CH 3 – Global Dimensions of Management
Management and Globalization
Globalization is the process of growing interdependence/mutuality among elements of global economy.
Global Management: involves managing operations in more than one country. Global managers are culturally
aware and informed on international affairs, working with people from different cultures, and always aware of
regional developments in a changing world.
Why Companies go Global: Global businesses are the foundations of world trade, helping to move raw
materials, finished products, and specialized services from one country to another in the global economy. The
reasons are: profits—better profit potential, customers—new markets to sell products to, suppliers—access to
needed products and services, capital—access to financial resources and lastly labour—access to lower
How Companies go Global: global businesses conduct commercial transactions across national boundaries.
Market-entry strategies involve the sale of goods or services to foreign markets without expensive investments;
some of the strategies are: global sourcing, exporting & importing, and licensing & franchising. Direct
investment strategies require major capital commitments, but they also create rights of ownership and control
over operations in the foreign country; direct investment strategies include: joint ventures and foreign
Global Sourcing: the process of purchasing materials, manufacturing components, or business services from
around the world. Activities are done in countries where they can be done well at the lowest cost.
Exporting & Importing: exporting allows for new customers and expanded markets by selling one’s products
and services in other countries.
Licensing & franchising: licensing agreement: where foreign firms pay a fee for rights to make or sell another
company’s products in a specified region. Franchising is a form of licensing in which the foreign firm buys the
rights to use another firm’s name and operating methods in its home country.
Joint Ventures and Strategic Alliances: Foreign direct investment (FDI) involves setting up, buying all, or buying
part of a business in another country. Insourcing is job creation through foreign direct investment. Joint
ventures operate in a foreign country through co-ownership by foreign and local 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.
Foreign Subsidiaries: local operations completely owned by a foreign firm. These subsidiaries may be set up
by Greenfield investments, which are foreign operation that builds an entirely new operation in a foreign
Global Business Environment: there are a variety of forces in the general environment that can pose unique
Legal and Political Systems: Political risk is the potential loss in value of foreign investment due to instability
and political changes in the host country. Political-risk analysis tries to forecast political disruptions that can
threaten the value of a foreign investment.
Trade Agreements and Trade Barriers: World Trade Organization (WTO) is a global organization whose
member nations (153) agree to negotiate and resolve disputes about tariffs and trade restrictions. It was
established to promote free trade and open markets around the world. WTO members are supposed to give
one another ‘most favoured nation statuses’—the most favourable treatment for imports and exports. Tariffs
are taxes government levy on imports from abroad. Protectionism is a call for tariffs and favourable treatments
to protect domestic firms from foreign competition. The goals of both of these are to protect local firms from
foreign competition and save jobs for local workers.
Regional Economic Alliances: NAFTA is the North American Free Trade Agreement linking Canada, USA, and
Mexico in an economic alliance. European Union (EU) is a political and economic alliance of European
Global Businesses: The “Big Mac” index is used to track purchasing power equivalence among the world’s
currencies; it compares the price in a currency like the U.S. dollar of the McDonald’s big mac. Global
corporations (multi-national corporations; MNC) are business firms with extensive international operations in
many foreign countries. Transnational Corporation is an MNC that operates worldwide on a borderless basis.
Pros and Cons of Global Corporations:
Host Country Issues: The potential host country benefits of MNCs include larger tax bases, increase
employment opportunities, technology transfers, introduction of new industries, and development of local
resources. The potential cost include complaints that MNCs extract excessive profits, dominate the local economy, interfere with the local gov’t, do not respect local customs and laws, fail to help domestic firms
develop, hire the most talented of loca