The Current Business Environment, its Trends & Practices

Contents

The Canadian Business Environment The U.S. Business Environment The International Business

Environment Sectors/Industries (North America) International Competitiveness &

Productivity TRENDS PRACTICES

The Canadian Business Environment

Economy Overview:Market-Oriented Economic SystemHigh-Tech Industrial SocietyAbundant Natural ResourcesSkilled Labour ForceHigh TaxationTrade Surplus (favourable)Budget SurplusesHuge Debt

The Canadian Business Environment

Economic Snapshot (2004): GDP (Gross Domestic Product): $1.023 trillion GDP per capita: $31,500 GDP Growth Rate: 2.4% GDP Composition by sector:

• Agriculture: 2.3%• Industry: 26.4 %• Services: 71.3%

Inflation: 1.9% Unemployment Rate: 7% Labour Force by occupation:

• Services: 74%• Manufacturing: 15%• Construction: 5%• Agriculture: 3%

Source: CIA World Factbook

The U.S. Business Environment

Economy Overview:Market-Oriented Economic SystemRapid advances in TechnologyStrong InnovationAttracts highly skilled labourSteady Growth, low Unemployment and

InflationLarge Trade Deficit (Unfavourable)

The U.S. Business Environment

Economic Snapshot (2004): GDP (Gross Domestic Product): $11.75 Trillion GDP per capita: $40,100 GDP Growth Rate: 4.4% GDP Composition by sector:

• Agriculture: 0.9%• Industry: 19.7 %• Services: 79.4%

Inflation: 2.5% Unemployment Rate: 5.5% Labour Force by occupation:

• managerial, professional, and technical 34.9%• sales and office 25.5%• Other services: 16.3% • manufacturing, extraction, transportation, and crafts 22.7%• farming, forestry, and fishing: 0.7%

Source: CIA World Factbook

The International Business Environment

3 ways to classify countries based on their Economy/Economic Structure:

1. Developed Countries e.g.: United States, Canada, Germany, Japan

2. Developing Countries e.g.: China, India

3. Underdeveloped Countries e.g.: Kenya

The International Business Environment

Characterised by:1. Developed Countries

Good and Stable Economies Strongly established Infrastructures (Government-Business Linkages,

Transportation & Communication Systems) Strong growth in the Service & High-Tech sectors Educated and Skilled Workers Stable Economic Growth and Inflation High Standards of Living

2. Developing Countries Developing Economies/Infrastructures Strong Economic Growth Focus on Manufacturing Moderate to High level of FDI (Foreign Direct Investment) Improving Standards of Living

3. Underdeveloped Countries Poor Economies/Economic Infrastructures Economies mostly Agriculturally based Poor Living Standards/High Poverty High Unemployment

The International Business Environment

Emergence of Trade Zones/Areas North American Free Trade Agreement

(NAFTA) Mercosur Free Trade Area of the Americas (FTAA) -

2005 European Union (EU) Association of Southeast Asian Nations

(ASEAN) World Trade Organisation (WTO)

The International Business Environment

International Business Strategies Exporting Licensing Franchising Joint-Ventures Direct Investment (FDI)

The International Business Environment

Other Factors: Political Environment Legal Environment Economic Environment Cultural Environment Corruption (see next slide) Emergence of Knowledge Based Economy

The International Business Environment Transparency.Org’s - Corruption Perceptions Index 2004

TI Corruption Perceptions Index 2004

Country Rank Country 2004 CPI Score*

1 Finland 9,7

2 New Zealand 9,6

3

Denmark 9,5

Iceland 9,5

5 Singapore 9,3

6 Sweden 9,2

7 Switzerland 9,1

8 Norway 8,9

9 Australia 8,8

10 Netherlands 8,7

11 United Kingdom 8,6

12 Canada 8,5

13

Austria 8,4

Luxembourg 8,4

15 Germany 8,2

16 Hong Kong 8,0

17

Belgium 7,5

Ireland 7,5

USA 7,5

The International Business Environment

North American Industrial Classification System (NAICS)

Developed for Canada, U.S., & Mexico Purpose:

• To provide common definitions of the industrial structure (Economic Activities) of the three countries

• To provide Production (Goods/Services) and Economic Statistics

• Used to Classify enterprises (and companies) Divides the Economy in to 20 broad sectors

International Competitiveness & Productivity

Countries compete with each other mostly based on how it manages Factors of ProductionFactors of Production: The basic

resources (such as labour, capital, entrepreneurs, information, physical and natural resources) used to produce Goods & Services

International Competitiveness & Productivity

How efficiently and effectively a country develops, uses, and maintains its factors of production strongly determines its competitiveness in the Global Economy

Productivity is also an important determinant in Global CompetitivenessProductivity: can be described as

“Economic Output per worker”

International Competitiveness & Productivity

Productivity comparisons among Organisation for Economic Cooperation and Development (OECD) countries show that Poland is the leader with its “economic output per hour worked”.

Source: www.oecd.org

International Competitiveness & Productivity

The differences between nations lies with these factors:Technologies, Human Skills,

Economic Policies, Natural Resources, and even Traditions.

International Competitiveness & Productivity Other ways to compare Economic

Superiority between nations: Economy (GDP, GDP per capita, GDP

Growth) Budget Deficit/Surplus Trade Deficit/Surplus Amount of Debt Strength of Currency (exchange rate of one

currency vs. another) Level of Inflation and Unemployment Standards of Living Strength of Markets

TRENDS Increasing focus on Service sectors Increase in part-time and temporary job

positions Aging of the population Technology Improvements in Communications/Internet Globalisation Virtual Economy Diversity Outsourcing (especially Jobs) Convergence Utility Computing

More TRENDS: A Closer Look

Growth in the Underground Economy

“Brain Drain” Increasing Gender GapElimination of Money

Growth in the Underground Economy

The “Underground Economy” is defined to include both: 1. Legal Activities that

produce income that is not reported to the tax authorities, plus

2. Income that is generated from illegal activity

Growth in the Underground Economy Types of Underground/Illegal Activities:

Illicit Drugs Alcohol & Tobacco smuggling Counterfeiting Money (paper bills) “Curbsiding” Money Laundering “Zapping” Prostitution Working “under the table” Faking business expenses Stealing satellite signals (exp. TV signals)

Growth in the Underground Economy Recent estimates show that

underground economic activity is equivalent to 15-16% of GDP. In 2001, this amounted to $160 billion.

Unreported Economic Activity increased from a modest 3.5% of Canadian GDP in 1976 to about 15% in 1995

Growth in the Underground Economy Factors that have contributed to the

growth in the U.E.:Rising Income Tax burden

Introduction of Goods & Services Tax (GST) in 1991

Government Regulations (for businesses/industries)

Social Welfare SystemGrowth of Self-Employment

Growth in the Underground Economy The Growth in the U.E. has harmful

consequences:1. It redistributes income and wealth in

ways that run counter to the goals of public policy,

2. It distorts information that governments use in making economic and social policy decisions, and

3. It results in a tax burden on law-abiding citizens

Growth in the Underground Economy How to remedy or lessen the

problem?1. Step up Government efforts and

impose stronger penalties for tax evasion

2. Hire more Tax Auditors

3. Lower tax rates

“Brain Drain/Gain” During the 1990s Canada suffered a net loss of skilled

workers to the United States in several economically important occupations.

There was an upward trend during the 1990s in the number of people leaving Canada for the United States and other countries.

While losses of highly skilled workers to the United States accelerated during the 1990s, so too did the influx of highly skilled workers into Canada from the rest of the world. This is particularly true of high-technology industries where immigrant workers entering Canada outnumber the outflow to the United States by a wide margin.

Emigrants to the United States are more than twice as likely to hold a university degree than are immigrants to Canada. However, because of the overall greater number of immigrants, there are four times as many university graduates entering Canada from the rest of the world as there are university degree holders of all levels leaving Canada for the United States.

“Brain Drain/Gain” Reasons Canadians leave to th

e United States for Employment:

More and better professional and career opportunities

Opportunity to work with the best facilities and the brightest minds

Higher Salaries Lower Taxes

• International Migration of Skilled Workers: Facts and Factors (in PDF format) HRDC and Industry Canada, December 1999

“Brain Drain/Gain” Solutions/Recommendations for

improvement of the situation:1. lowering marginal tax rates

2. increasing government support for corporate training and retraining programs

3. easing restrictions on qualified immigrant workers

Increasing Gender Gap

A Widening of the Gender Gap is occurring in North-American schools and this will have an effect in the face of employment in the decades to come.

Much emphasis in Education in the past 30 years has been placed on girls.

Boys’ academic success and participation in extra-curricular activities are declining significantly as opposed to girls

Increasing Gender Gap

Boys are also more prone to be diagnosed with learning disabilities and being emotionally disturbed. And boys are much more likely to use prescription drugs for depression and are more likely to commit suicide than girls

For 350 years, men outnumbered women on college campuses. Now, in most industrialised nations women are outnumbering men and earning more degrees.

Elimination of Paper Money & Coins

The Bank of Canada still prints paper money but it only represents from 4 to 5 percent of money in circulation. The rest exists solely as numbers in accounts.

Elimination of Paper Money & Coins

Paper money and coins are being replaced by more efficient means of exchange, such as:“Electronic Money”“Electronic Gold” E-mail Money Transfer (e.g.

Certapay)

Elimination of Paper Money & Coins

Reasons for the change:Speed/Efficiency/SimplicityDoesn’t erode Cost savingsGlobalisation / Opening of MarketsPolitical/Economic UncertaintyE-Commerce

PRACTICES

Increase in Mergers & Acquisitions Ethics & Social Responsibility International Business Etiquette Bribery & Corruption