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
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
- 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