Fundamentals of Management MGT 211 – The Global Environment, Unit Lecturer- Ms. Reem Quashem

Levels of International Business Activity

The Meaning of International Business Domestic Business Acquires all of its resources and sells all of its products and services within a single country International Business Primarily based in a single country yet acquires a meaningful share of its resources and/or revenues from other countries Multinational Business Transcends national boundaries and buys raw materials, borrows money and manufactures and sells its products in a world-wide marketplace Global Business Transcends national boundaries and is not committed to a single home country.

Managing The Process of Globalization Exporting Making a product in the firm’s domestic market and selling it in another country Importing Bringing a good, service or capital in to a home country from abroad Advantages are small cash outlay, Little exchange risk, and no adaptation of product or service is necessary Disadvantages are tariffs and taxes imposed on cross 0border goods, high transportation costs to/from distant markets, and governmental restrictions

Managing The Process of Globalization Licensing – An arrangement whereby one company allows another company to use its brand name, trademark, technology, patent, copyright or other assets in exchange for a royalty based on sales Advantages are increased profitability from licensing without additional capital requirements, lower operational costs in foreign markets, and extended profitability from existing technologies Disadvantages are inflexibility in the licensing arrangement, loss of profits from licensee failure, and licensing possibly helps competitors learn to compete

Managing The Process of Globalization Strategic Alliance - A cooperative arrangement between two or more firms for mutual gain Joint Venture – A special type of strategic alliance in which the partners share in the ownership of an operation on an equity basis Advantages are quick market entry, access to materials and technology, and reduced risk Disadvantage is that shared ownership limits control and profitability

Managing The Process of Globalization Direct Investment – when a firm headquartered in one country builds or purchases operating facilities or subsidiaries in a foreign country Advantages are enhanced operational control, it allows use of existing infrastructure, and no adaptation of in- country product or service is necessary Disadvantages are complexity in managing a foreign operation, greater economic- and political risk exposure, and greater uncertainty of business risk.

The Structure of the Global Economy Market Economy : An economy based on the private ownership of business which allows market factors such as supply and demand to determine business strategy Mature market economy include USA, JAPAN, UK, GERMANY & SWEDEN. Characteristics are a mature economy, well-developed infrastructures, and individual wealth

The Structure of the Global Economy Market Systems: Clusters of countries that engage in high levels of trade with one another through the elimination of trade barriers such as quotas and tariffs NAFTA : North American Free Trade Agreement, an agreement between the USA, Canada and Mexico to promote trade with one another. European Union (EU) of western European countries

Market Economies and Systems High Potential / High Growth Economies Characteristics are underdeveloped and immature markets, weak industrial base, weak currency, and poor consumers. People’s Republic of China India, Vietnam, Brazil or Russia Challenges to market development Need for large investments in distribution systems The need to educate/train consumers in product usage A lack of infrastructure for support operations Unfavorable policy changes affecting investments

Market Economies and Systems Other Economies Some economies defy classification due to their possessions of critical and valuable resources (e.g. oil producing countries) or other social or political factors which distort their internal economies and market. Challenges of other economies: Political instability Cultural Differences Ethnic violence

Controls on International Management Key Concepts Tariffs are collected on goods shipped across national boundaries Quotas are limits placed on the number or value of goods that can be traded as exports or imports Export restraint agreements are voluntary limits on the volume or value of goods exported to or imported from another country

The Cultural Environment Language In Japanese the word “hai” can mean either “yes” or “I understand” General Motor’s brand name “Nova” when “va” is pronounced “ba” as “no va” in Spanish means “doesn’t go” The meaning of Colors Green is popular in Muslim countries, yet it signifies death in other countries Pink is associated with feminine characteristics in the US; yellow is the most feminine color in other countries

Competing in a Global Economy Globalization and Organization Size MNCs adopt a global perspective and compete in a global marketplace Medium-sized businesses remain primarily domestic organizations that may buy and sell abroad through trade specialists and compete with foreign companies in local markets. Small Businesses participate in global markets when they serve as local suppliers for MNC’s

Management Challenges in a Global Economy Planning in a Global Economy Requires a broad-based understanding of both environmental issues and competitive issues Organizing in a Global Economy Involves addressing issues of creating and managing operations on a world-wide scale Leading in a Global Economy Requires learning how to interact with and motivate persons of different cultural, social and economic backgrounds Controlling Involves integrating global operations that encompass time-zone differences, cultural factors, and varying communication methods