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Lecture

GMS200 Lecture Notes - Foreign Direct Investment, World Trade Organization, Most Favoured Nation


Department
Global Management
Course Code
GMS200
Professor
Ashley Scarlett

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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
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• 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 country
Political risk analysis: to forecast the probability of disruptive events that can threaten the security of a foreign invest-
ment (terrorism, civil wars etc.)
• Global managers must also be prepared to deal with differences between home country and host country
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
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Cons:
job losses to Mexico
lower wages for Canadian and American workers wanting to keep
their jobs
lack of protection of Canadian fresh water and natural resources
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