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Chapter 3

Chapter 3.docx

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Course Code
COMM 103
Gregory Libitz

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Chapter 3: International Business The Global Marketplace  With the ongoing technological revolution, companies all over the world are able to actively compete beyond their domestic markets  Buy and sell on a worldwide basis  The global marketplace is becoming home to an increasing number of businesses via operational growth, strategic alliances, formal partnerships, mergers and/or acquisitions  Managers are faced with more challenges as operations become spread across the globe Why Go Global? New Market Opportunities  As domestic markets become saturated with competition, they look for new markets o Organizational growth from entering foreign markets  This is a two-way street  You enter foreign markets, companies in foreign market enter your domestic market Cost-Reduction Opportunities  Organizations will generally locate in, and purchase inputs from, countries where the cost of resources enables them to generate a competitive advantage o Low labour costs & relatively high occupational skills – lower costs = more profit  Outsourcing operations of a business is attractive because of lower labour costs  Organizations facing increasingly competitive markets will seek the most efficient and cost effective prod/serv delivery systems as method for maintaining cost competitiveness Resource Base Control  Want to continually add the required resource base necessary to ensure that an adequate future supply exists to supported their offered products and services  Key fundamental in resource base acquisition strategies lies in seeking to control supply sources/influence the use of them, as well as generating lower costs/better value by having more control over these factors of production Closeness to market  Building facilities within foreign regions enables companies to operate closer to emerging markets and to react more quickly to market opportunities and trends  Also enables companies to create a stronger affliction for those products – thereby reinforcing value to the local market of their presence Economies of Scale  Organizations seek to develop, manage, and leverage global production of products & distribution networks for compartive advantage  Realized in the sourcing of production, centralization of services, sharing manufacturing Global Market Stability – The Role of the Government  2008 recession caused a global economic meltdown and in response the G7/8 and G20 organizations trying to initiate protocols/regulatory policies so it doesn’t happen again o Gov’t across globe are committed to developing such a regulatory environment with the purpose of managing financial and market risk in the global market  Recession also exposed a disequilibrium which currently exists between buyer and seller economies  Reduction in US spending resulted in GDP contraction in foreign nations  There are six fundamentals which governments need to commit to… Ongoing Commitment to an International Trade System  Refers to the need of countries to commit, and adhere, to the trade policies and agreements overseen by the WTO o The WTO’s main goal is to establish the parameters for multilateral trading o Provide regulatory and policy-based guidance on issues relating to the flow of goods/serv, the protection of intellectual property, trade dispute resolution o Key Services: Administers trade agreements, acts as forum for trade negotiations, settles trade disputes, reviews national trade policies, assists developing countries in trade policy issues via technical assistance and training, links with other international trade organizations to ensure smooth flow of trade Market Openness  Refers to the need for developing countries to maintain a focus in the core elements of an open economy – law of Sup & Dem, encourage entrepreneurship & private ownership  Relates to the willingness of countries to open their borders to competitive goods/serv, capital, foreign trade, and labour in/out of the country with few/no restrictions  Ongoing development of free-trade agreements, minimization of trade disputes, abolition of tariffs & tax duties, and lessening subsidies are components of an open market system Absence of Protectionism  Protectionism is the intent of economic policies which are put in place to protect/improve the competitiveness of domestic industries by restricting the openness of a market o Done by tariffs, trade restrictions, quotas, subsidies, controlling currency value  When gov’t protect their industries it makes it hard for international fair trade to happen o Results in trade disputes and retaliatory actions by foreign nations  Protectionism has detrimental effects on the global marketplace in the long run, and often results in economic inefficiencies and higher prices for consumers due to less competition Adherence to the Fundamentals of Fair Trade  Relates directly to the commitment, on the part of gov’t, to support and enforce the intellectual/patent property rights of companies, adhere to generally-accepted labour practices, and commit to environmental standards agreed upon by the global marketplace  Expectation associated with fair trade compliance is that governments will seek to eliminate black market activities which violate companys’ intellectual rights o Ex. Priracy, bootlegs copies, knock-offs (clothing, purses, sunglasses etc.) Balanced Economic Development  Gov’t must work toward the development of well-balanced economic growth  Means that gov’t must look to ensure that the total focus of an economy is not one that is driven to be export focused with only supplying prod/serv to other countries o Must develop domestic side of economy to reduce the reliance on external buying sources – better internal market = stronger economic base = stability and growth  Core area of development of the domestic side of the economy lies with the fundamental of market stability (refer to ch.2)  For economies to have long-term growth, the purchasing power of its residents, along with domestic consumption must occur in addition to export driven manufacture/prodtion o Internal exchange drives economic vitality – economic wealth – more demand Responsible Sovereign Debt Management  Refers to the obligation that government leaders have to manage their economy in a fiscally practical manner  It is recognized that countries need to carry deficits in effectively manage economic volatility and meet diverse needs of their citizens o The use of debt must be utilized in a manner which recognizes the obligations which it will inflict on current and future generations o Must seek to develop stable economic platforms resulting in long-term balance of trade positions without jeopardizing economic growth due to deficit obligations  If debt gets out of hand, it can cause negative pressure on the ability of the economy to grow, loss of control of inflation, political unrest, or reduction in gov’t services Global Market Trends 1. The global marketplace will continue to grow; with emerging economies growing roughly twice the rate of developed economies  BRIC should lead this impact as well as many other emerging economies. Domestic economic growth & high levels of gov’t investment in infrastructure and social benefits will be key drivers of this growth 2. Economic specialization will continue to be a trend as the implementation of global free trade
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