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Chapter 4

Chapter 4 Globalization.docx

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Nathan Innocente

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Chapter 4 Globalization The Global Marketplace: • The global marketplace is becoming home to an increasing number of businesses seeking to operate via an international-based model through operational growth, strategic alliances, formal partnerships, and mergers or acquisitions. • Because operations are being increasingly spread out globally, managers are being more challenged to maintain control over the organizations so that the organization’s products and services remain relevant and that they continue to meet the growing challenge of an increasingly competitive market. Why go global? Because of: New market opportunities: markets mature, and companies should try to enter new markets to stay relevant; many companies will look beyond the markets of their current countries and discover new markets. Most Canadian companies tend to look first in the USAfor potential growth opportunities and then go international, but this is not always the case. Canadian banks are rapidly investing in US, central and south america and asia. Global market growth is not just the focus of companies in fully developed economies like Canada and USAbut companies from emerging economies have the same approach. China’s meteoric economic rise is driven by an export strategy that has found opportunities for Chinese manufactured products all over the world. Cost reduction opportunity: to maintain global competitiveness organizations will locate in and purchase inputs from countries where labour costs are relatively low and occupation skills are high and this allows the organization to lower its overall cost base and remain competitive. Technology-based companies attracted to India, manufacturing processes shifted to China, garment industry have seen growth inAsia and Central America. Hershey’s have shifted prduction to Mexico for lower prices labour and reduce costs overall. To remain competitive, companies try to reduce their costs, and compete on prices, and them offshore and outsource parts of their business.Additional benefit to investing in other countries is that organizations can foreign forms can avoid protectionism, duties and other taxes levied designed to protect domestic markets. Offshoring: transferring a component of a firm’s business system to another country for the purpose of reducing costs, improving efficiency or effectiveness, or developing a competitive advantage. Outsourcing: contracting put a component of the firm’s business system to another country for the purpose of reducing costs, improving efficiency or effictiveness, or developing a competitive advantage. Resource base control: Most energy and commodity based industries, organizations look globally to ensure that they have the required resource base necessary for adequate future supply to produce the products and services they produce in the marketplace. Oil producing, mining and other natural resource intensive companies have been making direct investments into Canada to to obtain ownership stakes in our resource base via business acquisitions. Closeness to markets: establishing facilities within developing economic regionsenable companies to operste closer to the emerging markets and reeact more quickly to opportnitites and trends. Becoming a domestic produces enables companies to create stronger affiliation for their products and services and overall brands. Engaging an organization into new markets returns the added benefits of identifying new ideas, developing new products/services in response to those needs, gaining greater market diversification, and benefiting from learning new business methods. Economies of scale: economies of scale can be realised in the sourcing and production of products, centralization of services such as marketing, sharing of manufacturing and infrustructure facilities. Economies of scale: reductions of the cost base of an organization as a result of greater size, process standardization, or enhanced operational efficiencies. Global market stability: the role of the government: Liquidity: cash position of the company and its ability to meet immediate debt and operational obligations.Also, the ability to convert existing assets to cash to meet operational obligations. Solvency: long-term stability of a company and its ability to meet ongoing debt and operational obligations to fund future growth. Six fundamentals that governments globally need to commit to are: • Ongoing commitment to international trade system • Market openness • Absence of protectionism • Adherence to fundamentals of fair trade • Balanced economic development • Responsible soverign debt management Ongoing commitment to international trade system: refers to need for countries to commit to the trade policies and agreement overseen by the WTO. The WTO’s main roles: - Establish parameters for multilateral trading for now and the future - Provide regulatory and policy-based guidelines on issues relating to the flow of goods and services - Protection of intellectual property - Dispute resolution associated with trade quarrels between countries - Trade policy review associated with the policies countries are putting into place WTO’s main purpose: - Ensure transparencies exist between countries and globally with respect to the manner in which trade is conducted - Ensure that trade flows smoothly, fairly and predictably - Creating rules relating to the use and acceptance of tariffs and subsidies by governments as well as anti-dumping measures - Provide a variety of support services to developing countries and emerging economies Market openness: need for developing economies to to maintain focus of the core elements of open economy:- the law of supply and demand, encouragement of entrepreneurship and wealth creation and willingness to encourage and support private ownership. Also refers to the willingness of countries to open their borders to competitive goods and services in order to maximize benefits to their citizens (supporting the movement of goods and services, capital, foreign trade and labour into and out of the country with no or few restrictions). Absence of protectionism: intent of economic policies that are put in place to protect or improve the competitiveness of domestic industries bia impeding or restricting the openness of markets to foreign competitiors through the use of tariffs trade restrictions, quotas, artificial control of currency values. Adherence to fundamentals of fair trade: Governments should support and enforce intellectual property and patent right of companies, adhere to generally accepted labour practices and commit to enivronmental standards agreed upon global marketplace. They should also seek to eliminate black market activities. Industries that are in danger from black market knock offs are software and electronics, luxury purses and watches, and motion picture and music industries. Global fair trade fundamentals also include adherence to anti-dumping regulations, inappropriate uses of subsidies to protect or provide competitive advantage to specific industries and other disadvantages that may arise within a country relating to the ability to adhere to the WTO agreements and requirements. Balanced economic development: Governments must work diligently towards the development of a well balanced economic growth and ensure that the total focus of the economy is not export driven. To ensure stability and growth in the standard of living, develop
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