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C H A P T E R 1 9
North America
Chapter objectives
2. Review the business environment with primary attention on the industrial, regulatory,
banking and finance and labor relations areas.
4. Consider specific institutional arrangements, namely, the United StatesCanada Free Trade
Chapter summary
1. Canada is the single largest trading partner of the United States. There has been a move
2. Financial institutions are similar to those in the United States, as are labor relations
3. NAFTA will eventually eliminate most trade barriers between the United States and
4. The approaches to doing business in Canada are similar to those in the United States, with
some important regulatory differences. The chapter identified and discussed both.
5. Mexico has the strongest economy in Latin America, and its close business ties to the
United States, as reflected by imports, exports and US foreign direct investment (FDI), bode
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
Chapter outline
Introduction
Canada
Canadas economy
Differences in the business environment
Canadas multinationals
Mexico
Mexicos economy
Mexico and NAFTA
Regional trade agreements
Doing business in Mexico
Lecture outline
A. Introduction
1. This chapter focuses on institutional factors in the North American market that must be
considered when looking at the Canadian and Mexican markets. The NAFTA has not
B. Canada
1. Canada, with a land area of almost 3.6 million square miles, is second in size only to
2. Canadas 33 million people enjoy one of the highest standards of living in the world.
3. Canadas economic growth has been historically based on the export of agricultural
staples, especially grains, and on the production and export of natural resource products
4. Almost 80 percent of manufacturing activity is located in Ontario and Quebec,
including the entire motor vehicle industry, which is Canadas largest segment. Almost
5. The United States has more foreign direct investment in Canada than in any other
6. While there are many similarities between the business environments of the United
States and Canada, there are also some important differences. The Canadian economy is
7. Small business is a major part of the economy and accounts for almost 80 percent of all
9. While there are no price controls, there is regulation to review monopolies, acquisitions
10. Export permits are required for the shipment of goods having strategic value, such as
11. The Canadian federal government has a bilingual policy. But in the province of Quebec,
12. Banks in Canada offer a full range of financial services. There are six large Canadian
chartered banks, with extensive national branch networks and many smaller (often
13. Canada has four major stock exchanges: Toronto, Montreal, Vancouver and Calgary.
Toronto is the major exchange, accounting for about 95 per cent of dollar trading
14. Labor relations are governed by both federal and provincial labor legislation. The
15. With the exception of farmers, domestic help and white-collar workers, the workforce is
heavily unionized. Approximately 30 percent of the total labor force is unionized. As in
16. The Investment Canada Act (ICA) came into effect on June 30, 1985, and is designed to
17. Some of the larger Canadian companies, such as Nortel Networks and Bombardier, are
18. While the Canadian economy began to slow down during the early 1990s, the country
19. Companies doing business in Canada need to know distribution practices and
advertising and promotion channels. In many cases, these are similar to those in other
20. Media used for advertising include television, radio, newspapers and magazines. Almost
all households have a television and a radio.
21. One of the most popular ways of doing business in Canada is through exports. Canada
22. Canada is the dominant foreign market for US franchisors. There are currently over 300
1. Mexico, with a land area of approximately 760,000 square miles, is equal in size to
2. The countrys economy is currently in a state of flux, which has been brought on by
new economic relations with the United States. Today, Mexico has the strongest
3. The climate for foreign investment in Mexico has grown increasingly favorable in
4. Labor is relatively plentiful and inexpensive. However, while there are numerous
engineers, MNEs report a serious shortage of skilled labor and managerial personnel,
5. As a result of the NAFTA agreement, trade in several sectors has experienced
considerable growth. Other developments involving Mexico, as a leader in the
6. The market for goods and services is growing rapidly. However, many MNEs admit that
7. In order to maintain its economic growth, Mexico must continue developing
international competitive strength. This is currently being done by linking into the US
market. In particular, MNEs must view this market not just as a source for export but
8. There are six major strategic clusters in Mexico: petroleum/chemicals, automotive,
housing and household, materials and metals, food and beverages and semiconductors
9. Mexicos petroleum industry accounted for 8 percent of all exports in 2004. The largest
firm is the state-owned Petroleos Mexicanos (Pemex), which is the worlds largest
crude oil producer and the 65th largest firm. In 2009, Pemex had total assets of nearly
$103 billion, including pipelines, refineries, tankers, aircraft and rail cars. This huge
asset base helps explain why Mexico is a net exporter of energy, principally oil, natural
10. The global auto industry is currently undergoing worldwide restructuring. In this
process, Mexico is emerging as a major car and truck producer. Mexico has a strong,
rich resource base supporting its automotive cluster. There is an abundance of young,
11. The primary customers for auto output in Mexico are in the local market. However, the
percentage of this output that goes for export has increased every year. In particular,
12. Overall, Mexicos economic future is closely linked to that of the United States and to
Answers to review and discussion questions
1. How high is the Canadian standard of living? Of what value is this information to a
company interested in doing business in Canada?
2. Is the Competition Act of any concern to US firms, given that the FTA has eliminated
most trade restrictions? Explain.
3. What do companies seeking to set up businesses in Canada need to know about labor
relations in that country? Identify and discuss three areas of importance.
4. What are the most important provisions of the Free Trade Agreement and how do
they affect US firms doing business in Canada?
Some of the most important provisions include (a) elimination of all tariffs on United States and
5. Are there any restrictions on foreign investments in Canada? Identify and describe
two of them.
6. What should a firm seeking to enter the Canadian market know about marketing
practices there? Identify and describe three practices.
7. How good are franchise opportunities in Canada? Explain.
8. Why is Mexico doing so well economically? Identify two developments that have been
9. What is the purpose of the LAIA? Of what value is the organization to its members?
10. How might the creation of an Enterprise for the Americas affect on the LAIA and
Ancom? Give an example.
11. How is Mexico using its petroleum cluster to link itself to the North American triad?
12. How is Mexico using its automotive cluster to link itself to the North American triad?
13. Why are these linkages to the North American triad likely to be economically
advantageous to Mexico? Cite two reasons.
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
Answers to real cases
Jumex of Mexico
1. How has Mexico provided the environment to make Jumex into a competitive fruit
and nectar producer in foreign markets?
2. What factors mentioned in this case study have contributed to Jumexs success in the
US market?
3. Can you think of any other factors that may have contributed to Jumexs success in
the US market?
GlaxoSmithKline in the United States
1. How is GSKs production organized?
2. Is GSKs secondary supply-chain structure global, regional, or local? Why?
3. What is GSKs basic strategy?
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4. Why does GSK spread R&D around the world?
5. What factors have made North America the primary market for GSK? Would the
situation be different if we measured units sold? Why?