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chapter_6 globalization.doc

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York University
Administrative Studies
ADMS 2600

Review Textbook: Exploring the Canadian Business Environment – Len Karakowsky CHAPTER 6 – THE GLOBALCONTEXT Identify factors that have encouraged the globalization of business. Factors that have encouraged globalization can be categorized into two categories: push factors and pull factors Pull factors: These are reasons a business would gain from globalizing Potential for sales growth i) Asignificant number of large firms generate most of their sales outside of the home country ii) Having access to foreign customers may mitigate the negative effects of an economic downturn in the home country Obtaining needed resources i) Going global can help a business obtain resources that are either unavailable or too costly in its domestic country. ii) These resources can be: raw material or inexpensive labour iii) Higher rates of return on investments for US and Canadian companies abroad are largely due to inexpensive labour Push factors: These are reasons a business would leave an area to expand internationally. These factors create an environment where competing successfully means competing internationally The force of competition i) This can be a push factor when the domestic market is inundated with competing products and services ii) Foreign companies in the domestic market further increase competition iii) There are new and possibly untapped markets to be considered iv) Can be summed up as a reaction to competitors' actions v) Taking the initiative to enter a new market before competitors will give one a leg up Shift toward democracy i) Societies that were formerly economically and politically repressed create new market opportunities ii) Foreign investment can generate interest when privatization is in place (like in China) Reduction in trade barriers The increase in global business activities can be attributed to a reduction in trade and investment restrictions Improvements in technology i) Innovations in IT and transportation has made it easier to transfer information, products, services ii) E-commerce has been relatively free from gov't control and has contributed to the generation of virtual global organizations Describe the central channels or forms of global business activity. 1) Exporting and importing Exporting offers more profitable activity To put into perspective: Canada has 30 million prospective customers, while the world holds 7B Exporting allows Canadian companies to grow and increase productivity because our population is relatively small Importing gives our consumers choice and reduces costs 2) Direct Investment in Foreign Operations FDI 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 (factories, inventory, capital assets, etc) 3) Joint Ventures, StrategicAlliance Ajoint venture is an arrangement between 2 or more companies from different countries to produce a product or service together. They collaborate in the r&d or marketing of this product. Example: Sony Ericsson = LM Ericsson of Sweden and Sony of Japan Aims of the strategic alliance include: 1. Enhance the core competencies of the business involved 2. Obtain access to the expertise of another organization 3. Generate new market opportunities 4) Mergers and Acquisitions Merging with a foreign-owned company to create a new jointly owned enterprise that operates in at least two countries. Example: Molson &Adolph Coors = Molson Coors Brewing Co Mergers share the same aim that joint ventures do Also, this could result in achieving economies of scale in production 5) Establishment of Subsidiaries Acquisitions of local companies have become increasingly popular because it allows efficient entry into a market with already well known products and distribution networks. 6) Licensing and Franchising Major fast-food chains use this as a vehicle for growth 7) Outsourcing Labour pools with cheaper labour Discuss the importance and consequences of multinational and border-less corporations. Importance Consequence i) Encourages economic development i) MNCs do not have any particular allegiance or ii) Offers management expertise commitment to their host country iii) Introduces new technologies ii) Profits made by an MNC do not necessarily iv) Provides financial support to underdeveloped remain within the host country regions of the world iii) Decision making and other key functions of v) Creates employment MNCs may be highly centralized in the home country vi) Encourages international trade through a (such as r&d and strategic planning), though company's access to different markets operations are in the host country vii) It is relatively easy to produce goods in one iv) Difficulty in the ability to control and hold MNCs country and distribute them in another country accountable can create serious ethical concerns for through a subsidiary or foreign affiliate the host country viii) Unifies countries ix) Facilitates global co-operation and worldwide economic development The term border-less corporation, as opposed to multinational, emphasizes the notion that an enterprise can be a global company without any clear nationality. Often, the company has international ownership and international management. Headquarters do not necessarily belong to one home country. Border-less i) Set up business where it is profitable, rather than creating a branch plant whose head office is elsewhere ii) Decision making is local and decentralized Explain the purpose of protectionism and its relationship with international trade. The purpose of protectionism is to protect a country's domestic economy and businesses through restriction on imports. Importing may be a threat to a country's business and economy because: 1) Low-priced foreign goods that enter the country could compete with goods already produced here and take business away from domestic producers. This would lead to loss of sales and jobs for domestic industries that are unable to compete with these lower-priced imports 2) Acountry that imports more than it exports will have a negative balance of trade, or a trade deficit – which often results in more money flowing out of the country than flowing in Tariff: Atax placed on goods entering a country This is ensure the imported good is not less expensive than the domestic good Import Quota Alimit on the amount of a product that can be imported This is to ensure the retention of an adequate share of consumer demand for domestic goods Identify the types of regional economic integration. 1) Free TradeArea i) Removal of tariffs and non-tariff trade barriers for member countries ii) Greater member autonomy with regard to such issues as how it chooses to deal with non-members and what types of barriers it should construct against non-member countries iii) NAFTAand APEC 2) Customs union i) Removal of trade barriers on international trade between member countries ii) Lesser autonomy than above because it is more economically integrated iii) Typically a uniform policy with regard to issues like dealing with non-members iv) MERCOSUR 3) Common market i) Contains elements of the above two types of integration ii) Generates freer flow of labour and capital across their borders iii) More difficult to achieve than the previous two because it requires great co-operation in economic and labour policy iv) European Union 4) Economic union i) Contains elements of all of the above ii) Involves a coordination of economic policies among the member countries iii) Harmonization of fiscal, monetary, and tax policies; cr
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