International Business Practices

Reasons Canada Trades

Company growth Entry into new markets Expand customer base Increase profits Access to inexpensive supplies Lower labour costs Access to financing

Entering International Markets

Foreign Portfolio Investment Importing Exporting Licensing agreements Franchising Joint Ventures Foreign Subsidiaries

Foreign Portfolio Investment By Canadians purchasing stocks, bonds, and other

financial instruments of foreign companies outside Canada

To increase wealth and save for retirement Looking for dividends, or the interest that can be gained1. Money markets – essentially IOU’s from the

government, financial institution or large corporation (short term, safe, liquid – can be converted to cash)

2. Capital markets – directly purchasing stocks on international stock markets (also mutual funds)

Why Invest Outside of Canada?

To diversify investments; less risky than placing all bets in one place

Greater rates of return (emerging markets experiencing strong economic growth) although risk is a factor

Canada amounts to only 2% of world’s stock and bond markets

Importing

Bringing products or services into a country Used for another business in either

processing, as finished goods or for resale (B2B)

Global sourcing – process of buying equipment, capital goods, raw materials, or services from around the world

Benefit – keeps costs down, improves quality, allows access to new technologies

Importing

For resale: Canadian Tire imports BBQ’s made in US The Bay imports clothing from Italy Future Shop imports TV’s from Japan

Services also imported Ex: Call centers located throughout the world

answer calls from Canadians who have questions about computers etc

Your Turn

What are Canada’s Top Ten Import Markets by Country?

Exporting

Occurs when companies outside of Canada purchase Canadian goods and services

Like imports, may be B2B, or for resale Ex; RIM exports its products both to other

businesses and to end consumers Ex: Tele Tech (multi national company in

Colorado) has a call centre in London, ON

Your Turn

What are Canada’s Top Ten Export Markets, by country?

Value Added A big problem with Canada’s imports and exports Value added is the amount of worth that is added to

a product after it is processed Difference b/w cost of raw materials and cost of

finished goods Companies that focus on extraction of primary goods

do not make as much as those that process them A US company buys $50 of lumber from Canada to

build a table sold for $3000 and sells back to a Canadian retailer who then sells it to a customer for $4500…who added the most value?...US firm

Licensing Agreements Gives a company permission to use a product,

service, brand name or patent in exchange for a fee or royalty (often only applicable in certain region)

Ex: Virgin Mobile (British company) has licensing agreement with Bell Canada and allows Bell to use brand in Canada

Virgin benefits: increased profits Bell benefits: access to extensive wireless service

options, Virgin brand name These agreements usually have little risk but huge

potential for monetary gain

Exclusive Distribution Rights

Another form of licensing agreement Allow a company to be the only distributor of

a product in a specific area or country Often uses as initial entry into foreign market Ex: when iphone initially entered Canada

Rogers had only technology that supported the iphone and they had exclusive Canadian rights to sell it…customers needed a Rogers plan to be able to buy and use it

Franchising An agreement to use a company’s name, services,

products and marketing Franchise signs a contract, agrees to rules of parent

company, for a fee the franchisor provides service support in many areas

Ex: McDonalds, Wendy’s, Subway, Little Ceasars Canadian owned – Boston Pizza, Mr. Sub, Second Cup,

Tim Hortons, etc Advantages: less risk, access to expert

knowledge/research and financial aid Disadvantages: less profit, strict quidelines, loss of control

Joint Ventures

Occurs when two businesses, one of which is usually located in foreign market, form a new company with shared ownership

25-40% of all foreign investment is in the form of joint ventures

Advantages: to be allowed in a country (China and Cuba) to gain access to market, products and customers, share financial, managerial, technology and cultural information etc

Joint Ventures Cont’d Disadvantages: 50% fail Ex: in 2010 Toyota closed a plant for the first

time in history; its join venture with GM in California was negatively affected by slumping US auto sales

Joint ventures that succeed often take years to generate a profit – both needs and wants of two companies must be taken into consideration

Successful join venture: Sun Life Financial with Sun Life Everbright Group in China

Foreign Subsidiaries (Wholly owned Subsidiary) Most comprehensive type of IB When a parent company allows a branch of its company,

in another country, to be run as separate entity Parent company sets financial targets and as long as they

are being met it’s allowed to operate independently Ex: Toyota (better for Japan – distribution costs less and

Canada benefits from investment and employment) Canadian companies with subsidiaries (Bombardier, TD)