Management Second Canadian Edition Chuck Williams Alex Z. Kondra Conor Vibert Slides Prepared by: Kerry Rempel, Okanagan College ©2008 by Nelson, a division of Thomson Canada Limited

Chapter 8 Global Management ©2008 by Nelson, a division of Thomson Canada Limited

What Would You Do? MTV’s International Strategy Initially moved into the Indian market without changing its format and strategy Strong new competitors in the international marketplace Different kind of viewer in India How should MTV grow its market and viewership in India? ©2008 by Nelson, a division of Thomson Canada Limited

What Is Global business? After reading the next two sections, you should be able to: 1. describe the impact of global business on Canada 2. discuss the trade rules and agreements that govern global trade ©2008 by Nelson, a division of Thomson Canada Limited

Impact of Global Business Foreign direct investment Global competition Multinational corporations ©2008 by Nelson, a division of Thomson Canada Limited

Regional Distribution of Inward Direct Foreign Investment Region Percent United States 72 European Union 19 Asia-Pacific 5 Latin America 2 All Other 2 Adapted from Exhibit 8.1 ©2008 by Nelson, a division of Thomson Canada Limited

Regional Distribution of Outward Direct Foreign Investment Region Percent United States 52 European Union 19 Latin America 19 Asia-Pacific 6 All Other 5 Adapted from Exhibit 8.2 ©2008 by Nelson, a division of Thomson Canada Limited

Multinational Corporation corporation that owns businesses in two or more countries Country of Manufacture country where product is made and assembled Country of Origin Home country where headquarters is located ©2008 by Nelson, a division of Thomson Canada Limited

Trade Rules and Agreements Trade barriers Trade agreements The rules of governing global trade are many and complex and have changed tremendously in the last few years. ©2008 by Nelson, a division of Thomson Canada Limited

Trade Barriers Tariff Nontariff quotas voluntary export restraints government standards government subsidies Customs valuation/classification Tariff – a direct tax on imported goods Nontariff – are nontax methods of increasing the cost or reducing the volumen of imported goods Quotas – specific limits on the number or volume of imported goods voluntary export restraints – the exporting country rather than the importing country imposes limits on how much of a product can be imported annually government standards – often used to restrict or ban imported goods. These standards are specified for imports to protect the health and safety of citizens government subsidies – can be long-term, low-interest loans, cash grants and tax deferments to develop and protect companies in special industries Customs valuation/classification – products are imported into a country, they are examined by customs agents, who must decide into which thousands of categories they should classify a product. The category assigned by customs agents can affect the size of the tariff and consideration of import quotas. ©2008 by Nelson, a division of Thomson Canada Limited

Trade Agreements General Agreement on Tariffs and Trade (GATT) Regional Trading Zones Maastricht Treaty of Europe NAFTA FTAA ASEAN and APEC ©2008 by Nelson, a division of Thomson Canada Limited

GATT Worldwide trade agreement Designed to reduce and eliminate tariffs and subsidies Protect intellectual property ©2008 by Nelson, a division of Thomson Canada Limited

Maastricht Treaty of Europe Now 25 member countries Created the European Union Facilitate trade among members The currency is the “Euro” ©2008 by Nelson, a division of Thomson Canada Limited

North America Free Trade Agreement (NAFTA) Canada, United States, & Mexico Liberalizes trade among these nations Eliminates tariffs and barriers ©2008 by Nelson, a division of Thomson Canada Limited

Free Trade Area of the Americas Proposed agreement Unite 36 countries in North and South America Negotiations unfinished by late 2006 ©2008 by Nelson, a division of Thomson Canada Limited

Association of South-East Nations (ASEAN) and Asia-Pacific Economic Cooperation (APEC) Indonesia, Thailand, Philippines, Malaysia, Singapore, Brunei, Cambodia, Laos, Myanmar, Vietnam APEC Canada, United States, Mexico, Chile, Japan, South Korea, Australia, New Zealand, Papua New Guinea, Russia, China, Taiwan, Hong Kong, & ASEAN members except Cambodia, Laos and Myanmar ©2008 by Nelson, a division of Thomson Canada Limited

Learning Objectives: How to Go Global After reading the next two sections, you should be able to: 3. explain why companies choose to standardize or adapt their business procedures 4. explain the different ways that companies can organize to do business globally ©2008 by Nelson, a division of Thomson Canada Limited

Consistency or Adaptation? A multinational corporation runs its offices, plants, and facilities in different countries under the same rules, policies, and procedures Adaptation Multinational corporations modify standard operating procedures to adapt to local differences ©2008 by Nelson, a division of Thomson Canada Limited

Forms for Global Business Exporting Cooperative contracts Strategic alliances Wholly owned affiliates Global new ventures ©2008 by Nelson, a division of Thomson Canada Limited

Exporting Advantages Disadvantages Makes the company less dependent on sales in it’s home market Provides greater degree of control over research, design and production decisions Disadvantages Many exported goods are subject to tariff and non-tariff barriers that raise the cost to consumers Transportation costs can increase the cost to consumers Dependent on foreign importers for distribution ©2008 by Nelson, a division of Thomson Canada Limited

Cooperative Contracts - Licensing Advantages Allows companies to earn additional profits without investing more money Helps companies avoid tariff and nontariff barriers Disadvantages The company gives up control over the quality of the product or service sold Licensees can eventually become competitors ©2008 by Nelson, a division of Thomson Canada Limited

Cooperative Contracts - Franchising Advantages Fast way to enter foreign markets Disadvantages Franchisors face a loss of control when they sell businesses to franchisees who are thousands of miles away Franchising success may be somewhat culture bound ©2008 by Nelson, a division of Thomson Canada Limited

Strategic Alliances Advantages Disadvantages Help companies avoid tariff and nontariff barriers Companies in the joint venture only bear part of the cost and risk of the business Disadvantages Companies must share profits Joint ventures are complex, requiring detailed contracts Can be difficult to manage as they are the combination of different cultures ©2008 by Nelson, a division of Thomson Canada Limited

Wholly Owned Affiliates Advantages Give parent companies all the profits and complete control over foreign facilities Disadvantages Very expensive to build new operations or buy existing businesses ©2008 by Nelson, a division of Thomson Canada Limited

Global New Ventures Company founders successfully develop and communicate the company’s global vision Rather than going global one country at a time, they bring the product or service to market in several foreign markets at the same time. ©2008 by Nelson, a division of Thomson Canada Limited

Learning Objectives: Where to Go Global After reading the next three sections, you should be able to: 5. explain how to find a favourable business climate 6. discuss the importance of identifying and adapting to cultural differences 7. explain how to successfully prepare workers for international assignments ©2008 by Nelson, a division of Thomson Canada Limited

Finding the Best Business Climate Positioning for growing markets Choosing an office/manufacturing location Minimizing political risk ©2008 by Nelson, a division of Thomson Canada Limited

Positioning for Growing Markets Purchasing power comparison of the relative cost 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 that already compete in foreign markets ©2008 by Nelson, a division of Thomson Canada Limited

Choosing an Office/Manufacturing Location Qualitative factors Work force quality Company strategy Quantitative factors Costs and barriers ©2008 by Nelson, a division of Thomson Canada Limited

World’s Best Cities for Business North America 1. New York City 2. Chicago 3. Toronto 4. Atlanta 5. Los Angeles Adapted from Exhibit 8.4 ©2008 by Nelson, a division of Thomson Canada Limited

World’s Best Cities for Business Europe 1. London 2. Paris 3. Frankfurt 4. Brussels 5. Amsterdam Adapted from Exhibit 8.4 ©2008 by Nelson, a division of Thomson Canada Limited

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 ©2008 by Nelson, a division of Thomson Canada Limited

Becoming Aware of Cultural Differences National culture power distance individualism short-term/long-term masculinity uncertainty avoidance ©2008 by Nelson, a division of Thomson Canada Limited

Cultural Dimensions Exhibit 8.5 ©2008 by Nelson, a division of Thomson Canada Limited

Preparing for an International Assignment Language and cross-cultural training Consideration of spouse, family, and dual-career issues ©2008 by Nelson, a division of Thomson Canada Limited

What Really Works Cross-Cultural Training ©2008 by Nelson, a division of Thomson Canada Limited

What Really Works ©2008 by Nelson, a division of Thomson Canada Limited

What Really Happened? MTV’s initial licensing agreement with Asia to Star failed MTV then expanded through wholly owned affiliates They are currently profitable, but not by much ©2008 by Nelson, a division of Thomson Canada Limited