Textbook Notes (368,125)
Canada (161,663)
ARBUS 101 (78)
Chapter 2

Chapter 2 Globalization_Study_Notes.docx

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Department
Arts and Business
Course
ARBUS 101
Professor
Robert Sproule
Semester
Fall

Description
Globalization Module Study Notes Dynamic Global Market • Canada is a large exporting nation with aggressive competition from German, Chinese, etc. exporters • Global trade allows a nation to o produce what it is best at producing above average consumption o buy what it needs from other nations which is mutually beneficial o concept of free trade • Free trade is the movement of goods and services among nations without political or economic obstruction o Pros  o Widens potential market o Growing productivity for countries with a comparative advantage • Theory stating that a country should make and sell products it makes most efficiently but buy products it cannot make as efficiently • Some countries continue to produce despite lacking comparative advantage while restricting imports from countries with the advantage • Allows specialization o Inexpensive imports keep prices down so inflation doesn’t restrict economic growth o Inspires innovation – competitively challenging firms o Cons  o Domestic workers can lose their jobs o Domestic workers may be forced to accept pay cuts o Domestic companies loses their comparative advantage when competitors build advanced production operations in low-wage countries o Absolute advantage is when a country can use the fewest resources and cost to produce a good than any other country • Countries trade because 1. No country is self sufficient 2. Other countries need products that prosperous countries produce 3. Some nations lack natural resources or technology Getting Involved in Global Trade • Real job potential in the global business is in the small businesses (48% account for total private labour force and 85% of exports) • Government agencies help small businesses become more involved in globalization, i.e. Foreign Affairs, International Trade Canada, and Export Development Canada • Canada produces and exports many products – trade is important because o Enhances the quality of life o Contributes to the economy o Accounts for 1/5 Canadian jobs Measuring Global Trade Two methods to measure trade: 1. Balance of trade is a nation’s ratio of exports to imports • Favourable balance of trade (trade surplus)  exports exceeds imports • Unfavourable balance of trade (trade deficit)  imports exceeds exports 2. Balance of payments is the difference between money flowing in by country through exports and money flowing out of country through imports plus money flows due to other factors such as tourism, foreign aid, foreign investment, etc. (Balance of payments = money in via export + money out via import + money in/out via other factors) • Favourable balance of payments is when more money flows into country than out • Unfavourable balance of payments is when money flows out more than in Canadian response is to encourage a stronger presence in the global marketplace by  Tax cuts  Increased support for research and development  Critical investments in infrastructure at Canada-U.S. border crossings and Canada’s Asia-Pacific Gateway Dealing with Change p. 76 • Automotive sector is key in Canada’s economy • Assembly industry is shrinking due to globalization and environmental changes • Other factors include rising Canadian dollar, rising fuel prices, weakening US demand for vehicles, and poor management decisions – too many cars not meeting consumer expectations Strategies for Reaching Global Markets • There are six strategies to be involved in global business: o Exporting is selling directly into a foreign market  Sometimes using export-trading companies to provide service  Success in exporting often leads to licensing to better serve the local market o Licensing allows a foreign company to produce its product in exchange for a fee (royalty)  Licensor may provide support while licensee may be required to purchase some components and consulting services  Licensing is inexpensive but risky • Receives small percentages of the total revenue from the sales in the foreign market • Possible copying of their technology or product secrets by the licensee o Franchising is the right to use a business name and sell in a foreign market  More control for franchisor than licensor  Should be careful in adapting their good to different countries due to varying cultural preferences and languages o Contract manufacturing is contracting a foreign company to manufacture your product which you attach your company's brand name or trademark (outsourcing) and then sell this product in country(ies) including where the foreign company is located o International Joint Ventures and Strategic Alliances occur when a partnership is formed.  Joint ventures - companies pooling their technology, marketing, management and knowledge • Benefits include o Shared technology and risk o Shared marketing and management expertise o Shared knowledge of the local market, including local customs, government connections, access to local skilled labour, etc. • Drawbacks include o Partner can learn the other’s technology practices and going off to use what has been learned o Shared technology may become obsolete or the joint venture may become too large to be as flexible as needed  Strategic allegiance - partnership helping each company build their own competitive market advantages • No sharing of costs, risks, management and profits o Foreign Direct In
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