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CHAPTER 5
International Agreements, Organizations,
and Policies
International vs. Global
International Co.
Concentration on
domestic market
Products sometimes
adapted for local
needs, culture, tastes
Decisions, strategies,
and technology come
from head office
Global Co.
Global Market
Products operate freely
across borders
Decisions to maximize
worldwide revenues,
income, profits
Globalization

the movement of goods,
services, technology,
investment, ideas, and
people throughout the
world.
Globalization Quotations
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In groups of 3 – 4
Pick a quotation on globalization (p.131 Resource
Book) and share an interpretation of the quote
Write your interpretation on chart paper and
present to the class
How a Business Achieves Global
Presence
1.
2.
3.
4.
5.
6.
Import/export
Franchise
Start up a subsidiary company in a foreign
country
Purchase parts/materials abroad for
manufacturing at home
Establish a joint venture
Strategic Alliance
Going Global
ADVANTAGES:
 wages/resources are lower to save costs
 different management teams - different
countries
 Accesses worldwide ideas and designs
 Creates product/services that appeal to
worldwide needs/wants
 Creates jobs in developing countries
Going Global
DISADVANTAGES:
 High cost of creating a global presence
 Maintaining quality in all locations
 Regulations/tax variances per country location
 Understanding different cultural elements
 Foreign currency, political risks
Multinational Corporation (MNC)

Manages production or delivers services in
more than one country
Types of MNCs
1) Ethnocentric (Global Strategy)
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Operates the same way as it does at
home
Tight control over its foreign operations
from head office
Regards the world as one big market
Types of MNCs
2) Polycentric (Multidomestic strategy)
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Understands the market differences from
country to country
Gives its foreign operators greater freedom
in decision making
Types of MNCs
3) Geocentric (Transnational Approach)

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Takes a multinational approach and wants
global integration of its global operations
Hard to find a truly global MNC
Combines the best elements of the global and
multidomestic strategies
Kinds of MNCs
Strategy
Product or
Service
Reason
Ethnocentric
(Global)
Levi’s jeans
Product fulfills similar needs
Skis
Product is used the same way
throughout the world
Polycentric
(Multidomestic)
McDonald’s food Meets cultural needs
Cosmetics
Different skin tones and sensibilities
about cosmetics
Geocentric
(Transnational)
Coca-Cola
Same product, different distribution
strategies throughout the world
Banking
Same technology but different
banking laws
Create a table similar to above with your own products
Global Organizational Structure
Read p.154-156
Take Notes on the following:
Separate International Divisions
 Functional Divisions
 Product Divisions
 Matrix Organization

Trade Agreements
Trade treaty between two or more countries
Multilateral - involving three or more parties
Bilateral - involving two countries
Trade Agreements
Reciprocity

Free trade refers to eliminating/reducing tariffs,
duties and other barriers
Protectionism


Opposite of free trade
government tries to protect domestic industries
from foreign competition
Canada Trade Agreements

Department of Foreign Affairs and
International Trade Website
The North American Free Trade Agreement
(NAFTA) -1994

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
Canada, the United States, and Mexico
Created worlds largest free trade area
Eliminates tariffs and other trade barriers,
and promotes fair competition
NAFTA

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Products made outside of NAFTA may incur
duties
Example: chair made in the States and shipped
to Canada- no duties
Chair made in China- US and then to Canada
may have duties levied
If companies make incorrect statements on the
certificate of origin- NAFTA privileges may be
suspended
Advantages of NAFTA
Disadvantages of NAFTA
Created higher paying
jobs in education,
engineering, and banking
sectors in Canada.
Manufacturing jobs have
been lost to Mexico, where
labour costs are lower
Allows freer flow of goods
and services across North
America, providing better
access to raw materials,
talent, capital, and
technology.
Without tariffs, many
Mexican farmers could not
compete and lost their
livelihoods
Trade has tripled between
the three members
Canadian companies sold
to foreign investors
NAFTA Now


Website
Success Stories
Common Currency

Advantages of a NAFTA common currency

Disadvantages of a NAFTA common currency

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
Do you think NAFTA should adopt a common
currency?
Currencies have pictures that represent their
countries. What pictures would you include on the
NAFTA currency?
Create five alternatives to the name “amero” for a
common North American currency.
Free Trade of Americas Agreement
(FTAA)
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would see a trade zone from Alaska to Chile
would include 34 countries from North,
Central and South America
purpose would be to lower trade barriers
and promote investment without govt.
involvement
Has not happened
European Union (EU) - 1993
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trade agreement
twenty-seven countries in Europe and a
population of almost half a billion people.
own flag, anthem, and currency, and
common financial, security, and foreign
policies.
European Union
Euro
Advantages of a
common currency
Disadvantages of a common
currency
Decreased risk of exchange-rate
fluctuations
Initial costs of implementation
Price transparency
Lack of national control
Elimination of transaction costs
Loss of tradition
Increased markets
Trade Organizations

Groups established to help with the free
flow of goods and services.
World Trade Organization (WTO) - 1995
150 member countries that promotes trade
liberalization throughout the world.
Main purposes of the WTO:
 provide a set of rules that have been
negotiated and signed by the governments
of member countries
 offer a forum for dispute settlement
Asia-Pacific Economic Cooperation (APEC) 1989


any country bordering the Pacific Ocean
can apply for membership
not a trade agreement, not formal
APEC MEMBERS
Group of Eight (G8)

encompassing the major economies of the world, which
meet to discuss macroeconomic issues
Member Countries:
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France
United States
Canada
Great Britain
Italy
Germany
Japan
Russia
Group of 20 (G20)

established during the economic crisis of the
1990s to provide a discussion forum for the
major economies of the world beyond the G8.
Organization for Economic Co-operation and
Development (OECD)


thirty member countries, established in 1961 to
promote the advancement of democracy and
market economies.
eliminate bribery, money laundering, and
fraud, and to create a code of conduct for
multinational companies.
International Chamber of
Commerce



Makes rules that affect how business is conducted
between countries
Acceptance of ICC rules is voluntary
Works with UN to judge and settle trade disputes
World Bank


186 member countries that provides monetary
and technical support for developing
countries.
loans and grants to assist with education,
health, infrastructure, farming, environmental
issues, resource management, and other
economic concerns.
International Monetary Fund

purpose is to promote financial stability,
prevent and solve economic crises,
encourage growth, and assuage poverty.

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
Encourages countries to adopt responsible
economic policies
Lends money to emerging and developing
countries
Provides technical training in areas such as
banking regulations and exchange rate
policies