension
o PEsTLe: trends in vegetarianism in one country
o Can use hofsted’s dimensions here. If high distance than higher risk
- Administration:
- Geography:
o Differences in
- Economic:
- Certain dimensions for other industries.

QUIZ REVIEW: x

- Week 1-4: only what is in the slides. Application questions can be complex.
- Chapter 1: slides
- Chapter 11: brief
- Ch 6, 13, 10: more detailed
- START 2:45 PROMPT

CH1 – introduction

- Globalization
- Evolved over decades
- Trends, drivers, implications

CH6: trade

- Definitions
- Theories
o Early vs modern throty
 o Know the basics, what does it say/predict/assume.
o Shortcomings
o What makes it invalid
o Where is it best applied
- Mercantalism: zero sum game
- Absolute advantage: questions mercantalism Says both can benefit by trading based on what
they should specialize to increase world output and trade sich that individual countries trade is
higher for both.
- Comparative: what is same country is efficient in both? Still engage in trade by focus on the one
MOST efficient in prosucing
- Heck: reality theres factor endowments, if you don’t have resources you cant specialize.
- Modern theory:
o Product life-cycle:
o New trade theory: aircraft industry, more advantages and economies of scale and those
two influence trade patterns. If in industry these are important, other countries will not
be able to.
o Porter diamond of national advantage: when factors are helpful to the industry they can
make them competitive.
o 4 factors of something: endowment, related and supported industries, + government
and chance is needed.
- Shortcomings and predictions used in textbook.

CH13

- Strategy:
- Goal any business is rise SHE (grow profit)
- Increase their value to increase their price.
-
- x

X: x

- x

X: x

- x

X: x

- x

Week 6 – Where to Go - Fundamentals

X: x

- x
Week 7 – MIDTERM BREAK

Week 8 – Student-Led Presentations

Week 9 – Economic Integration and Entry Modes

X: x

- x

Week 10 – Student Led Presentations

Week 11 – Structuring the Multinational Company

X: x

Week 12 – Student Led Presentations

X: x

- x