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Chapter 3

Global Dimensions of Management Chapter 3.docx

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Ryerson University
Global Management Studies
GMS 200
Horatio Morgan

Global Dimensions of Management  Growing power of global businesses affects all of us in our roles as citizen, consumers, and career-seekers. Management and Globalizations  In the global economy, resources, markets, and competition are worldwide in scope.  Globalization is the process of growing interdependence among elements of the global economy. Global Management  Global management involves managing operations in more than one country  A global manager is culturally aware and informed on international affairs. Why companies go global  Global business 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.  Businesses naturally grow and go international for reasons such as: 1) Profits: global operations offer greater profit potential 2) Customers: global operations offer new markets to sell products 3) Capital: Global operations offer access to financial resources 4) Labour: global operations offer access to lower labour costs 5) Suppliers: global operations offer access to needed products and services How companies go global  A global business conducts commercial transactions across national boundaries  When a business is just getting started internationally, global sourcing, exporting/importing, and licensing and franchising are the usual ways to begin. These are market entry strategies that involve the sale of goods or services to foreign markets without expensive investment.  Strategic alliances, joint ventures, and wholly owned subsidiaries are direct investment strategies. They require major capital commitments, but they also create rights of ownership and control over operations in the foreign country.  Global Sourcing:  A common first step into international business is global sourcing- the process of purchasing materials, manufacturing components, or business services from around the world.  It is an international division of labour in which activities are performed in countries where they can be done well at the lowest cost.  The goal is to take advantage of the international wage gaps by sourcing products in countries that can produce them at the lowest cost.  Exporting and Importing:  A second form of international business involves exporting- selling locally made products in foreign markets. The flip side of exporting is importing- buying foreign made products and selling them in domestic markets.  Exporting is a significant pathway to business growth for both individual firms and economies.  For businesses the goal of exporting is to find new customers and expanded markets by selling one’s products and services in other countries. For government expanding exports helps keep local business strong at a time when the potential is high for job loss to lower wage countries.  Licensing and Franchising:  Another form of international business is the 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’s name and operating methods in its home country.  Joint ventures and strategic alliances:  Foreign direct investment or FDI involves setting up, buying all, or buying part of a business in another country.  Insourcing is job creation through foreign direct investment. With insourced plants being more productive, more innovative, and more technology intensive, and paying higher wages and using more skilled workers than domestic controlled plants.  A joint venture operates in a foreign country through co-ownership by foreign and local partners.  International joint ventures are types of global strategic alliances in which foreign and domestic firms act as partners by sharing resources and knowledge for mutual benefit.  Foreign subsidiaries  A foreign subsidiary is a local operation completely owned and controlled by a foreign firm. These subsidiaries may be set up by Greenfield investments, in which the foreign operation is built entirely new.  The can also be established by acquisition, in which the outside firm purchases a local operation in its entirety. Global business environment  Global managers must deal successfully with a variety of forces in the general environment that can pose unique challenges.  Legal and political systems:  A major planning concern in global management, involves political risk- the potential loss in value of an investment in or managerial control over a foreign asset because of instability and political changes in the host country.  Most global firms use a planning technique called political risk analysis to forecast the probability of disruptive events that can threaten the security of a foreign investment.  Trade agreement and trade barriers:  World trade organization is a global organization whose member nations, agree to negotiate and resolve disputes about tariffs and trade restrictions.  The WTO established to promote free trade and open markets around the world.  WTO members are supposed to give one another most favored nation status- the most favorable treatment for imports and exports.  Regional economic alliances:
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