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ADMS1000 - Final Exam Study Notes - Chapters 6, 7, 8, 9, 10

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Administrative Studies
ADMS 1000
Natalie Guriel

GLOBALIZATION ch 6 and 8 - Process involving integration of world economies, world markets - Free moment of goods/services, capital and labour - Cross border transactions, foreign direct investment, economic interdependence Why important? - Benefits all countries - Exportation: grows economy in order to buy imported goods Encouraging business activity Pull factor: 1. Obtain needed resources 2. Achieve sales growth Push factor: 1. To compete with competition 2. Shift towards democracy 3. Reduction in trade barriers 4. Improvement in technology How to engage? 1. Establishing subsidiaries 2. Exporting and importing 3. Outsourcing 4. Licensing and franchising 5. Direct investment in foreign operations 6. Joint ventures and strategic alliances 7. Mergers and acquisitions Multinational corporations - Nationality of org’n is unclear - No allegiance to particular country or location (ie Nortel, Mcdonalds, Nestle, Coca Cola) - Financial, technological, human… capital are easily transferred between countries - Ownership and management are international - Firms follow the profits BENEFITS OF MNC 1. Economic development i.e. creates employment, provides financial support and global economic development 2. Brings management expertise 3. Introduces new technology and relevant training 4. Encourages international trade 5. Unites cultures and nations, brings countries closer together, fosters global cooperation THREATS OF MNC 6. No allegiance to host country 7. Mobile profits (back to parent company) 8. Power held in home country i.e. R & D investments (decision-making centralized) 9. Difficult to control and hold accountable International Trade? - The purchase, sale or exchange of goods or services across countries. - The logic of trade: encourages nations to specialize in goods/services in which they are most efficient and trade with other countries for goods/services not produced domestically (comparative advantage – David Ricardo) A brief history 1. Mercantilism (1500-1800): encourages trade surpluses where exports of goods or services exceeds imports. Conquering countries to gain access to raw materials and markets for finished products. 2. Trade protectionism: protects domestic economies through import restrictions  Tariffs: tax placed on goods entering a country  Quotas: limits the amount of imports  Subsidies to domestic industries/firms - Problems with these? 1. Trade retaliation 2. Increased costs to consumers 3. Limits competitiveness of domestic firms 4. Negative impact of tariffs  Impact on exporting country:  Lower production, job losses, economic decline…  Impact on importing country:  Less competition for domestic firms, rising sales, prices, employment, spending, government revenues…  Increased costs to consumers, less spending on other industries, economic declines, costs of imposing and collecting tariffs, possible costs of retaliation and trade wars… - Promoting international trade 1. GATT (1948) 100 countries agreed to reduce tariff levels 2. WTO (1995) took over from GATT to manage world trade agreements 3. IMF provides short term aid to developing countries 4. World Bank seeks to provide long-term loans for development - TRADING BLOCS 1. Free Trade Area: removing subsidies and quotas for member countries but autonomy in selecting trade agreements with non-members i.e. NAFTA, APEC 2. Customs Union – FTA but less freedom about interacting with non-members i.e. common policy i.e. Mercosur 3. Common Market – CU+ a free flow of labour and capital across borders i.e. European Union 4. Economic Union – CM + coordination of economic policies including high levels of integration - EUROPEAN UNION (EU) 27 countries – 12 using EURO currency – and over 450 million people - ASIA PACIFIC ECONOMIC COOPERATION (APEC) 21 countries and over 2 billion people 1. Represents 50% of the world`s output (Australia, Canada, USA, PRC, Japan, etc) - ASSOCIATION OF SOUTH EAST ASIAN NATIONS (ASEAN) 1. Brunei, Cambodia, Laos, Indonesia, Philippines, Singapore, Thailand, Vietnam, Myanmar, Malaysia - NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA) 1. To reduce/eliminate tariff barriers on almost all goods and services traded 2. To facilitate cross-country investment 3. To establish rules for government subsidies 4. To establish universal rules for health, safety, and the environment 5. To provide a common market among members - NAFTA 1994, CANADA-US FTA 1989 1. IMPACT ON TRADE  Pro: increased trade from 25% to 43% of GDP between 1990-99  Cons:  Trade increase is the result of a weak dollar  Canada is still a resource-heavy economy  With very little high-tech exports  Too dependent on trade with the US 2. IMPACT ON CANADIAN EMPLOYMENT AND BUSINESS  Pro: increased competition forces domestic businesses to improve efficiency, innovation and standards and to focus on core industries where we have a competitive advantage and abort inefficient operations  Con: Competition may be too strong – forcing bankruptcy and job losses given US firms’ productivity advantage and cheaper Mexican labour 3. IMPACT ON CANADIAN CULTURE  Pro: doesn’t impact Canadian culture, cultural exports = $4.5 B and opens big market in royalties  Con: may destroy Canadian culture, Canada may become a subsidiary of USA, competition from American media affects Canadian cultural capital 4. IMPACT ON CANADIAN COMPETITIVENESS AND CONSUMERS  Pro: more exposure to competition, more choice for consumers, cheaper inputs, further market opportunities  Con: no increase in productivity, unable to match US productivity, most of success based on weak $C, cheaper production and value i.e. film industry GOVERNMENT, BUSINESS AND SOCIETY ch 7 The Canadian Business Enterprise System - All societies have an economic system to determine: 1. What goods and services are produced/distributed by society 2. How they are produced/distributed - The Canadian economy is a mixed system 1. Capitalist with strong government influence Government influence in Canada: - Taxation 1. Collection of revenue taxes – individual, corporation, sales, property 2. Collection of restrictive/regulatory taxes – excise and customs duties/tariffs) i.e. on tpbacco, alcohol - Crown corporations 1. Natural monopolies ie hydro, gas 2. Protect and provide services that private enterprise might not wish to pursue ie Canada Post 3. Allow for more government control ie OLG, LCBO 4. Implement public policy and safeguard national interests ie Air Canada 5. Protect vital industries ie CNR, CBC 6. May be federal or provincial 7. Number of CCs have been decreasing along with number of employees 8. LCBO – successful CC business and a regulatory system on alcohol consumption - Regulation 1. Imposes constraint to modify economic behaviour in the private sector ie energy, health and safety, labour, food, consumers, etc. 2. Imperfect competition – intervention ensures appropriate provision of goods and services 3. Public interest – protects consumers through regulation, limitations imposed on business ie foreign ownership, management, pricing, etc. - Bailouts and subsidies 1. Bailouts: ie Chrysler 1980s and 2008, GM and US Banks 2009 2. Subsidies: to prop up business or encourage further development 3. Issues with government helping businesses?  Investors should make market decisions, not government  Private capital markets should influence investment to best companies/products ie most profitable  Market should be driven by investment reward versus risk, not political goals  Government should not be picking market winners and losers  Government assistance  Is unfair  Creates an uneven playing field  Undermines public confidence  Goes against free and open markets  Creates dependency on assistance (instead of business finding solutions to their own problems)  Is not benefitting the general public – tax dollars should be spent on roads, health and education for ie - Recent trends 1. Deregulation  Regulation decreasing esp. in transport, energy, communications and financial services  Regulation in health and safety and employment issues are increasing 2. Privatization  Removing government control in a business/business activity  ADVANTAGES  More competition
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