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Chapter 3

GMS 200 Chapter Notes - Chapter 3: North American Free Trade Agreement, Most Favoured Nation, Foreign Direct Investment

Global Management Studies
Course Code
GMS 200
Lori Anne Heckbert

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GMS 200- Feb 3rd 2016
Chapter 3: Global Dimensions of Management
Management and Globalizaon
oGlobal Economy: resource supplies, product markets, and business compeon are
worldwide, rather than local
oThey source raw materials from another country
oGlobalizaon: the process of growing interdependence of these components in the
global economy
oWorld 3.0: a world where naons cooperate in the global economy while sll respecng
di$erent naonal characters and interests
Global Management
oGlobal management: management in businesses and organizaons with interests in
more than one country
oGlobal Manager
oInformed about internaonal developments
oTransional in outlook
oCompetent in working with mulcultural people
oAware of regional developments in a changing world
Why Companies Go Global
oGlobal businesses: conduct for-pro*t transacons of goods and services across
naonal boundaries
oPro*ts: Your own market becomes saturated so you go global to increase your
pro*ts and reach out to other markets
oCustomers: McDonalds go global because they want to tap into the market for
addional customers who are interested in consuming their foods
oSuppliers: Car manufacturers try to locate themselves where producon is
oLabour: Nike looks for cheap labour (China, Vietnam); me shi5s
oHow Businesses Go Global
oMarket-entry strategies: involve the sale of goods or services to foreign markets
but do not require expensive investments (low risk)
oTypes of market-entry strategies
Global sourcing: materials or services are purchased around the world for
local use
Exporng: local products are sold abroad to foreign customers
Imporng: buying foreign-made products and selling them in domesc

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Licensing agreement: a local *rm pays a fee to a foreign *rm for rights to
make or sell its products
Franchising: a fee is paid to a foreign business for rights to locally operate
using its name, branding, and methods
oForeign Direct Investment: building, buying all, or buying part ownership of a business
in another country
oTypes of direct investment strategies:
Joint ventures: operates in a foreign country through co-ownership by
foreign and local partners
Global strategic alliances: a partnership in which foreign and
domesc *rms share resources and knowledge for mutual gains
Foreign subsidiaries: local operaon completely owned by a foreign *rm
Green,eld investment: builds an enrely new operaon in a
foreign country from scratch (Disadvantages: you have to invest in
new equipment, buy land, research laws and regulaons, train
OR by acquision: outside *rm purchases a local operaon in its
Criteria for choosing a joint venture partner:
Familiarity with your *rm’s major business
Strong local workforce: they are already well trained, everything is
already established, takes some of the guess work out about
hiring the best people
Future expansion possibilies: everybody wants to grow
Values its customers: ask whether they gained/lost customers
Strong local market for partners own products: how are they
going to be successful selling your products if they can’t even sell
their own?
Good pro*t potenal: make sure you can get a return on the
investment money
Sound *nancial standing: know whether they can manage their
costs, your own investment could be lost if theyre not in good
*nancial standing
Complicaons in the Global Business Environment
oPolical risk: the potenal loss in value of a foreign investment due to instability and
changes in host country
Polical-risk analysis: forecasts polical disrupons
oLocal legal systems: complex and unfamiliar laws can create problems
oWorld Trade Organizaon: resolves trade and tari$ disputes among countries
Most favoured naon status: gives a trading partner most favourable treatment
for imports and exports
Tari1s: are taxes governments place on imports from abroad
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