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Chapter 6

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Administrative Studies
ADMS 1000
Indira Somwaru

ADMS 1000 - Chapter 6 Notes  Factors of globalization  Forms f global business activity  Protectionisminternational trade GLOBALIZATION - Involves many businesses than local and domestic market - Involves many stakeholders:  Domestic and foreign competitors  Workers  Industries  Govt, economies, national cultures - Process involving mixing of world economics ex) NAFTA is a free Trade Bloc consisting of Canada, U.S., & Mexico ex) European Union (EU) consists of 25 countries ex) Asian Pacific Economic Corporation (APEC)- consists of 21 countries forming free trade zone - Process involving integration of world markets consumer preferences are converging around the world organizations are marketing goods and services worldwide (eg. McDonald's, Nike, Sony…) - Production becoming a global affair - Process expanding the degree and forms of cross-border transactions among people, assets, goods and services - Refers to growth in FDI across world - Shift toward economic interdependence process of generating one global economy Sources Encouraging Global Business activity - Pull factors: reasons a business would gain from entering international context potential sales growth Obtaining needed resources (can be cheaper, low labour cost) - Push factors: forces that act upon all businesses to create an environment where competing successfully means competing globally competition *First mover advantage: benefits of being among the first to establish strong positions in important world markets. shift toward democracy- more economic opportunities reduction in trade barriers- push to freer trade improvements in technology 1 7 Channels of Global business activity - Degree of involvement of a business has with a foreign country can vary 1. Export/ import - Selling goods/services to other countries - Canadian (or domestic) businesses may also purchase goods/services from foreign countries for resale to Canadians - Merchandise exports: tangible goods transferred out of country - Merchandise imports: goods brought into country Service export/imports: - Eg) banking, insurance or management services - Use of company assetspatents, trademarks, copy rights or expertise - Canada is the 5th largest exporter and importer - Canada is U.S's most important trading partner, vice versa 2. Outsourcing/ offshoring - Involves hiring external organizations to conduct work in certain functions of company eg) payroll, accounting, legal work, can be assigned to outsourced staff - Nike well known for its use of outsourcing entered into contractual arrangements with manufacturers in developing nations to produce its footwear while it focuses largely on marketing - Implies that many north American jobs will lost as business decides to outsource manufacturing functions to third world countries - Countries can be contracted for the production of finished goods or component parts these goods or parts can then be imported back to home country or to other countries for further assembly or sale 3. Licensing and Franchising Arrangements - An arrangement where owner of a product or service is paid a fee or royalty from another company in return for granting permission to produce or distribute the product or service Eg) Canadian company may grant a foreign company permission to produce its product - Owner of a product is paid a fee from another party to produce or distribute its products WHY might a business enter into Licensing agreement? - Low cost, low risk, knowledge of local markets - Franchising involves contract between supplier (franchiser) and a dealer (franchisee) that states how supplier's product or service will be sold Eg) McDonald's- licenses its trademark, its fast food products, and operating principles to franchises worldwide; for an initial fee and ongoing royalties - In return, franchisees receive benefit of McDonald's reputation, its management and marketing expertise. 2 4. Foreign Direct Investment - Involves purchase of physical assets/ ownership in a company from another company WHY do businesses engage in FDI? - To gain direct management control - Gain access to larger market - Secure resources/ raw materials - A substitute for trade; avoid tariffs 5. Joint Ventures, strategic alliance - Deal between 2 or more companies from different countries to produce a product/service together - Share managerial control over specific venture eg) develop a new technology, or getting access to new market - Aim to obtain access to expertise of another organization, and generate new market opportunities for all parties involved 6. Mergers and Acquisitions - Domestic owned company could merge with a foreign-owned company and create a new jointly owned enterprise, operating in at least 2 countries WHY do mergers occur? - Goal of obtaining new markets, and knowledge expertise in an industry - To achieve economics of scale in production - To achieve cost efficiency through large scale production; made possible through creation of bigger organization 7. Establishing Subsidiaries - Subsidiary: a company controlled by a holding company - Larger company owns and operates smaller company in foreign country - More responsive to l
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