Chapter 5 Global Management

Learning Outcomes 1.Define global management 2.Compare and contrast importing and exporting 3.Explain the advantages and disadvantages of protectionism 4.Discuss the challenges of doing business globally

Global business Opportunities Risk of political instability Currency exchange rates Global economic interdependence New skills dealing with: Cultures Political system Legal framework

International Trade – Exchange of goods and services by different countries – Reasons why countries trade: Country can’t produce certain goods Country may have an advantage over other countries Management takes on new meaning

Absolute advantage – Ability to produce more of a good than another producer with the same quantity of inputs – i.e., Jamaica’s sugar production Comparative advantage – Producers should produce the goods they are most efficient at producing, and import goods they are less efficient at producing

Importing and Exporting Exports – Goods and services produced at home and sold abroad Imports – Goods and services that are produced overseas and purchased at home

Why Exporting? – Increased sales – Diversification Engage in a variety of operations so that sluggish sales in one market can be offset by high sales in another market

Exporting Identifying export markets – Analysis of demographics, economic data, country reports, consumer tastes and competition – Need to know what restrictions they face packaging restrictions, labeling and product safety Documents needed Amount of money that can be taken out of country

Imports Material importing – Importing materials needed to produce a product – Perhaps not available or too expensive in the home country Consumer goods importing – Some goods are also imported as a complete product, which can also be sold in their own countries

Importing and Exporting Balance of trade – Trade surplus Occurs when a country exports more than it imports – Trade deficit Occurs when a country imports more than it exports

Importing and Exporting Foreign exchange – Exchange rates are the value of one currency in terms of another – Fluctuate from day to day – Can have an effect on profits

Protectionism The practice of trying to protect home markets from foreign competitors International trade: – benefits the trading partners – Hurts domestic partners trying to compete

Protectionism Tariffs – A tax charged on a imported good – Purpose is to raise the price of foreign goods to allow domestic producers to compete – 2 classifications: Specific tariff is levied per unit Ad valorem tariff is levied as a percentage of the value of the goods

Protectionism Quotas – A restriction on the quantity of goods that can enter a country – Hurt companies that need the material – Help companies that produce the material Embargos – A total pan on the import of a good from a particular country – Political reasons rather than economic

Free Trade area – A region where trade restrictions are reduced or eliminated NAFTA – Signed in 1994 – USA, Mexico and Canada with no major trade restrictions – Advantages and disadvantages Consumers benefit from lower prices (no tariffs) Increased sales Possible job losses as factories have moved to Mexico

Maastricht Treaty – Created European Union of 27 countries – Candidate countries – Potential candidates – Economic bloc: 22% of world’s GDP; 16 members use the euro

Doing Business Globally Foreign intermediaries – Wholesaler or agent that markets products for companies wanting to do business abroad Licensing agreements – Agreement that permits one company to sell another company’s products abroad in return for a percentage of revenues

Doing Business Globally Strategic alliances – A pooling of resources and skills to achieve common goals – Gain access to a market, share research, broaden product lines, learn new skills Multinational corporation – A business that maintains a presence in two or more countries and has a considerable portion of assets invested in international activities – Establishes manufacturing and distribution facilities in another country

International Challenges Cultures – Must understand foreign cultures and customs – Dress, language and ways of doing things Political changes – Political challenges caused by governments or upheaval is a concern for international managers Human rights and ethics – Norms of business ethics vary greatly – Understanding human rights laws and ethics is essential to the international manager