International Business: Analysis of Germany, Canada, and China

This report offers a comprehensive analysis of international business, focusing on the economic systems and trade dynamics of Germany, Canada, and China. The report begins by characterizing the economies of Germany and China, comparing their structures and key macroeconomic factors like GDP per capita, GNP, PPP, and HDI with Canada. It then delves into the historical context of international trade, discussing the shortcomings of the mercantile system and the concepts of absolute and comparative advantage. The report utilizes Porter's Diamond framework to assess the international trade prospects of China's automobile industry. Furthermore, it explores the role of government in international trade, including the use of tariffs, and examines foreign direct investment (FDI) and portfolio investments. The report concludes with a discussion of Canadian government programs supporting international business.

Running head: INTERNATIONAL BUSINESS
International Business
Name of the Student
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Executive Summary
This report pertains to the international trade explained in the context of Germany, Canada
and China. The comparison of the three countries has been made on the basis of
macroeconomic factors and suitability of the countries in fro FDI has been assessed. Further,
the automobile industry has been analysed with Porter’s Diamond to assess the international
trade prospect of the industry. In the end, the role of government in international al trade and
the available programme in Canada supporting international business has been briefly
discussed.

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Table of Contents
Introduction................................................................................................................................4
Part A.........................................................................................................................................4
Answer to question 1..............................................................................................................4
Answer to question 2..............................................................................................................5
Answer to question 3..............................................................................................................5
Part B..........................................................................................................................................5
Answer to question 1..............................................................................................................5
Answer to question 2..............................................................................................................6
Answer to question 3..............................................................................................................7
Answer to question 4..............................................................................................................7
Answer to question 5..............................................................................................................8
Part C..........................................................................................................................................9
Answer 1................................................................................................................................9
Answer 2................................................................................................................................9
Answer 3................................................................................................................................9
Answer 4..............................................................................................................................10
Answer 5..............................................................................................................................10
Part D.......................................................................................................................................10
Answer to question 1............................................................................................................10
Answer to question 2............................................................................................................10
Answer to question 3............................................................................................................11

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Conclusion................................................................................................................................11
References................................................................................................................................12

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Introduction
The report discusses the economic system of Germany and China and compares the
macroeconomic factors of the countries with Canada. The report further discusses the
international trade prospect of a Chinese product using Porter’s Diamond. Further, the report
discusses the role of government in promoting international trade. The report also considers
the programmes available in Canada promoting domestic businesses in foreign countries and
their effectiveness.
Part A
Answer to question 1
The two target countries are Germany and China, Germany is a European country
whereas China is an Asian country. Germany is considered as developed economy and allows
trade with foreign countries; therefore, it is an open economy. Germany features a social
market economy structure and Gross Domestic Product (GDP) wise it is the largest economy
of Europe, whereas, in the world it holds the fourth rank. The economy of the country is
mostly depends on the service and industrial sector. These two sector employs around 98% of
the country’s employment. The unemployment of the country is also low. Contribution of
these sectors in the GDP comes around 99% (Cia.gov., 2019). It allows foreign direct
investment and invests in other countries too. On the other hand, China is an emerging
economy and is one of the fastest and prosperous among the emerging economies. The
country features a socialist market economic structure. It is an open economy and thus
involves in trade with other countries. For its economic output the contribution of every
sector, that is agricultural, industrial and service is significant. Unlike Germany, the share of
agriculture sector in GDP of China is close to 8%. In case of employment the 43.5% is
employed in the service sector, 28.8% is in industrial sector and 27.7% is in agricultural

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sector (Cia.gov., 2019). Therefore, the sector is widely diversified among its three major
sectors. Looking at the market economy of both the countries it can be seen that China
exhibits a centrally planned economic structure and Germany exhibits a mixed economy
structure. In centrally planned economy, the government of the country makes the economic
decisions and in the case of mixed economy the economic decisions are made according to
the free market operations that means it is decided upon interaction between businesses and
consumers.
Answer to question 2
Canada ($) Germany ($) China ($)
GDP per capita 44,051 45,959 16,187
GNP 1689561 1007689 13564410
PPP 1625347 4110955 21387606
HDI 0.926 0.936 0.752
Source: (World Bank, 2019) & (Ceicdata.com, 2019)
Answer to question 3
From the data given in the table in question 2 it can be seen that the GDP per capita of
Canada and Germany is close but in the case of China it is low. GNP of China on the other
hand is very high than Canada and Germany, however, it is due to the large size of China.
Moreover, the PPP is better in Canada and Germany than in China and among three Germany
has the best PPP. Similarly, in case of HDI, China has much lower HDI whereas both Canada
and Germany has very high HDI with Germany with the highest value among the three.
Therefore, from the data it is evident that Germany is a better country to do business, as all of
its economic indicators are better than the other two.
Part B
Answer to question 1
Mercantile system was first conceptualized and introduced in the western countries.
Under this system, the government of a country uses economic policies to increase the

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exports of the country by restricting imports and encouraging exports. However, this policy
of export promotion failed due to existence of lot of loopholes in the system (Vaggi &
Groenewegen, 2016). The mercantile system put emphasis on the monetary gain and positive
trade balance and thus suppressed imports and boosted exports. However, it is not possible
for every country to export without being importing. Furthermore, restricting imports will
deprive the native people from consuming quality goods produced by the other countries.
Thus, mercantile system compromised with the social welfare and free market operations and
it led to the failure of the system.
Answer to question 2
According to economic theory, country A is said to have absolute advantage when it
can produce same goods in greater quantity than its competitor country B using same amount
of production factors (Levchenko & Zhang, 2016). This implies that by producing all the
goods in country A, the world will have better production and resources will be utilized more
efficiently. On the other hand, country A is said to have comparative advantage when it
produces goods with less opportunity cost than country B and vice versa. Thus, in this case
goods should be produced in such a way that both country A and B produces the good in
which they have advantage and then only the resources will be efficiently utilized and world
will have better output.
The size of a country and diversity of its economy has significant impact on the above
discussed theory. A country with large size has diverse and large nature of resources and it
will probably have absolute advantage in case of production of many goods. On the other
hand, a country with diversity has less opportunity cost of production of different goods and
thus it will have comparative advantage.

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Answer to question 3
Determination of a country’s suitability to participate in the international trade can be
done by the use of Michael Porter’s Diamond. Michael Porter’s Diamond is a framework that
considers four factors to calculate the comparative advantage of nations regarding industrial
production (Konsolas, 2017). The four factors are demand conditions, factor conditions,
related and supporting industries and firm strategy, structure and rivalry. Analysing these four
factors for the products of a country the competitiveness of it in manufacturing can be
determined and thereby it can be said that if the country is suitable for international trade or
not.
Answer to question 4
Analysing China’s automobile industry by applying Porter’s diamond will help to
understand the competitiveness of the industry in international trade. China is one of the
largest emerging economies and in recent times. Its high population makes the labour cheaper
in the country and thus labor-intensive sector has advantage in production in China.
Factor conditions
The main factors that required for production of automobile are raw materials or spare
parts and labour. In China both the factors of production are available in abundant. Increase
in education has improved the skill of the labours and thus manufacturing automobiles is
cheaper in China than before. However, more improvement is required in manufacturing of
the spare parts as in international market China has to compete with big car manufacturing
companies.
Demand conditions
The qualities of automobiles or cars that are manufactured in China are not of that
high quality, and then the market of Chinese cars is not that poor international market. The

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country can export to the countries like Bangladesh, Nepal, Pakistan and other poor Asian
countries where people do not have enough money to purchase high cost big company cars.
Therefore, China may not export to the developed countries but can make profit by enter the
market of the developing countries.
Related and supporting industries
The supporting and related industries of the automobile industry spare parts
manufacturer, paint industry and other that are required in manufacturing of automobiles.
Chinese manufacturers of auto parts have improved their quality and auto makers from other
countries have collaborated with the Chinese companies and also exports of auto parts from
other countries has increased and thus the Chinese car manufacturing industry improving its
competitiveness.
Firm strategy, structure and rivalry
China has cheap labor and due to that, many major automobile manufacturers have
been investing in China for assembling purpose. The government of China has encouraged
the FDI in the automobile industry and also supporting the domestic manufacturers to
compete with the major manufacturers such that the industry improves further. The car
industry in China is replicating the framework of the major car manufacturers, changing the
competition from price to launch of new models. China has also invested in the R&D,
improved the quality of the cars, and focusing on brand management, design and customer
relationship. The market China is targeting is less concentrated with other major car
manufacturers and making a different market segment for the domestic car manufacturers.
Answer to question 5
The automobile industry in China is capable of participating in the international
market for selling its products as indicated by the Porter’s diamond. The factor conditions are

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suitable in the case of China. The demand for Chinese cars is not significant but it has
prospect in the developing countries, however the supporting and related industry has
developed in China. The Chinese automobile industry has taken global car market strategies,
which is a positive side but major car manufacturers’ poses competition in the global market,
which is a challenge for China. The government has taken many polices to improve the
automobile industry such as allowing FDI and supporting the domestic automobile industry.
Part C
Answer 1
International trade increases the market for the domestic industries and allow the
people of the country to enjoy the products from different countries. Thus, engaging in trade
will earn more capital inflow for the country. Interference in trade will provide political
control to the government in the area and government can regulate the industrial sector. On
the other hand regulating the trade will help the domestic manufacturers to compete with the
foreign products if government controls the trade, employment will not be hampered, and
thereby social welfare will not be compromised.
Answer 2
The government uses various tools to restrict and increase international trade.
Imposition of tariff on imports and taxing exporters will decrease the volume of trade or
restrict the international trade (Felbermayr, Jung & Larch, 2015). On the other hand, to
increase trade, the government can decrease the tariff on imports and might give tax benefits
to exporters.

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Answer 3
Automobile industry is growing in China and the increasing demand in global market
will open up new avenues for the car market as per the analysis from the Porter’s diamond,
thus government of China will possibly give attention to the domestic automobile industry.
Answer 4
Portfolio investments are made in diversified projects or companies, the major
objective of the investment is to distribute the risk, and it can happen either from outside or
from inside the country (Albulescu, 2015). On the other hand, FDI is the investment that
comes from outside the country and it may take from of portfolio investment.
Answer 5
Germany is a developed country and its automobile industry is also developed thus
FDI is not that necessary for the country. However, in the case of China, automobile industry
is not as developed as in the case of Germany and any FDI would help the industry to grow
as investment from major automobile countries in China increase the competitiveness of the
automobile industry.
Part D
Answer to question 1
The potential sources of financing that is helpful for the international business are
1. loans from bank,
2. debt and equity financing
3. external investors
4. foreign direct investment and

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Answer to question 2
Financial sources available in Canada for the domestic businesses establishing
operations in foreign countries are:
1. CanExport
2. Canadian International Innovation Program
3. Eureka international research and development product
4. Global Opportunities for Associations (tradecommissioner.gc.ca, 2019)
5. Going Global Innovation
Answer to question 3
The government programmes that seemed beneficial for the said purpose are actually
not that effective as none of the programmes directly addresses the objective of businesses of
establishing operations in the foreign countries. The programmes mainly address the
technology exchange, export opportunities and technology innovation. However, there is only
one programme Global Opportunities for Associations that helps the industry associations in
development of international business.
Conclusion
The above discussion leads to the conclusion that on the economic features and
structure, the development of international trade depends and the government also has
significant role to play in improvement of the international trade of a country.

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References
Albulescu, C. T. (2015). Do Foreign Direct and Portfolio Investments Affect Long-term
Economic Growth in Central and Eastern Europe?. Procedia economics and
finance, 23, 507-512.
Ceicdata.com. (2019). Global Economic Data, Indicators, Charts & Forecasts | CEIC.
Retrieved 31 July 2019, from https://www.ceicdata.com/en
Cia.gov. (2019). East Asia/Southeast Asia :: China — The World Factbook - Central
Intelligence Agency. Retrieved 31 July 2019, from
https://www.cia.gov/library/publications/resources/the-world-factbook/geos/ch.html
Cia.gov. (2019). Europe :: Germany — The World Factbook - Central Intelligence Agency.
Retrieved 31 July 2019, from https://www.cia.gov/library/publications/resources/the-
world-factbook/geos/gm.html
Felbermayr, G., Jung, B., & Larch, M. (2015). The welfare consequences of import tariffs: A
quantitative perspective. Journal of International Economics, 97(2), 295-309.
Konsolas, I. (2017). The competitive advantage of Greece: an application of Porter's
diamond. Routledge.
Levchenko, A. A., & Zhang, J. (2016). The evolution of comparative advantage:
Measurement and welfare implications. Journal of Monetary Economics, 78, 96-111.
tradecommissioner.gc.ca. (2019). Funding and support programs for doing international
business. Retrieved 31 July 2019, from
https://www.tradecommissioner.gc.ca/trade_commissioners-delegues_commerciaux/
funding_support_programs-programmes_de_financement_de_soutien.aspx?lang=eng

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Vaggi, G., & Groenewegen, P. (2016). A concise history of economic thought: From
mercantilism to monetarism. Springer.
World Bank. (2019). World Bank Group - International Development, Poverty, &
Sustainability. Retrieved 31 July 2019, from https://www.worldbank.org/