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Chapter 6

Chapter 6; the global context ADMS 1000

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Administrative Studies
ADMS 1000
Peter Khaiter

Chapter 6: The Global Context What is Globalization?  Is a process involving the integration of world economies  Reflects the notion that consumer preferences are converging around the world  Remove barriers of trade subsides etc to get Free movement of goods/services, capital and labor is critical to globalization* KEY POINT  Increased cross border transactions, FDI(foreign direct investment)  economic interdependence Sources encouraging Global Business activity  Push and pull factors have encouraged the move to go global Pull Factors: are reasons a business would gain from entering the international context Potential sales from growth: o Increased sales is the central aim behinds company’s expansion o Large portion of sales among the largest firms are generated outside home country o Having the world as your market offers limitless potential beyond domestic consumer Obtaining needed resources: o to obtain needed resources that are either too costly within the domestic borders or unavailable o allocating business in developing or under devolved courtiers, may be to access inexpensive labour Push Factors: forces that act upon all businesses to create an environment where competing successfully means competing globally The force of competition: o businesses that want to succeed to consider the markets beyond its domestic borders: where new and potentially untapped market opportunities still exist o business may find it must compete against both domestic and foreign competitors o a business may be pushed into becoming global , simply because it is forced to compete with foreign competitors o domestic businesses may be moving global, and other domestic business may follow up on that incentive Shift towards democracy: o the shift toward democracy among many societies that were formerly economically and politically repressed has contributed to the creation of new market opportunities Reduction in trade barriers: o global business activity grow at a faster rate than domestic business due to the general push to freer trade o most powerful source of influence is the reduction in freer trade and investment restrictions Improvements of global technology o Have more efficiently facilitated cross border transaction o Innovations in information technology and transprotaion technology made itEasier to transfer information, products, services, capital and human resources globaly o E-commerce is relatively free from government control, which lead to the rate of globalization and the variation of virtual global organizations Channels of Global business Activity  Practically any connection a business has with a foreign county essentially constitutes a form of global business Exporting and Importing:  Merchandising exports are tangible goods transferred out of the country o Exporting offers additional profitable activity for a business o Many business opportunities with exporting o CAD exports over 40% of production, making us major trading nation o World’s 5 largest exporter and importer=70% of our GDP o Linked to ¼ of all Canadian jobs  Merchandising imports are goods brought into the country o Give customers choice and reduce costs o Provide our farmers and manufactures with inputs and productivity-enhancing technology  Canada is the US’s most important trading partner  US has been CAD’s largest trading partner Outsourcing/Offshoring  Involves hiring external organizations to conduct work in certain functions of the company; example, payroll, accounting, and legal work  Organization retains core functions and leaves other work for others, NIKE does this  Businesses choices outsourcing and offshoring because o They enjoy cost savings on application development o Gain access to staff with specialized skills that they may lack internally o Outsourcing often deliver quality results fast o Downturn is the impact on a company staff Licensing and Franchising  Franchising involves drafting a contract between a supplier (franchiser) and dealer (franchisee) that says how the products will be sold.  The franchisee is the dealer (usually the owner of a small business), who is permitted to sell the goods/services of the franchiser (the supplier) in exchange for some payment (royalties/commission, future advertising fees) Licensing agreement: is an arrangement whereby the owner of a product of process is paid a fee or royalty from another company in return for granting permission to produce or distribute the product or process Why might a business enter into licensing agreements?  Companies that don’t wish to set up actual production or marketing operations overseas can let the foreign business conduct these activities and simply collect royalties Direct Investment in foreign operations  FDI involves the purchase of physical assets’ or an amount of ownership in a company from another country in order to gain a mesasure of management control  Capital can be invested in factories , inventories and capital goods or other assets  FDI can be done through acquisition of an already existing business in the host country or through a start-up built from scratch  FDI in CAD is the 2 highest in the G7 as a share of GDP Why would a business engage in FDI?  Controlling companies can obtain access to a larger market or needed resources via the FDI  Invest in foreign countries where they needed to secure their source of raw materials or to manufacture their products inside the domestic market, and thereby avoid tariffs or import barriers FOR CANADA:  FDI provides benefits through the transfer of knowledge and technology and skills and increased trade related to the investment, which enhance Canada’s productivity and competitive. Join Venture, Strategic Alliances Joint Venture: involves 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. This is referred to as strategic network  Aim to extend or enhance the core competencies of the businesses involved  Aim to Obtain access to the expertise of another organization  Aim To generate new market opportunities for all parties involved  International joint venture has proven to be an efficient way of entering foreign markets rapidly and easing the entry where local requirements have been implemented with regard to a degree of domestic ownership and participation in the production or distribution of the good or service Mergers and Acquisitions  A company could merge with a foreign-owned company and crea
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