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Chapter 7

Chapter 7 Notes

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York University
Administrative Studies
ADMS 1000
Eytan Lasry

Readings- Chapter 7 What is Globalization? A process involving the integration of world economies ie, NAFTA A process involving the integration of world markets worldwide consumer preferences such as McDonald’s, Sony, Gap etc A process that is expanding the degree & forms of crossboarder transactions among people, assets, goods & services The growth in direct foreign investment in regions across the world The shift towards increasing economic interdependence; the process of generating one global economy Pull Factor—Potential for Sales Growth A business will expand its markets A significant portion of sales among the world’s largest firms are generated from outside the home country ie the US company Starbucks expanded in Europe a Pull Factor—Obtaining Needed Resources Way of obtaining resources that are either unavailable or too costly within the domestic borders Push Factor—the force of Competition Companies need to consider where new market opportunities exist There are domestic & foreigner competitors A business may be pushed into becoming a global business because it’s forced to compete with a foreign competitor First movers have more of an advantage to establish a strong position in the business Push Factor—Shift Toward Democracy Countries like Russia & Poland have shifted towards a more capitalistic & democratic approach Push Factor—Reduction in Trade Barriers Push towards free trade www.notesolution.com NAFTA was established as an agreement to remove trade barriers between Canada, US & Mexico Push Factor—Improvements in Technology IT, advances in transportation have made it easier to transfer information, products, services, capital & resources around the world Email, internet, teleconferencing, faxing & transatlantic supersonic travel Virtual global organizations Channels of Global Activity – Exporting & Importing Selling goods & services while also purchasing goods & services from foreign countries Exports are transferred out of a country; imports brought into a country Canada exports over 40% of our production Canada is the US’s most important trading partner Mexico is now Canada’s fourth largest trading partner Channels of Global Activity—Outsourcing Hiring external organizations to conduct work in certain functions of the company Nike is well-known for outsourcing Channels of Global Activity—Licensing & Franchising Arrangements The owner of a product is paid a fee from another company in return for granting permission to produce or distribute the product Ie, a Canadian company may grant a foreign company permission to produce its product Franchising involves drafting a contract between a supplier & a dealer that stipulates how the supplier’s product or service will be sold Best known international franchise would be McDonald’s Channels of Global Activity—Direct Investment in Foreign Operations Foreign direct investment (FDI) involves the purchase of an asset or an amount of ownership in a company from another country in order to gain a measure of management control Channels of Global Activity—Joint Ventures & Strategic Alliances www.notesolution.com An arrangement between two or more companies from different countries to produce a product or service together, or to collaborate in the research development or marketing of this product or service Aka strategic network They share managerial control over a specific venture Channels of Global Activity—Mergers & Acquisitions A Canadian-owned company could merge with a foreign-owned company & create a jointly owned enterprise that operates in at least two countries Channels of Global Activity—Establishment of Subsidiaries A business may choose to maintain total control of its products/services by either establishing a wholly owned subsidiary or by purchasing an existing firm in the host country This allows efficient entry into a market with already well-known products & distribution networks The Multinational Corporation A business that has direct investments in at least two different countries They are business enterprises that control assets, factories etc operated either as branch offices or affiliates in two or more foreign countries They are typically large organizations Most MNC’s have headquarters in developed countries Japan, US, France, Germany, UK etc Host countries (where branch plants are) are usually in developed, developing or third world countries The Borderless Corporation The increasing ability of MNC’s to ignore international boundaries & set up businesses anywhere An enterprise can be a global company without any clear nationality Potential Benefits of MNC’s Encourages economic development Offers management expertise Introduces new technologies www.notesolution.com Provides financial support to underdeveloped regions Creates employment Encourages international trade through a company’s assets to different markets: it’s easy to produce goods in one country & distribute them in another through a subsidiary or foreign affiliate Brings different countries closer together Facilitates global co-operation & worldwide economic development Potential Threats of MNC’s Don’t have an particular allegiance or commitment to their host country Profits made don’t always stay within the host country but may be transferred out to other locations depending on where the MNC feels the funds are most needed Key functions (ie, decision making) may be highly centralized in the home country only Difficulty in the ability to control/hold MNC’s accountable can create ethical concerns for the host country International Trade Involves the purchase, sale or exchange of goods or services across countries Can also be domestic trade between provinces cities or regions within a country Reduction in trade barriers to promote greater international trade The Logic of Trade Since some countries can produce certain goods or services more efficiently than others, global efficiency & wealth can be improves through free trade It’s inefficient for Canada to try to grow coffee beans or bananas, given the climate. These items can just be imported from countries more suitable Mercantilism Trade theory from 1500-1800 A country’s wealth depended on its holdings of treasure, typically in the form of gold It’s the economic policy accumulating this financial wealth through trade surpluses Trade surpluses are when a country’s exports exceed its imports; more money is entering the country than leaving www.notesolution.com Most dominant mercantilist nations including Britain, France, Spain & the Netherlands Government would intervene to ensure a trade surplus by imposing tariffs or quotas or by banning some foreign imported things Governments would subsidize domestic industries to encourage growth in their exports Colonialization: acquiring less developed regions around the world as sources of inexpensive raw materials Trade Protectionism Protecting a country’s domestic economy & businesses through restriction on imports Tariff: a tax placed on goods entering the coun
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