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Chapter 3

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COMM 200
Gary J Bissonette

COMM200 Week 3 Readings Chapter 3: The Global Marketplace Our Changing World - Growth of developing countries inAsia, Eastern Europe, Middle east etc. present both opportunities and challenges to Canadian businesses: o OPPORTUNITIES:  Development of these new markets -> resurgence of demand worldwide for Canadian natural resources -> significant new growth within economic sectors o CHALLENGES:  Manufacturing sectors continue to be challenged to improve their overall cost competitiveness - Today’s growth still relies on U.S. economic capacity, however the next few decades will see significant shift as China, India, Brazil and other countries mature and benefit from the significant foreign direct investment (FDI) currently under way + from overall development of their monetary banking systems, legal systems, transportation and production systems, and competitive business models and operating platforms o End result = tremendous growth in these economic regions The Global Marketplace - Whether it is through operational growth, strategic alliances, formal partnerships, mergers and/or acquisitions, the global marketplace is becoming home to an increasing number of businesses seeking to operate via an international-based business model o With operations becoming increasingly distributed across the globe, managers are being challenged to maintain control + direction over organizations to ensure strategies and operational tactics are being executed so that their products/services remain relevant and profitable Why Go Global? New Market Opportunities - Companies need to recognize markets od mature and new opportunities for untapped markets for current + future product/service offerings need to form a core part of the strategic planning process o As current markets become saturated -> businesses will look to global markets to discover and leverage new markets  For many Canadian companies, natural tendency = look first to the U.S. (given the close proximity) for potential growth opportunities and then internationally (not always the case though) - The search for new markets isn’t a one-way focus with fully-developed countries looking for new markets elsewhere o Companies from emerging economies have taken the same approach - The ability to assess global needs, manufacture products and/or develop services in response to it, and then to engage in global trade to gain access to these markets = fundamental to development of today’s global marketplace Cost-Reduction Opportunities - For global competitiveness, organizations will locate in, and purchase inputs from countries where costs of productive resources give them a competitive advantage o Businesses attracted to countries where labour costs are relatively low and occupational skills very high o This enables the organization to lower its overall cost base - With labour representing one of the largest cost sectors for many manufacturers, the ability to significantly impact the cost base lies with the ability of firms to reduce such labour costs o This makes offshoring and outsourcing certain elements of the operation to regions where labour costs are lower, so attractive  Although labour is the primary example, the same rationale holds true for other cost sectors, be it raw materials, energy costs, technology-based costs, etc. - KEYTAKE-AWAY o Organization’s facing increasingly competitive markets will seek the most efficient and cost-effective product/service delivery systems for maintaining cost competitiveness and earning high margins and profits Resource Base Control - In some business sectors, organizations seek to look globally in an effort to ensure that their business portfolios continually add the required resource base necessary to ensure an adequate future supply exists to support the products and services they offer in the marketplace o ^ particularly true of energy and commodity-based resource industries - The key fundamental in resource base acquisition strategies lies in seeking to control supply sources and/or influence the use of such sources, as well as being able to generate lower costs and/or better value by having more control over resource-based factors of production Closeness to Market - Companies also look to expand their business operations across the globe for “closeness to market” reasons - Both emerging developing countries as well as fully-developed economic regions represent opportunities for emerging international players as well o Establishing facilities within these regions enables companies to operate closer to these emerging markets + react more quickly to market opportunities and trends o Also can create stronger affiliation for their products/services and overall brands thus reinforcing the value to the local market of their presence - Engaging an organization into new markets -> returns added benefits of: o Identifying new ideas as markets become better understood o Developing new products/and services in response to those needs o Gaining greater market diversification as new markets grow and opportunities are capitalized on o Benefiting from learning new business methods Economies of Scale - Economies of scale can be realized in the sourcing and production of products, centralization of services, such as marketing, and sharing of manufacturing and infrastructure facilities to supply products and services to the global market o E.g. automobile industry  Internationally focused companies are actively competing for the same customers in numerous global markets  Thus to facilitate operational efficiency and spread development/production costs across larger volumes, the products these companies create are purposely designed for global consumption  E.g. the same car can be produced and traded around the world (Toyota’s TPS process approach) Global Market Stability – The Role of Government - Financial crisis of 2008 and 2009: o Free flow of debt services and credit facilities = absence of a unified financial regulatory system for the global markets = significant domino effect across the global financial services sector -> resulting in severe liquidity and solvency issues within numerous worldwide banking and financial institutions  In response, G7/8 and G20 organizations are seeking to initiate protocols and regulatory polices to ensure such a situation doesn’t reoccur - Global economic contraction in 2008/2009: o Exposed the disequilibrium which currently exists between buyer and supplier economics  The speed in which a recession, initially focused in the US quickly turned into a global recession with economic contraction worldwide  The ability of some nations to weather this economic downturn remains totally reliant on the ability of the US to pull itself out of this economic slump o Although the extent of this dependency does vary by industry, the need for a strong U.S. market is considered critical to the health of our manufacturing sector - Despite the 2008/2009 downturn, the long-term economic forecast for the global marketplace remains one of ongoing growth and development o For such growth to continue, it is essential that governments focus on and support key fundamental building blocks of global market development Ongoing Commitment to an International Trade System - Refers to the need of countries to commit to and adhere to the trade policies and agreements overseen by the WTO o WTO provides:  Regulatory and policy-based guidance on issues relating to the flow of goods and services  The protection of intellectual property  Dispute resolution associated with trade quarrels between countries  Trade policy review associated with the policies which individual countries are putting into place o WTO Key services:  Administers trade agreements  Acts as a forum for trade negotiations  Settles trade disputes  Reviews national trade policies  Assists developing countries in trade policy issues via technical assistance + training  Links with other international organizations to ensure smooth flow of trade
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