Chapter 8 Global Management

Learning Outcomes After reading this chapter, you should be able to: 1.Discuss the impact of global business and the trade rules and agreements that govern it. 2.Explain why companies choose to standardize or adapt their business procedures. 3.Explain the different ways that companies can organize to do business globally. 4.Explain how to find a favourable business climate. 5.Discuss the importance of identifying and adapting to cultural differences. 6.explain how to successfully prepare workers for international assignments. Copyright © 2015 by Nelson Education Ltd.8-2

What Is Global Business? The buying and selling of goods and services by people from different countries Multinational corporation: corporation that owns businesses in two or more countries 1970: 7,000 multinational corporations 2010: more than 77,000 Copyright © 2015 by Nelson Education Ltd

Foreign Direct Investment in Canada, Cumulative at Year End Copyright © 2015 by Nelson Education Ltd

Direct Foreign Investment A method of investment in which a company builds a new business or buys an existing business in a foreign country –Molson purchased the fourth-largest beer company in Mexico (Brewery Group). –Molson has since merged with Coors and is known as the Molson Coors Brewing Company. Copyright © 2015 by Nelson Education Ltd.8-5

Trade Barriers Reduce purchase of imported goods Tariff Direct tax on imported goods Protectionism Protect local companies from foreign competition Copyright © 2015 by Nelson Education Ltd

Nontariff Barriers Quotas:Imports of raw sugar cane are limited. Voluntary export restraints: limit the amount of a product that can be imported annually Government import standards: protect the health and safety of citizens Government subsidies: Bombardier: Canadian taxpayers pick up the subsidy costs Customs valuation/ classification: CBSA customs classifications for imported goods Copyright © 2015 by Nelson Education Ltd.8-7 Trade Barriers in Canada 1.2

Class Activity: Canadian Border Services Agency Canadian Border Services Agency Tariff Treatments Read through the Canadian Border Services Agency website, and look through the guide of importing under tariff treatments. What did you learn? Copyright © 2015 by Nelson Education Ltd.8-8 Beyond the Book

GATT: General Agreement on Tariffs and Trade Purpose To make it easier and cheaper to buy foreign products in all countries GATT Accomplishments Tariffs cut 40 percent on average worldwide by 2005 Tariffs eliminated in 10 specific industries Stricter limits put on government subsidies Established protections for intellectual property Trade disputes between countries are fully settled by arbitration panels from the WTO. Copyright © 2015 by Nelson Education Ltd.8-9

Copyright © 2015 by Nelson Education Ltd.8-10 World Trade Organization: Fact File Location: Geneva, Switzerland Established: January 1, 1995 Created by: Uruguay Round negotiations ( ) Membership: 159 countries Budget: 197 million Swiss francs for 2013 Secretariat staff: 640 Head: Roberto Azevedo (director-general) 1.3

Copyright © 2015 by Nelson Education Ltd.8-11 World Trade Organization: Fact File 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 1.3

Regional Trading Zones Copyright © 2015 by Nelson Education Ltd Maastricht Treaty of Europe Implemented in 1992 and includes Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, and the United Kingdom NAFTANorth American Free Trade Agreement between the United States, Canada, and Mexico went into effect January 1, 1994

Copyright © 2015 by Nelson Education Ltd CAFTA-DRCentral America Free Trade Agreement between the United States, the Dominican Republic, and the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua went into effect August 2005 UNASURUnion of South American Nations, a regional trade agreement between Argentina, Brazil, Paraguay, Uruguay, Venezuela, Bolivia, Colombia, Ecuador, Peru, Guyana, Suriname, and Chile, went into effect May 23, 2008

Copyright © 2015 by Nelson Education Ltd ASEANAssociation of Southeast Asian Nations trade agreement between Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam APECAsia-Pacific Economic Cooperation is a broader agreement that includes Australia, Canada, Chile, the People’s Republic of China, Hong Kong (China), Japan, Mexico, New Zealand, Papua New Guinea, Peru, Russia, South Korea, Taiwan, the United States, and all the members of ASEAN except Cambodia, Lao PDR, and Myanmar.

Global Map of Regional Trade Agreements Copyright © 2015 by Nelson Education Ltd.8-15

Consumers, Trade Barriers, and Trade Agreements Copyright © 2015 by Nelson Education Ltd.8-16 What $1 gets you in Canada What $1 gets you in Japan What $1 gets you in Switzerland Why? Foreign and domestic competition. 1.4

How to Go Global?: 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 Copyright © 2015 by Nelson Education Ltd

Forms of Global Business Export –Produce products in home countries and sell to customers in foreign countries Cooperative Contract –Franchise: the manufacturer or marketer licenses the entire business to another –Licensing agreement: receives royalty payments from another company that produces its product, sell its service, or uses its brand name in a foreign market Copyright © 2015 by Nelson Education Ltd

Forms of Global Business Strategic Alliances –Joint venture: two existing companies collaborate to form a third company –100 percent owned by the parent company Global New Ventures –new companies founded with an active global strategy Copyright © 2015 by Nelson Education Ltd

Exporting ADVANTAGES Less dependence on home market sales Greater degree of control over research, design, and production decisions DISADVANTAGES Many exports are subject to tariff and nontariff barriers. Transportation costs can increase the price. Companies may depend on foreign importers for product distribution. Copyright © 2015 by Nelson Education Ltd.8-20

Licensing ADVANTAGES Allows companies to earn profits without investing more money The licensor invests in production equipment and facilities. Helps companies avoid tariff and nontariff barriers DISADVANTAGES The licensor gives up control over quality of the product or service sold by the foreign licensee. Licensees can eventually become competitors. Copyright © 2015 by Nelson Education Ltd.8-21

Franchise ADVANTAGES Fast way to enter foreign markets Good strategy when a company’s domestic sales have slowed DISADVANTAGES Franchisors face a loss of control. Franchising success may be culture-bound. Copyright © 2015 by Nelson Education Ltd.8-22

Joint Venture ADVANTAGES Helps companies avoid tariff and nontariff barriers to entry Participating companies bear only part of the costs and risks Advantageous to smaller local partners DISADVANTAGES Companies must share profits. Joint venture represents a merging of four cultures. With equal ownership, power struggles and a lack of leadership may occur. Copyright © 2015 by Nelson Education Ltd.8-23

Wholly Owned Affiliates (Build or Buy) ADVANTAGES Parent company receives all of the profits and has complete control DISADVANTAGES Expense of building new operations or buying existing business Losses can be immense if the venture fails. Copyright © 2015 by Nelson Education Ltd.8-24

Finding the Best Business Climate Copyright © 2015 by Nelson Education Ltd.8-25 Access to Growing Markets Location to Build Minimal Political Risk 4 4

World’s Best Cities for Business Copyright © 2015 by Nelson Education Ltd

Class Activity: Ten Best Places to Start a Business in the World Ten Best Places to Start A Business in the World Read the article, and discuss the places you knew would be on the list and those that surprised you. Share your rationale. Copyright © 2015 by Nelson Education Ltd.8-27 Beyond the Book

Overview of Political Risk in the Middle East Copyright © 2015 by Nelson Education Ltd

Hofstede’s Five Cultural Dimensions Copyright © 2015 by Nelson Education Ltd

Class Activity: Hofstede’s Five Cultural Dimensions To generate a graphical comparison of two different countries’ cultures, go to Hofstede's Five Cultural Dimensions. Hofstede's Five Cultural Dimensions Select a “home culture.” Then select a “host culture.” A graph comparing the countries on each of Hofstede’s five cultural differences will automatically be generated. Copyright © 2015 by Nelson Education Ltd.8-30 Beyond the Book

Hofstede’s Work Hofstede’s work is especially useful if we want to avoid charges of ethnocentricity. –where everything is seen from the perception of an individual’s home country The other thing that Hofstede’s work can help us deal with is culture shock. It is meant to help us explore the cultural differences between North American companies and their suppliers and customers around the globe. Copyright © 2015 by Nelson Education Ltd.8-31

Becoming Aware of Cultural Differences National Culture The set of shared values and beliefs that affects the perceptions, decisions, and behaviour of the people from a particular country Cultural Dimensions (Geert Hofstede) Power distance Individualism Masculinity and femininity Uncertainty avoidance Short-term/long-term orientation Copyright © 2015 by Nelson Education Ltd

Preparing for an International Assignment Expatriate: someone who lives and works outside his or her native country 1.5 million expatriates reside in the United States. 750,000 reside in the United Kingdom. 250,000 reside in China. Average is $1 million/ three-year assignment Copyright © 2015 by Nelson Education Ltd

Preparing for an International Assignment Language and Cross- Cultural Training of managers about to working internationally receive pre- departure training Consideration of Spouse, Family, and Dual-Career Issues of families receive language and cross-culture training Copyright © 2015 by Nelson Education Ltd /3 40% 6 6