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GMS. chap 3 notes.doc

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OCAD University
Global Management
Ashley Scarlett

Chapter 3: Global Dimensions in Management GLOBAL DIMENSIONS OF MANAGEMENT Management and Globalization Global economy: resource supplies, product markets, and bus. comp. are worldwide, rather than local or national in scope Globalization: is the process of growing interdependence among elements of the global econ. Global Management Global management: describes manag. in bus.’s and org.’s with interests in more than one country Global Manager: someone informed about international devel.’s, transnational in outlook, competent in working with people from different cultures, and always aware of regional developments in a changing world. Why Companies go Global • Global bus.’s are the foundations of world trade, helping to move raw materials, finished products, and specialized ser- vices from one country to another in the global economy Reasons for going global: Global Operations offer: •Profits: greater profit potential •Customers: new markets to sell products •Suppliers: access to needed products and services •Capital: to finan- cial re- sources •Labour: access to lower labour costs How Companies go Glob- al Global business: conducts commercial trans- actions across national bound- aries 1) Global Sourcing Global sourcing: the process of purchasing materials, manufacturing components, or bus. services from around the world 1 • Activities are performed in countries where they can be done well at the lowest cost.. 2) Exporting and Importing Exporting: selling locally made products in foreign markets • The goal is to find new customers and expand markets by selling one's products and services in other countries Importing: buying foreign‐made products and selling them in domestic markets 3) Licensing and Franchising Licensing agreement: where foreign firms pay a fee for rights to make or sell another company's products in a specified region •Licensing grants access to a unique manufacturing technology, special patent, or trademark Franchising: is a form of licensing in which the foreign firm buys the rights to use another's name and operating meth- ods in its home country 4) Joint Ventures and Strategic Alliances Foreign direct investment (FDI): involves setting up, buying all, or buying part of a bus. in another country Insourcing: is often used to describe job creation that results from FDI Joint venture: a co‐ownership arrangement where the foreign and local partners agree to pool resources, share risks, and jointly operate the new bus. Global strategic alliances: in which foreign and domestic firms act as partners by sharing resources and knowledge for mutual benefit 5) Foreign Subsidiaries Foreign subsidiary: is a local operation completely owned and controlled by a foreign firm Greenfield investments: foreign operation is built entirely new Global Business Environments Legal and Political Systems Political risk: the potential loss in value of an investment in or managerial control over a foreign asset because of insta- bility and political changes in the host countrys: job losses to Mexico Political‐risk analysis: to forecast the problower wages for Canadian and American workers wanting to keepf a foreign invest- ment (terrorism, civil wars etc.) their jobs • Global managers must also be preparlack of protection of Canadian fresh water and natural resourcesy laws and politics Trade Agreements and Trade Barriers World Trade Organization (WTO): global org. whose member nations, currently 153 of them, agree to negotiate and resolve disputes about tariffs and trade restrictions • The WTO was established to promote free trade and open markets around the world 2 Most favored nation status: the most favorable treatment for imports and exports Tariffs: taxes that governments impose on imports, Protectionism: gives favorable treatment to domestic bus.’s. • Goal of tariffs and protectionism is to protect local firms from foreign comp. and save jobs for local workers Regional Economic Alliances NAFTA: alliance creates a trade zone with minimal barriers, frees the flow of goods and services, workers, and invest- ments among the three countries. PROS: • greater cross‐border trade • benefits to farm exports • greater productivity of manufacturers reform of the Mexican bus. environment • European Union (EU): links 27 countries that agree to support mutual economic growth by removing barriers that pre- viously limited cross‐border trade and bus. develop • A common currency, the euro- competition with the US dollar GLOBAL BUSINESSES Global corporations, also called multinational corporations or “MNCs,” are bus. firms with extensive international op- erations in many foreign countries. Types of Global Businesses Transnational Corporations: is an MNC that operates worldwide on a borderless basis • Executives of transnationals view the entire world as their domain for acquiring resources, locating production facili- ties, marketing goods and services, and communicating brand ima
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