Transcript Διαφάνεια 1

COURSE: GLOBAL BUSINESS MANAGEMENT
MGT610
DR. DIMITRIS STAVROULAKIS
PROFESSOR OF HUMAN RESOURCE MANAGEMENT
DEPT OF ACCOUNTING
TEI OF PIRAEUS
Unit 2: Globalization of business (b)
Training Material: Textbook (3-15 & 39-48).
Drivers for globalization of business
 Economic development
 Demand for technical innovations
 Facilitation of capital transfer
 Development of services that support international
business (transports, communications)
 Satisfaction of consumer demands all over the world
 Intensified competition of companies
Drivers for globalization of business (cont)
 Facilitation of cross-border trade .Lower or no tariffs
trade within commercial zones (EU, NAFTA, ASEAN)
 Intercultural understanding through common language
(e.g. Spain-Mexico-Argentina, Portugal-Brazil)
 Shortened product cycles. In the past, products’ life cycle
was much longer. Ford T model remained unrivalled
more than 20 years – Q?
Factors deterring business from entering a country
 Strong local culture & traditions
 Local religions
 Political instability
 Local currency fluctuations
 Trade barriers
 National labor relations mentality &
trade union practices
 Global crisis / Economic recession
Positive side of MNCs
 Promote economic growth
 Provide lower-priced, higher-quality
goods to consumers
 Bring funds & capital
 Transfer technology, including
organizational, management and
marketing skills
 Pay higher wages (increase productivity)
 Introduce competition to domestic firms
 Offer job openings
Negative Side of MNCs
 Poor citizens of host countries
 A permissive attitude on the part of the host may generate
exploitation of workers & destruction of the environment
 Foreign superpowers may destroy local business
 i.e. soft drinks, Coke and Pepsi versus small local
manufacturers
 There are concerns among small shopkeepers when Wal-Mart
comes to town
 In certain European cities under 100,000 local authorities
forbid the installation of big commercial centers
 Market power
 After local firms are driven out, MNCs can exert market
pressure and increase prices
 MNCs can easily create oligopolies and barriers to entry
 When confronted with new regulations or trade union activity
they can easily move away (or threaten to). Greece: Pirelli,
Goodyear, Triumph, Levis, Palco-Schiesser etc.
Negative Side of MNCs (cont):
 Negative balance of payments, low contribution to local economy
 Import of raw materials & resources, repatriation of profits
 Tax avoidance through transfer pricing
 Involvement in local politics
 Stieglitz provides examples of U.S. government pressuring
governments (Indonesia) to provide privileges to MNCs
 Puppet governments formed through the power of
multinationals (bananaland) - e.g. United Fruit in
Guatemala & Chile
 Greece under pressure to purchase armament
 World Bank pressuring Pakistani government to buy high
priced electric power from MNC

MNC established with privilege (preference to state supplies,
cheaper energy & resources than local competitors)
Fears of FDI
 In the 60s European countries were
apprehensive of massive American FDI in the
continent.
 In the 80s Americans were concerned about
C
the Japanese invasion in the US
 Nowadays, the whole world looks with
h
i
n
e
s
e
suspicion the expansion of Chinese products.
MNC Stakeholders – To whom is MNC responsible ?
What should go right and what can go wrong in MNC-host
country relationships
11
Motives for International Expansion
 Market Share
 Domestic market may lack the size to support
efficient scale manufacturing facilities
 Return upon Investment
 Large investment projects require expansion to
global markets to compensate costs
 Weak patent protection in many countries
renders rapid overseas expansion necessary in
order to preempt imitators
Exploitation of company capabilities
 Knowledge + R&D
12
Motives for International Expansion (cont)
 Economies of Scale
 Expanding size or scope of markets helps to
achieve economies of scale in manufacturing,
marketing & distribution
 Costs are spread over a larger sales base
 Profit per unit is increased
 Location Advantages
 Low-cost markets aid in developing competitive
advantage
 Easier access is achieved with regard to:
• Raw materials • Key customers
• Lower cost labor • Energy
13
15
Proactive vs Reactive MNC Motives
 Proactive is a result-oriented MNC behavior,
aiming at identifying and exploiting
opportunities. It involves undertaking
preemptive action against potential threats
and future problems.
 Reactive is a passive, fire-fighting response,
waiting for problems first to occur and then
trying to adjust. Focuses on tackling problems
after their outburst.
Internationalization motives
INTERNAL
EXTERNAL
PROACTIVE/
AGGRESSIVE
(PUSH
FACTORS)
 PROFIT AND GROWTH
GOALS
 MANAGERIAL EXCELLENCE
 MARKETING ADVANTAGE
 COST REDUCTION THROUGH
ECONOMIES OF SCALE & SCOPE
 UNIQUE PRODUCT /
TECHNOLOGY
 KNOW-HOW & COMPETENCE
 FOREING MARKET
OPPORTUNITIES /
MARKET INFORMATION
 ACCESS TO R&D, KNOWLEDGE
CLUSTERS
REACTIVE/
DEFENSIVE
(PULL
FACTORS)
 RISK REDUCTION THROUGH
DIVERSIFICATION
 EXTEND SALES OF
SEASONAL PRODUCTS
 EXCESS CAPACITY/
OVERPRODUCTION
 UNEXPECTED FOREIGN
ORDERS
 DOMESTIC MARKET:
SMALL AND SATURATED
 COMPETITIVE PRESSURES
 EXISTING RELATIONSHIP WITH
INTERNATIONAL CUSTOMERS
(E.G. SUBCONTRACTORS OF APPLE)
AVOID TRADE BARRIERS
Definitions of MNCs
 OECD: “An enterprise that engages in foreign direct investments
(FDIs) and owns or controls value-adding activities in more than
one country”
 United Nations (1973): An enterprise “which controls assets,
factories, mines, sales offices, and the like in two or more
countries”.
 United Nations (1984): An enterprise:
 comprising entities in two or more countries, regardless of the
legal form and fields of activity in these entities
 which operates under a system of decision making permitting
coherent policies and a common strategy through one or more
decision-making centers
 in which the entities are so linked, by ownership or otherwise,
that one or more of them may be able to exercise a significant
influence over the activities of the other, in particular to share
knowledge, resources, and responsibilities.
Definitions of MNC (cont)
 Bartlett & Ghoshal: Two preconditions:
1. Substantial FDI
2. Active, coordinated management
 “What really differentiates MNC from ordinary
business, is that it creates an internal organization to
carry out key cross-border tasks and transactions
internally rather than depending on trade through
the external markets” (p. 10)*.
 According to Bartlett & Ghoshal, most companies
involved in activities abroad should not be
considered MNCs, since they are not managing their
subsidiaries actively or in a coordinative manner.
Definitions of MNC * (cont)
 Any internationally active company must fulfill
3 important strategic goals:
 GLOBAL EFFICIENCY in existing activities
 INTERNATIONAL FLEXIBILITY and LOCAL
RESPONSIVENESS (appropriate management
of risks and opportunities) THINK GLOBAL,
ACT LOCAL
 WORLD-WIDE LEARNING through its
exposure to local contexts
Go International or Stay Domestic?
Critical Questions.
 Availability of international demand for company’s products?
 Can products be modified to suit foreign market?
 Is foreign market business climate receptive to imports?
 Does the company have necessary skills, knowledge, capacity,
financial, and other resources to do business abroad?
 Do benefits outweigh costs ?
 Theoretical benefits of global expansion may prove
extremely difficulty to reap in practice.
 Going global is not necessarily good for business.
 Not going global is not necessarily bad for business