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Administrative Studies
ADMS 1000
Peter Tsasis

Reading: Chapter 6 Purpose of Lecture ppt. • What is Globalization • What are its driving forces • Specify the basic global strategy and global organizational structure a manager should pursue, and why? The Important of Global business to Canada ppt. • Canada exported over $455 billion • Canada imported over $404 billion • The United Nations has ranked Canada as one of the world's best countries to live in. • Canada exports nearly 45% of what it produces • 33% of all Canadian jobs are related to our exports What is Globalization? ppt. • The process involving the integration of world markets and economics. • Ex: NAFTA is a free-trade bloc consisting of Canada, United States & Mexico • A process that is expanding the degree and forms of cross-border transactions among people, assets, goods, and services • Through growth in direct foreign investment • Globalization reflects the shift toward increasing economic interdependence: the process of generating one, single, world economic system or global economy Globalization is a process involving the integration of world markets. This reflects the notion that consumer preferences are converging around the world. Whether it is for products made by McDonalds, Sony, Gap, or Nike, organizations are increasingly marketing their goods and services worldwide. Though local modifications may be made to tailor the product to the local consumers, there is a push towards global products. One the other side, production in increasingly becoming a global affair. Businesses will set up wherever its least costly to do so. Why is global trade important to the Canadian Economy ppt. • Global or international trade between countries around the world improves relationships with allies and has economic benefits such as : - creating growth in the economy - increasing profits - providing jobs, and - raising living standards that improve the quality of life Sources Encouraging Global Business Activity • A number of fundamental factors have encouraged the move to "go global" • Pull Factors: are the reasons a business would gain from entering the international context • Push Factors: these are forces that act upon all business to create an environment where competing successfully means competing globally. Pull Factors Potential for Sales Growth • The fundamental reason for engaging in global operation is to help a business expand its markets. Increased sales are typically the central aim behind a company's expansion into international business. • A significant portion of sales are generated from outside the home country • Ex: Us based specialty coffee chain Starbucks began expanding operations in Europe. The potential for increased sales was a pull factor, the only question was if European consumers would be attracted to this American business. • Having the world as your market offers almost limitless potential beyond domestic consumers • Having access to foreign consumers may also mitigate the negative effects of domestic downturn in demand for the business’s product of service Obtaining Needed Resources • Businesses may choose to engage in global business activity in order to obtain resources that are either unavailable or too costly within the domestic borders. • The decision to locate plants or businesses in developing countries may be a means to access inexpensive labour • Ex: to access less expensive energy resources, a number of Japanese businesses have located in Mexico where energy costs aren’t as high • Both Canadian and U.S firms continue to expand their operations overseas because they can achieve higher rates of returns on their investments, lardy due to lower labour costs. Push Factors The force of competition • Many domestic economies become flooded with competing products/services • A business that seeks to grow needs to consider the markets beyond its domestic borders: this is where new and potentially untapped market opportunities still exist • By default, a business may be pushed into becoming a global business by the simple fact that it is forced to compete with a foreign competitor • The notion of first mover advantage is a philosophy that underscores the benefits of being among the first to establish strong position in important world markets – later entrants into foreign market may have more difficulty establishing themselves, and could even be blocked out by competitors Shift toward Democracy • The shift toward democracy among many societies which were formerly economically and politically repressed has contributed to the creation of new market opportunities. • Countries like Russia and Poland have shifted toward a more capitalistic and democratic approach. Perhaps one symbol of this acceptance was the success of the North American Mcdonald's in entering the Russian marketplace • There has also been a great interest in foreign investment in China since its move toward privatization (reduction in Gov. ownership) in many areas Reduction in Trade Barriers • The acceleration in growth of global business activities may be largely due to the general push towards freer trade. The most powerful source of influence encouraging increased international business is the reduction in trade and investment restrictions. • Ex: NAFTA was established as an agreement b/w US, Canada & Mexico, aimed to produce a common market among the members Improvements in Technology • Innovations in information technology, as well as advances in transportation, have made it increasingly easy to transfer information, products, serves, capital, and human resources around the world. Via E-mail, the Internet, teleconferencing, faxing and transatlantic supersonic travel were among the activators that were not available until the late part of the 20th century. • Virtual organizations increasingly exist on a global level, where the geographic location of workforce doesn’t matter Management in the Canadian Context ppt. • Environmental factors that influence managers operating in Canada - structure of economy - business ownership - competition and degree of industrial concentration - role of government - workforce skill shortages, diversity and unionization - technology and innovation - societal trends Management in the Global Context ppt. ? What are some ways that organizations can engage in global business activity? ppt. • There’s various forms or channels within which businesses operate in the global sense. • At a lower level of interconnectedness, a business can export/import goods to or from other countries • At a higher level a company can outsource some aspect of its business operations; it may choose to license some aspect or even arrange for franchise operations in a foreign country • Forming a strategic alliance/creating a joint venture w/ a foreign company requires the business to become more fully entrenched with the global context by directly investing in the foreign country Strategies of Global Activity - Channels of Global Business Activity 1. Exporting and Importing • Merchandise exports are tangible goods transferred out of the country. Merchandise imports are goods brought into the country • Exporting: Selling abroad, either directly to target customers or indirect by retaining foreign sales agents and distributors. • Businesses might deal in service exports or imports of services. • Ex:, banking, insurance, or management services can be performed at an international level. • Selling goods and services to other countries • (Advantages) • offers much additional profitable activity & business opportunities available through exporting are significant • increase in potential customers is a lot higher • Avoids the need to build factories in host country • it is relatively quick way of going international • it is a good way to "tat the waters" in the host country • offers 6 billion potential customers around the world • exports allow Canadian companies to keep generating jobs & remain productive & competitive by selling their goods/services more broadly than in our small domestic market • imports give customers choice & reduce costs, & provide farmers & manufacturers w/ inputs & productivity-enhancing technologies (Disadvantages) - Transportation and tariff costs can be substantial -Hard to find reliable intermediaries 2. Outsourcing/Offshoring • Outsourcing involves hiring external organizations to conduct work in certain functions of the company: so for example payroll, accounting, and legal work can be assigned to outsourced staff. • Ex: Nike enters into contractual agreements w/ manufacturers in developing countries to produce its footwear while it focuses largely on marketing its product. • Major source of controversy w/ regard to businesses going global – fear that richer American jobs will be lost as business decides to outsource manufacturing functions to cheaply paid labour in 3 rd world countries • Ex: consulting & technical support IT firm jobs are vanishing & we suspect it’s because of offshoring • Other side is: why should rich countries have all the good jobs? Offshoring is a step in the direction of global justice, this is free trade at its best • Also, offshoring delivers multiple return on investment = consumers will play less for goods & places like India will prosper & grow as export markets for north American goods • Countries can be contracted for the production of finished goods or component parts, and these goods can then be imported to the home country or other countries for further assembly or sale 3. Licensing and Franchising Arrangements • Licensing an arrangement where a firm (the licensor or exporter) grants a foreign firm the right to use intellectual property (ex: patents, copyrights, manufacturing processes, trae names, etc) for royalties – a percentage of total earnings • Arrangement where the owner of product is paid a fee from another foreign company in return for granting permission to produce/distribute the product • They do this if they don’t wish to set up actual production/marketing operations overseas so they let the foreign businesses conduct them & then pay fee • Fees earned by businesses through providing these services would constitute service exports • For example a Canadian company might grant a foreign company permission to produce its product; or conversely, perhaps a Canadian company wishes to distribute a foreign-made product in Canada and requires a licensing agreement. • Franchising the granting of a right by a parent company to another firm to do business in a prescribed manner following strict guidelines proven to be profitable in return for royalties • The licensing agreement is an arrangement whereby the owner of a product or process (franchiser) is paid a fee or royalty from another company (franchisee) in return for granting permission to produce or distribute the product or process. • Ex: McDonalds, which licenses its trademark, fast-food and operating principles to franchisees worldwide in return for an initial fee & ongoing royalties. In return MD’s franchisees receive the benefit of MD’s reputation, management & marketing expertise • What are the Losses for Canadian Companies Licensing Foreign Technologies? - Canadian money is used for licensing agreements and royalties where it could have been otherwise spent on "home-grown" research and development - Canadian companies become dependent on foreign technologies - Canadians lose the opportunity to develop their expertise in high tech industries 4. Direct Investment in Foreign Operations • Acquisition of local companies • Involves the purchase of physical assets or an amount of owenership in a company from another country in order to gain a measure of management control • Control of a company can be done w/o necessarily owning 100% interest. • Why would a business want this? Controlling companies can obtain access to a large market or needed resources via the FDI Foreign Direct Investment as a Global Strategy ppt. • Foreign direct investment involves the purchase of physical assets or an amount of ownership in a company from another country in order to gain a measure of management control. Factors to consider before expanding abroad: ppt. • Cultural Distance: Languages and religions • Administrative distance (absence of shared monetary or political associations) • Geographic distance (physical remoteness) • Economic distance (differences in consumer incomes) 5. Joint Ventures, Strategic Alliances • (Strategic Alliance) An agreement between potential or actual competitors to achieve common objectives. • Aim to extend/enhance the core competencies of the businesses involved, obtain access to the expertise of another organization, and generate new market opportunities for both parties • A joint venture involves an arrangement between two or more companies from different countries to produce a product or service together or to collaborate research, development, or marketing of this product or service. • Ex: sony ericsson is a mobile phone maker that’s a joint venture b/w L/M. Ericsson of sweden & Sony of Japan Advantages of Joint Ventures & Strategic Alliances ppt. • Quick entry in a foreign market • A way to obtain new knowledge and expertise in a foreign country • A way to achieve economics of scale (cost efficiencies through large scale production) • Sharing of costs • Sharing of risk • Entry into regulated industry • Increase connections among economics 6. Mergers & Acquisitions • A Canadian-owned company can actually merge with a foreign-owned company & create a new jointly owned enterprise that operates in at least 2 countries • Why do such merges occur? Goal of obtaining new markets for the business & the effort to obtain new knowledge & expertise in an industry, also companies that merge may be doing so in order to generate world- scale volume in a more cost-effective way 7. Establishment of Subsidiaries • Another sell-known type of global business activity is the creation of subsidiaries or branch operations in foreign countries, through which the enterprise can market goods & services. A Business may choose to maintain total control of its product/service by either establishing a wholly owned subsidiary or by purchasing an existing firm in the host country • Wholly owned Subsidiary: a firm that’s owned 100% by a foreign firm Levels of Global Involvement Exporting --> Licensing --> Franchising --> Joint Ventures/Strategic Alliances--> Foreign direct investments Less involvement More involvement Barriers to Trade Natural Barriers --> distance, language, culture, legal and regulatory Tariff Barriers --> import taxes, protective tariffs Non-Tariff Barriers --> quotas, embargoes, buy-national
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