Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 1 What Is Global Business? 1 1 Global Business The buying and selling of goods and services by people from different countries.

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 2 The Impact of Global Business 1.1 Multinational Corporation A corporation that owns businesses in two or more countries. Direct Foreign Investment A method of investment in which a company builds a new business or buys an existing business in a foreign country.

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 3 Foreign Investment in the U.S. 1.1

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 4 Foreign Investment in the U.S. Adapted from Exhibit Investment coming into the U.S., like this Honda Motor plant in Ohio, totaled $106 billion in 2004.

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 5 U.S. Foreign Investment Abroad Adapted from Exhibit

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 6 Trade Barriers Nontariff Barriers Tariff Voluntary export restraints Government import standards Customs Valuation / Classification Quotas Government Subsidies 1.2

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 7 Trade Agreements Regional Trading Zones General Agreement on Tariffs and Trade Maastricht Treaty of Europe NAFTA and CAFTA ASEAN and APEC FTAA 1.3

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 8 GATT GATT made it easier and cheaper for consumers in all countries to buy foreign products.  Tariffs were cut 40 percent on average worldwide by 2005  Tariffs were eliminated in 10 specific industries  Stricter limits were put on government subsidies  GATT established protections for intellectual property  Trade disputes between countries now are fully settled by arbitration panels from the WTO 1.3

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 9 World Trade Organization Location: Geneva, Switzerland Established: 1 January 1995 Created by: Uruguay Round negotiations ( ) Membership:148 countries (as of 13 October 2004) Budget: 169 million Swiss francs for 2005 Secretariat staff: 630 Head: Supachai Panitchpakdi (director-general Functions:  Administering WTO trade agreements  Forum for trade negotiations  Handling trade disputes  Monitoring national trade policies  Technical assistance and training for developing countries  Cooperation with other international organizations Adapted from Exhibit Web Link

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 10 Maastricht Treaty of Europe  Formed in 1992 with 12 European countries  Total membership is now 25 countries  Transformed these countries into the European Union, forming one economic market and one common currency (the Euro)  Opened up and simplified trade among member nations Web Link

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 11 NAFTA  North American Free Trade Agreement between Canada, United States, & Mexico  Liberalizes trade among these three nations  Eliminates most tariffs and barriers Web Link

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 12 FTAA  Free Trade of the Americas  Proposed agreement to establish a free trade zone throughout the Western Hemisphere  Remove nontariff barriers  Reduce tariffs to zero  Standardize financial markets  Establish process for handling trade disputes Web Link

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 13 ASEAN and APEC  ASEAN  Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam  APEC  Australia, Canada, Chile, China, Hong Kong, Japan, Mexico, New Zealand, Papua New Guinea, Peru, Russia, South Korea, Taiwan, United States, and ASEAN members (except Cambodia, Laos, and Myanmar) Web Link

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 14 Consumers, Trade Barriers, and Trade Agreements  American consumers get more for their money than most other consumers in the world because: 1.4 U.S. marketplace is easiest for foreign companies to enter AND Competitive market between domestic and foreign companies keeps prices low

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 15 Consumers, Trade Barriers, and Trade Agreements 1.4 Decrease price of: food clothing necessities luxuries Decrease price of: food clothing necessities luxuries Increase: choices competition purchasing power Free Trade Agreements

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 16 Consistency or Adaptation? Global Consistency When a multinational company has offices/plants indifferent countries and uses the same rules, guidelines, policies, and procedures Local Adaptation When a multinational company modifies its rules, guidelines, policies, and procedures to adapt to differences in foreign customers, governments, and regulatory agencies 2 2

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 17 Doing the Right Thing Fair and Safe Working Conditions in Foreign Factories  Make sure there is no forced labor or child labor  Provide a safe and healthy working environment  Respect the right of employees to freedom of association and collective bargaining  Provide legally required benefits Fair and Safe Working Conditions in Foreign Factories  Make sure there is no forced labor or child labor  Provide a safe and healthy working environment  Respect the right of employees to freedom of association and collective bargaining  Provide legally required benefits

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 18 Forms for Global Business Cooperative Contracts Strategic Alliances Exporting Wholly Owned Affiliates Global New Ventures 3 3

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 19 Exporting Less dependence on home market sales Greater degree of control over research, design, and production decisions Less dependence on home market sales Greater degree of control over research, design, and production decisions Advantages 3.1

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 20 Exporting  Many exports are subject to tariff and nontariff barriers  Transportation costs can increase price  Companies may depend on foreign importers for product distribution  Many exports are subject to tariff and nontariff barriers  Transportation costs can increase price  Companies may depend on foreign importers for product distribution Disadvantages 3.1

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 21 Cooperative Contracts Licensing A domestic company receives royalty payments for allowing another company to produce its product, sell a service, or use its brand name in a specified foreign market Franchising A collection of networked firms in which the manufacturer or marketer of a product/service licenses the entire business to another person or organization 3.2

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 22 Licensing Allows companies to earn profits without investing more money The licensor invests in production equipment and facilities Helps companies avoid tariff and nontariff barriers Allows companies to earn profits without investing more money The licensor invests in production equipment and facilities Helps companies avoid tariff and nontariff barriers Advantages 3.2

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 23 Licensing  Licensor gives up control over quality of the product or service sold by the foreign licensee  Licensees can eventually become competitors  Licensor gives up control over quality of the product or service sold by the foreign licensee  Licensees can eventually become competitors Disadvantages 3.2

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 24 Franchising Fast way to enter foreign markets Good strategy when a company’s domestic sales have slowed Fast way to enter foreign markets Good strategy when a company’s domestic sales have slowed Advantages 3.2

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 25 Franchising  Franchisors face a loss of control  Franchising success may be culture-bound  Franchisors face a loss of control  Franchising success may be culture-bound Disadvantages 3.2

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 26 Strategic Alliances Strategic Alliance An agreement in which companies combine key resources, costs, risk, technology, and people Joint Venture A strategic alliance in which two existing companies collaborate to form a third, independent company 3.3

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 27 Joint Ventures Help companies avoid tariff and nontariff barriers to entry Participating companies bear only part of the costs and risks Advantageous to smaller local partners Help companies avoid tariff and nontariff barriers to entry Participating companies bear only part of the costs and risks Advantageous to smaller local partners Advantages 3.3

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 28 Joint Ventures  Companies must share profits  Joint venture represent a merging of four cultures  With equal ownership, power struggles and a lack of leadership may occur  Companies must share profits  Joint venture represent a merging of four cultures  With equal ownership, power struggles and a lack of leadership may occur Disadvantages 3.3

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 29 Wholly Owned Affiliates (Build or Buy) Parent company receives all of the profits and has complete control Advantages  Expense of building new operations or buying existing business  Losses can be immense if the venture fails  Expense of building new operations or buying existing business  Losses can be immense if the venture fails Disadvantages 3.4

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 30 Global New Ventures Quick, reliable air travel Low-cost communication technologies Critical mass of experienced businesspeople 3.5

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 31 Common Factors of Global New Ventures Global vision is developed and communicated Several foreign markets are entered at the same time 3.5

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 32 Finding the Best Business Climate Access to Growing Markets Location to Build Location to Build Minimal Political Risk 4 4

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 33 Growing Markets  Purchasing Power  comparison 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 already in the market 4.1

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 34 Choosing an Office/Manufacturing Location  Qualitative factors  work force quality  company strategy  Quantitative factors  kind of facility  tariff and nontariff barriers  exchange rates  transportation and labor costs 4.2

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 35 Choosing an Office/Manufacturing Location 4.2 Exhibit 8.6

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 36 World’s Best Cities for Business United States 1. New York City 2. Chicago 3. Toronto 4. Atlanta 5. Los Angeles Latin America 1. Santiago 2. Miami 3. Sao Paulo 4. Monterrey 5. Mexico City Asia Pacific 1. Shanghai 2. Beijing 3. New Delhi 4. Hong Kong 5. Mumbai Europe 1. London 2. Paris 3. Frankfurt 4. Brussels 5. Amsterdam Adapted from Exhibit

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 37 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 4.3

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 38 Long-Term Political Risk in the Middle East Adapted from Exhibit

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 39 Becoming Aware of Cultural Differences 5 5 National Culture The set of shared values and beliefs that affects the perceptions, decisions, and behavior of the people from a particular country.

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 40 Becoming Aware of Cultural Differences In Saudi Arabia, store mannequin s must not have heads or limbs that would indicate gender. 5 5

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 41 Becoming Aware of Cultural Differences Cultural Dimensions (Geert Hofstede)  Power distance  Individualism  Masculinity and femininity  Uncertainty avoidance  Short-term/long-term orientation 5 5

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 42 Hofstede’s Five Cultural Dimensions 5 5

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 43 Cultural Differences  Recognize cultural differences  Decide how to adapt your company to those differences  Do not base adaptations on outdated and incorrect assumptions about a company’s culture 5 5

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 44 Preparing for an International Assignment 6 6 Expatriate Someone who lives and works outside his or her native country.

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 45 Preparing for an International Assignment Language and Cross-Cultural Training Consideration of Spouse, Family, and Dual-Career Issues 6 6

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 46 Language and Cross-Cultural Training Documentary Training Cultural Simulation Field Experiences 6.1

Chapter 8 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 47 Spouse, Family, and Dual-Career Issues Adaptability Screening Intercultural Training 6.2