SECTION E: International Business
Globalization is a process involving the integration of world economics (Trade, like NAFTA)
Globalization is a process involving the integration of world markets (consumer preferences, like McDonalds)
Globalization is possible through local modifications to suit unique groups of people.
Globalization can be considered a process that is expanding the degree and forms of cross-border transactions among people, assets, goods and services.
Refers to the growth in direct foreign investment in regions across the world
Reflects the shift toward increasing economics interdependence; the process of generating one, single, world economics system or a global economy.
Sources encouraging global business activity:
Push factors (reasons businesses would gain from entering an international context).
Pull factors (forces that act upon all businesses to create an environment where competing successfully means competing globally).
Pull factors:
Potential for sales growth
Obtaining needed resources (ones that are either unobtainable or too expensive).
Push factors:
The force of competition
Domestic economics are increasingly being filled with foreign competitors, making businesses want to go global since it’s forced to compete with foreign competitors
First mover advantage is a philosophy that underscores the benefits of being among the first to establish strong positions on important world markets. Later entrants may have a harder time establishing themselves and may be blocked by competitors.
Shift toward democracy
Creates new market opportunities since people are no longer repressed economically and politically.
Reduction in trade barriers
Global activities growing, thus trade agreements such as NAFTA is established to benefit all parties involved
Improvements in technology
Technology helped to efficiently facilitate cross-border transactions, transportation
E-commerce has been relatively free from government control thus increasing globalization (location of the workforce are sometimes unimportant)
Channels of global business activity:
Exporting and importing
Businesses also deal in service exports in banking, insurance or management industries
Canada is the world’s 5th largest exporter and importer – trade is more than 70% of our GDP, accounts for 40% of economy and linked to ¼ of all jobs
Exports help generate jobs and remain productive and competitive
Imports give consumers choice and reduce costs, and provide farmers and manufacturers with inputs and productivity
Outsourcing/offshoring
Outsourcing involves hiring external organizations to conduct work in certain functions of the company (e.g.: payroll, accounting, legal work)
This also includes manufacturing (such as Nike shoes)
India is an example of major offshore and outsourced location
Benefit: gain access to staff with specialized skills that they may lack internally
Downside: sometimes people within the company lose their jobs (e.g.: IT industry)
Licensing and franchising arrangements
This is an arrangement where the owner is paid a fee or royalty from another company in return for granting permission to produce or distribute the process of process.
Why would they do this? 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
Franchising involves drafting a contract between suppler (franchiser) and a dealer (franchisee) that stipulates how the supplier’s product or service will be sold.
Direct investment in foreign operations
Foreign direct investment: this involves the purchase of physical assets or an amount of ownership in a company from another country in order to gain a measure of management control.
Why would they do this? Controlling companies can obtain access to a larger market or needed resources via the FDI. They could manufacture their products inside the domestic market