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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