Transcript BA 447 - day 2.ppt

BA 447
TOPICS IN INTERNATIONAL
BUSINESS
Instructor: Manolete V. Gonzalez
Four Basic Strategies
Examples of companies
pursuing a global strategy
• International strategy
– Proctor and Gamble and Xerox
• Develop products at home, establish manufacturing and
marketing functions in each major country or region.
• Multi-domestic or localization strategy
– MTV
• Global (standardization) strategy
– Example: Intel, Motorola, Texas Instrument
• market a standardized product worldwide, products which
serve universal need.
• Transnational strategy
– Caterpillar
Different Companies, Different
Configuration
• S.C. Johnson & Sons
• LG
• NIKE
Example of international strategy:
S.C. Johnson & Sons, Inc.
• 119-year-old, fifth-generation, familyowned and managed.
• 12,000 employees in 70 countries, US
headquarters.
• Leading manufacturer of consumer
household products.
• Manufactures in over 20 countries,
markets to over 110.
• $6.5 billion in annual sales.
A Brief History of LG
• Established in 1958 as Goldstar, a pioneer
Korean electronics manufacturer
• In 1995 company name was changed to
LG Electronics, acquired US-based Zenith
• Joint venture with Philips in 1999
• As of 2004, annual sales of US $38 billion,
over 66,000 employees (32,000 in Korea)
in 76 subsidiaries in 39 countries
LG likes to vertically integrate…
• LG.Philips
– Operates vertically integrated plant - research
and development, parts, and materials
companies as well as the finished products
• LG Chem
– Vertically integrated since 1991 after merging
LG Advanced Materials, LG Polychemical,
and LG Pharmaceutical
• LG Telecom
– Network provided by Cisco Systems, Inc.
Transnational example: NIKE
Categories
Factories
o Running
o Korea
o Basketball/Brand Jordan
o Taiwan
o Training/Walking
o China
o Soccer
o Thailand
o Cleated/Golf
o Vietnam
o Outdoor
o Indonesia
o Tennis
o Italy
o Active Life
o Kids
Where We Manufacture
Italy
Pusan, ROK/China
Qingdao, China
Fuzhou, Putien and
Shanghai, China
Taichung, Taiwan
Guangzhou, China
Bangkok, Thailand
Ho Chi Minh, Vietnam
Jakarta, Indonesia
Our World - The Manufacturing Pie
o Currently contract approximately
37 Factories
o 5 Manufacturing Leadership Partners
(T2, PC, FT, PA, CS) Represent
Approx. 50% of NIKE Capacity
A Factory
o LN (made up of 4 sub-factories)
o Average Capacity 1.2 million pr/mo
o 25 Lines
o Models per PO: 60 SKU
o Average Daily Output 43,000 prs per day
o Number of Employees 25,000 +
Moving forward
• We will discuss Friedman and issues that
emerge as we talk about the book
• We will always return to global strategy,
asking what do these mean for a specific
strategy.
• We will attempt to raise additional
questions.
Related Concepts/Theories
• Theory of comparative advantage
• Tariff and non-tariff barriers
Theory of comparative advantage
• Simply stated: two countries are ahead in
terms of providing for the common good, if
– Each country produces a product where it has
comparative advantage, i.e. land, skills, etc.
– Uses the revenues to purchase other
products
• Factors of production have changed
– Labor costs and skill
– Transportation costs
– Communication and reduction of lead times
Tariff and non-tariff barriers
• Tariff duties are levied on incoming
products, has the effect of increasing cost
• Non-tariff barriers come in different forms;
the intent is to protect local production
• Related issues
– WTO
– Relative influence of industry groups in each
country
– Political stability: impact on cost of doing
business
Symptoms of a “flat world”
• Accounting: basic returns done in India,
tax and financial planning done in US
• News reporting: wire service (write basic
news) is outsourced, analysis in US
• Medicine: analysis of CAT scans by
trained radiologists?
• Key: any activity whose value chain can
be digitized, decomposed, and moved
around, will be moved.
More call center stories
• At take home pay of $200 per month,
Indians can live well and at home. No
need to migrate
• Try the statement on p 27
• R&D? 1000 patent applications with US
patent office from Bangalore units of
Cisco, Intel, IBM, TI, GE . .
And it is not just “us and them”
• Japanese speaking Chinese do work for
Japanese companies
• Outsourcing conversion of hand drawings
into digital blueprints – Malaysia and
Philippines
• Home sourcing in UTAH
• McDonald’s drive through orders
Flat World
• The notion of a flat world suggests a
challenge to how we think of things
– Globalization 1.0 (1492-1800): after discovery
that the earth was round, and big,
exploration/expansion shrank the world
– Globalization 2.0 (1800 – 2000):
multinationals followed their countries
– Globalization 3.0 (2000- ): individuals of
diverse backgrounds able to collaborate and
compete globally
The world is flat . . . (Friedman)
• Three converging developments
– A global, Web-enabled playing field that
allows multiple forms of collaboration
– Gradual adaptation of organizations through
horizontal collaboration in the value creation
process
– Opening of economies like China, India,
Russia, and in Eastern Europe, Latin America,
and Central Asia to the world economy – 3
billion people
What are assumptions Friedman
makes?
• These are relevant to global companies
• Political stability
• All 3 billion have ready access to
technology, knowledge, etc.?
• Products, services, or portions thereof can
be shipped by or facilitated by the internet
• Tariffs and other entry barriers will
continue to decline
• What else?
Studying “Issues”
Before we jump to conclusions . . .
Examples of Global “Issues”
• Some examples:
– Terrorism
– Unfair labor practices and multinationals
– Global Warming
– Waste, particularly e-waste, and developing
countries
– Resource constraints, e.g. oil, water
– Genetically modified products
When Studying or Seeking to
Understand an Issue/Topic
• There is an objective reality out there.
• We can only infer the “truth” through collection
and examination of data, evidence, etc.
– Science is about inference from available data
– Subject to different interpretation
• There are usually overarching, presumably
socially desirable objectives, for example:
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Global peace,
Right to self rule,
Preserve environment for future generations,
Feed world’s poor,
Science and technological development as a good.
When Studying or Seeking to
Understand an Issue/Topic
• Define the “objective reality.” Tell the story
without making a value judgment.
• Describe the scope and dimension of the issue.
• Examine different perspectives of the issue.
• Who are the key players or stakeholders? What
are their interests?
• What are the conflicts inherent in the issue?
• How might these conflicts be resolved?
“Objective Reality”
• Describe the “story” as objectively as
possible.
• Get the story from different sources to
avoid bias.
• Avoid interpretations of experts as to “what
is really happening.”
Define the Scope and Dimension
• Is this global, regional issue, or countryspecific?
• Are there implications beyond the regional
or country that makes it larger than it
sounds?
• Get data: provide numbers to give an idea
of the scale of the issue.
Different Perspectives
• The popular press sometimes picks up on one but forgets or
minimizes another.
• Economic perspective: this can range from business aspect, e.g.
what is gained from importing ewaste into a developing country, to
national aspect, e.g. what is the contribution to national income of a
developing country of outsourcing.
• Religious perspective: this can range from conflicts involving two
religions, e.g. Hindus and Muslims, to conflicts within religions, e.g.
Shiites and Sunnis.
• Social perspective: some issues contain or involve conflicts across
different races, cultures, ethnicities, etc.
• Political perspective: who or what are the key political social groups
involved in the conflict and how might they gain or lose from
possible resolutions of the conflict.
• Technological perspective:
Different Perspectives: Also
consider
• Historical perspective: most issues of a
social or political nature are best
understood from the perspective of history.
For example, did you know that Iraq was
carved out of the Ottoman Empire only
after World War II? Grouping Kurds,
Shiites, and Sunnis into one political entity
was a decision by the allied powers.
Stakeholders or Interest Groups
• Who are most affected by a resolution of
the issue? The different perspectives
provide a better idea of players and
stakeholders.
• Understand what each stakeholder can
gain or lose from the issue.
Stakeholders: example
• Stakeholders will have different needs, goals
• In the case of unfair labor practice charges
against NIKE, some examples:
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Senior Managers and stockholders of NIKE
Consumers/customers
Employees of NIKE (Beaverton)
Sub-contractors (separate, legitimate companies)
Employees of sub-contractors (overseas)
Distributors of NIKE products
Governments (where produced and sold)
Families, communities supported by plants
Conflicts
• Most issues have inherent conflicts, and
can explain why they remain unresolved or
difficult to resolve.
• While most conflicts have numerous
stakeholders, it is often important to
determine which stakeholder has the
means or resources to influence the
outcome of the conflict. Or is already
spending resources to do so.
Conflicts and Ethical Models
• Try using ethical models as a way of
understanding the conflicts inherent in the issue:
who are at an advantage? disadvantaged?
– Utilitarian - the good of as many stakeholders.
– Justice - fair treatment for as many stakeholders as
possible
– Moral rights - protect rights of as many stakeholders
– An important question to resolve is by what criteria to
we judge “fair treatment”, “rights”, what is “good” for a
person in another country.
Ethical and Illegal Decisions
• There is a difference between unethical
and illegal acts.
• Issues can be seen to be unfair to some
stakeholders but allowed under the law.
– The influence of lobby groups in Washington,
DC are governed by laws.
– Planting of genetically modified seeds are
governed by regulations.
Resolution of Conflict
• Issues evolve towards closure when
inherent conflicts are resolved.
• Some conjecture as to what players can or
will do can help figure out how the conflict
can be resolved.
• Reading up on what experts think can be
helpful. (After going through the preceding
analysis, one can accept or reject their
opinion on the basis of sound judgment.)
Legal and Regulatory Venues
Where Issues are Resolved
• US government (Judicial, Legislative, Exec, either by
regulation or vote)
• European government (same)
• WTO
– Member countries
– The institution itself and its parts
• The force of public opinion can influence decisions in
these venues.
• Vehicles by which public opinion can be harnessed
– Industry associations
– NGOs representing various interests
– Grass roots movements that become organized
Given “Hat” You Wear
• For example, are you a concerned citizen,
stockholder/manager, member of a NGO?
• Understand the issue, including arguments from
“other side.”
• Who are the stakeholders directly involved? With
most to gain or lose? What do they have at
stake?
• If you are taking the offensive, in what venue is
the issue best resolved? Judicial system?
Parliament? Make a lot of noise at meetings?
• If you are on the defensive, what tactics are
being employed? In what venues?
Example of Using Different
Perspectives
• Understand the economics behind the issue or
conflict? For example, why do workers flock to
factory locations in China? Vietnam? What is
“profitability” of shipping e-waste? to whom?
• What is the political and/or economic “price” in
winning sectarian “war” in Iraq? “costs” to
participants?
• What is the history between Iran and Great
Britain?
Genetically Modified Seeds
• The uncertainty over the effects of planting
these seeds is at the core of the
discussion on whether these seeds should
be sold or not. Each side to this debate
has done its own studies.
• It is important to understand that legal
decisions may not necessarily support
what is ethically desirable.
Role of WTO
• Formulate and implement set of rules and
procedures to govern international trade.
• Provide a mechanism by which
governments and companies with global
operations, through their governments, to
ensure that products and services are
given equal treatment.
GMO “Battle Grounds”
• Harnessing public opinion through websites, press releases, etc.
– Vote through stock market, i.e. do not buy stock
• Courts, e.g. TRO in Brazil,
• Regulatory, e.g. in the US a threatened law suit caused EPA to back
off
• Legislature, e.g. ban by EU parliament
• The US has resorted to the WTO on the premise that the EU ban
violates WTO agreements.
• Examples of stakeholders and their goals
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Monsanto stockholders?
European farmers?
US farmers who are already invested?
Consumers who see the science differently? Budget?
Article on Venezuela Inc.
• Friedman discusses privatization in a later
portion of the book as a reform tool.
• What questions does article raise on
– the use of privatization as a “reform” tool?
– how Venezuela is governed?
– what risks does this mean to a global company, like
Verizon?
– other, more profitable forms of privatization?
– Value of privatization to a developing economy?