1. Globalization and International Business
Exploring Management
Chapter 17
Globalization and International Business

2. Chapter 17 How does globalization affect international business?
What are global corporations and how do they work?
There is no doubt that globalization is here to stay. However, success is not easily accomplished. There is a lot to learn about doing business internationally.

3. 17.1 Globalization
Globalization involves the growing interdependence of the world’s economies
Globalization creates a variety of international business opportunities
International business is done by global sourcing, import/export, licensing and franchising
Internal business is done by joint ventures and wholly owned subsidiaries
International business is complicated by different legal and political systems

4. GLOBALIZATION World Economies
Global economy
Resources, markets and competition are worldwide in scope
Globalization
Process of growing interdependence of global economies
Many factors including economical communication and transportation have fueled globalization.

5. GLOBALIZATION World Economies
Insourcing
Domestic jobs are created by foreign employers
Outsourcing
Jobs are shifted to foreign locations to take advantage of lower wages, infrastructure, educated workforce or government support
Globalization creates jobs, but not always the same types of jobs than those lost.

6. GLOBALIZATION International Opportunities
International Business
Conducts transaction across international boundaries
Reasons to “go international”
Profits
Customers
Suppliers
Capital
Labor
Risk
Most reasons for pursuing international business are economic.

7. GLOBALIZATION International Opportunities
Market Entry Strategies
Global Sourcing materials, components or services are purchased worldwide
Exporting selling locally made products in foreign markets
Importing buying foreign-made products and selling them in domestic markets
Licensing foreign firm pays for rights to make or sell another company’s products
Franchising foreign firm buys rights to another’s name and operating method in its home country
These market entry strategies are “entry level” ways to expand globally. Licensing and franchising represent low cost / low risk methods of entering international markets, but partners must be chosen carefully.

8. GLOBALIZATION International Opportunities
Direct Investment Strategies
Joint Venture co-ownership arrangement in which the foreign and local business jointly operate the new business
Global Strategic Alliance Cooperative partnership to achieve task that would be difficult for partners alone
Foreign Subsidiary operation completely owned and controlled by a foreign firm
Greenfield Venture subsidiary established after firm has experience in joint ventures
All of these require substantial investments in capital and time. Joint ventures and strategic alliances are the most risky because you do not have complete control. Foreign subsidiaries require large investments and may not be allowed depending on the country.

9. GLOBALIZATION Legal and Political Issues
International business is complicated by different legal and political systems
Health and safety
Equal employment
Sexual harassment
Incorporation and ownership
Foreign currency exchange
Intellectual property
Any venture into international business requires homework. The cost of complying with local laws and regulations will add to the cost of doing business.

10. GLOBALIZATION Legal and Political Issues
Tariffs
Taxes placed on imports
Protectionism
Tariffs, subsidies and other tactics that give advantages to domestic producers
Tariffs make imported goods more expensive relative to domestic goods. Subsidies are provided to domestic producers to cut their cost of production and enable them to gain a price advantage over imported goods or when being exported to other countries. Many economists feel that if all countries dropped both tariffs and subsidies, we would all be better off, but that’s hard to negotiate.

11. GLOBALIZATION Legal and Political Issues
World Trade Organization
Global institution to promote free trade and open markets around the world
Membership of around 153 countries
Most Favored Nation status
The WTO also negotiates trade restrictions. The WTO has been the target of numerous protests in the U.S. because of the loss of jobs caused by outsourcing labor to foreign countries.

12. Global corporations or MNCs do substantial business in many countries
The actions of global corporations can be controversial at home and abroad
Managers of global corporations face a variety of ethical challenges

13. 17.2 CONTINUED Global Corporations
Planning and controlling are complicated in global corporations
Organizing can be difficult in global corporations
Leading is challenging in global corporations

14. GLOBAL CORPORATIONS Global Corporations
Global corporations and also known as Multinational corporations (MNC)
Extensive foreign operations in more than one country
Transnational corporations
Operate without one national home
Fortune magazine has a “Global 500” that ranks the largest multinational corporations. The top ten are 1. Royal Dutch Shell, 2. Exxon Mobil, 3. Wal-Mart, 4. BP, 5. Chevron, 6. Total SA, 7. Conoco Phillips, 8. ING Group, 9. SinoPec, 10. Toyota. If you were counting, 7 out of the top 10 are oil companies.

15. GLOBAL CORPORATIONS Issues
The list of complaints is valid but can be avoided with advanced planning and reasonable agreements between the parties.

16. GLOBAL CORPORATIONS Ethical Challenges
Corruption
Illegal practices
Foreign Corrupt Practices Act
U.S. legal standards apply to companies when operating in foreign countries
Prevents
Bribes, gifts to foreign officials in return for business favors
Chapter three outlines the ethical views that must be considered when doing business in a culture with different values.

17. GLOBAL CORPORATIONS Ethical Challenges
Sweatshops
Employees work long hours in poor or unsafe conditions
Child labor
Full-time employment of children
It is sometimes difficult to understand the reasons for sweatshops and child labor when you are a developed prosperous nation like the U.S. What may be unethical in one country may be acceptable in another depending on cultural and economic conditions. While an eleven-year-old working full time in the U.S. is unconscionable and illegal, it may be necessary to keep his family fed in a developing country.

18. GLOBAL CORPORATIONS Planning and Controlling Challenges
Currency Risk
Scenario 1: Weak dollar
.75 Euros = 1 $US
Take home revenue = $133,00
Scenario 2: Strong dollar
1.25 Euros = 1 $US
Take home revenue = $80,000
To complicate the situation, the exchange rate between two countries is always changing. Thus, what looks like a profit today can be a loss tomorrow when the transaction actually takes place.

19. GLOBAL CORPORATIONS Planning and Controlling Challenges
Political risk
Risk of loss because of political instability in foreign country
Political risk analysis
Forecasts how political events may impact foreign investments
Currency risk
Possible loss because of
fluctuating exchange rates
Companies have lost their entire investment in a country when governments have nationalized industries. Consultants can help investors find stable governments to do business with.

20. GLOBAL CORPORATIONS Organizing Challenges
Organizational structures can get so complicated that even the employees have trouble understanding them. Many MNCs are a combination of these two.

21. GLOBAL CORPORATIONS Leading Challenges
Global managers
Competent in working in different cultures
Cultural sensitivity, a sense of humor and a bit of humility are important factors for expatriates.