Week 1- AFM 131 Module 2.docx

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Department
Accounting & Financial Management
Course
AFM 131
Professor
Robert Sproule
Semester
Fall

Description
Module 2: Globalization What kind of Impact does Globalization have on our daily lives? Economy:  Fall in 2008; Economic & financial calamites  Large corporate failures in the financial sector (Leimen brothers) Financial:  Collapse of housing and auto mobile markets Personal Impact:  Loss of billions of dollars in peoples’ homes Global commitment to stimulate the economy:  Government spend billions to stimulate economy  Invest in banking & automobile industries  Globally NA, Europe, India, China, & third world countries  After great depression, this is the largest economic melt down  European governments face serious financial problems  Drop in exchange rates, job opportunities Chapter 3: Competing in Global Markets THE DYNAMIC GLOBAL MARKET:  Canada is a market of more than 33.6 million people; there are 6.8 billion potential customers in the 195 countries that make up the global market  Canadian companies cite global expansion as a link to its future growth  Example: Scotiabank’s acquisition of E*TRADE Canada from U.S. based parent E*TRADE Financial corporation demonstrates commitment to grow wealth management and revenue growth  Canadian companies scan marketplace to get ideas on what is working well else where  Auto industry hit hard as a result of global trends (increasing price of gas, weakening demand for trucks)= jobs eliminated, layoffs in GMC, Chrysler, Ford, suppliers such as Polywheels Manufacturing, & Progressive Moulded Products Exporting: selling goods & services to another country Importing: buying goods & services from another country  Canadian companies face aggressive competition against China, Germany, & Japan in exporting WHY TRADE WITH OTHER NATIONS?  No country can produce all the products that its people want and need  Even if a country did become self-sufficient other nations would seek to trade with that country to meet needs of their own people  Some nations have an abundance of natural resources and lack of technological know-how (China &Russia), while others have sophisticated technology but limited natural resources (Japan &Switzerland)  Global trade enables a nation to produce what it is most capable of producing and to buy what is needed in a mutually beneficial exchange relationship Free Trade: the movement of goods and services among nations without political or economic obstruction (no trade barriers) Pros: Cons: -Global market contains 6 billion+ customers -Domestic workers can lose their jobs to increased imports or production -Productivity grows when countries produce goods in shifts to low-wage global markets which they have comparative advantage -Workers forced to accept pay cuts from employers that threaten to move -Global competition and less-costly imports< price sjobs to lower-cost global markets inflation doesn’t curtail economic growth -Moving operations overseas b/c intense competitive pressure means loss of -Uninterrupted flow of capital gives countries accesservice jobs & white-collar jobs to foreign investments; keeps interest low -Domestic companies lose their comparative advantage when advanced production operations in low-wage countries are built by competitors Module 2: Globalization THE THEORIES OF COMPARATIVE & ABSOLUTE ADVANTAGE: Comparative Advantage Theory: David Ricardo- theory that states that a country should sell to other countries those products that it produces most effectively and efficiently, & buy from other countries those products that it cannot produce as effectively or efficiently Absolute Advantage: advantage that exists when a country has the ability to produce a particular good or service using fewer resources (low cost) than another country Importing Goods & Services:  $529.4 billion in 2008; if they increase how will this affect our standard of living and quality of life? Exporting Goods & Services: *fig. 3.3*  Can sell anything; competition not intense for producers in global markets  Canada produces vast quantity of products and ranks high in terms of nations that export  Trade enhances the quality of life for Canadians and contributes to our country’s economic well- being  Exports account for 1/5 jobs & generate 30cents out of every dollar earned  Sales abroad by affiliates of Canadian companies are means by which Canadian companies engage in international business and are equivalent to almost 85$ of the value of exports  Goods comprise largest component of trade being more than 7 times as great as services on the export side  2 largest export categories for merchandise trade: (1)industrial goods/materials, (2)machinery/equipment MEASURING GLOBAL TRADE: Nations follow 2 key indicators in measuring effectiveness of global trade: 1. Balance of Trade ­ A nation’s ratio of exports to imports ­ A favourable balance of trade/trade surplus, occurs when the value of a country’s exports exceeds its imports ­ An unfavourable balance of trade/trade deficit, occurs when the value of the country’s imports exceeds its exports  2. Balance of Payments ­ The difference between money coming into a country (exports) and money leaving the country (imports) plus money flows from other factor such as tourism, foreign aid, military expenditures, and foreign investment   TRADING IN GLOBAL MARKETS: THE CANADIAN EXPERIENCE  Ranks 11 in the world as an exporter and importer in world merchandise trade  Natural resources= major area for exports, we are dependent on the US; 73% exports, 69% imports   Canada’s Priority Markets:  Technological advances in the area of transmission and storage of info. changing how things function  Emerging economies enjoying high growth rates, rapid economic increases in living standards, & rising global prominence  Federal government identified 13 priority markets: Association of South East Asian Nations (Brunei Darussalam, Burma, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, and Vietnam), Australia & New Zealand, Brazil, China, Europe, Gulf Cooperation Council (Saudi Arabia, UAE, Kuwait, Qatar, Bahrain & Oman), India, Japan, Korea, Latin America & the Caribbean, Mexico, Russia, & the US.  Steps taken to encourage Canadian presence include tax cuts, increased support for research &development, & critical investments in infrastructures @ US borders crossing & Asia-Pacific Gateway Module 2: Globalization  STRATEGIES FOR REACHING GLOBAL MARKETS 1. Exporting  Simplest way of going international is to export goods and services  Export trading companies available to negotiate/establish trading relationships (provides services: dealing with foreign customs office, documentation required, weights and measures) **Help with getting paid  2. Licensing  Global strategy in which a firm allows a foreign company to produce its product in exchange for a fee (produce product locally to serve the local market)  Company with interest needs to send company reps. To foreign producer to set up production process  Licensor may work with licensee in areas such as distribution, promotion, consulting  Organization can gain additional revenues from product  Licensors spend little to no money to produce and market their products  Often licensor firm must grant rights to its products for an extended period and revenue belongs to licensee if there is growth and success  If a foreign licensee learns the companies technology/secrets it may break the agreement and produce products on its own, if legal remedies are unavailable licensing firm may lose trade secrets + agreed on  royalties 3. Franchising  Arrangement whereby someone with good idea for a business sells the rights to use the business name and sell a product or service to others in a given territory (Restaurants: BP, MCD, KFC…)  Popular: domestically and internationally (however have to keep in mind the likes/wants of consumer)  4. Contract Manufacturing  Involves foreign company’s production of private-label goods to which a domestic company then attaches its own brand name or trademark (outsourcing) (labour in different countries; Nike in BD, India, etc.)  Enables company to experiment in a new market w/o incurring heavy start-up costs (manufacturing plant)   5. International Joint Ventures & Strategic Alliances  Joint Venture: Partnership in which two or more companies join to undertake a major project to form a new company **Can be mandated by governments   Benefits: shared technology & risk, shared marketing/management expertise, entry into markets where foreign companies aren’t allowed unless goods produced locally, shared knowledge of the local market (local customs, government connections, access to local skilled labour and supplies, awareness of domestic  laws and regulations)  Strategic Alliances: long-term partnership between two or more companies established to help each company build competitive market advantages  Provides access to markets, capitals, and technical expertise, effectively link firms from different countries and sizes 
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