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Chapter 3: Global Dimensions of Management
Globalization – the process of growing interdependence among elements of the global economy
Global management – involves managing operations in more than one country
Global manager – one who is culturally aware and informed of international affairs
Global business – conducts commercial transactions across national borders
Why companies go global? Reasons include greater profits, more customers, access to suppliers, lower labour
costs and easier access to financial resources (capital).
KNOW FIGURE 3.1!
MARKET ENTRY STRATEGIES
A common first step into international business is global sourcing – the process of purchasing materials,
manufacturing components or business services from around the world. A second form of international
business is importing – selling locally made products in foreign markets. The opposite of importing is
exporting – buying foreign made products and selling them in domestic markets. A third 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 firms buy the rights to
use another’s name and operating methods in its home country.
DIRECT INVESTMENT STRAGTEGIES
Firms may decide to make substantial investments in operations in foreign countries. Such foreign direct
investment, or FDI, involves setting up, buying all, or buying part of a business in another country. The term
insourcing describes job creation through foreign direct investment. When foreign firms do invest in a new
country, a common way to start is a joint venture. A joint venture operates in a foreign country through co-
ownership by foreign and local partners. A global strategic alliance is a partnership in which foreign and
domestic firms share resources and knowledge for mutual gains. A foreign subsidiary is a local operation
completely owned and controlled by a foreign firm. These subsidiaries are set up by greenfield investments,
where an entirely new operation in a foreign country is built.
Political risk – the potential loss in value of a foreign investment due to instability and political changes in the
Tariffs – taxes governments levy on imports
Protectionism – a call for tariffs and favourable treatments to protect domestic firms from foreign competition
NAFTA – links Canada, US and Mexico in an economic alliance. It is a trade zone with limited barriers.
European Union – a political and economic alliance of European countries
Global corporations, also known as multinational corporations or “MNCs”, are business firms with extensive
international operations in many foreign countries (eg. Walmart, Toyota and BMW). A transnational
corporation is an MNC that operates worldwide on a borderless basis.
KNOW FIGURE 3.2!