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

Global Management
Course Code
Ashley Scarlett

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Chapter 3: Global Dimensions in Management
Management and Globalization
Global economy: resource supplies, product markets, and bus. comp. are worldwide, rather than local or national in
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-
Labour: access to lower
labour costs
How Companies go Glob - al
Global business: conducts commercial trans- actions across national bound-
1) Global Sourcing
Global sourcing: the process of purchasing materials, manufacturing components, or bus. services from around the

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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
•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
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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