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Administrative Studies
ADMS 1000
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CHAPTER 7▯ ▯ ▯ ▯lobalization▯ -process for invoking the integration of world markets and world economies▯ Expansion of degree and forms of cross-border transactions among people, assets, goods and services▯ Growth in direct foreign investment across the world▯ Increase in economic interdependence – including the integration of world markets & economies ▯ ▯ ▯ ▯ ▯ ▯ ▯ ▯ ▯ ▯ ▯ ▯ ▯ ▯ PUSH FACTORS ▯ forces that act upon all business to create an environment where competing successfully means competing globally▯ Force of competition- a business may be pushed into becoming a global business by the simple fact that it is forced to compete with a foreign competitor. Moreover, for some businesses it market overseas. Also domestic competitors may be expanding their markets overseas whichtors creates additional incentive for the business to follow suit. The notion of first mover advantage is important world markets as later entrants will have a tough time establishing ▯ positions in ▯ Shift Toward Democracy- for many societies that were formally economically repressed and ▯ave been changing, allow business for many new economic opportunities for businesses ▯ ▯ ▯ Improvements in technology-Another fundamental source of influence on globalization which advances in transportation.▯h regions. Innovations in information technology as well as ▯ Reduction in trade barriers-One of the most prominent reasons for business to expand.Allowing them to expand much more easily across regions with reduced costs ▯ ▯ Push Factors ▯ ▯ Obtaining Needed Resources- businesses may choose to engage in global business activity in ▯rder to access resources which are ethier unavailable or too costly within its domestic borders▯ Potential for sales growth- a fundamental reason for engaging in global operation is to help a business expand its markets. Increased sales are typically the central aim, and a significant country▯f portion of sales among the worlds largest firms are generated outside of the home ▯ ▯MPORTANCE OF GLOBAL TRADE▯ ▯ Global or international trade between countries around the world improves relationships with allies and has economic benefits such as:▯ Creating growth in the economy▯ Increasing profits▯ Providing jobs ▯ ▯aising living standards that improve the quality of life▯ LICENSING AND FRANCHISING AGREEMENTS▯ ▯ Licensing ▯ Licensing is an agreement where the licensor or exporter grants a foreign firm the right to use ▯ntellectual property For example, patents, copyrights, manufacturing processes, trade names etc. for royalties – a percentage of total earnings▯ ▯ Businesses that dont wish to set up actual production or marketing operations overseas can let licensing fees it dosent matter.▯e activities and simply collect royalities. Whether it is for ▯ Franchising Franchising involves drafting a contract between a supplier (franchiser) and a dealer (franchisee) that stipulates how the supplier’s product or service will be sold. ▯ ▯ The franchisee is the dealer who is permitted to sell the goods/services of the franchiser in ▯xchange for some payment. ▯ Franchising has many of the advantages of licensing , in the form that they are relatively lower risk forms of globalization.▯ ▯ Channels of Global Activity ▯ ▯ IMPORT AND EXPORT▯ ▯ by retaining foreign sales agents and distributors▯er directly to target customers or indirectly ▯ Exporting offers much additional profitable activity for business and the business opportunities ▯vailable through exporting are significant. ▯ ▯ Avoid the need to build factories in host country▯ They are relatively quick ways of going international▯ ▯ OUTSOURCING AND OFFSHORING ▯ ▯ ▯etting manufacturing from other countries to conduct work in certain functions of the company ▯ Contracting services from foreign-based businesses (eg. Nike) ▯ ▯voids the need to build factories in host country (eg. Nike)▯ Access to cheap labour – reduces cost of production versus using domestic labour in Canada or U.S.▯ Can be controversial – ie. Business in developed countries like Canada criticized for shutting down manufacturing operations here & contracting the cheaper services of under-developed countries▯ ▯ ▯ JOINT VENTURES▯ ▯ It involves the arrangement between two or more companies from different countries to: Produce a product or service together or ▯ or marketing of this product or service▯nt ▯ ▯ Quick entry in a foreign market▯ ▯ ▯ way to obtain new knowledge and expertise in a foreign country▯ occurs between a MNC and a local partner▯ ▯ Mergers occur for reasons such as the goal of obtaining new markets for the business and the of scale in production may also be a source of influence. Companies that merge on a globalomies scale also increase volume in a cost effective way ▯ ▯ Foreign Direct Investment (FDI)▯ ▯ Acquisition of local companies▯ ▯ Establishment of subsidiaries (branch plants)▯ ▯ financial ownership in the company. Eg. BestBuy acquiring Future Shop (a merger &ry though some acquisition)▯ ▯ involves the purchase of physical assets or an amount of ownership in a company from another ▯ountry in order to gain a measure of management control.▯ Why Would Business Wish to Engage in Foreign Investment?▯ ▯ Access to markets worldwide. Controlling companies can obtain access to larger markets or needed resources via the FDI. Earlier in the process of globalization, direct investment was in a abundance or that they could produce more competitively, they would also directly invest in countries where they needed their source of raw materials or to manufacture their products inside domestic markets and avoid tariffs and trade barrriers. Thus FDIS became an alternate to trades and thus FI increasing and employment levels do not increase because of the increased ▯nvestment.▯ ▯ ▯ Establishment of Subsidiaries▯ a
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