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MKT 400 Lecture Notes - Foreign Direct Investment, North American Free Trade Agreement, Franchising

Course Code
MKT 400
Horatio Morgan

of 4
GMS-200 Monday, December 23rd, 2012.
GMS- Chapter 3 Summary Notes
Global Economy: resources, markets, and competition are worldwide in scope.
Globalization: is the process of growing independence among elements of the global economy.
Global Management: involves managing operations in more than one country.
Global Manager: is culturally aware and informed on international affairs.
Global Sourcing: the process of purchasing materials, manufacturing compoenents, or business services
from around the world. The goal is to take advantage of the international wage gaps by sourcing
products in countries that can produce them at the lowest costs.
NOTE: China Manufactures for the World
70 percent of the world’s umberellas
60 percent of the world’s buttons
72 percent of U.S shoes
50 percent of U.S appliances
80 percent of U.S toys
Exporting: selling locally made products in foreign markets. The goal for exporting is to find new
customers and expanded markets by selling one’s products and services in other countries.
NOTE: Exporting creates job opportunities and government often helps promote such activities.
President of Richard industries doubled export sales in 10 years and expects India and China to account
for 1/3 of firms revenue.
Importing: buying forieng made products and selling them in domestic markets.
Licensing Agreement: a local firm pays a fee to a foreign firm for rights to make or sell its products.
GMS-200 Monday, December 23rd, 2012.
Franchising: is a form of licensing to which the foreign firm buys the rights to use another’s name and
operating methods in its home country.
Foreign direct investment (FDI): involves setting up, buying all, or buying part of a business in another
country. Attracting foriegn business investors has been key to succeeding in the global economy.
Outsourcing: is job creation through foreign direct investment.
NOTE: In 2008, $45.4 billion in investments flowed into Canada.
Joint Venture: operates in a foreign country through co-ownership by foreign and local partners.
Global strategic alliance: is a partnership in which foreign and domestic firms share resources and
knowledge for mutual gains. A joint venture is an example of this. For local partner an alliance might
bring access to technology and opportinities to learn new skills. For outside partner, an alliance may
bring access to new markets and tje expert assistance of locals that understand them.
Foreign Subsidiary: is a local operation completely owned by a foreign firm.
Greenfield Investment: builds an entirely new operation in a foreign country.
Political Risk: is the potential loss in value of a foreign investment due to instability and political changes
in the host country.
Political Risk analysis: tries to forecast political disruptions that can threaten the value of a foreign
World Trade Organization: is a global organization whose member nations, currently 153 of them, agree
to negotiate and resolve disputes about tariffs and trade restrictions. It was established to promote free
trade and open markets around the world. Controversies still arise.
Favoured Nation Status: gives a trading partner the most favourable treatment for imports and exports.
NAFTA (North American Free Trade Agreement): Canada, Mexico, and US joined in 1994. Advantages
include: greater cross border trade, benefits to farm exports, greater productivity of manufacturers, and
reform of the Mexican business environment. Disadvantages include: job losses to Mexico, lower wages
for Canadian and United States workers wanting to keep their jobs, and lack of protection of Canadian
fresh water and natural resources.
European Union (EU): Supports 27 countries that agree to support mutual economic growth by
removing barriers that previously limited cross border trade and business development.
APEC (Association of Southeast Asian Nations): 21 members whose goal is to promote economic growth
and progress.
GMS-200 Monday, December 23rd, 2012.
SADC (South Africa Development Community): links 14 countries whose objectives include harmonizing
and rationalizing strategies for sustainable development among member countries.
Global Corporations: also known as multinational corporations or “MNC” are business firms with
extensive international operations in many foreign countries. Wal-Mart, Toyota, Nestle, are some
Transnational Corporation: is an MNC that operates worldwide on a borderless basis.
NOTE: Global firms hold one-third of the world’s productive assets and control 70 percent of world
trade. More than 50 of the largest 100 economies in the world are multinational corporations. More
than 90 percent of MNC’s are based in the Northern Hemisphere.
Host Country Issues
Advantages of MNCs include: larger tax bases, increased employment opportunities, technology
transfers, introduction of new industries, and development of local resources.
Disadvantages of MNCs include: complaints that MNCs extract excessive profits, dominates the local
economy, interfere with the local government, do not respect local customers and laws, fail to help
domestic firms develop, hire the most relented of local personnel, and fail to transfer their most
advanced technologies.
Home Country Issues?
Corruption: involves illegal practices to further one’s business interests. Somalia, Iraq, Myanmar, and
Haiti are worse in respect to corruption. Denmark, New Zealand, Sweden, and Singapore are good in
respect to corruption.
NOTE: American companies are at a competitive disadvantage because they cannot offer the same
“deals” as competitors from other nations.
Child Labour and Sweatshops: child labour is the full time employment of children for work otherwise
done by adults (major ethical issue). Sweatshops are business operations that employ workers at very
low wages for long hours and in poor working conditions.
Sustainable Development: meets the needs of the present without hurting future generations.
Culture Stock: us the confusion and discomfort a person experiences when in an unfamiliar culture.
Ethnocentrism: is the tendency to consider one’s culture superior to others.