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

3. 4- 3 The Multinational Company Multinational companies -companies that operate and trade in many different countries around the world

4. 4- 4 Political Systems and National Governments Government -the political system chosen to create and manage the set of laws, rules, and regulations that control the actions of people and companies that operate in a society

5. 4- 5 Political Systems and National Governments Representative democracy -a form of government in which citizens periodically elect individuals to represent their interests

6. 4- 6 Political Systems and National Governments Totalitarian government -a form of government in which a person or group of people attempts to exercise absolute control over all forms of business activity

7. 4- 7 Political Systems and National Governments Communism -a one-party totalitarian system based on the dogma that all property should be owned by the state and that no individual should have the right to own private property

8. 4- 8 National Governments and Free Trade Free-trade agreements -joint decisions by countries to reduce or eliminate trade barriers that impede the flow of products between nations

9. 4- 9 National Governments and Free Trade Tariffs -taxes or duties on imported products that raise the price at which they must be sold in foreign markets Quotas -restrictions on the amount of a good or service that can be imported into a country

10. 4- 10 Global and Regional Trade Agreements GATT (General Agreement on Tariffs and Trade) -an international treaty between nations after WWII, dramatically fueling free trade Free-trade area -a group of countries that agree to promote the free flow of goods and services between them

11. 4- 11 The Global Environment of Business Global environment -the set of forces surrounding a company that determine its ability to obtain productive resources – land, labor, capital and enterprise

12. 4- 12 Forces in the Global Environment Figure 4.2

13. 4- 13 Specific Forces in the Global Environment Specific forces -forces in the global environment that directly increase or decrease a company’s sales revenues or operating costs, and thus its profitability Suppliers, distributors, customers, competitors

14. 4- 14 Suppliers -the individuals and companies that provide a company with the resources that it needs to produce goods and services

15. 4- 15 Suppliers Global outsourcing -the process of purchasing inputs from around the world to take advantage of differences in the cost and quality of resources

16. 4- 16 Distributors -firms that link the companies that make products with the customers who buy them Intermediary -a company such as a merchant, broker, or wholesaler that buys the products of one company and sells them to another

17. 4- 17 The Role of the Intermediary Figure 4.3

18. 4- 18 Competitors Market share -the total percentage of a product a company sells in a particular market

19. 4- 19 General Forces in the Global Environment Political-Economic forces Socio-cultural forces Demographic forces Legal forces

20. 4- 20 Political-Economic Forces Political-economic forces -changes that occur in the form of a country’s social and political systems Free-market economy -economic system in which the production of goods and services is left in the hands of private enterprise

21. 4- 21 Political-Economic Forces Command economy -economic system in which the quantity and price of goods and services that a country produces is planned by the government Mixed economy -economic system in which certain goods and services are produced by private enterprise and others are provided via centralized government planning

22. 4- 22 Changes in Political and Economic Forces Figure 4.5

23. 4- 23 Sociocultural Forces Sociocultural forces -changes in the social structure of a country and in its class structure, culture, customs, and beliefs Values -general standards and guiding principles that people in a society use to determine which kinds of behavior are right or wrong

24. 4- 24 Sociocultural Forces Norms -unwritten codes of conduct that prescribe how people in a particular culture should act in certain situations National culture -the particular set of economic, political, and social values and norms that exist in a particular country

25. 4- 25 Hofstede’s Model of National Culture Individualism versus collectivism Power distance Achievement-oriented versus nurturing Long or short-term orientation

26. 4- 26 Demographic Forces Demographic forces -changes in the characteristics of a country’s population, such as its age, gender, ethnic origin, race, and sexual orientation

27. 4- 27 Legal Forces Legal forces -changes in a country’s laws and regulations that often occur because of changes in the political and ethical attitudes within a society

28. 4- 28 Global Workforce Challenges Expatriate managers -domestic managers who work for their companies abroad Host-country nationals -natives of a foreign country hired to manage a multinationals divisions there Read an article by Chris Westphal on living and working outside the USChris Westphal

29. 4- 29 Global Organization Challenges Exporting and licensing Network structure Joint venture

30. 4- 30 Exporting and Licensing Exporting -selling domestically produced goods and services to customers in countries abroad Licensing -contracting with companies in other countries in order to give them the right to use a company’s brand name and business model

31. 4- 31 Network Structure Network structure -a system of task and reporting relationships based on the use of electronic ties that links suppliers, manufacturers, and distributors

32. 4- 32 Joint Venture Joint venture -an alliance in which companies from different countries agree to pool their skills and resources to make and distribute a product together

33. 4- 33 Wholly Owned Subsidiary Wholly owned subsidiary -business units established in countries abroad to manufacture and distribute a multinational’s products

34. 4- 34 Forms of Global Organizing Figure 4.8