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Accounting & Financial Management
AFM 131
Bob Sproule

ARBUS 101AFM 131FINAL SOS SESSION TutorCoordinator Alexandra PazBarreirasPLEASE NOTE I HAVE NOT PROVIDED ANY NOTES ON MIKES BIKESCH 3COMPETING IN GLOBAL MARKETS HOW DOES GLOBALIZATION AFFECT YOUConsumerwider variety of products and servicesEmployeeworkplace or head office can be in a completely different country than their homeBusiness ownerfaces global competition and can reach a global marketStudentmany prospects for schooling and job opportunities at international locations REASONS FOR TRADEUSCANover 73 of our exports and 69 of our imports are with USno other modern industrialized country is so dependent on one country for trade and investmentsgeography CAN shares a large stretch with US making transportation easyculture and language similar easier communication th location of CANs population mostly along the 49 parallel closer to the US border CAN abundance of natural resourcesExchange rateDYNAMIC GLOBAL MARKET Companies must continuously restructure plans to ensure profit is being madeEg Globalization problem for CAN auto manufacturersjobs eliminated to move to cheaper labour force countries due to increased price of gas decrease in demand for trucks SUVS Global market is dynamic and progressive therefore must always scan business environment 1To ensure taking advantage of opportunities and 2 Minimize the impact of threats Exporting selling goods and services to another countryImporting buying goods and services from another countryWHY TRADE WITH OTHER NATIONSNo country can produce all of their products that its people want and needOther nations would seek to trade with a country that couldto meet the needs of their own peopleSome nations lack technological know how but are abundant in natural resourcesvice versa Mutually beneficial exchangeproduce what its capable of producing and buy what it needsFree trade movement of goods and services among nations without political or economic obstructionPros global market contains more than 6 bill potential customers for goods and services o Better productivity in areas of comparative advantage o Global competitionless costly imports control inflationo Inspires innovation for new productscompetition between firms o Low interest rates due to access to foreign investmentsCons domestic workers lose jobs to increased importsproduction shifts to lowwage global markets o Workers threatened to accept paycuts employers can move to lowwage global markets o Loss of service jobswhitecollar jobs in developed highwage countries o Domestic companies lose comparative advantage when put up against advanced production operations competitors in lowwage countriesTHE THEORIES OF COMPARATIVE AND ABSOLUTE ADVANTAGEComparative advantage theory country should sell to countries those products it produces most efficiently and buy from other countries those products that it cannot produce as effectively or efficientlyo eg Japan with cars and electronics CAN with forestry products o Problems many countries decide to produce certain agricultural industrial or consumer products despite a lack of comparative advantageRestrict imports of competing products from countries that can produce them at lower costsNet resulttrade protectionism Absolute advantage country has the ability to produce a particular good or service using fewer resourcestherefore at lower cost than another country o Eg Zambia has absolute advantage over other countries in production of copper due to its copper ore reservesGETTING INVOLVED IN GLOBAL TRADECAN small businesses account for 48 of total private labour force 85 exports 3 categories of merchandising represent 65 of imports Machineryequipment industrial goodsmaterials automotive products trade with other countries enhances quality of life for CAN and contributes to our countrys economic wellbeing exports account for 15 CAN jobsgenerate 030dollar earnedgoods compromise largest component of trade 7x as greatly exported 5x as greatly imported MEASURING GLOBAL TRADEbalance of trade nations ratio of exports to importstrade surplus favorable balance of trade value of countrys exportsimports CANtrade deficit unfavorable balance of trade values of countrys exportsimportsCANADAS PRIORITY MARKETStechnological advances allow many emerging economies to be players on the global economic stageo high growth rates rapid increases in living standards rising global prominenceARTICLE Canadas Auto Sector p 9 o Single biggest contributor to CAN manufacturing GDP 12 nationally o 17 CAN employed indirectly o positive impact on economy 31 economic multiplier o huge export orientation o shrinking due to globalizationenvironmental changespoor management decisions produce cars that dont match consumer expectations o 2009 government bailoutgovernment bought stake in GM of fear the company would be forced out of CAN after being bankrupt13 priority markets for greatest potential for Canadian growth o Association with South East Asia Nations AustraliaNew Zealand Brazil China Europe Gulf Cooperation Council India Korea Latin America Caribbean Russia US China and India growing and emerging markets STRATEGIES FOR REACHING GLOBAL MARKETSEXPORTINGConsider exporting wheno Simplest with the lowest investment having the lower riskThe lowest return o Most appropriate when selling a new product or service with no current market o Needing assistance from an export trading company when trying to find new customersExporttrade companies available to step in and negotiate and establish trading relationships desiredease process of entering global markets o As presenting some challenges in dealing with local customs offices relative to documentation and possibly weight and measures issues with our next product or service o Measures to implement to ensure we are paid Success usually leads to licensing with foreign company to produce product locallySTRATEGIES FOR REACHING GLOBAL MARKETSLICENSINGLicensing firm licensor allows a foreign company the licensee to produce its product in exchange for a fee royaltyOrganization can gain additional revenues Usually result in longterm service contracts bcs startup supplies component materialsconsulting services needed for the licensee are costlyLicensors spend little or no money to produce and market their productsIf product experiences sudden growth and success bulk of revenue is for licenseePossibility of losing royalties and trade secrets if licensee learns companys technology or product secrets may break agreement and produce similar product on its ownSTRATEGIES FOR REACHING GLOBAL MARKETSFRANCHISINGArrangement whereby someone with a good idea for a business sells the rights to use the business name and sell a product or service to others in a given territoryMust be careful to adapt their good or service in the countries they serve or risk failure Eg rice in Mcdonalds in Philippines beer in Mcdonalds in PortugalSTRATEGIES FOR REACHING GLOBAL MARKETSCONTRACT MANUFACTURINGContract manufacturing foreign countrys production of private label goods to which a domestic company then attaches its brand name or trademark also called outsourcing Eg Nike factories make shoes and are contract manufactured to place the Nike brand nameEnables company to experiment new market without incurring heavy startup costsSuccessful brandpenetration of new market with relatively low risk and low labour costsCan be used to temporarily meet unexpected increase in ordersSTRATEGIES FOR REACHING GLOBAL MARKETSINTERNATIONAL JOINT VENTURESTRATEGIC ALLIANCESJoint ventures partnership in which 2 companies join to undertake a major project or to form new companyCan be mandated by governments to help break a foreign marketBenefits shared technology and risk o Shared marketing and management expertise o Entry into markets where foreign companies are often not allowed unless goods and produced locally o Shared knowledge of the local markets including local customers government connections access to local skilled labour and supplies and awareness of domestic laws and regulationsDrawbacks one partner can learn the others technology and practices go off and use what has been learned o shared technology may become obsolete after time o joint venture may become too large to be as flexible as needed
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