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Chapter 8

ADMS 1000 Chapter 8: Chapter 8 Global Forces (Autosaved)

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Administrative Studies
ADMS 1000
Paulette Burgher

Chapter 8 Global Forces What is Globalization • It is a process involving the integration of world economics (Presence of trade blocs reflects the accelerating pace with which nations are integrating their economies ) • It is a process involving the integration of world market (reflects the notion that consumer preferences are converging around the world) • Recurrent themes raised in any discussion of globalization tend to include: - Globalization can be considered a process that is expanding the degree and forms of cross- border transactions among people, assets, goods, and services - Globalization refers to the growth in direct foreign investment in regions across the world - Globalization reflects the shift towards increasing economic interdependence; the process of generating one world economic system or a global economy Sources encouraging Global Business Activities • Pull Factors are the positive outcomes a business would gain from entering the international context • Push Factors are the forces that act upon all businesses to create an environment where competing successfully means competing globally Pull Factors Potential for Sales Growth - Fundamental reason to join global operations is to help business expand its market - Significant portion of sales amongst world’s largest companies come from outside their home country - Having the world as your market offers limitless potential beyond domestic consumers - Access to foreign customers may mitigate the negative effects of downturns in demand for a business’s products and services Obtaining Needed Resources - Businesses may choose to engage in global business activities to obtain resources that are unavailable or too costly within their domestic borders Push Factors The Force of Competition - A business that seeks to grow needs to consider the markets beyond its domestic boundaries, where new and potential untapped market opportunities exists - Business may be pushed to becoming a global business because it is forced to compete with foreign competitors - First-mover advantage is the philosophy that underscores the benefits of being among the first to establish strong position in important world markets - Later entrants into the foreign market may have difficulty establishing themselves and may be effectively blocked by competitors Shift Towards Democracy Reduction in Trade Barriers - Global business activities has been growing fast because of the general push toward freerer trade - Reduction in trade and investment restrictions is the most powerful source encouraging increased international business - Trade agreement is a government barrier that prevents the free trade of imported goods and services into a country via tariffs, quotas, subsidies Improvements in Technology - Fundamental source of influence on globalization - Advancements have gave been more effectively facilitated cross-border transactions - Electronic commerce (ecommerce) has been relatively free from government control, contributing to the rate of globalization and the generation of virtual global organizations Channels of Global Business Activity Exporting and Importing • Businesses import and export when engaging in international trade • Canada is the 5 largest importer and exporter • Canada is US’s most important trading parner Oursourcing/Offshoring • Outsourcing involves hiring external organizations to conduct work in certain functions of the company Licensing and Franchising Arrangement • Licensing agreement is an arrangement whereby the owner of a product or process is paid a fee or royalty from another company in return for granting them permission to produce or distribute the product or process • Franchising is a method of distribution or marketing where a parent company grants another individual or company the legal right to sell its products or services, with exclusive roghts to a particular area or location • Franchisee is the dealer, and the franchisor is the supplier Direct Investment in Foreign Operations • Foreign Direct Investment (FDI)involves the purchase of physical assets or an amount of share ownership in a company from another country to gain a measure of management control • Control of a company can be achieved without owning 100% or even a 51% interest • Can be achieved by management influence • Businesses would engage in FDI because controlling companies can obtain access to larger markets or needed resources via the FDI • FDI can increase in a country but employment levels would not necessarily rise • FDI provides benefits to Canadian firms through transfer of knowledge, technology and skills, and increased trade related to the investment Joint Venture and Strategic Alliances • Joint-venture involves an arrangement between two or more companies from different countries to produce a product or service together, or collaborate in research, development, or marketing of that product or service • Also referred to as a Strategic Alliance • Often aim to extend or enhance the core competence of the businesses involved, obtain access to the expertise of another organization, and generate new market opportunities for all parties involved Mergers and Acquisitions • Merger is a way to achieve diversification, when two firms come together to create a new form with a new identity • Mergers occur because of the goal of obtaining new markets for the business and the desire to obtain knowledge and expertise in an industry • Companies that merge on a global scale do it to generate world-scale volume in a more cost- effective way Establishment of Subsidiaries • Subsidiaries is a legally separate company owned and controlled by a parent company and through which the enterprises can produce or markets goods and services • Acquisitions is a way to achieve diversification, when a firm acquires the majority of shares in another firm The Multinational Corporation • Global Business is a business that engages directly in some form of international business activity, including importing, exporting, or international production • Multinational Corporations (MNC) are business enterprises that control assets, factories, and so on that are either operated as a branch office or as affiliates • MNC’s have their headquarters in their home country, a developed country The Borderless Corporation • Border Corporation or Transnational
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