BUSINESS AND MANAGEMENT MODULE 1 BUSINESS ORGANIZATIONS & ENVIRONMENT

Globalization  The integration of the world economies, sociology and politics –The world economy is experiencing increased integration –The development of global trade now offers many interesting challenges to Canadian businesses –Why then is globalization increasing?

Indicators of Globalization   More countries are trading with each other   Multinational business is becoming more influential and they are promoting their brands worldwide   Greater cultural awareness   Large scale enterprise is working to gain competitive advantage over its rivals and develop market presence in as many lucrative markets as possible

Indicators of Globalization (continued) Technology and its uses make trading over large distances and in more obscure locations easierTechnology and its uses make trading over large distances and in more obscure locations easier Transportation costs have fallen e.g. bulk ore and oil carriersTransportation costs have fallen e.g. bulk ore and oil carriers Business de-regulation that allows foreign enterprises to tender for contractsBusiness de-regulation that allows foreign enterprises to tender for contracts More standardized consumer tastesMore standardized consumer tastes The growth of emerging marketsThe growth of emerging markets

The Impact of Globalization on Business  Increased competition  Greater awareness and reactions to customer needs  Economies of scale  Location flexibility  Increased mergers and joint ventures

Multinational Corporations  The growth of multinationals has been rapid in recent years.  The importance of multinationals should not be underestimated.  The total value of MNC investment worldwide is over $1 trillion of which around two thirds is in the developed world.  It is even now true that of the top 100 largest organizations in the world 51 are now MNCs and 49 are countries.

 To put this in perspective, –General Motors is now bigger than Denmark; –DaimlerChrysler is bigger than Poland; –Royal Dutch/Shell is bigger than Venezuela; –IBM is bigger than Singapore; and –Sony is bigger than Pakistan.  The 1999 sales of each of the top five corporations (General Motors, Wal-Mart, Exxon  Mobil, Ford Motor, and DaimlerChrysler) are bigger than the GDP’s of 182 countries.  The Top 200 corporations’ combined sales are bigger than the combined economies of all countries minus the biggest 10.

International Competitiveness  To trade in international markets companies need to develop a competitive cost base and other characteristics that will allow them to be attractive to consumers in other markets. –Case Study - McDonalds

 The increase in the number of trading blocs  Costs of production  Corporate policies  Liberalization of trade  Management structure –Chains of command will lengthen. –Reporting and decision-making will slow. –Trust will have to be earned and given. Effects of Globalization

Why Become a Multinational?  Avoidance of taxation, or at least rates on tax in the country of production  Lower costs and less regulation  Government aid  Lower distribution costs  Local knowledge  Opportunities for mergers  Widening the customer base – create a “first mover” advantage  Mitigation of risk

Problems of Marketing Overseas  Lack of local knowledge  Storage and transportation costs will increase  External factors (outside the control of the business)  Political and economic climate  Infrastructure –Case Study - Carlsberg

Effect of a MNC on the Host Country  Job creation  Boost the GDP  Introduce new skills and technology  Create more competition  Lack of social responsibility  Can cause unemployment –Exercise - Motorola

Regional Trading Blocs –RTB’s eliminate the barriers on the movement of goods and services –Members enjoy mutual benefits from being involved in this freer trade –Examples of trading blocs include  CEPA – closer economic partnership agreements  FTA – free trade areas (NAFTA)  Common Market (EU)

EU  The best known regional trading bloc in the world, its collective GDP is the largest in the world (over $14 trillion)  27 countries; over 500 million people  Common currency in most countries (Euro)

NAFTA  Canada, USA and Mexico  A free market of over 430 million people  More MNC’s than any other region in the world  Goal is to eliminate tariffs over a 10 year period

Winners and Losers  Trade creation takes place when a country (in a trading bloc) switched from buying commodities from a high cost country to a low cost country –Canada buying TV’s from Mexico instead of Japan  Trade diversion takes place when a country (in a trading bloc) switches from buying commodities from a low-cost country to a high cost country –UK buying wool from France instead of New Zealand –Case – Asian Growth