[WEEK 1] Module 02 Globalization [CHAPTER 3] Competing in Global Markets .: reading notes - a lot of relevant information are recorded :. .: important terms are bolded - definitions are summarized so you don't need to memorize paragraphs :. .: in

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Accounting & Financial Management
AFM 131
Robert Sproule

AFM 131 Robert Sproule Fall 2010 Part 1 Business Trends: Cultivating a Business in Diverse Global Environment Chapter 3 Competing in Global Markets The DynamicGlobalMarket - Canada is a large exporting nation. Exporting = selling goods and services. Importing = buying goods and services. - Reasonstotrade: 1) nocountry(even technologicallyadvancedones)canproduce alloftheproductsthat itspeoplewantandneed 2) even if a country did become self-sufficient, other nations would seek to trade with that country to meet the needsoftheir own people 3) some nationshave an abundance ofnaturalresourcesandalack oftechnologicalknow-how andvice versa - Global trade = enables a nation to produce what it is capable and buy what is needed in a mutually beneficial exchangerelationship PROS CONS - 6billion potentialcustomers - Domestic workers can lose their job = increased imports or production shifts to low- wage globalmarkets - Productivity grows when countries are - Workers=forcedtoacceptpaycuts producing attheir comparative advantage - Competition & less-costly imports keep prices - Moving operations overseas = intense down, so inflation does not affect economic competitive pressure growth - Lossofservice jobsandwhite-collarjobs - Inspiresinnovation - Lost of comparative advantage for local companies = when competitors can produce high qualityproductwith low prices - Uninterrupted flow of capital = access to foreign investments=keepsinterestrateslow - Free trade =themovementofgoodsandservicesamong nationswithoutpoliticalandeconomicobstruction th - Comparative advantagetheory=suggestedbyDavidRicardoin theearly19 centrury - Comparative advantage theory = states that a country should sell to other countries those products that it produces most effectively and efficiently, and buy from other countries those products that it cannot produce effectivelyor efficiently - Absolute advantage = when a country has the ability to produce a particular good/service using fewer resources - tradewith other countriespermitspecialization,whichallowsresourcestobe usedmoreproductively Getting InvolvedIn GlobalTrade - in Canada,smallbusinessesaccountfor 48%ofthe totalprivate labour forceandabout85%ofexports - with thehelpofthegovt,smallerbusinessesget more involvedin globalmarket - getting started=observation,determination,andrisk AFM 131 Robert Sproule Fall 2010 - import (65%) categories include: machinery and equipment, industrial goods and materials, automotive products - often,thecompetition isnotnearlyasintensefor the producersin globalmarketsasitis athome - tradeisimportant=itenhancesthequalityoflifefor Canadiansandcontributestoour countryseconomicwell- being - salesabroad=Canadian businessesgetting engagedin internationalbusiness - goodsalwaysexceedsservicesin termsoftrading - in measuring the effectivenessofglobaltrade,usetwoindicators:balance oftrade andbalance ofpayments - balance of trade:isanationsratioofexportstoimports - when thevalue ofthe countrysexports > imports=favourable balance/trade surplus - frequenttrade surpluses=agricultural,fishing products,forestry,energyproducts - frequenttrade deficits=machinery andconsumergoods - when thevalue ofthecountrysexport< imports=unfavourable balance oftrade/tradedeficit - Balance of payments: difference between money coming into a country(from export) and money leaving the country (for import) plus money flows from other factors such as tourism, foreign aid, military expenditures, andforeign investment - Rankedeleventh in the worldasbothexporter andimporter in worldmerchandise trade - Wearedependenton theU.S.(73%ofour exportsand69%ofimportiswith theU.S.) - Tradein automotive products,startingwith 1965Automotive ProductsTrade Agreement,akatheAutoPact - ReinforcedbytheNorth American Free TradeAgreement(NAFTA) - The new ways of communicating, organizing, and working are inviting the most remote countries around the world - Emerging economies = high growth rates, rapid increases in their living standards, and a rising global prominence =getting intothesemarketsiscrucial - Potential partners for growth = the Association of South East Asian Nations, Australia and New Zealand, Brazil, China, Europe, Gulf, Cooperation Council, India, Japan, Korea, Latin America and the Caribbean, Mexico, Russia,andtheU.S.. - China and India are particular interest as they are growing and emerging markets due to their size and economictransformation - Steps to encourage Canadian participation include tax cuts, increased support in research and development, andcriticalinvestmentsin infrastructure StrategiesFor Reaching GlobalMarkets - Ways to compete in global market = exporting, licensing, franchising, contract manufacturing, creating internal jointventures,strategicalliances,andengaging in foreign directinvestment - Eachstrategiescome withcommitmentsandrisks Exporting - Simplestwayofgoing international - Often the firstexportsalesoccur asaresultofunsolicitedordersreceived - Acompanymustdevelopsome goalsandstrategiesfor achieving for achieving thosegoals - Somefirmsmaybe reluctanttogothrough the trouble ofestablishing foreign relationshipsAFM 131 Robert Sproule Fall 2010 - So specialists called exporting-trading companies are available to step in and negotiate and establish the trading relationship - Export-trading companynotonlymatchesbuyersandsellersfromdifferentcountries - Helpexporterswith akeyandriskyelementofdoingbusinessglobally:getting paid - Success in exporting often leads to licensing with a foreign company to produce the product locally to better serve thelocalmarket Licensing - A firm (the licensor) may decide to compete in a global market by licensing the right to manufacture its product/useitstrademark toaforeign company(the licensee)for afee(aroyalty) - Acompanyrep isnecessarytohelpsetup withproduction process - Needtoworkin distribution,promotion,andconsulting - Alicensing agreementcanbe beneficialtoafirmin severaldifferentways: 1) An organization can gain additional revenues from a product that it normally would not have generated in itshomemarket 2) Licensorscan earn extrafeesfromlicenseesfor start-up supplies,componentmaterials,andconsulting fees 3) Licensorsspendlittleor nomoneytoproduce andmarket theirproducts - CompaniessuchasDisney,Coca-cola,andPepsiCohave been making profitfromthesemethods - Licensing agreementsareusuallylong termservice contract - Sometimesthe licensing companycan collectmanagementand
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