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Lecture 3

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McGill University
Management Core
MGCR 382
John Saba

International Business Lecture 3Chapter 1An Overview of International Business cont3 Macro level cause of globalization contCause 2Liberalization of crossborder trade and resource movementMost governments have reduced restrictions on trade and foreign investment Responding to expressed desires of their citizens and producerThe primary motives for this change includeGives citizens greater consumer choice and lower prices International competition makes domestic producers more efficient Liberalization causes other countries to lower trade barriers Cause 3Expanded crossnational cooperationGovernments have increasingly entered into crossnational treaties and agreements in order To gain reciprocal advantages for their own firms To jointly attack problems one country cannot solve alone To deal with areas of concern of all countriesOften such cooperation occurs within the framework of International agreements eg GATT International organizations eg World Trade Org And regional trade agreements eg NAFTA European Union3 Firm level reasons of globalizationNote We examine the causes of globalization from 2 levels Macro level and Firm levelReason 1 To leverage core competencies that a firm has developed in its home market A core competency is a distinctive strengthadvantage that are central to a firms operationsBy utilizing its core competency in new markets the firm is able to increase its revenues and profitsExampleStarting in 1999 Canadian company RIM developed its innovative blackberry smartphone Rim initially sold the devices in Canada but its managers decided to increase revenues and profits by exporting it to the worldReason 2 To acquire resources and suppliesThe price and availability of materials land labor capital and technologies varies across countriesFirms may be able to acquire resources unavailable locally or produce more efficiently by expanding internationally Example Canadian grocery store chains import coffee from Columbia oranges from Florida and CaliforniaChinese firms buy forest products and potash from CanadaUS firms buy petroleum from Canada US movie production companies make films in Canada where the labor costs are up to 13 lessReason 3 To seek new marketsOnce a firms home market becomes saturated sales can be increased by expanding to markets beyond the firms home countrys bordersReason 4 To better compete with rivalsFirms often prefer to not concede markets to a rivalTherefore when one firm expands into a new market other firms in the same industry may followExampleAs CocaCola expands worldwide PepsiCola if it wants to maintain market share must follows its rival coke into new markets2 other benefits of expanding into foreign markets 1Economies of scale may be achieved lowering the average cost per unit produced and increase firm profitability 2Increase foreign sales means a more diversified revenue stream and reduces a firms dependence on 1 countryExampleToothpaste market is mature in North America and the European UnionProctor and Gamble Unilever etc have moved into the other emerging market countries Effects of globalization a Societal consequences of market globalizationb Firm level consequences of market globalizationaSocietal consequences of market globalizationPositive consequences Long run globalization particularly when accompanied with the liberalization of markets leads toEconomic growths More jobs Greater access to techno and knowledge transfer Greater access to products and services More efficient resource usage Growing prosperity higher income levels and living standards The more globalized a countrys economy the higher its rate of economic growthGlobalization allows firms to view the world as one large market place for goods services capital labor and knowledge
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