1 Chapter 8 Global Management Designed & Prepared by B-books, Ltd. MGMT 2008 Chuck Williams

2 What Is Global Business? After reading this section, you should be able to: 1.discuss the impact of global business and the trade rules and agreements that govern it.

3 What Is Global Business? Global Business The buying and selling of goods and services by people from different countries. 1 1

4 The Impact of Global Business 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. 1.1

5 Foreign Investment in the U.S. 1.1

6 Foreign Investment in the U.S. Investment coming into the U.S., like this Honda Motor plant in Ohio, totaled $106 billion in

7 U.S. Foreign Investment Abroad 1.1

8 Trade Barriers Nontariff Barriers Tariff Voluntary export restraints Government import standards Customs Valuation / Classification Quotas Government Subsidies 1.2

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10 Trade Agreements Regional Trading Zones General Agreement on Tariffs and Trade Maastricht Treaty of Europe NAFTA ASEAN and APEC CAFTA 1.3

11 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

12 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 Fact File Web Link 1.3

13 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 1.3

14 NAFTA North American Free Trade Agreement between Canada, United States, & Mexico Liberalizes trade among these three nations Eliminates most tariffs and barriers Web Link 1.3

15 CAFTA Central America Free Trade Agreement Proposed agreement to establish a free trade zone including Central American countries and the United States 1.3

16 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 1.3

17 Consumers, Trade Barriers, and Trade Agreements American consumers get more for their money than most other consumers in the world because: The U.S. marketplace is easiest for foreign companies to enter AND the competitive market between domestic and foreign companies keeps prices low 1.4

18 Consumers, Trade Barriers, and Trade Agreements Decrease price of: food clothing necessities luxuries Decrease price of: food clothing necessities luxuries Increase: choices competition purchasing power Free Trade Agreements 1.4

19 How to Go Global? After reading these sections, you should be able to: 2.describe why companies choose to standardize or adapt their business procedures. 3.explain the different ways that companies can organize to do business globally.

20 Consistency or Adaptation? Global Consistency When a multinational company has offices/plants in different 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

21 Consistency or Adaptation A blend of consistency and adaptation makes the “Pop Idol” TV show format successful around the world Deutschland sucht den SuperStar

22 Going Global With Branded Media Radical Media has begun marketing its ‘branded entertainment’ techniques overseas. Branded entertainment offers programs featuring brand logos and product with associated ad campaigns. Radical Media has produced programs like “Nike’s BattleGrounds,” a street basketball documentary. Source: Vranica, S. “Spreading ‘Branded’ Shows Overseas.” The Wall Street Journal. June 6, pg.B3. Beyond the Book

23 Forms for Global Business Cooperative Contracts Strategic Alliances Exporting Wholly Owned Affiliates Global New Ventures 3 3

24 Wal-Mart Warns Chinese Suppliers Wal-Mart issued warnings to two Chinese suppliers following reports of labor violations. Chinese manufacturers have come under investigations as China looks to improve its human-rights and labor records. Source: Fong, M “Wal-Mart Cautions Two Chinese Suppliers.” The Wall Street Journal. July 25, pg.A7. Beyond the Book

25 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

26 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

27 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

28 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

29 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

30 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

31 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

32 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

33 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

34 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

35 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

36 Global New Ventures Quick, reliable air travel Low-cost communication technologies Critical mass of experienced businesspeople 3.5

37 Common Factors of Global New Ventures Global vision is developed and communicated Several foreign markets are entered at the same time 3.5

38 Where to Go Global? After reading these sections, you should be able to: 4.explain how to find a favorable business climate. 5.discuss the importance of identifying and adapting to cultural differences. 6.explain how to successfully prepare workers for international assignments.

39 Finding the Best Business Climate Access to Growing Markets Location to Build Location to Build Minimal Political Risk 4 4

40 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

41 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

42 World’s Best Cities for Business United States 1. Washington 2. Atlanta 3. Phoenix 4. Houston 5. Minneapolis- St. Paul Latin America 1. Santiago 2. Miami 3. Sao Paulo 4. Monterrey 5. Mexico City Asia Pacific 1. Shanghai 2. Beijing 3. Shenzhen 4. Bangalore 5. Mumbai Europe 1. London 2. Paris 3. Frankfurt 4. Amsterdam 5. Brussels 4.2

43 Choosing a Location: Multilingual Work Forces Beyond the Book

44 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

45 Long-Term Political Risk in the Middle East 4.3

46 Becoming Aware of Cultural Differences National Culture The set of shared values and beliefs that affects the perceptions, decisions, and behavior of the people from a particular country. 5 5

47 Becoming Aware of Cultural Differences In Saudi Arabia, store mannequins must not have heads or limbs that would indicate gender. 5 5

48 Becoming Aware of Cultural Differences Cultural Dimensions (Geert Hofstede) Power distance Individualism Masculinity and femininity Uncertainty avoidance Short-term/long-term orientation 5 5

49 Hofstede’s Five Cultural Dimensions 5 5

50 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

51 Preparing for an International Assignment Expatriate Someone who lives and works outside his or her native country. 6 6

52 Preparing for an International Assignment Language and Cross-Cultural Training Consideration of Spouse, Family, and Dual-Career Issues 6 6

53 Language and Cross-Cultural Training Documentary Training Cultural Simulation Field Experiences 6.1

54 Spouse, Family, and Dual-Career Issues Adaptability Screening Intercultural Training 6.2

55 Expatriate Spouses Are Entrepreneurs Business transferees’ spouses can create virtual businesses to remain employed. Virtual businesses require technical skills and access to computer and online resources. Entrepreneurs must also learn to build relationships with customers online. Source: Shellenbarger, S. “The Job That Follows You Wherever You May Roam.” The Wall Street Journal. July 26, pg.D1. Beyond the Book