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Chapter 3

Chapter 3 - Global Dimensions of Management.docx

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Ryerson University
Global Management Studies
GMS 200
Franklin Ramsoomair

Chapter 3: Global Dimensions of Management ● Key concepts in the challenges of globalization: o Global Economy – resource supplies, product markets, and business competition are worldwide, o Globalization – the process of growing interdependence of these components in the global economy o Global Management – involves managing operations in more than one country o Global Manager – culturally aware and informed on international affairs ● Reasons why businesses go global: o Profits o Customers o Suppliers o Capital o Labour ● Global Business – conducts commercial transaction across national boundaries ● Types of market entry strategies o Global Sourcing – the process of purchasing materials, manufacturing components, or business services from around the world for local use o Exporting – local products sold abroad to foreign countries o Importing – involves the selling in domestic markets of products acquired abroad o Licensing agreement – a local firm pays a fee to a foreign firm for rights to make or sell its products o Franchising – a fee paid to a foreign business for rights to locally operate using its name, branding, and methods ● Foreign Direct Investment (FDI) – building, buying all, or buying part ownership of a business in another country o Insourcing – job creation through foreign direct investment o Outsourcing ● Types of direct investment strategies o Joint Ventures – operates in a foreign country through co-ownership by foreign and local partners o Global Strategic Alliances – a partnership in which foreign and domestic firms share resources and knowledge for mutual gains o Foreign Subsidiaries – local operation completely owned by a foreign firm - Greenfield Investment – builds an entirely new operation in a foreign country ● Complications in the global business environment o Legal and Political Systems - Political Risk – the potential loss in value of a foreign investment due to instability and changes in the host country - Political-Risk Analysis – tries to forecast political disruptions that can threaten the value of a foreign investment - Local Legal Systems – complex and unfamiliar laws can create problems o Trade Agreements and Trade Barriers - World Trade Organization – member nations agree to negotiate and resolve disputes about tariffs and trade restrictions - established to promote free trade and open markets around the world - sharpen competition, motivate innovation, and breed success - Tariffs – taxes governments levy on imports from abroad - Protectionism – a call for tariffs and favourable treatments to protect domestic firms from foreign competition; it can complicate global trading relationships ● Regional economic alliances: o NAFTA (North American Free Trade Agreement) – links Canada, the United States, and Mexico in an economic alliance; to reduce tariffs within the countries o EU (European Union) – a political and economic alliance of 27 European countries; agree to support mutual economic growth by removing barriers o SADC (Southern Africa Development Community) – links 14 countries of southern Africa in trade and economic development efforts o ASEAN (Association of Southeast Asian Nations) – links 10 countries of Southeast Asia with a stated goal of promoting economic growth and progress ● Types of global businesses: o Global Corporation or Multination Corporation (MNC) – a multinational business with extensive operations in more than one foreign country o Transactional Corporation – an MNC that operates worldwide on a borderless basis 0 ● Ethical issues of MNCs: o Corruption – involves illegal practices to further one’s business interests o Sweatshops – employ workers at very low wages for long hours and in poor working conditions o C
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