Chapter Four Multinationals and the Global Business System © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Introduction to Business

4- 3 Learning Objectives 1.Describe the role of multinational companies in global production and trade today and the way they affect the countries in which they operate. 2.Discuss how multinationals are affected by the political systems of the countries in which they operate and especially by the desire of countries around the world to pursue free trade and reduce or abolish tariff barriers. 3.Describe the nature of the specific forces in the global environment and appreciate why they present so many challenges for multinational companies today.

4- 4 Learning Objectives 4.Describe the nature of the general forces in the global environment that affect all companies as they compete in industries and countries around the world. 5.Identify the main challenges facing multinationals in terms of managing global business commerce and business occupations and choosing a method of global organizing.

4- 5 The Multinational Company Multinational companies -companies that operate and trade in many different countries around the world

4- 6 Political Systems and National Governments Government -the political system chosen to create and manage the set of laws, rules, and regulations that control the actions of people and companies that operate in a society

4- 7 Political Systems and National Governments Representative democracy -a form of government in which citizens periodically elect individuals to represent their interests

4- 8 Political Systems and National Governments Totalitarian government -a form of government in which a person or group of people attempts to exercise absolute control over all forms of business activity

4- 9 Political Systems and National Governments Communism -a one-party totalitarian system based on the dogma that all property should be owned by the state and that no individual should have the right to own private property

4- 10 The Relationship between Business, Government and Society Figure 4.1

4- 11 National Governments and Free Trade Free-trade agreements -joint decisions by countries to reduce or eliminate trade barriers that impede the flow of products between nations

4- 12 National Governments and Free Trade Tariffs -taxes or duties on imported products that raise the price at which they must be sold in foreign markets Quotas -restrictions on the amount of a good or service that can be imported into a country

4- 13 Global and Regional Trade Agreements GATT (General Agreement on Tariffs and Trade) -an international treaty between nations after WWII, dramatically fueling free trade Free-trade area -a group of countries that agree to promote the free flow of goods and services between them

4- 14 The Global Environment of Business Global environment -the set of forces surrounding a company that determine its ability to obtain productive resources – land, labor, capital and enterprise

4- 15 Forces in the Global Environment Figure 4.2

4- 16 Specific Forces in the Global Environment Specific forces -forces in the global environment that directly increase or decrease a company’s sales revenues or operating costs, and thus its profitability Suppliers, distributors, customers, competitors

4- 17 Suppliers -the individuals and companies that provide a company with the resources that it needs to produce goods and services

4- 18 Suppliers Global outsourcing -the process of purchasing inputs from around the world to take advantage of differences in the cost and quality of resources

4- 19 Distributors -firms that link the companies that make products with the customers who buy them Intermediary -a company such as a merchant, broker, or wholesaler that buys the products of one company and sells them to another

4- 20 The Role of the Intermediary Figure 4.3

4- 21 Competitors Market share -the total percentage of a product a company sells in a particular market

4- 22 Market Share of Three Largest Companies Figure 4.4

4- 23 General Forces in the Global Environment Political-Economic forces Socio-cultural forces Demographic forces Legal forces

4- 24 Political-Economic Forces Political-economic forces -changes that occur in the form of a country’s social and political systems Free-market economy -economic system in which the production of goods and services is left in the hands of private enterprise

4- 25 Political-Economic Forces Command economy -economic system in which the quantity and price of goods and services that a country produces is planned by the government Mixed economy -economic system in which certain goods and services are produced by private enterprise and others are provided via centralized government planning

4- 26 Changes in Political and Economic Forces Figure 4.5

4- 27 Sociocultural Forces Sociocultural forces -changes in the social structure of a country and in its class structure, culture, customs, and beliefs Values -general standards and guiding principles that people in a society use to determine which kinds of behavior are right or wrong

4- 28 Sociocultural Forces Norms -unwritten codes of conduct that prescribe how people in a particular culture should act in certain situations National culture -the particular set of economic, political, and social values and norms that exist in a particular country

4- 29 Hofstede’s Model of National Culture Individualism versus collectivism Power distance Achievement-oriented versus nurturing Long or short-term orientation

4- 30 Question? What are changes in the characteristics of a country’s population? A.Legal forces B.Political forces C.Socio-economic forces D.Demographic forces

4- 31 Demographic Forces Demographic forces -changes in the characteristics of a country’s population, such as its age, gender, ethnic origin, race, and sexual orientation

4- 32 Legal Forces Legal forces -changes in a country’s laws and regulations that often occur because of changes in the political and ethical attitudes within a society

4- 33 Challenges in the Global Environment Global network -a set of task and reporting relationships among managers, functions, and operating units around the world

4- 34 Profiting from Global Expansion Figure 4.6

4- 35 Global Commerce Challenges Building a global competitive advantage Integrating the Internet into their business models Managing ethically Incorporating the effects of differences in national cultures into their global planning and organizing

4- 36 Building Global Competitive Advantage Figure 4.7

4- 37 Building Global Competitive Advantage Responsiveness to customers -a measure of a company’s ability to anticipate changing customer needs, resolve problems customers have with a product, and provide fast after-sales service

4- 38 Global E-Commerce Business-to-business (B2B) networks - electronic markets that link suppliers to companies that assemble or manufacture products Business-to-customer (B2C) networks - electronic systems that connect companies that make finished products directly to the final customers who use them

4- 39 Question? What are domestic managers who work for their companies abroad? A.Expatriate managers B.Host-country nationals C.Third-country nationals D.Repatriated managers

4- 40 Global Workforce Challenges Expatriate managers -domestic managers who work for their companies abroad Host-country nationals -natives of a foreign country hired to manage a multinationals divisions there Read an article by Chris Westphal on living and working outside the USChris Westphal

4- 41 Global Workforce Challenges Third-country nationals -managers who are neither native to the country the multinational is headquartered in nor the foreign country in which it operates

4- 42 Global Organization Challenges Exporting and licensing Network structure Joint venture

4- 43 Exporting and Licensing Exporting -selling domestically produced goods and services to customers in countries abroad Licensing -contracting with companies in other countries in order to give them the right to use a company’s brand name and business model

4- 44 Network Structure Network structure -a system of task and reporting relationships based on the use of electronic ties that links suppliers, manufacturers, and distributors

4- 45 Joint Venture Joint venture -an alliance in which companies from different countries agree to pool their skills and resources to make and distribute a product together

4- 46 Wholly Owned Subsidiary Wholly owned subsidiary -business units established in countries abroad to manufacture and distribute a multinational’s products

4- 47 Forms of Global Organizing Figure 4.8

4- 48 Video – Peace Corps Founded in 1961, the Peace Corps remains a strong organization that promotes cross cultural understanding through volunteerism. More than 170,000 volunteers have participated in the program serving over 135 countries. What are the forces in the global environment that impact volunteers in the Peace Corps?