What is a Business?

Before we jump head first into international business, globalization and international trade, it's important for us to all understand the definition of a business.

A business is an organization that produces or sells goods or services to satisfy the needs, wants and demands of consumers for the purpose of making a profit.

 

International Trade

Wants or Needs

A need is something you must have, something you can't do without. A good example is food. If you don't eat, you won't survive for long. Many people have gone days without eating, but they eventually have to eat. You might not need a whole lot of food, but you do need to eat.

A want is something you would like to have. It is not necessary, but it would be a good thing to have. You may want a brand-new television or the very latest tech gadget. While these would be nice to have, they are not needed to survive.

A business manufactures and/or sells goods or services to satisfy the wants/needs of consumers in order to make a profit.  Effective marketing can be used by a business to convince consumers that things they want are really things they need!

Types of Businesses

A purely domestic business would mean a business that operates only within Canada and uses only Canadian supplies to produce, package and distribute the product or service to the consumer. This would be very hard to do.

Imagine growing corn without using your tractor that was made in Germany, gas that was processed in the United States or wearing the safety boots that were produced in Mexico?

We consider a business that does most of its transactions within the borders of the country in which it is based to be domestic.

For example a domestic business in Canada is owned by Canadians, relies primarily on products and services made in Canada, and sells the products it makes and services it provides to people who live in Canada. Let’s celebrate CHAPMAN’S ICE CREAM as an example of a domestic business!

An International Business conducts economic transactions with businesses located in other countries. But what does that really mean?

There are five ways for a business to be considered an International Business:

Own a retail or distribution outlet in another country.

A retail outlet is a storefront in another country while a distribution outlet is a place that redistributes prodcuts to retailers, wholesalers, or directly to consumers.

Own a manufacturing plant in another country.

A manufacturing plant is one or more buildings with factories for producing goods.

Export to another country.

Exporting is when a business sends goods or services to another country for sale (e.g., Canada exports lumber to China, Japan, the United States,  Europe and South Korea).

Import from a business in another country.

Importing means to bring goods or services into a country for sale (e.g., Canada imports electronic equipment from China and Japan).

Invest in a business in another country.

This involves a company or individual from one nation investing in assets or ownership stakes of a business based in another nation (e.g., High net-worth Canadians have more than 27% of their equity holdings in U.S. companies).

Access this list for some of Canada’s most successful international businesses.

The Evolution of Global Trade

International trade is the foundation of international business. When a business in Canada develops a relationship with a business in another country, that country becomes one of Canada’s trading partners. But it’s important to understand that international trade takes place between businesses, not countries.

It’s pretty safe to say that we wouldn’t have access to most of the goods and services available today if not for international business.

Relative self-sufficiency is where a country is unaware of what it is missing and uses what it does have to support its people. This has been typical of every developing civilization across the globe. As transportation improved, different cultures came in contact with one another and each culture had something a little different to share. Self-sufficiency no longer seemed desirable. 

Take a look at the timeline below which depicts the evolution of global trade. Think about how international trade has grown and how Canada’s global relationships have developed over time.

Over 3000 years ago:

Early trade records indicate that items such as oils, spices, artifacts, silk, tea, clothing, gold, silver, fruit, wine, ebony, and ivory were all traded regionally in areas such as North Africa, China, India, northern Europe, Central Asia, the Mediterranean and Black Sea Coasts. Globalization was initiated when many cultures from the silk and spice trade routes gathered together in larger city networks promoting cultural exchange of goods and services between people.

How do you think the invention of the wheel in 3500 BCE and the clay tablet in 3300 BCE impacted the development of international trade?

 

The Premodern Period (before 1500 CE):

This was a time of development for many large civilizations. The great empires of the past each brought great contributions to civilization, including contributions in engineering, technology, art, mathematics, science, philosophy and systems of government. From 500 BCE to 500 CE, the Roman Empire was the dominant force in the western world. At its height, the Roman Empire controlled much of western Europe and established many of the first trade routes - including the origin of the Silk Roads.

 

 

 

After the fall of the Roman Empire (500 CE), the growth of technology stalled in the western world, leading to the period of the Middle Ages. During this system of feudalism, the upper class controlled all the imported resources and trade. Between 1000 and 1300 CE, the Crusades reconnected Europe with the East, resulting in a demand for luxury goods from the Orient (silks, tapestries, precious stones, spices and perfumes). As a result, Italian seaports became trade hubs for Eastern finery - passing these goods on to Europe. Eventually, the demand for foreign resources - especially spices and silk from the East - grew so high that the wealthy paid for merchants to transport goods along the Silk Road from China to western Europe.  Merchant ships became a more efficient way to transport goods but also brought disease.

How important are improvements in transportation technology to the growth of international trade? What changes in transportation have been made since the pre-modern times to our current times?

Population began to increase and improved transportation technology allowed for the immigration of people to new parts of the world. The exchange of ideas and the rediscovery of old ideas brought about the Renaissance Period, of which Italy was the epicentre. This sparked art, literature and cultural change throughout Europe. There was now a drive to explore the rest of the world. Rulers wanted to claim new territory to acquire ideas, money, and goods to trade.

 

 

The invention of the printing press and improvements in navigation led to the expansion of the western world. Spain and Portugal sought to find trade routes to circumvent the trade market that was dominated by Italy at the time. It was during this time period that Columbus arrived in “The Americas” originally mistaking them for India, from where he was hoping to acquire silks and spices. An English explorer, Cabot, landed on the shores of Newfoundland looking for spices; instead, he found fish.

England and France explored the east coast of North America, establishing colonies in the 1500s. Hundreds of fishing boats came from Europe to fish for cod, which had a large market in Europe. 

1600s:

Samuel de Champlain formed the first permanent settlements in Canada. He was ordered to colonize Acadia and later Quebec because the French king and merchants believed there was wealth to be made in North America. 

Back in Europe, increased population led to the growth of the middle class, which began to create a more modern capitalist economy. Dutch and British trading companies continued to establish trading posts throughout the world - which led to a system of imperialism, as countries sought to obtain greater resources. English mercantilist policies (colonization; exporting more than importing) led to their dominance of the seas for the next 300 years. Spain however fell victim to “the Great Spanish Mistake” (they relied on foreign imports and didn’t develop their own industries, resulting in Spanish gold flows to the rest of Europe).

After being denied a trade license by their own French governor in Quebec (who was trying to protect their monopoly over the fur trade), Radisson and des Grosseilliers negotiated with the Indigenous peoples and approached the English for support in setting up their own company. Grosseilliers built a fort in James Bay, which became a trade centre for the Indigenous peoples and Europeans. They applied for a Royal Charter in 1670, and the company became known as The Hudson’s Bay Trading Company. For almost a hundred years - until the English defeated the French - the French fur trade competed with the English HBC. 

Trade had an immediate effect on the Indigenous populations. They began to generate surplus goods. Whereas before the Indigenous peoples maintained self-sufficiency by trapping animals to provide for food, goods, clothing and shelter, the Europeans introduced them to the principle of trade (generate a surplus, trade the surplus for goods you cannot obtain, and sell those goods to others). This was the beginning of interdependence.

Did the Indigenous peoples benefit from their trade relationship with the Europeans?  Who benefitted more?

Further settlements were established in support of the fur trade, which in turn caused more immigration. Because Canada didn’t have a strong manufacturing industry, there was a need for shipments to travel back and forth between North America and Europe. Europe depended heavily on Canada for raw materials; this established Canada’s trade relationship with Europe and solidified Canada’s major competitive advantage.

1700s:

While the French and English were exploring Canada, the English and Dutch were exploring what is now the United States. Wealthy Dutch investors in Amsterdam formed the West India Trading Company to take advantage of trade opportunities in the Caribbean and to break the Spanish trade monopoly. While Canadian traders focused on the European connection, the American colonies developed a much more diversified network of trading partners stretching into South America.

Sugar was a particularly important import for the American colonies, which they got from the Caribbean in exchange for food from American farmers. Brown sugar processed in New York was refined into white table sugar and bagged for sale or made into candy.  The residue from this process - molasses - was distilled into rum and traded in Europe and West India. The American colonies also exported raw materials like tobacco, cotton, and processed goods like yarn, fabric, and manufactured clothing.

1776:

The Modern period of globalization (starting in the late 1700s) began with a period called the Enlightenment in which philosophers met and came up with new ideas. This included the belief of certain political and economic rights which was the basis of the American Revolution which began in 1776 and the French Revolution that started in 1789.   American independence led to increased immigration into America and the beginning of industrialization in America and Europe. There was greater urbanization and more jobs available than ever before.

 

 

1779:

A group of Canadian merchants formed the North West Company which provided fierce competition for both the British-owned Hudson’s Bay Company and American companies competing in the fur trade. As a result, the United States passed a law in 1816 making it illegal for Canadians to trade furs in the U.S. This law effectively forced the two major Canadian fur trading companies to join forces as the competition was hurting both companies. They merged under the name of Hudson’s Bay Company, making them the most powerful fur trading company on the continent.

1800:

The fur trade in Canada started to decline - partially because consumer tastes were switching to the new fad of silk hats, and partially because beavers had been over-trapped in wake of the fur popularity.

Many Canadian businesses looked to the U.S. for trade and some Canadians feared domination or unification with the U.S. Canada became a nation in 1867, partially in response to these fears and partially to ease the trade of goods between the nations.

1850:

A group of Canadian and British businessmen began to lobby for a railway across Canada from the east to west coast. The Canadian Pacific Railway was completed in 1885 and brought B.C. into Confederation. Confederation and the CPR did not stop the growth of trade between Canada and the U.S. The U.S. became Canada’s biggest trading partner, and still is today.

There were waves of immigration, especially by Europeans fleeing famine and seeking a better life. Advancements in technology improved communication and drove the continued spread of imperialism. The discovery of oil in 1870s and the use of it as a source of home heating, fuel and creation of plastics has changed the political, economic and environmental landscape for the last 150 years.

How much of an impact has technology had in promoting global trade? Can you think of any more recent forms of technology that have impacted the growth of trade?

 

1914:

During World War I for the first time, large coalitions of countries were pitted against each other. The Great Depression hit the American economy and as a result, affected the economy of the entire world - both world production and world trade declined dramatically.

Why did the Great Depression inspire protectionist policies in national governments?

 

 

1945:

World War II again saw countries join forces against a common enemy and allowed America to continue its climb as a global superpower. There was a massive increase in population and transnational communication, as interaction increased with countries outside of what is considered “the west.”

After World War II, several multilateral organizations dedicated to international economic cooperation were formed - The General Agreement on Tariffs and Trade (GATT), the World Bank, and the International Monetary Fund.

 

Why did the world market shift away from Europe to centre on America?

1950:

Japan’s industries were essentially destroyed in World War II but with North American aid, factories were rebuilt to high standards, providing modern manufacturing facilities.  Japan entered the North American market in the 1950s with inexpensive toys, novelties and electronic equipment. The phrase “Made in Japan” became synonymous with “cheap.” Since then, Japan has built some of the most popular brands in the world - including establishing its dominance in automobile production -  and has led other Pacific countries into trade. Japan is now one of Canada’s largest trading partners.

When you think of a global superpower, what comes to mind? What characteristics do these countries present in the world stage?

1980s:

American democracy and the capitalist system took centre stage in the world. The Berlin Wall fell.

How might the world market be different today with a different outcome?

 

 

 

1990s:

Canada signed the North American Free Trade Agreement (NAFTA) and eliminated all trade barriers among the United States, Canada, and Mexico by 2008. NAFTA was spearheaded by the U.S. but Canada benefitted greatly from it. The large Mexican consumer market provides new opportunities for the sale of Canadian products and Canadian branch plants are able to take advantage of lower Mexican labour costs to manufacture goods that are shipped to the southern U.S. Before this agreement, Canada did very little trade in Central or South America.

NAFTA’s success caught the attention of other Central and South American countries and the heads of state of 34 democracies in the region met at the Summit of the Americas to discuss uniting the economies of the Americas into a single free trade agreement. No official agreement was reached by its deadline of 2005.

During this time period, the World Trade Organization replaced GATT and the European Union was formed; both have had a major role in reducing trade barriers and establishing the rules for trade between nations. 

What impact do you think Brexit and President Donald Trump’s opposition to trade agreements like NAFTA and the Trans-Pacific Partnership will have on the future of global trade?

Global Trade

Global trade has evolved extensively over the past 3000 years. However, particularly in recent years, there has been some pushback against the idea of free trade for a number of different reasons. Look at the list of points below and decide whether each is an advantage or a disadvantage of international trade.

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Our Global World

Globalization is defined as the process by which national and regional economies and cultures have been integrated through things like new global communication technologies, foreign direct investment, international trade, migration, new forms of transportation, and flow of money.

Take a look at these interesting facts about the global environment that might surprise you.

• By 2030, global food demand is expected to rise by 35%.
• Two-thirds of international trade is accounted for by just 500 companies.
• Between 1900 and 2000, world per capita GDP rocketed from $680 to $6,500.
• The red and white Coca-Cola logo is recognized by 94% of the world's population.
• The iPad 2 would cost $1,140 if it were made in the USA.
• Samsung accounts for 20% of Korea's gross domestic product.
• Global governmnents spent $409 billion in fossil-fuel industry subsidies in 2010. That's nearly double the anual GDP of Ireland.
• More people in the world have mobile phones than toilets.
• The world's 100 richest people earned enough money in 2012 to end global poverty four times over.
• China has 64 million vacant homes, including entire cities that are empty.
• The proportion of people living in extreme poverty declined by more than half between 1990 and 2015, as did the number of children dying before the age of 5.
• According to the IMF, the cost of bribery is about 2% of global GDP (roughly $1.56 trillion).
• 168 million children are involved in child labour, half of whom are in hazardous work.
• Digital platforms can cut the cost of exporting by 83% as compared to traditional export channels.

Vocabulary Self-Check

Match each term with its correct definition to assess your understanding of the vocabulary introduced in this lesson. 

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