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Lecture 3

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Ryerson University
Global Management Studies
GMS 200
Peter Rambert

Week3 Global Dimensions of Management Management and Globalization - New economy is characterized by worldwide interdependence of resource flow - Countries and people are interconnected in a globalized economy - Globalization – process of growing interdependence among element of the global economy - Global Economy- Resource supplies, product markets and business competition are worldwide rather than purely local or national in scope Global Management - International management – organizations with business interests in more than one country is rapidly becoming the norm - This has fueled the emergence of global managers - Global management involves managing operations in more than one country - Global Managers are culturally aware and informed on international affairs Why Companies go Global - Profits – greater profit potential - Customers – new market to sell products - Suppliers – access to needed products/services - Capital – access to financial resources - Labor – lower labor costs How Companies go Global - Market entry strategies involve the sale of goods and services to foreign markets. Don’t require expensive investments - Global Sourcing – purchasing materials, manufacturing components, or business services around the world - Importing – selling locally made products in foreign markets - Exporting – buying foreign made products in domestic market - Licensing agreement – foreign firms pay a fee for rights to make or sell another company’s products in a specified region - Franchising – form of licensing in which foreign firms buy the rights to use another’s name and operating methods in home country Direct Investment Strategies - Major capital commitments, create rights of ownership/control - Foreign Direct Investments – building/buying all/part ownership of a business in another country - Insourcing – job creating though foreign direct investment - Joint Ventures – operates in a foreign country through co-ownership by foreign local partners - Global Strategic Alliances – partnership in which foreign and domestic firms share resources and knowledge for mutual gains - Foreign Subsidiaries – local operating completely owned by foreign firm, set up by Greenfield Investments where an entirely new operation in a foreign country is built Global Business Environments - Legal & Political Systems o Political risk; potential loss in value of a foreign investment due to instability and political changes in the host country (terrorism, civil war, armed conflicts) Week3 o Political Risk Analysis – Tries to forecast political disruptions that can threaten the value of a foreign investment o Abide by laws of the host country - Trade Agreements and Trade Barriers o World Trade Organization – member nations agree to negotiate and resolve disputes about tariffs and trade restrictions o When businesses feel mistreated in foreign counties. Or if foreign competitors are disadvantaging locals. WTO gets involved o Most favored nation status – gives a trading partner most favorable treatment for imports/exports o Tariffs – taxes government imposes on imports o Protectionism – call for tariffs and favourable treatments to protect domestic firms from foreign competition o Helps local businesses - Regional Economic Alliances o NAFTA – 1994  Greater cross-border trade, benefits to farm exports, greater productivity of manufacturers, reform of the Mexican business environment  Disadvantage – loss of jobs, lower wages, lack of protection over Canadian fresh water o European Union – 27 countries support mutual econ growth o APEC (asia pacific economic cooperation) Global Businesses - Global Corporations, or MNCs, are multinational businesses with extensive operations in more than one foreign country - Transnational Corporations – MNCs that operate worldwide (borderless) Pros and Cons of Global Corporations - Mutual benefits for host and MNC; shared growth, income, learning and development opportunities - Host country complaints about MNC; excessive profits, domination of local economy, interference with local gov, hiring the best of local talent, limited tec
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