Mid Term Notes

AFM 131 Midterm

Chapter 3: competing in global markets

Why trade with other nations?

- No country can produce all products that people want and need

- Even if self-sufficient, other nations seek to trade with country in order to meet needs of own people

- Some have abundance of natural resources, lack of technology, vice versa

- Enhances quality of life for Canadians and contributes to country’s economic well-being

Free Trade – movement of goods and services among nations without political or economic obstruction

Comparative advantage – sell to countries products that it produces most effectively and efficiently and buy from countries whose products it cannot produce as effectively.efficiently

Absolute advantage – country has monopoly on producing specific product, or able to produce more efficiently than all other countries

Balance of trade – nation’s ratio of exports to imports -> favorable = exports exceeds imports (surplus), opposite = deficit

Balance of payments – difference between money coming into country (exports) and money leaving (imports) plus money flows from other factors (tourism, foreign aid, military expenditures, foreign investment, etc), goal = more money flowing in

Strategies for reaching global markets

Exporting

Licensing – a firm allows foreign company to produce its product in exchange for a fee

- Spends little or no money to produce and market products

- Gain additional revenues from product it would not have generated in home market

- Licensees must purchase supplies, component materials, consulting services – from licensing firm

Franchising – someone with good idea for business sells rights to use business name and sell a product or service to others in given territory

Contract manufacturing – foreign country’s production of private-label goods to which a domestic company attaches its brand name or trademark (outsourcing)

Joint venture – partnership in which two or...