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

4 - 3 Chapter 4 Multinationals and the Global Environment of Business 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 they operate in 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.Describe the nature of the general forces in the global environment that affect all companies as they compete in industries or countries around the world. 5.Identify the main challenges facing multinationals in managing global business commerce and business occupations, and choosing a method of global organizing.

4 - 4 Chapter 4 Multinationals and the Global Environment of Business Multinational companies Are operating in a global environment and conditions such as opportunities and threats that affect the multinational company’s profitability

4 - 5 Chapter 4 Multinationals and the Global Environment of Business Review SWOT analysis in Chapter 3 The giant multinationals can dominate business activity in most industries

4 - 6 Chapter 4 Multinationals and the Global Environment of Business Significance of Multinationals In business commerce, multinationals control the giant production and distribution of products that handle the majority of world trade

4 - 7 Chapter 4 Multinationals and the Global Environment of Business Significance of Multinationals  Production is worldwide and tends to countries where labor costs are low and therefore higher productivity

4 - 8 Chapter 4 Multinationals and the Global Environment of Business Significance of Multinationals  Multinationals have grown so large they can affect the well being of the countries they do business in as the role of the government may be to control the relationship of this company and the people

4 - 9 Chapter 4 Multinationals and the Global Environment of Business Significance of Multinationals  Company and individual behavior are affected by a country’s choice of property rights and is a main determinant of its political system

Chapter 4 Multinationals and the Global Environment of Business Capitalism  Capitalism as a business system ( private ownership of the means of production and distribution -- is most commonly found in representative democracies and may be illustrated as a continuum or a range

Chapter 4 Multinationals and the Global Environment of Business Capitalism  At your left is “strong” capitalism where individuals are ultimately responsible for their own future success – “strong” property rights

Chapter 4 Multinationals and the Global Environment of Business Capitalism  At you move right capitalism becomes “weaker” as the government and/or welfare capitalism establishes a social support framework to aid citizens who don’t support themselves

Chapter 4 Multinationals and the Global Environment of Business Capitalism  Capitalism varies as to the amount of a government social support by country  Canada is a “stronger” capitalist country compared to Sweden

Chapter 4 Multinationals and the Global Environment of Business Totalitarian government  One person, usually a dictator, or party exercises absolute control over all business and social activity

Chapter 4 Multinationals and the Global Environment of Business Communism  Not only totalitarian but all property is owned by the state (no property rights.) or government and distribution is totally controlled by the state

Chapter 4 Multinationals and the Global Environment of Business Communism  Controls the creation of wealth as there isn’t any motivation to produce more product

Chapter 4 Multinationals and the Global Environment of Business Free trade agreements  Established by countries to reduce or eliminate price barriers to and are designed to increase the flow of products among countries

Chapter 4 Multinationals and the Global Environment of Business Tariffs  Taxes on imported products that raises the price and may make them uncompetitive with the local product

Chapter 4 Multinationals and the Global Environment of Business Free Trade Zones  The establishment of free trade areas creates an opportunity for global manufacturing companies as it minimizes the cost and barriers to trade

Chapter 4 Multinationals and the Global Environment of Business Free Trade Zones  Free trade areas increase competition and some multinationals consider this a threat rather than an opportunity

Chapter 4 Multinationals and the Global Environment of Business Global Environment  You may want to think of the global environment as a worldwide marketplace and as the set of forces surrounding you that determine the ability to obtain productive resources of land, labor, capital, and enterprise

Chapter 4 Multinationals and the Global Environment of Business Global Environment  Every product goes through three stages:  Input  Conversion  Output  In the process of making and selling of goods and services

Chapter 4 Multinationals and the Global Environment of Business Forces in the Global Environment  The specific forces directly affect the company’s business model while general forces affect all multinationals  Specific forces are directly related to profitability and are suppliers, distributors, competitors, and customers

Chapter 4 Multinationals and the Global Environment of Business Forces in the Global Environment  Customers and competitors are also specific forces and both affect the company’s market share or that portion of a product sold in a market by one company

Chapter 4 Multinationals and the Global Environment of Business Forces in the Global Environment  General forces in the global environment affect multinationals access to resources and determine worldwide demand and include, economic, socio- cultural, demographic, and legal forces

Chapter 4 Multinationals and the Global Environment of Business Forces in the Global Environment  These forces are general because they affect all multinationals and their suppliers, distributors and customers

Chapter 4 Multinationals and the Global Environment of Business Global outsourcing  of suppliers is not only a very controversial issue as it is the process by which companies purchase supplies, labor or raw materials throughout the world

Chapter 4 Multinationals and the Global Environment of Business Global outsourcing  An intermediary such as a agent, broker, or wholesaler is a company that distributes or supplies a product to another company

Chapter 4 Multinationals and the Global Environment of Business Challenges of global commerce  Building a global competitive advantage, Integration of the Internet into the business models

Chapter 4 Multinationals and the Global Environment of Business Challenges of global commerce  Managing ethically  Incorporating the differing cultures into global planning and organizing

Chapter 4 Multinationals and the Global Environment of Business Globalization  Has led to the development of a diverse supply of IT workers in both Europe and Asia as these workers are linked through the Internet as a part of the global workforce