Chapter 5: International Trade Agreements and Organizations

Globalization: movement of goods/services/ideas/people throughout the world.

● Positive effects (8)
○ Outsourcing
○ Competitive pricing
○ Improved human rights
○ Increased productivity
○ Innovation
○ Better jobs
○ Increased capital flow
○ Currency revaluation
● Negative effects (7)
○ Lost Canadian jobs
○ Fear of job loss
○ Loss of canadian productivity
○ Exploitation of cheap labor
○ Increased pollution
○ Unhealthy products
○ Spread of disease

Globalization strategies
1. Global strategy:
a. Regards the world as one big market— all people want the same product and will
respond to marketing in a similar way
b. Product and marketing are uniform around the world

Advantages Disadvantages

- Economies of scale (proportionate - Ethnocentricity - all people want the

savings gained by producing larger same product and will respond in the
quantities) – unit cost decreases same fashion.
- Faster product development - lack of response to individual culture
- Centralization of decision making

2. Multidomestic strategy
a. Customizes products/services and the marketing for the local culture
b. Mcdonalds because they adjust to host countries— India doesnt serve beef.

Advantages Disadvantages
 - Very effective if cultural differences are evident - Very costly
- Decisions are decentralized, less risks involved, great
responsiveness to market.
- Polycentric view: Local management are responsible for deciding
what is best ford local subsidiaries

3. Transnational strategy:
a. Combines best elements of the global and multidomestic strategies.
b. Respects needs of local market, while maintaining efficiency of a global strategy
c. Manufacturing takes place at least expensive sources, human resources and
marketing take place at the local level.
d. Apple: their marketing strategy is worldwide and their products are uniform, but
they try to understand the different needs of their consumers.

advantages Disadvantages

Geocentric view- includes both local differences and at the same time
what is best for the company

Trade agreement: A treaty between two or more countries that involves movement of goods
and services, elimination of trade barriers, establishment of terms of trade, and encouragement
of foreign investment.
● Multilateral (three or more parties)
● Bilateral (involving two countries)

Trade Agreements
NAFTA - North American Free Trade Agreement
● Between canada, united states, mexico
● Created worlds largest free trade area
● Sets rules surrounding movement of goods, services, and investments across north
america
● Eliminates tariffs and other trade barriers, and promotes fair competition

Advantages Disadvantages

● Helped create higher ● Manufacturing jobs have been lost to mexico,

paying jobs in education, where labour costs are lower
engineering, and banking ● Without tariffs, many mexican farmers could not
sectors in canada. compete and lost their livelihoods
● Allows freer flow of goods ● Canadian companies sold to foreign investors.
and services across north ● Human rights issues: mexican workers went to
america, providing better work in factories established by U.S. companies,
access to raw materials, At these factories, workers have little health
 talent, capital, and protection, work 12 hours a day, and earn low
technology. wages.
● Trade has tripled ● Mexico’s pollution has increased because its
between the three policies prioritized economic growth over
members since NAFTA’s environmental regulations.
inception ○ Farmers needed to overuse land, using
more fertilizers, etc.

Tax Treaties - created to prevent double taxation and tax evasion for poeple who would pay
taxes in Canada and another country. The treaty determines how much tax each country can
collect.

Advantages Disadvantages

● They can make business operations more predictable for

companies expanding globally.
● They allow goods, capital and technology to move more easily
across borders.
● In developing countries, tax treaties can improve confidence.

European Union (EU) -

● It has its own flag, anthem, and currency, and common financial and foreign
policies.

●
● The EU delviered half a century of peace, stability, and prosperity, helped raise living
standards, and launched a single European currency, Euro.
● Motto: United in Diversity
○ Signifies how Europeans have come together, in the form of the EU, to work for
peace and prosperity, while at the same time being enriched by the continent’s
many different cultures, traditions and languages.
● The euro is the currency unit adopted by the EU and used in most EU countries.

Advantages of common currency Disadvantages of common currency

● Decreased risk of exchange rate ● Initial costs of implementation when

fluctuations currency is exchanged
 ● Increased markets ● Lack of national control: ECB (central
○ Business exchanges are bank) has control of currency and
predictable monetary policies.
● Price transparency ● Loss of tradition, culture, and history.
○ Price comparisons from
country to country
● Elimination of transaction costs
○ No need to do foreign currency
exchange
● Easy expansion to foreign markets
due to flexible financial and legal
regulations

Trade Organizations - Groups established to help with the free flow of goods and services.
They may be global in scope or national organizations created by individual governments to
help domestic companies expand into international markets.

1. World Trade Organizations -

a. Manages negotiations between different countries
b. Provide set of rules
c. Offer dispute settlement
2. G7 (Group of Seven)
a. Russia used to be a member of the G7 and they called it G8
b. Meet to discuss marcoenomic issues; economic growth, trade liberalizarion, and
helping developing countries.
3. G20 (Group of twenty)
a. Major economies of the world beyond G7
b. Economic growth and development
c. Elimination of barriers
d. Reforming financial institutions and regulations
e. Restructuring global financial organizations

BRICS Economies
Brazil, Russia, India,
China, South Africa

● They are members of the g20, also collectively a group of BRICS.

● Not a formal trading bloc with any type of trade agreement.
● BRICS leaders meet annually and attend summits together.
● These economies demonstrated significant growth opportunities for international
businesses.
● As a result of globalization and international trade, these countries experiences
tremendous growth and attracted foreign investment.
 ● Some economies speculate that by 2050, these economies could be wealthier than the
current wealthiest economies

The World Bank:

● Provides loans and grants to assist with education, health, infastructure, farming,
environmental issues, resource management, and other economic concerns.
● Provides monetary and technical support for developing countries

International Monetary fund - organization whose purpose is to promote financial stability,

prevent and solve economial issues
● Encouraging countries to adopt responsible economic policies
● Lending money to emerging and developing countries
● Providing technical training in areas such as banking regulations and exchange rate
policies.
United Nations
● To keep peace throughout the world
● Develop friendly relations among natioins
● Work together to help poor people live better lives, and encourage respect for
eachothers rights and freedoms
● Be a centre for helping nations to achieve these goals.

Step 1: Core Concepts and Effects of Globalization

1. Globalization Definition
○ Definition: Movement of goods, services, ideas, and people globally.
2. Positive Effects (8)
○ Mnemonic: Only Cool People In Innovation Bring Investment Cash
■ Outsourcing
■ Competitive Pricing
■ Productivity (Increased)
■ Innovation
■ Better Jobs
■ Increased Capital Flow
■ Currency Revaluation
3. Negative Effects (7)
○ Mnemonic: Can Fears Lead Evil People Toward Disease?
■ Canadian job loss
■ Fear of job loss
■ Loss of productivity
■ Exploitation of labor
■ Pollution (Increased)
 ■ Unhealthy products
■ Disease spread

Step 2: Globalization Strategies and Advantages/Disadvantages

1. Global Strategy
○ Summary: Treats the world as a single market with uniform products/marketing.
Uses economies of scale but may ignore cultural differences.
○ Mnemonic: EC for Economies and Centralization (economies of scale,
centralized decisions).
○ Advantages: Economies of scale, faster development.
○ Disadvantages: Ethnocentrism, lack of cultural response.
2. Multidomestic Strategy
○ Summary: Customizes products and marketing to fit local cultures, e.g.,
McDonald’s in different countries.
○ Advantages: Effective in culturally diverse markets, decentralized
decision-making.
○ Disadvantages: High costs, less global uniformity.
3. Transnational Strategy
○ Summary: Combines global efficiency with local responsiveness, e.g., Apple’s
global brand with local adjustments.
○ Advantages: Balances global and local needs (geocentric).
○ Disadvantages: Complex to manage.

Step 3: Trade Agreements and Key Examples

1. Trade Agreements: Treaties that facilitate trade by reducing barriers and setting trade
terms.
○ Multilateral: More than two countries (e.g., EU).
○ Bilateral: Two countries.
2. NAFTA
○ Summary: North American Free Trade Agreement between Canada, U.S.,
Mexico.
○ Advantages: Tripled trade, job creation, free flow of resources.
○ Disadvantages: Job losses to Mexico, human rights concerns.
3. Tax Treaties
○ Purpose: Avoid double taxation and prevent tax evasion.
○ Advantage: Makes international business predictable.
○ Disadvantage: Can sometimes hinder developing nations.

Step 4: Trade Organizations and Groups

1. Key Organizations
○ WTO: Manages trade rules, dispute resolution.
 ○ G7 and G20: Economic forums discussing global issues.
2. Groups and Associations
○ BRICS: Brazil, Russia, India, China, South Africa—emerging economies
expected to grow significantly.
3. The World Bank & IMF
○ World Bank: Loans and grants for global development.
○ IMF: Financial stability, support for emerging economies.
4. United Nations: Peacekeeping and fostering international cooperation.

Step 5: Review and Recap with Flashcards and Quiz Yourself