Managing in a Global Environment 1

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True or False China and India are the worlds fastest growing economies? 3

The Changing Pattern of International Business Changing world output and world trade picture Changing world output and world trade picture  The U.S. no longer dominates the world economy  Large U.S. multinationals no longer dominate international business  The centrally planned communist economies that made up roughly half the world suddenly become accessible to Western businesses  The global economy has become more knowledge-intensive 4

The Changing Pattern of International Business (continued) Lowered trade barriers Lowered trade barriers  General Agreement on Tariffs and Trade (GATT)  World Trade Organization (WTO) Integrated Economic Markets Integrated Economic Markets  The European Union (EU)  The North American Free Trade Act (NAFTA)  Central American-Dominican Republic Free Trade Agreement (CAFTA)  The Association of Southeast Asian Nations (ASEAN)  The Asia Pacific Economic Cooperation (APEC) 5

The Changing Pattern of International Business (continued) Global consumer preferences Global consumer preferences  Tastes and preferences are converging  Presence of mass media, exposure to goods from various countries, and standardized products Globalized production Globalized production  Cost efficiency 6

Example of Globalized Production Of the $20,000 sticker price of a General Motors Automobile LeMans: $6,000 goes to South Korea, where the car was assembled $6,000 goes to South Korea, where the car was assembled $3,000 goes to Japan for sophisticated high-tech parts (engines, transaxles, electronics) $3,000 goes to Japan for sophisticated high-tech parts (engines, transaxles, electronics) $800 goes to Taiwan, Singapore, and Japan for small parts $800 goes to Taiwan, Singapore, and Japan for small parts $500 goes to Great Britain for advertising and marketing services $500 goes to Great Britain for advertising and marketing services $1,000 goes to Ireland for data processing $1,000 goes to Ireland for data processing $7,600 goes to GM and its external professional firms in the United States $7,600 goes to GM and its external professional firms in the United States 7

The Changing Pattern of International Business (continued) Technological innovations Technological innovations  Advances in communications, information processing, and transportation technology  Fiber optics, wireless technology, the Internet and World Wide Web, and satellite technology Management across cultures Management across cultures  Adaptation to business strategies, structures, operational policies, and human resource programs 8

Major Factors Affecting International Business General business environment General business environment Legal system Legal system  Common law  Civil law  Muslim law Economic environment Economic environment Cultural environment Cultural environment  Culture shock 9

Dimensions of Culture Power Distance Individualism Uncertainty Avoidance Masculinity / Femininity Long-term/ Short-term Orientation 10

Video Cirque de Soleil Cirque de Soleil Answer these Qs: 1. How has the “global shift” contributed to the success of Cirque de Soleil? Why was this critical in the company’s beginning? What about now? 2. How does management across cultures affect Cirque de Soleil? 11

To succeed, Cirque makes special accommodations for cultural differences among its workers. ___________ can occur when a person is exposed to a new culture with different norms, customs, and expectations and has difficulty adjusting. A) A) Culture Shock B) B) Individualism C) C) Uncertainty Avoidance D) D) Power Distance 12

Entry Strategy and Strategic Alliances Four key decisions of a firm contemplating foreign expansion: Which countries to enter Which countries to enter When to enter When to enter Scale of involvement Scale of involvement How to enter How to enter 13

Choosing Foreign Countries The appeal of a particular country is likely to be greater when: The size of the domestic market is large The size of the domestic market is large The present wealth of consumers in that market is high and projected to grow in the future The present wealth of consumers in that market is high and projected to grow in the future The needed resources are readily available The needed resources are readily available The firm’s product offerings are suitable to a particular market The firm’s product offerings are suitable to a particular market A positive business environment exists A positive business environment exists 14

When to Enter Foreign Countries and Scale of Involvement When to Enter When to Enter  First-mover advantages  Pioneering costs Scale of Involvement Scale of Involvement  Lowest if the firm simply decides to export its products to the foreign location  Highest if the firm decides to have a wholly owned subsidiary in the foreign country 15

Modes of Entry Exporting Turnkey Project Licensing Franchising Strategic Alliance Joint Venture Wholly Owned Subsidiary 16

Modes of Entry Exporting – entering new markets by sending products to other countries, still maintaining production facilities within the domestic borders Exporting – entering new markets by sending products to other countries, still maintaining production facilities within the domestic borders Turnkey projects – specialized type of exporting, where the firm handles the startup of the company and a local client is then handed the key Turnkey projects – specialized type of exporting, where the firm handles the startup of the company and a local client is then handed the key Licensing – entering new markets by transferring the rights to produce and sell products overseas to a foreign firm Licensing – entering new markets by transferring the rights to produce and sell products overseas to a foreign firm 17

Modes of Entry Franchising – entering new markets in which the franchise pays a fee for using the brand name and agrees to follow the standards and rules Franchising – entering new markets in which the franchise pays a fee for using the brand name and agrees to follow the standards and rules Joint venture – means of entering new markets where two or more independent firms agree to establish a separate firm Joint venture – means of entering new markets where two or more independent firms agree to establish a separate firm Strategic alliance – cooperative arrangements between competitors or potential competitors from different countries Strategic alliance – cooperative arrangements between competitors or potential competitors from different countries Wholly owned subsidiary – entering new markets in which a firm fully owns its subsidiary in foreign countries Wholly owned subsidiary – entering new markets in which a firm fully owns its subsidiary in foreign countries 18

I wouldn’t suggest this mode of Entry 19

Various Modes of Entry Choices Loss of competitive advantage Potential quality control problems Limited ability to use profits in one country to increase competition in another country Quick expansion Lower development costs and risks Lower political risk Franchising Loss of competitive advantage Limited ability to use profits in one country to increase competition in another country Quick expansion Lower expenses and risks Lower political risk Licensing Competition from local client Loss of competitive advantage Access to closed markets Turnkey Project No low cost sales High transportation costs Potential tariffs Economies of scale Lower foreign expenses Exporting DisadvantagesAdvantagesMode of Entry 20

Various Modes of Entry Choices (continued) Loss of competitive advantage Potential overestimation of partner’s capabilities Access to closed markets Pooled resources increase partner’s capabilities Complementary skills & assets Strategic Alliance Large capital outlay Lack of local knowledge Increased risk Maximum control over proprietary knowledge/ technology Greater strategic flexibility Efficiencies of global production system Wholly Owned Subsidiary Potential for conflict of interest Loss of competitive advantage Knowledge of local markets Lower development costs and risk Access to closed markets Joint Venture DisadvantagesAdvantages Mode of Entry 21

Examples of Strategic Alliances General Electric – Snecma of France General Electric – Snecma of France Toshiba – IBM Toshiba – IBM Mitsui – General Electric Mitsui – General Electric GM – Daewoo GM – Daewoo Texas Instrument – Compel Communications Texas Instrument – Compel Communications Canon – Hewlett-Packard Canon – Hewlett-Packard Mitsubishi – Caterpillar Mitsubishi – Caterpillar 22

Take a look at China Brands 23

Why International Assignments End in Failure Career blockage – the feeling that working abroad has gotten their career sidetracked, while people back home are climbing the corporate ladder Career blockage – the feeling that working abroad has gotten their career sidetracked, while people back home are climbing the corporate ladder Culture shock – the inability to adjust to a different cultural environment Culture shock – the inability to adjust to a different cultural environment Lack of pre-departure cross-cultural training – little if any is offered to expatriates before going to a different country. Lack of pre-departure cross-cultural training – little if any is offered to expatriates before going to a different country. 24

Why International Assignments End in Failure Overemphasis on technical qualifications – the expatriate may lack cultural adaptability, even though they have the technical skills Overemphasis on technical qualifications – the expatriate may lack cultural adaptability, even though they have the technical skills Getting rid of a troublesome employee – provides the ability to solve interpersonal conflict, but at a huge expense to the company Getting rid of a troublesome employee – provides the ability to solve interpersonal conflict, but at a huge expense to the company Family problems – inability or unwillingness of the expatriate’s family to adapt to life in another country Family problems – inability or unwillingness of the expatriate’s family to adapt to life in another country 25

Key HR Management Factors for Global Firms Selection Selection  Selection criterion should include cultural sensitivity Training Training  Length of assignment determines depth of training  Cross-cultural training is critical to success Career Development Career Development  International assignments should be part of career advancement plan Compensation and Benefits Compensation and Benefits  Incentives and quality-of-life concerns 26

Ethics and Social Responsibility Sweatshops 27

Yes or No Do you think U.S. companies have the moral responsibility to offer a so-called living wage and to fight exploitative practices in foreign countries, even if doing so means putting the company at a competitive disadvantage? Do you think U.S. companies have the moral responsibility to offer a so-called living wage and to fight exploitative practices in foreign countries, even if doing so means putting the company at a competitive disadvantage? 28

Yes or No Do you think most consumers care about potential abuses of overseas contractors? Would most consumers be willing to pay slightly higher prices to improve the standard of living of foreign workers? Do you think most consumers care about potential abuses of overseas contractors? Would most consumers be willing to pay slightly higher prices to improve the standard of living of foreign workers? 29

Yes or No Some believe that a company might actually increase business by convincing customers that it is socially responsible and that it values human dignity more than making an extra buck. Do you agree? Some believe that a company might actually increase business by convincing customers that it is socially responsible and that it values human dignity more than making an extra buck. Do you agree? 30

Flowchart For Problem Resolution Don’t Mess With It! YES NO YES YOU IDIOT! NO Will it Blow Up In Your Hands? NO Look The Other Way Anyone Else Knows? You’re SCREWED! YES NO Hide It Can You Blame Someone Else? NO NO PROBLEM! Yes Is It Working? Did You Mess With It? 31