Chapter 3 – Global Dimensions of
We currently live in the age of the global economy, where resource supplies, product markets,
and business competition are on a worldwide level as opposed to local or national.
o It is heavily influenced by the forces of globalization, the process of growing
interdependence among elements of the global economy
Global Management involves managing operations in more than one country.
o Global Managers are increasingly sought after now. This is someone informed about
international developments, transnational in outlook, competent in working with people
from different cultures, and always aware of regional developments in a changing world
Why Companies Go Global:
o Profits – global operations offer greater profit potential
o Customers – new markets to sell products
o Suppliers – Offer access to needed products and services, for cheaper
o Capital – Offers access to financial resources (ex: foreign investors)
o Labour – Access to lower labour costs
A global business conducts commercial transactions across national boundaries. There are 3
Market Entry strategies: Global sourcing, exporting and importing, licensing and franchising.
There are also 2 direct investment strategies, Joint Ventures and Foreign Subsidiaries. Each of
these has increased ownerships and involvement in foreign operations. In the list below it goes
form least involvement to highest involvement.
o Global Sourcing
The first step towards international business
Materials and services are purchased around the world for local use. This saves
money by taking advantage of international wage gaps, by sourcing products in
countries that can produce them at the lowest cost (ex: China)
o Exporting and Importing
Exporting – local products are sold abroad to foreign customers
Growth of export industries creates LOCAL jobs
The opposite side is Importing – selling products acquired abroad in the local
This causes local markets to LOSE jobs, because the money goes to
o Licensing and Franchising
In a licensing agreement, a foreign firm pays a fee for rights to make or sell
another company’s products in a specified region. The license typically grants
access to a unique manufacturing technology, special patent, or trademark.
Example: New balance licensed a Chinese supplier to produce one of its brands Franchising is a form of licensing in which the foreign firm buys the rights to use
another’s name and operating methods in its home country. The international
version operates similarly to the domestic franchise.
Example: McDonalds, Subway, Wendy’s are all franchises. They sell
facility designs, equipment, product ingredients and recipes, and
management systems to foreign investors while retaining certain
products and operating controls
The 2 strategies below are Direct Investment Strategies, as opposed to the top 3 Market Entry
o Joint Ventures and Strategic Alliances
Some firms decide to make big investments in foreign operations. This is called
Foreign Direct Investment (FDI), which is building, buying all, or buying part
ownership of a business in another country
The term insourcing is used to describe job creation through foreign
direct investment. Basically the opposite of outsourcing, it involves
bring people in to do work within the facility
A common way to start in a new country is with a joint venture. This is a co-
ownership arrangement in which the foreign and local partners agree to pool
resources, share risks, and jointly operate the new business. Can be the result of
a buy-out of partial ownership, or an entirely new organization formed by the
local and foreign partners.
International joint ventures are types of global strategic alliances, a partnership
in which foreign and domestic firms share resources and knowledge for mutual
gains. Each partners hopes to gain through cooperation things they couldn’t do
or would have a hard time doing alone.
o Foreign Subsidiaries
A foreign subsidiary is a local operation completely owned and controlled by a
They can be established by greenfield investments, in which an entirely
new operation is built in a foreign country.
Can also be established by acquisition, such as when an outside firm
purchases a local operation entirely.
Global Business Environment
A major concern in global management is political risk – the potential loss in value of a foreign
investment due to instability and political changes in the host country
o Political-risk analysis tries to forecast political disruptions that can threaten the value of
a foreign investment
Global firms must comply with local laws. In the US and Canada for example, executives of
foreign-owned companies must comply with antitrust laws that prevent competitors from
regularly talking to one another. Trade Agreements and Trade Barriers
When international businesses believe they are being mistreated in foreign countries, the WTO
o The World Trade Organization (WTO) is a global organization whose member nations,
currently 153 of them, agree to negotiate and resolve disputes about tariffs and trade
WTO members are supposed to give each other most favored nation status –
giving a trading partner most favorable treatment for imports and exports
o Trade barriers still limit freedom of trade and are common.
These include tariffs, which are taxes imposed on imports. These trade barriers
fuel protectionism, which is a call for tariffs and favorable treatments to protect
domestic firms from foreign competition.
An example of this would be the US government put a 20% tax on all
foreign imported cars (such as Hondas), to protect the sales of local cars
(such as Ford)
NAFTA is the North American Free Trade Agreement, that links Canada, the US and Mexico in an
economic alliance. This creates a trade zone with no barriers, which frees the flow of goods,
services, workers and investments in these 3 countries
The European Union links 27 countries that agree to support mutual economic growth by
removing these barriers, and is another economic alliance.
o These 27 countries have a common currency, called the Euro
Global Corporations, also known as Multinational Corporations or MNCs, are business firms
with extensive international operations in many foreign countries. The biggest ones are features
on Fortune Global 500, and include many names such as Toyota, Nestle, etc.
o Keep in mind that although MNC’s operate in many countries, its founding history and
corporate headquarters give it a strong national identification. For example, is there any
doubt that Sony and Honda are Japanese or that BMW is German?
o More and more companies are trying to operate as transnational corporations, and
MNC that operates worldwide on a borderless basis, and without ide