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Global Management Chapter 5
Mr. Sherpinsky Business Management Class Council Rock School District
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Goals & Objectives Define global management
Compare and contrast importing and exporting Explain the advantages and disadvantages of protectionism Discuss the challenges of doing business globally
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Taco Barn The World of Work Customer Service by Foreign Firms Page 73 Textbook Discuss Questions 1-4 Warm Up
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Can you name some brand names owned by foreign companies?
Do You Know? Can you name some brand names owned by foreign companies?
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Examples of Brand Names Owned by Foreign Companies
Product Company Country 7-Eleven Convenience stores Ito-Yokado Japan Clearasil Skincare products Reckitt Benckiser Group United Kingdom Dannon Yogurt Danone France Firestone Tires Bridgestone Group Frigidaire Home Appliances AB Electrolux Sweden Friskies Cat Food Nestle S.A. Switzerland LensCrafters Eyeglasses Luxottica Group Italy PlayStation Game console Sony Popsicle Frozen confection Unilever Right Guard Doedorant Henkel KGaA Germany
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Global Management International Trade Extent of Trade
Exchange of goods and services by different countries Extent of Trade In a recent year, world trade in goods exceeded $12 Trillion Most trade occurs in developed countries Examples: Japan, China, North America, and Western Europe Learning Objective 5-1 Global Management International trade definition Consists of the exchange of goods and services by different countries Changes in global management Soviet Union replaced by 15 independent republics EU trading bloc Southern Common markets Brazil Argentina Paraguay Uruguay Southwest Asian Nations NAFTA China’s transformation to a superpower Management takes on a new meaning with all of these changes
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International Trade Defined: Exchange of goods and services by different countries. Today, world totally depends on international trade Necessary to maintain standard of living America sells autos, heavy machinery, clothing, and electronics abroad Argentine cattle ranchers ship beef to consumers in dozens of countries Saudi Arabian oil producers supply much of the world oil All these countries in return purchase goods and services from other countries
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Source: CIA World Factbook
U.S. Trading Partners Exports Imports Canada Mexico China Japan UK Germany 19.37% 12.21% 6.58% 4.84% 4.33% 4.10% China Canada Mexico Japan Germany 19.30% 14.24% 11.12% 6.14% 4.53% Source: CIA World Factbook
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Leading Exporters of Merchandise
Rank Exporters Value Share 1 China $1,201.53 9.6% 2 Germany $1,126.38 9.0% 3 United States $1,056.04 8.5% 4 Japan $580.72 4.6% 5 Netherlands $498.33 4.0% 6 France $484.73 3.9% 7 Italy $405.78 3.2% 8 Belgium $369.85 3.0% 9 Korea $363.53 2.9% 10 United Kingdom $352.49 2.8% (Billions of Dollars) Source: World Trade Organization
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Leading Importers of Merchandise
Rank Exporters Value Share 1 United States $1,605.30 12.7% 2 China $1,005.69 7.9% 3 Germany $938.30 7.4% 4 France $559.82 4.4% 5 Japan $551.96 6 United Kingdom $481.71 3.8% 7 Netherlands $445.50 3.5% 8 Italy $412.72 3.3% 9 Hong Kong, China $352.24 2.8% 10 Belgium $351.95 (Billions of Dollars) Source: World Trade Organization
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Global Management Changes in global management
Society Union replaced by 15 independent republics EU (European Union) trading bloc Southern Common markets Brazil, Argentina, Paraguay, & Uruguay Learning Objective 5-1 Global Management International trade definition Consists of the exchange of goods and services by different countries Changes in global management Soviet Union replaced by 15 independent republics EU trading bloc Southern Common markets Brazil Argentina Paraguay Uruguay Southwest Asian Nations NAFTA China’s transformation to a superpower Management takes on a new meaning with all of these changes
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Global Management Changes in global management-Continued
ASEAN (Association of Southeast Asia Nations) NAFTA (North American Free-Trade Agreement) U.S., Canada, and Mexico BRIC nations Brazil, Russia, India, and China Future Economic Superpowers Management takes on new meaning Learning Objective 5-1 Global Management International trade definition Consists of the exchange of goods and services by different countries Changes in global management Soviet Union replaced by 15 independent republics EU trading bloc Southern Common markets Brazil Argentina Paraguay Uruguay Southwest Asian Nations NAFTA China’s transformation to a superpower Management takes on a new meaning with all of these changes
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Global Management Changes in global management-Continued
Opportunities come with risks Political instability Erratic currency exchange rates Global economic interdependence Ties once isolated countries more closely than ever Knowing your customer take on a new meaning Cultural impacts on business, people, laws, and attitudes Learning Objective 5-1 Global Management International trade definition Consists of the exchange of goods and services by different countries Changes in global management Soviet Union replaced by 15 independent republics EU trading bloc Southern Common markets Brazil Argentina Paraguay Uruguay Southwest Asian Nations NAFTA China’s transformation to a superpower Management takes on a new meaning with all of these changes
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Global Management New Reality Products made in one country
Purchased in another country Serviced in a third country Borders are NOW political not economic Interdependent global economic systems
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Web Quest: Locate Products
Using the Internet, you will find 5 common products (by categories below) that are made in foreign countries You must include: Pictures of the product Flag of the country of origin Name of the company who makes it Name of the company who owns the company that makes it Categories Car/Automobile TV/Radio/PMD Candy/Snack/Food Article of Clothing Household item Beverage/Drink Jewelry Appliance
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Global Management Absolute advantage
Ability to produce more of a good than another producer with the same quantity of inputs i.e., Jamaica’s sugar production Absolute advantage is when a country uses less resources to produce a good. Country A can produce one widget using one unit of labor. Country B can produce one widget using two units of labor. Country A has an absolute advantage over Country B in producing widgets. 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
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Global Management Comparative advantage
Producers should produce the goods they are most efficient at producing, and import goods they are less efficient at producing Comparative advantage speaks in terms of opportunity costs. A country has a comparative advantage in the production of a good if it can do it at a LOWER opportunity cost than another country. 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
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Challenge: Advantage Complete the worksheet calculating advantage.
Use a calculator!
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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
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Importing and Exporting
Identifying export markets Analysis of demographics, economic data, country reports, consumer tastes and competition Need to know what restrictions they face, such as packaging restrictions, labeling and product safety
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Importing and Exporting
Why exporting? 95% of all consumers live outside US 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
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Importing and Exporting
Why importing? Lower costs Availability of specialized goods or unique services Want
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Importing and Exporting
Material importing Importing raw 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
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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 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
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Work Packet Time Use this time to complete your work packets for Chapter 5 Global Management
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Engaging in Foreign Trade
Treaties on trade and investment WTO (World Trade Organization) creates and enforces the rules governing trade among countries Treaties have led to cuts in tariffs Boosted exports and imports in 150 countries Trading Bloc: Two or more countries that agree to remove restrictions between themselves
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Protectionism The practice of trying to protect home markets from foreign competitors Tariffs Quotas Embargoes Dumping Sanctions
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Protectionism Tariffs A tax charged on a imported good
Purpose is to raise the price of foreign goods to allow domestic producers to compete Specific tariff is levied per unit Ad valorem tariff is levied as a percentage of the value of the goods
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Protectionism Quotas Embargos
A restriction on the quantity of goods that can enter a country Embargos A total pan on the import of a good from a particular country Political reasons rather than economic
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Protectionism Dumping Sanctions
Refers to the practice of selling goods in foreign markets at below cost or below what it sells at home Sanctions A mild form of embargo that bans specific business ties with a foreign country Example: Illegal to sell nuclear technology to Pakistan, which tested atomic bombs in 1998.
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Protectionism Free Trade area NAFTA
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 Increased sales Possible job losses as factories have moved to Mexico
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Protectionism The EU Signed in 1993 27 European countries
22% of the world’s GDP 16 of the countries have a single GDP
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Web Research: Challenge EU
Complete the handout! Using the Internet, research the European Union (EU) and answer the questions on the handout.
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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
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Doing Business Globally
Strategic alliances A pooling of resources and skills to achieve common goals Multinational corporation A business that maintains a presence in two or more countries and has a considerable portion of assets invested in international activities
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Doing Business Globally
Home Country Country in which business has its headquarters Host Country Foreign location where business has its facilities Parent Firm Company headquarters Subsidiaries Foreign branches, usually independently registered as legal entity
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International Cultures
Must understand foreign cultures and customs Refers to customs, values, beliefs, and patterns of behavior Dress, language and ways of doing things English is the language of business High-context cultures Communication through nonverbal signs/indirect suggestions Examples: Japan, Saudi Arabia Low-context cultures Communication direct and explicitly suggestions Examples: United States
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International Cultures
Political changes Political challenges caused by governments or upheaval is a concern for international managers Nationalism When the government takes over or solely runs a business US Postal Service Amtrak Argentina, Nationalized Oil Companies in May 2012
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International Cultures
Human rights and ethics Norms of business ethics vary greatly Understanding human rights laws and ethics is essential to the international manager
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Web Research: Impact of Culture on Business
Take a Trip! Today is your chance to explore a foreign land. You will have the chance to learn about the economy, the culture, the society, and the people of a far away land. Sound enchanting? I hope so! Choose a country (MUST be approved by teacher) Using the Internet, research the required information Load data into a PowerPoint Add pictures, graphs, and other visual components Be ready to present! The reason that you are completing this project is so that you can see that not all countries are the same, which means they do not all do business the same way. Each person will be responsible for presenting their country to the class.
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