Chapter 6.pdf

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Department
Management
Course
MGM101H5
Professor
Dave Swanston
Semester
Winter

Description
Chapter 5- The Global Marketplace Our Changing World • Although today’s growth continues to rely on significant U.S. economic capacity, the next few decades will see a significant shift in this regard as China, India, Brazil, and other economies mature and benefit from the significant foreign direct investment (FDI) currently underway within these countries, and from the overall development of their monetary banding systems, intermodal transportation facilities, and competitive business models and operating platforms The Global Marketplace • Whether it is through operational growth, strategic alliances, formal partnerships, mergers, or acquisitions, the global marketplace is becoming home to an increasing number of businesses seeking to operate via an international based business model • Managers are thus challenged to maintain control and direction over their organizations and to ensure that strategies and operational tactics are being executed in a manner in which the organizations g/s remain relevant and that operational activities continue to meet the growing challenge of an increasingly competitive marketplace Why Go Global? New Market Opportunities • As domestic markets become saturated, organizations will begin to look beyond their current countries and markets in effort to discover and leverage new markets for g/s they offer • With rapid growth of the emerging developing economies of the world, new market potential is being realized by variety of Canadian and international based organizations but companies from emerging economies have also taken the same approach Cost Reduction Opportunity • Organizations will locate in, and purchase inputs from, countries where the costs of productive resources enable them to generate a competitive advantage • Example: Shift production to Mexico in effort to take advantage of available lower priced labour pools and lower overall cost base • Offshoring- Transferring a component (operations, service, support) of a firm’s business system to another country for the purpose of reducing costs, improving efficiency or effectiveness, or developing a competitive advantage • Outsourcing- Contracting out a portion of, or a component of, a firm’s business system for the purpose of reducing costs, improving efficiency or effectiveness, acquiring expertise, or developing a competitive advantage • Organizations facing increasingly competitive markets will seek the most efficient and cost effective g/s delivery systems as a methodology for maintain cost competitiveness and earning higher margins and profits • An additional side benefit is that by investing in these markets, foreign firms can also diminish concerns relating to protectionism, duties, and other tax levies designed to protect domestic economies Resource Base Control • Organizations look globally in effort to ensure their business port folios continually add the required resource base necessary for adequate future supply to support g/s offered • Mostly for energy and commodity based resource industries • Example- Foreign countries have invested in Alberta Oil Sands project for the purpose of obtaining and controlling mineral rights • The key fundamental in resource base acquisition strategies lies in seeking to control supply sources or influence the use of such sources, as well as being able to generate lower costs or better value by having more control over resource based factors of production Closeness to Markets • Companies look to expand their operations for the purpose of being “close to markets” in order to react more quickly to market opportunities and trends and also to create stronger affiliation for g/s and overall brands, thus reinforcing the value of their presence to local market • Engaging organization into new markets returns the added benefits of identifying new ideas as markets become better understood, developing new g/s in response to those needs, gaining greater market diversification as new markets grow and opportunities are capitalized on, and benefiting from learning new business methods Economies of Scale • Economies of Scale- Reductions in the cost base of an organization as the result of greater size, process standardization, or enhanced operational effectiveness • Can be realized in sourcing and production of products; centralization of services such as marketing, and sharing of manufacturing and infrastructure facilities to supply g/s to markets Global Market Stability: The Role of Government • Free flow of debt services and credit facilities along with absence of unified financial regulatory system for global markets resulted in domino effect across global financial services sector of extreme liquidity and solvency issues • Liquidity- Cash position of company and its ability to meet its immediate debt and operational obligations; Ability of company to convert existing assets to cash in order to meet such obligations • Solvency- Long term stability of company and its ability to meet its ongoing debt and operational obligations and to fund future growth • Despite the 2008-09 economic downturn and the sluggish of global trade, the long term economic forecast for the global marketplace remains one of ongoing growth and development, with emerging economies leading the way • Six Fundamentals of Global Growth: Ongoing Commitment to International Trade System • Need for countries to commit to the trade policies and agreements overseen by the World Trade Organization (WTO) whose main role is to establish the parameters for multilateral trading now and for the future • WTO provides policy based guidance on issues relating to the flow of g/s, the protection of intellectual property, dispute resolution associated with trade quarrels between countries, and trade policy review associated with the policies individual countries are putting into place • Purpose of WTO: Ensure that transparency exists between countries and globally with respect to the manner in which trade is conducted Market Openness • Need for developing economies to maintain a focus on the core elements of an open economy: the law of supply and demand, the encouragement of entrepreneurship and wealth creation, and the willingness to encourage and support private ownership • Also relates to willingness of countries to open their borders to competitive g/s in order to maximize benefits to citizens Absence of Protectionism • Protectionism- The intent of economic policies that are put in place to protect or improve the competitiveness of domestic industries via impeding or restricting the openness of a market or markets to foreign competitors through the use of tariffs, trade restrictions, quotas, artificial control of currency values, or other related activities • Protectionism has detrimental effects on marketplace in long run, and results in economic inefficiencies and high prices for consumers due to the absence of, or significant restrictions levied against, external competitors Adherence to the Fundamentals of Fair Trade • Relates to the commitment on the part of governments to support and enforce the intellectual and patent property rights of companies, adhere to generally accepted labour practices, and commit to environmental standards agreed upon by the global marketplace • Eliminate Black Market- Illegal market that arises within economies where goods are scarce, taxation of such goods is high, or the prices of legitimate goods are beyond the capacity of significant segments of the population to buy Balanced Economic Development • Governments must look to ensure that total focus of economy is not export driven, with the intent of simply supplying g/s to other countries • Development of domestic side of the economy must be pursued in order to minimize reliance on external buying sources • Core area of development of domestic side= fundamentals of economic market stability: established factors of production, national monetary policy and banking system, manageable levels of national debt, low inflation, and climate of political stability • The development of internal markets for g/s results in a stronger economic base and expanded economic activity, which is essential to ensuring that nations create stability and growth in the standard of living for their citizens and residents Responsible Sovereign Debt Management • Sovereign Debt- Debt issued or guaranteed by a national government • Responsible sovereign debt management refers to the obligation that government leaders have to manage their economies in a fiscally prude
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