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Chapter 7

ADMS 1000 Chapter Notes - Chapter 7: Foreign Direct Investment, Multinational Corporation, Free Trade

Administrative Studies
Course Code
ADMS 1000
Eytan Lasry

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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 McDonalds, 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 FactorPotential for Sales Growth
A business will expand its markets
A significant portion of sales among the worlds largest firms are generated from
outside the home country ie the US company Starbucks expanded in Europe a
Pull FactorObtaining Needed Resources
Way of obtaining resources that are either unavailable or too costly within the
domestic borders
Push Factorthe 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 its 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
Push FactorReduction in Trade Barriers
Push towards free trade

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NAFTA was established as an agreement to remove trade barriers between Canada,
US & Mexico
Push FactorImprovements 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
Exports are transferred out of a country; imports brought into a country
Canada exports over 40% of our production
Canada is the USs most important trading partner
Mexico is now Canadas fourth largest trading partner
Channels of Global ActivityOutsourcing
Hiring external organizations to conduct work in certain functions of the company
Nike is well-known for outsourcing
Channels of Global ActivityLicensing & 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
Franchising involves drafting a contract between a supplier & a dealer that stipulates
how the suppliers product or service will be sold
Best known international franchise would be McDonalds
Channels of Global ActivityDirect 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 ActivityJoint Ventures & Strategic Alliances

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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 ActivityEstablishment 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
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 MNCs 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 MNCs to ignore international boundaries & set up businesses
An enterprise can be a global company without any clear nationality
Potential Benefits of MNCs
Encourages economic development
Offers management expertise
Introduces new technologies
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