Business Administration

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ADMS 1000
Chapter 6 Globalization
What is Globalization?
* Globalization- is a process involving the integration of world economies, facilitated by bodies such as NAFTA, EU, APEC, ASEAN etc. * It is a process of involving the integration of world markets, products like Gap or Nike * The free movement of good/services capital and labor is critical to globalization * Increased cross border transactions and economic independence Multinational/Corporation (Benefits/Threats)

*
International Trade
* The purchase sale or exchange of goods or services across countries * Mercantilism (1500-1800): encourages trade surpluses where exports of goods or services exceeds imports * Trade Protectionism: protects domestic economies through import restrictions. * Tariffs – tax placed on goods entering a country

* Quotas – limits the amount of imports
* Subsidies to domestic industries/firms to encourage exports * What is the problem with mercantilism and trade protectionism? * Trade retaliation
* Increased costs to consumers
* Limits competitiveness of domestic firms
* See handout on Tariffs
* Impact on exporting country:
* Lower production, job losses, economic decline…
* Impact on importing country:
* Less competition for domestic firms, rising sales, prices, employment, spending, government revenues… * Increased costs to consumers, less spending on other industries, economic decline, costs of imposing + collecting tariffs, possible costs of retaliation and trade wars… Trade Agreements and International Bodies

* GATT (1948) – 100 countries agreed to reduce tariff levels. * WTO (1995) – took over from GATT, to manage world trade agreements. * IMF – provides short term aid to developing countries. * World Bank – seeks to provide long-term loans for development. * Regional Economic Integration - Trading Blocs

* 1. Free Trade Area – removing subsidies & quotas for member countries but autonomy in selecting trade agreements with non-members. e.g. NAFTA, APEC * 2. Customs Union – FTA but less freedom about interacting with non-members i.e. common policy e.g. Mercosur * 3. Common Market – CU + a free flow of labor and capital across borders. e.g. European Union * 4. Economic Union – CM + co-ordination of economic policies including high levels of integration NAFTA

* Business, Consumers, Employment and Trade
* OBJECTIVES:
* To Reduce/eliminate tariff barriers on almost all goods and services traded * To facilitate cross-country investment
* To establish rules for government subsidies
* To establish universal rules for health, safety & the environment * To provide a common market among members
* IMPACT ON TRADE
* Pro – Increased trade (from 25% to 43% of GDP between 1990-99) * Cons – Canada is still a resource-heavy economy w/insufficient high-tech exports * - Too dependent on the US
* - Trade is very sensitive to currency fluctuations
* IMPACT ON CANADIAN EMPLOYMENT & BUSINESS
* Pro - Increased competition forces domestic businesses to improve efficiency, innovation and standards and to focus on core industries where we have a competitive advantage and abort inefficient operations. * Con - Competition may be too strong – forcing bankruptcy and job losses given US firms’ productivity advantage and cheaper Mexican labour. * IMPACT ON CANADIAN CULTURE

* Pro – Doesn’t affect Canadian culture; cultural exports = $5B and opens big market in royalties * Con – May destroy Canadian culture; Canada may become a ‘subsidiary of USA; competition from American media affects Canadian cultural capital. * IMPACT ON CANADIAN COMPETITIVENESS AND CONSUMERS

* Pro – more exposure to competition, more choice for consumers, cheaper inputs, further market opportunities. * Con – No increase in productivity; unable to match US productivity; early success...
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