Chapter 8 Global Management

MGMT Chuck Williams

Designed & Prepared by B-books, Ltd.

1

What Is Global Business?

After reading this section, you should be able to:

1.

discuss the impact of global business and the trade rules and agreements that govern it.

2

1

What Is Global Business?

Global Business

The buying and selling of goods and services by people from different countries.

3

The Impact of Global Business

Multinational Corporation

A corporation that owns businesses in two or more countries.

1.1

Direct Foreign Investment

A method of investment in which a company builds a new business or buys an existing business in a foreign country.

4

1.1

Foreign Investment in the U.S.

5

1.1

U.S. Foreign Investment Abroad

6

1.2

Tariff

Trade Barriers

Nontariff Barriers Quotas Voluntary export restraints Government import standards Government subsidies Customs valuation / classification

7

1.3

Trade Agreements

General Agreement on Tariffs and Trade Regional Trading Zones Maastricht Treaty of Europe NAFTA CAFTA ASEAN and APEC

8

GATT

1.3

GATT made it easier and cheaper for consumers in all countries to buy foreign products.

– Tariffs were cut 40 percent on average worldwide by 2005 – Tariffs were eliminated in 10 specific industries – Stricter limits were put on government subsidies – GATT established protections for intellectual property – Trade disputes between countries now are fully settled by arbitration panels from the WTO 9

1.3

World Trade Organization

Location: Established:

Geneva, Switzerland 1 January 1995

Created by:

Uruguay Round negotiations (1986-1994)

Membership:

153 countries (as of 23 July 2008)

Budget:

185 million Swiss francs for 2008

Secretariat staff:

625

Head:

Pascal Lamy (director-general)   

Functions:

 Administering WTO trade agreements Forum for trade negotiations Handling trade disputes Monitoring national trade  policies Technical assistance and  training for developing countries Cooperation with other international organizations

Web Link

http://www.wto.org

Maastricht Treaty of Europe

1.3

• Formed in 1992 with 12 European countries • Total membership is now 27 countries • Transformed these countries into the European Union, forming one economic market and one common currency (the Euro) • Opened up and simplified trade among member nations

Web Link

http://europa.eu.int/

11

NAFTA

1.3

• North American Free Trade Agreement between Canada, United States, & Mexico • Liberalizes trade among these three nations • Eliminates most tariffs and barriers

Web Link

http://www.export.gov/fta/nafta/doc_fta_nafta.asp/

12

1.3

CAFTA and USAN

• Central American Free Trade Agreement • Union of South American Nations • Fastest-growing place for U.S. exports.

• Common infrastructure to support trade.

13

ASEAN and APEC

1.3

• •

ASEAN

– Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam

APEC

– Australia, Canada, Chile, China, Hong Kong, Japan, Mexico, New Zealand, Papua New Guinea, Peru, Russia, South Korea, Taiwan, United States, and ASEAN members (except Cambodia, Laos, and Myanmar)

Web Link

http://www.aseansec.org

http://www.apecsec.org.sg

14

1.4

Consumers, Trade Barriers, and Trade Agreements American consumers get more for their money than most other consumers in the world because:

The U.S. marketplace is easiest for foreign companies to enter AND the competitive market between domestic and foreign companies keeps prices low.

15

1.4

Consumers, Trade Barriers, and Trade Agreements

Increase: choices competition purchasing power Free Trade Agreements Decrease price of: food clothing necessities luxuries

16

How to Go Global?

After reading these sections, you should be able to:

2.

3.

describe why companies choose to standardize or adapt their business procedures.

explain the different ways that companies can organize to do business globally.

17

Consistency or Adaptation?

Global Consistency

When a multinational company has offices/plants in different countries and uses the same rules, guidelines, policies, and procedures

2 Local Adaptation

When a multinational company modifies its rules, guidelines, policies, and procedures to adapt to differences in foreign customers, governments, and regulatory agencies 18

Forms for Global Business

Exporting Cooperative Contracts Global New Ventures 3 Wholly Owned Affiliates Strategic Alliances

19

3.1

Exporting

Advantages

 Less dependence on home market sales  Greater degree of control over research, design, and production decisions 20

3.1

Exporting

Disadvantages

 Many exports are subject to tariff and nontariff barriers  Transportation costs can increase price  Companies may depend on foreign importers for product distribution 21

Cooperative Contracts

Licensing

A domestic company receives royalty payments for allowing another company to produce its product, sell a service, or use its brand name in a specified foreign market

3.2

Franchising

A collection of networked firms in which the manufacturer or marketer of a product/service licenses the entire business to another person or organization 22

3.2

Licensing

Advantages

 Allows companies to earn profits without investing more money  The licensee invests in production equipment and facilities  Helps companies avoid tariff and nontariff barriers 23

3.2

Licensing

Disadvantages

 Licensor gives up control over quality of the product or service sold by the foreign licensee  Licensees can eventually become competitors 24

3.2

Franchising

Advantages

 Fast way to enter foreign markets  Good strategy when a company’s domestic sales have slowed 25

3.2

Franchising

Disadvantages

 Franchisors face a loss of control  Franchising success may be culture-bound 26

Strategic Alliances

Strategic Alliance

An agreement in which companies combine key resources, costs, risk, technology, and people

3.3

Joint Venture

A strategic alliance in which two existing companies collaborate to form a third, independent company 27

3.3

Joint Ventures

Advantages

 Help companies avoid tariff and nontariff barriers to entry  Participating companies bear only part of the costs and risks  Advantageous to smaller local partners 28

3.3

Joint Ventures

Disadvantages

 Companies must share profits  A joint venture represents a merging of four cultures  With equal ownership, power struggles and a lack of leadership may occur 29

3.4

Wholly Owned Affiliates (Build or Buy)

Advantages

 Parent company receives all of the profits and has complete control

Disadvantages

 Expense of building new operations or buying existing business  Losses can be immense if the venture fails 30

Global New Ventures

3.5

Quick, reliable air travel Low-cost communication technologies Critical mass of experienced businesspeople

31

3.5

Common Factors of Global New Ventures

Global vision is developed and communicated Several foreign markets are entered at the same time

32

Where to Go Global?

After reading these sections, you should be able to:

4.

5.

6.

explain how to find a favorable business climate.

discuss the importance of identifying and adapting to cultural differences.

explain how to successfully prepare workers for international assignments.

33

4

Finding the Best Business Climate

Access to Growing Markets Location to Build Minimal Political Risk

34

4.1

Growing Markets

•

Purchasing Power

– comparison of a standard set of goods and services in different countries – more means greater growth potential •

Degree of Global Competition

– the number and quality of companies already in the market 35

Choosing an Office/Manufacturing Location •

Qualitative factors

– work force quality – company strategy

4.2

•

Quantitative factors

– kind of facility – tariff and nontariff barriers – exchange rates – transportation and labor costs 36

World’s Best Cities for Business

4.2

United States

1. Washington 2. Atlanta 3. Phoenix 4. Houston 5. Minneapolis St. Paul

Latin America

1. Santiago 2. Miami 3. Sao Paulo 4. Monterrey 5. Mexico City

Europe

1. London 2. Paris 3. Frankfurt 4. Barcelona 5. Amsterdam

Asia Pacific

1. Shanghai 2. Beijing 3. Shenzhen 4. Bangalore 5. Mumbai 37

Choosing a Location: Multilingual Work Forces Beyond the Book 38

4.3

Minimizing Political Risk

• • •

Political uncertainty

– risk of major changes in political regimes

Policy uncertainty

– risk associated with changes in laws and government policies directed at businesses

Strategies

– avoidance – control – cooperation 39

5

Becoming Aware of Cultural Differences

National Culture

The set of shared values and beliefs that affects the perceptions, decisions, and behavior of the people from a particular country.

40

5

Becoming Aware of Cultural Differences

Cultural Dimensions (Geert Hofstede)

     Power distance Individualism Masculinity and femininity Uncertainty avoidance Short-term/long-term orientation 41

5

Hofstede’s Five Cultural Dimensions 42

5

Cultural Differences

• • • Recognize cultural differences Decide how to adapt your company to those differences Do not base adaptations on outdated and incorrect assumptions about a company’s culture 43

6

Preparing for an International Assignment

Expatriate

Someone who lives and works outside his or her native country.

44

Preparing for an International Assignment

Language and Cross-Cultural Training 6 Consideration of Spouse, Family, and Dual-Career Issues

45

6.1

Language and Cross-Cultural Training

Documentary Training Cultural Simulation Field Experiences

46

6.2

Spouse, Family, and Dual-Career Issues

Adaptability Screening Intercultural Training

47