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Chapter 5 – Agreements, Organizations and Policies

Learn about strategic positioning in the global economy, from branding to trade agreements. Explore corporate globalization, trade blocs, and the impact of neo-liberal trade policies.

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Chapter 5 – Agreements, Organizations and Policies

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  1. Chapter 5 – Agreements, Organizations and Policies

  2. 5.1 Positioning in Global Economy What is Positioning? • The strategy used to communicate to the consumer • How to get ‘heard’ or how to ‘reach’ your target audience • Focus on what is unique, different or superior about a product/service • Focus on the main ‘benefit’ that a consumer gets from your product/service • E.g. cell phone allows you to make calls, but the real ‘benefit’ is keeping in touch with friends, enjoying life, entertainment, affiliation

  3. Global Positioning: • Franchise – authorizing someone else to sell goods/services e.g. Subway, Boston Pizza and McDonalds restaurants are franchised • Subsidiary • Owned and operated by a firm in a different country under a different name – “wholly owned subsidiary” • E.g. Marmon Group bought Robertson Inc. pg. 147 • E.g. Vale (Brazilian mining firm – largest iron ore producer) bought Inco (Sudbury’s Big Nickel) • Joint Venture - two companies join forces to compete in a foreign market

  4. Strategic Alliance – two or more firms cooperate, sometimes buying each other’s shares, stronger ‘partnership’ than a joint venture

  5. International vs. Global: International: • Central location – i.e. one country is ‘home’ • Top management usually from ‘home’ country • E.g. Loblaws (part of the Weston Group, based in Canada with some international operations in U.S. and U.K) Global: • Management makes decisions to maximize worldwide profits • Management from many different countries • Goal is to create a ‘stateless’ corporation that operates relatively free across international borders • Makes operations and financial (i.e. tax rates etc.) decisions based on cost i.e. moves manufacturing or corporate headquarters to countries with lowest costs e.g. Wal-Mart – international operations, management and manufacturing/sourcing

  6. International vs. Global: Benefits • Cost savings • Diverse leadership • Worldwide access to ideas, wants and needs • Jobs in developing countries Challenges: • Costs of global branding – complex, more logistics i.e. travel • Hard to have uniform quality and messaging around the world • Time required for decision making – time zones, distances • Complex political and taxation issues – many countries / laws • Political, economic, commercial and foreign currency risk • Local opposition to multinational corporations

  7. 5.2 Corporate Globalization • Globalization – growth and spread of international economies and business • Growing Power and Influence: • Ford Motor Co. larger than economy of Norway • Phillip Morris (food, cigarettes) sales larger than GDP of New Zealand • Corporations increasingly influence the politics, policies etc. of countries where they operate; • E.g. tax rates/laws, environmental standards, social policy • Other effects of globalization?

  8. 5.2 Corporate Globalization Triad – U.S. , European Union and Japan (pg. 152 – 153) Neo-Liberal Trade Policies: • Freer movement of goods, services, labour, capital • Liberalizing – reducing barriers, easier, less restricted • Economic imperialism – economic domination of nations • World’s largest 500 companies account for 50% of world trade

  9. 5.3 Trade Agreements Trading Blocs (or regions) – 90% of world trade • NAFTA (North American Free Trade Agreement • European Union (EU) • Asia-Pacific Economic Cooperation (APEC) • NAFTA – Jan. 1, 1994 • Canada, Mexico and U.S. • Increase trade, reduce prices / costs of production – economic efficiency • Trade in goods and services, investment, intellectual property • There is fair competition and dispute resolution – doesn’t always work – e.g. Softwood Lumber – NAFTA said the U.S. was wrong but they still charged a tariff on softwood lumber

  10. FTAA – Free Trade Area of Americas • Goal was to start in 2005, but delayed presently • North, Central and South America free trade zone • 34 countries • Problems include; • the increasing gap between rich and poor (North vs. South) • Political tensions – Venezuela and U.S. • Opposition to Neo-Liberal trade philosophy • Nationalism – protectionism in the U.S. – concern over losing jobs • 9/11 – security issues and more border security • Economic problems in member countries – inflation, unstable currency • Complexity of harmonizing labour, manufacturing and environmental standards

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