Transcript Chapter 1 What is Business? - University of Hawaii at Hilo

Chapter Four
Multinationals and the
Global Business System
McGraw-Hill/Irwin
Introduction to Business
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Learning Objectives
1. Describe the role of multinational companies in
global production and trade today and the way
they affect the countries in which they operate.
2. Discuss how multinationals are affected by the
political systems of the countries in which they
operate and especially by the desire of
countries around the world to pursue free trade
and reduce or abolish tariff barriers.
3. Describe the nature of the specific forces in the
global environment and appreciate why they
present so many challenges for multinational
companies today.
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Learning Objectives
4. Describe the nature of the general forces in the
global environment that affect all companies as
they compete in industries and countries
around the world.
5. Identify the main challenges facing
multinationals in terms of managing global
business commerce and business
occupations and choosing a method of global
organizing.
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The Multinational Company
• Multinational companies
- companies that operate and trade in many
different countries around the world
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Political Systems and National
Governments
• Government
- the political system chosen to create and
manage the set of laws, rules, and
regulations that control the actions of
people and companies that operate in a
society
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Political Systems and National
Governments
• Representative democracy
- a form of government in which citizens
periodically elect individuals to represent
their interests
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Political Systems and National
Governments
• Totalitarian government
- a form of government in which a person or
group of people attempts to exercise
absolute control over all forms of business
activity
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Political Systems and National
Governments
• Communism
- a one-party totalitarian system based on
the dogma that all property should be
owned by the state and that no individual
should have the right to own private
property
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The Relationship between
Business, Government and Society
Figure 4.1
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National Governments and
Free Trade
• Free-trade agreements
- joint decisions by countries to reduce or
eliminate trade barriers that impede the
flow of products between nations
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National Governments and
Free Trade
• Tariffs
- taxes or duties on imported products that
raise the price at which they must be sold
in foreign markets
• Quotas
- restrictions on the amount of a good or
service that can be imported into a country
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Global and Regional Trade
Agreements
• GATT (General Agreement on Tariffs and
Trade)
- an international treaty between nations
after WWII, dramatically fueling free trade
• Free-trade area
- a group of countries that agree to promote
the free flow of goods and services
between them
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The Global Environment of
Business
• Global environment
- the set of forces surrounding a company
that determine its ability to obtain
productive resources – land, labor, capital
and enterprise
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Forces in the Global Environment
Figure 4.2
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Specific Forces in the Global
Environment
• Specific forces
- forces in the global environment that
directly increase or decrease a company’s
sales revenues or operating costs, and thus
its profitability
• Suppliers, distributors, customers,
competitors
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Suppliers
• Suppliers
- the individuals and companies that provide
a company with the resources that it needs
to produce goods and
services
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Suppliers
• Global outsourcing
- the process of purchasing inputs from
around the world to take advantage of
differences in the cost and quality of
resources
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Distributors
• Distributors
- firms that link the companies that make
products with the customers who buy them
• Intermediary
- a company such as a merchant, broker, or
wholesaler that buys the products of one
company and sells them to another
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The Role of the Intermediary
Figure 4.3
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Competitors
• Market share
- the total percentage of a product a
company sells in a particular market
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Market Share of Three Largest
Companies
Figure 4.4
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General Forces in the Global
Environment
• Political-Economic forces
• Socio-cultural forces
• Demographic forces
• Legal forces
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Political-Economic Forces
• Political-economic forces
- changes that occur in the form of a
country’s social and political systems
• Free-market economy
- economic system in which the production of
goods and services is left in the hands of
private enterprise
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Political-Economic Forces
• Command economy
- economic system in which the quantity and
price of goods and services that a country
produces is planned by the government
• Mixed economy
- economic system in which certain goods
and services are produced by private
enterprise and others are provided via
centralized government planning
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Changes in Political and
Economic Forces
Figure 4.5
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Sociocultural Forces
• Sociocultural forces
- changes in the social structure of a country
and in its class structure, culture, customs,
and beliefs
• Values
- general standards and guiding principles
that people in a society use to determine
which kinds of behavior are right or wrong
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Sociocultural Forces
• Norms
- unwritten codes of conduct that prescribe
how people in a particular culture should
act in certain situations
• National culture
- the particular set of economic, political, and
social values and norms that exist in a
particular country
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Hofstede’s Model of National
Culture
• Individualism versus collectivism
• Power distance
• Achievement-oriented versus nurturing
• Long or short-term orientation
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Question?
What are changes in the characteristics of a
country’s population?
A. Legal forces
B. Political forces
C. Socio-economic forces
D. Demographic forces
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Demographic Forces
• Demographic forces
- changes in the characteristics of a
country’s population, such as its age,
gender, ethnic origin,
race, and sexual
orientation
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Legal Forces
• Legal forces
- changes in a country’s laws and regulations
that often occur because of changes in the
political and ethical attitudes within a
society
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Challenges in the Global
Environment
• Global network
- a set of task and reporting relationships
among managers, functions, and operating
units around the world
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Profiting from Global Expansion
Figure 4.6
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Global Commerce Challenges
• Building a global competitive advantage
• Integrating the Internet into their business
models
• Managing ethically
• Incorporating the effects of differences in
national cultures into their global planning
and organizing
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Building Global Competitive
Advantage
Figure 4.7
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Building Global Competitive
Advantage
• Responsiveness to customers
- a measure of a company’s ability to
anticipate changing customer needs,
resolve problems customers have with a
product, and provide fast after-sales
service
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Global E-Commerce
• Business-to-business (B2B) networks
- electronic markets that link suppliers to
companies that assemble or manufacture
products
• Business-to-customer (B2C) networks
- electronic systems that connect companies
that make finished products directly to the
final customers who use them
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Question?
What are domestic managers who work for
their companies abroad?
A. Expatriate managers
B. Host-country nationals
C. Third-country nationals
D. Repatriated managers
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Global Workforce Challenges
• Expatriate managers
- domestic managers who work for their
companies abroad
• Host-country nationals
- natives of a foreign country hired to
manage a multinationals divisions there
Read an article by Chris Westphal on living
and working outside the US
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Global Workforce Challenges
• Third-country nationals
- managers who are neither native to the
country the multinational is headquartered
in nor the foreign country in which it
operates
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Global Organization Challenges
• Exporting and licensing
• Network structure
• Joint venture
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Exporting and Licensing
• Exporting
- selling domestically produced goods and
services to customers in countries abroad
• Licensing
- contracting with companies in other
countries in order to give them the right to
use a company’s brand name and business
model
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Network Structure
• Network structure
- a system of task and reporting relationships
based on the use of electronic ties that
links suppliers, manufacturers, and
distributors
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Joint Venture
• Joint venture
- an alliance in which companies from
different countries agree to pool their skills
and resources to make and distribute a
product together
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Wholly Owned Subsidiary
• Wholly owned subsidiary
- business units established in countries
abroad to manufacture and distribute a
multinational’s products
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Forms of Global Organizing
Figure 4.8
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Video – Peace Corps
•
Founded in 1961, the Peace Corps remains
a strong organization that promotes cross
cultural understanding through
volunteerism. More than 170,000
volunteers have participated in the program
serving over 135 countries.
•
What are the forces in the global environment
that impact volunteers in the Peace Corps?
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