Globalization : Integration of Global economies

Facilitated by bodies : NAFTA, EU, ASEAN, APEC

The integration of world market.Free movement of Labour, Capital, Goods/Services critical for
globalization. Increases cross border transactions, economic interdependencies and FDI
(Foreign direct investments).
Globalization: refer to the process of expanding the degree and forms of cross-border
transactions (assets, goods and services, people), growth of direct foreign investment, and
increasing global economic interdependence.

Globalization Factors :
Pull factors (Internal) : Potential for sales growth (expand its market like starbucks in europe
and also have negative downturn like avon), obtaining needed resources (Energy, Cheap
labour, or the material is not available in the home country, e.g Japanese companies in china
due to cheap energy cost - either business don't have the resources or its expensive within the
domestic border)
Push factors (External) : Force of competition (Domestic economies bombarded by foreign
companies, in order to gain profit and do business they have to compete *no option* (first
mover advantage - notion about business whoever first attempts to enter the foreign market),
shifts toward democracy : affects globalization, countries adopting capitalist and democratic
approach (Poland, russia, china etc - e.g Mcdonalds in russia) Reduction in trade barriers
(less restrictions more business , nafta, apec, eu etc), Improvement in technology better supply
of goods and service, transactions, faster /efficent., (Push factors are forces that create an
environment where successful competition is global competition)

Strategies firms do to do business (Global business channels) :

Exporting goods and services (Exporting and Importing) Imports and exports can
include goods as well as services, company assets, patents, trademarks, copyrights and
expertise.
Contractual agreements & Strategic alliances (Outsourcing, Marketing / Distributions
agreements, Licensing / Franchising)
FDI (Foreign Direct Investments) Joint ventures, wholly owned subsidiaries (Greenfield
ventures or *mergers* & acquisitions)
Outsourcing :involves hiring an external organization to conduct work in certain functions of
the company (e.g. accounting, payroll, etc) while focusing on core competency. Offshoring
involves
outsourcing globally.
Licensing / franchising : is an agreement where the owner of a product (or process) is paid a
fee by another company for the right to produce or distribute it e.g Mcdonalds, burger king, 7
eleven.

Direct foreign investment (FDI): involves the purchase of physical assets or partial ownership
in a foreign company with the goal of gaining a measure of management control. The capital
can be invested in factories, capital goods, or other assets (control does not necessarily require
50% ownership).
Pros : FDI provides benefits to Canadian economy through transfer of skills, knowledge,
technology, and increased trade related to investment. It contributes to Canadas productivity
and competitiveness, and integrates it into global value chains.
Cons : FDI harms Canada! Foreign companies buy businesses and turn them into marketing
offices for their own products or replace manufacturing with plants for assembling imported
parts. Mergers lead to consolidation and elimination of common functions, causing layoffs and
unemployment.
Joint venture involves an arrangement between two or more companies from different
countries to produce a product or service together or to collaborate in research, development, or
marketing of this product or service (also known as a strategic network). Sony+Ericsson (S.E)
Merger and acquisition :A company could merge with a foreign-owned company to create a
new jointly owned enterprise that operates in at least two countries. molson-coors
Establishing subsidiaries : To maintain it control over product and services company /
business make wholly owned subsidiary of branch operation in host country. Quick way to
acquire market, one can build subsidiary from scratch. Economical, political and social stability
should be seen before making a subsidiary.

Borderless Corp. / Transnational Corp.

Identity/ Nationality is unclear and no allegiances (obedience) to particular country or
locations (Nestle, Walmart, McDonalds)
Financial, Technological, Human capital are easily transferred b/w countries. .
Firms follows the profits, International ownership and management team,
Benefits & threats of MNCS (Multinational companies) & TNCS (Transnational
companies)
Benefits : Economic development, creates employment opportunities. Bring management
expertise Introduce new technologies and relevant training. Encourage international trade and
unite different countries.
Threats : No allegiance to a specific country or location , ID is not clear, difficult to control /
manage and Mobile profits. Power hold in home country e.g : Executive posts & Research and
Developments.

International Trade : The purchase / sale of goods and services internationally

Logic of Trade : Encourages nations in good and services in which they are efficient of
producing and trade with other countries for goods and services that are not domestically
produced. (Comparative Advantage)
Mercantilism (1500-1800) : Believed in trade surplus, where exports exceeds the imports.
Used by colonial powers like Spain, France, Netherland and Britain (conquered countries,
gained access to raw material and market for finish products). Countries pursued mercantilism
by (a) imposing tariffs to discourage imports, (b) banning foreign goods, (c) subsidizing
domestic producers to encourage exports, and (d) colonizing new regions to extract cheap
resources and sell finished products.

Protectionism : Trade protectionisms often involves imposing tariffs and quotas on imported
goods to protect domestic producers from competition and reduce trade deficit. Quotas (Limits
the amount of imports), Tariffs (Tax placed on goods entering the country),
Problems with mercantilism and trade Protectionism : Main problem is that mercantilism
and trade protectionism views trade as a zero-sum gain: this policy is self-defeating because (a)
other countries can retaliate, and (b) if other countries do not grow wealthy they cant buy our
imports
1) Trade Retaliation 2) Increased cost to consumers 3) Limits competitiveness for domestic
firms.
Impact on exporting countries : Lower productions, Job losses, Economic decline..
Impact on importing countries : 1) Less competition for domestic firms, prices, employment,
govt. revenues, rising sales. 2) Increased cost for consumers, less spending on other industries,
economic decline,cost of imposing + collecting tariffs, possible cost of retaliation and trade war.
Canada-US FTA 1989 & NAFTA 1994 : Objectives :
To reduce / eliminate tariffs barriers on all goods and services traded.
To facilitate cross-country investments.
To establish rules for Govt. subsidies.
To establish universal rules for health, safety and the environment.
To provide common market among members.
Pros and Cons of NAFTA :
Pros: 1) Trade with US has increased by 75% since 1989. 2) Merchandise trade with US has
increased by 80% with US and 65% with Mexico in the first 5 years. 3) Before trade
agreements, exports as proportion of GDP was constant; after, it grew from (25.7% to 43.2% in
1990-1999). 4) Free trade forces us to be more competitive and efficient. Protectionism makes
us complacent and will lead to loss of jobs.

Cons: Canada is still resource heavy economy with insufficient high tech export, too
dependent on US, Trade is very sensitive on currency fluctuation.
Impact on Canadian employment and businesses :
Pros : Increased competition forces, domestic business to improving efficiency, innovation and
standards to focus on core industries, where we have competitive advantages and abort
inefficient operations.
Cons : Competition may be too strong - forcing bankruptcy and jobless given US firms,
Productivity advantage and cheap labour in Mexico
Impact on Canadian Culture:
Pros : No effect on Canadian culture, culture export 5 billion $ and opens big market with
royalties.
Cons : May destroy Canadian culture, Canada might become US subsidiary and competition
from American media affects Canadian culture capital.
Impact on Canadian competitiveness and consumers:
Pros : More exposure to competition, more choice for consumers, cheaper inputs, further
market opportunities.
Cons : No increase in productivity and cant match the productivity of the US, early success
based on weak Canadian $ - Cheaper production and value e.g Film Industry..

Hands off approach : The hands-off camp believes that leaving economic development free
from state interference is the best policy for economic prosperity
Hands on approach: The hands-on approach believes that the government has a
responsibility to provide a safety net for the citizens left behind by markets (particularly labour).
However, the strong hands-off policies prescribed by IMF and WB prevent governments from
implementing such policies.
Arguments against globalization: Critics argue that businesses have too much influence on
international affairs governments. Decisions made by unelected corporate officials motivated by
profit or IMF bureaucrats and ideologues replaced the decisions made by political officials who
are supposed to be motivated by the interests of the citizens
Exploitation of the Vulnerable: Race to the Bottom Line of Regulation:
Freer trade and economic integration creates incentives to weaken or do away with
environmental, labor, health, and safety regulations. There may be a race to the bottom in an
attempt to get international business to locate in many countries.

Golden Straight jacket:

Critics argue that institutions such as the WTO, World Bank, and IMF are themselves
undemocratic bureaucracies that threaten the political values of democracy and selfdetermination in both poor and industrialized countries.