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Lecture

ADMS 1010 Lecture Notes - Outsourcing


Department
Administrative Studies
Course Code
ADMS 1010
Professor
Eytan Lasry

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1. Define globalization
Globalization is the expansion of degrees and forms of cross border transactions, the
growth in foreign direct investment and the improvement independent economies, along
with the integration of world markets and economies.
2. Reasons for going global – push/pull factors
Push Factors- forces that act upon all business to create an environment where being
successful means going global
Force of Competition- Many companies feel obligated to compete just simply because
their foreign and domestic competitor is competing as well. Companies are in a way
“pushed” because their competitor is also integrating themselves in to new markets and
economies. Also the first mover advantage philosphy plays a factor in pushing
companies to go global, since only the first companies to become integrated within these
economies will be able to reap the benefits opposed to companies that establish
themselves later, to find it much harder to do so.
Shift of democracy- Many countries that were one dominated by communism or
government control are now shifting towards democracy. This allows many new
economic opportunities for business to establish themselves, since they weren’t able to
before hand
Improvement in technology- improvements in technology, along with the use of
information technology allow a company to become established within another country
easily
Reduction in Trade Barriers- one of the most prominent reasons companies go global.
This is because reduction in trade barriers allow companies to establish themselves in
another country much more easily, and reduces the cost of doing so. Reduction in trade
barriers may include the elimination of tarrifs and qoutas.
Pull factors – reasons a business would gain by entering a new economy
Obtaining needed resources- this allows organizations to either get needed resources at
a much cheaper cost compared to the “home” country. It also allows organizations to get
resources that weren’t available to them, and develop/provide products to consumers
Potential sales growth- since companies will have access to new economies and
markets, this means they will have access to a new consumer base. This means that they
have access to many more customers, where if a business establishes itself will be able to
expand its sales significantly.
3. Types/forms of global business
Import/ Export

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Buying/selling goods and services from overseas ethier directly to target consumers or
indirectly through foreign sales agents
Exporting is a relatively quick way on obtaining many profits
No need for factories developed in home country
Relatively quick way of going global
Outsourcing
Getting manufacturing from other countries to work on certain functions of an
organization
Foreign based contracts
Access to cheap products
No factories in host country
Comes with relatively large amounts of controversy
Joint Ventures
When two or more companies join together from other countries to: produce a product or
service, collaborate on research/development, or to market the product/ service. This
gives companies access to new markets, new knowledge and a way of expertise and also
allows them to produce at economies of scale( the more they produce, the less it costs
them)
FDI
Purchasing physical assets or parts of a whole company in order to obtain management
control. This involves the acquisition of local companies and establishing subsidiaries
Foreign direct investments provide a new way to get access to markets, and obtain
needed resources at a cheaper cost, or resources that weren’t available before allowing
them to improve their organization/company. Also, one of the main reasons for FDIs are
the reduction in trade barriers such as tarrifs and qoutas, giving organization within the
host country a huge advantage
Subsidaries
A choice management makes to take total control of a product or service by establishing a
wholly owned subsidiary or purchasing an existing firm. Also businesses have the choice
of starting an entirely new subsidiary from scratch.
4. The mnc/borderless/transnational

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-Definition
-Pros and cons for the host country
The MNC/borderless/transitional is an enterprise that operates manufacturing and
marketing facilities in two or more foreign countries, controlling its operations from a
firms home country. Multi National Corporations take advantage of the national
differences within cost and quality of a product/service. They make up much of the
worlds economy and are established within a home country, which is usually developed
and expands itself through host countries, which are usually third world countries. A
borderless organization refers to an enterprise that is able to establish a business
anywhere with no restrictions or setbacks
Pros-
Management expertise: Many MNCs have trained and developed managers and have the
latest education compares to those in third world countries.Therefore, these managers
can act as role models and teach each of the managers from third world countries what
they know.
Introduces new technology: MNCS have access to the latest technology and when they
establish themselves within other countries they implement new technology in to these
countries, allowing them access to it and may even encourage them to buy it themselves
Unites cultures and nations: MNCS can create a positive relationship with countries and
establish a union between the host and home country.
Creates jobs: MNCS established in host countries wil establish manufacturers, factories
etc. Thus, this will require employees.
Economic Development: Develops the economy of the host country
Cons
Mobile profits
No allegiance to host country
Difficult to control
Power held in home country
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