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Final

AFM131 Study Guide - Final Guide: Ideo


Department
Accounting & Financial Management
Course Code
AFM131
Professor
Robert Sproule
Study Guide
Final

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Module 2: Globalization
Article: Borderline Insanity
Many companies want free trade between Canada and the US
Trade with Canada is a low priority for the US
They’re very protective after 9/11
Umar Farouk Abdulmutalalb hid explosives in underpants and failed to blow up Detroit
bound jet
With this incident, the US closed borders even more
US and Canada are working together to bail out large companies
It’s easy to sneak past the border
The border costs Canada a lot of money (especially for the auto sector)
Video: Globalization Effects on the Global Poor
Is globalization good or bad for the poor?
o If you phrase this question, you have to take sides
o Answer: both, good and bad
Good: helped those countries prosper
Bad: inequalities in income
Looking at the Gini coefficient to see the distribution of wealth
Chapter 3: Competing in Global Markets
Why trade with other nations?
1. Can’t produce enough to be self sufficient
2. Other nations will try to sell so they survive
3. Abundance of goods
Free trade: trading among nations without political/economic trade barriers
Comparative advantage theory: a country should sell what its best at and buy what its worst at
(in terms of effectiveness/efficiency)
Absolute advantage: ability to produce a g/s using fewer resources than another country
Trade specialization resources used productively
Measuring Global trade, and the Canadian experience
Many small businesses are getting involved in global markets
Trade enhances quality of life for Canadians and contributes to country’s economic well
being
Balance of trade: nations ratio of exports to imports (trade surplus vs. Trade deficit)
Balance of payments: (import $ - export $) + extra flowing $

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Canada trades heavily with the US
Gov’t has identified 13 priority markets where Canadian opportunities and interests
have the greatest potential for growth
By 2050 US, China, India = largest economies
To encourage Canadian presence (Canada’s Global Commerce Strategy)
o Tax cuts
o Support of R&D
o Improve infrastructure of Can-US border and Canada’s Asia Pacific Getaway
Strategies for Reaching Global Markets
Exporting: export g&s (simplest way to go international)
o Canadians may be reluctant
o Specialists: export-trading companies
Licensing: licensing the right to manufacture its product or use its trademark to a foreign
co. For a fee
o Can gain additional revenue from a product that may not have worked in home
market
o $ from additional fees (start up supplies, services etc.)
o Adv: spend little/no $ to produce and market products
o Con: selling secrets
Franchising: business sells the rights to use the business name and sell a product or
service to others
Contract manufacturing: foreign country’s production of private label goods to which
domestic company attaches brand name or trademark (aka outsourcing)
International Joint Venture and Strategic Alliances
o Joint Venture: partnership where 2 or more © undertake a major project or form a
new ©
Pros
Shared tech and risk
Shares marketing and mgmt expertise
Easier entry into foreign markets
Shared knowledge of local market/customs/laws/gov’t
Cons
Loss of trade secrets
Become too large to be flexible
o Strategic Alliance: long term partnership between 2 or more ©s to help each one
build their own competitive market advantage
Foreign Direct Investment (FDI): buying permanent property and business in foreign
nations
o Foreign subsidiary: © owned in a foreign country by another ©

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Forces affecting trading in Global Markets
Sociocultural forces: must understand cultural diversity
o “ethnocentricity”: feeling of superior culture
o Ppl do things diff: must understand that (ex. Culture, religion, business practices)
Economic forces
o Have to tailor products and strategies for local market conditions
o Different exchange rates...”floating exchange rates”, devaluation by gov’t
o Bartering, countertrading...: no need to deal with money directly
Legal and Regulatory forces
o Deal with diff law, interpretations may be diff
o Corruption in many other countries
Technological forces
o Diff levels of tech advancement in diff countries
Trade Protectionism: use of gov’t regulations to limit imports
Barrier to global trade
Pro: allows domestic producers to survive and grow = more jobs
Con: impedes global trade, make things more expensive for consumers
Dumping: selling prices at lower prices in foreign countries
o To dispose of surplus goods
o To gain a foothold by offering lower prices
o Benefits foreign firms: generates more sales because of price reduction
o Benefits purchasers: can buy at lower price
o Con: domestic producers suffer: must lower prices to compete->leads to less
revenue and job losses
Tariffs: tax imposed on imports
1) Protective taxes
2) Revenue taxes
Non tariff barriers exist as well
Embargo: ban
Import quota: limits # allowed
Organizations: pro globalism
The GATT: General Agreements on Tariffs and Trade
o Created in 1948 with 28 nations: negotiated trade agreements
o 1986 (Uruguay Round): voted to modify...became WTO
WTO: World Trade Organization
o HQ: Geneva, Switzerland, 153 members
o Purpose: over see cross border trade issues & global business practices
o Trade issues expected to be resolved in 12-15 months
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