Mgmt. 308Chapter 1

Change of Global Business

GlobalizationIt is trend away from distinct national economic units and toward one huge global market. It is the international integration of goods, technology, labor, and capital; that is, firms implement strategies that link and coordinate their international activities on a worldwide basis.

a common term for processes of international integration arising from increasing human activity and interchange ofworldviews, products, ideas, and other aspects ofculture.In particular, advances intransportationandtelecommunicationsinfrastructure, including the rise ofthe Internet, represent major driving factors in globalization and precipitate furtherinterdependenceof economic and cultural activities.

Good sides of GlobalizationGlobalization lets countries do what they can do best. If, for example, you buy cheapsteelfrom another country you dont have to make your ownsteel. You canfocus oncomputers or other things.Globalization gives you a larger market. You can sell moregoodsand make more money. You can createmore jobs.Consumers also profit from globalization. Products become cheaper and you can get newgoodsmore quickly.

bad sides of GlobalizationGlobalizationcauses unemploymentin industrialized countries becausefirmsmove theirfactoriesto places where they can get cheaper workers.Globalization mayleadto moreenvironmentalproblems. A company may want to buildfactoriesin other countries becauseenvironmental lawsare not asstrictas they are at home. Poor countries in the Third World may have to cut down more trees so that they can sell wood to richer countries.Globalization canleadto financial problems . In the 1970s and 80s countries like Mexico, Thailand, Indonesia or Brazil got a lot of money frominvestorswho hoped they could build up newbusinesses there. These new companies often didnt work, so they had toclose downand investorspulled out their money.Some of the poorest countries in the world,some may get even poorer. Their population is not aseducatedas indeveloped countriesand they dont have the new technology.Human, animal and plantdiseasescanspreadmore quickly through globalization.

As a result of globalization;40% of the world output is produced by 500 largest companies in the world.Only 22 nations have GNP greater than the total annual sales of Mitsubishi.Total money spent on Wal-Mart in the world is greater than the sums of GNPs of 161 nations.

Global firms management;Searches the world for;Market opportunities,Threats from competitors,Sources of products, raw materials, knowledge, innovation, and financing, Personnel,Seeks to maintain a presence in key markets,Looks for similarities, not differences, among markets.

Multidomestic companyA company with international operations that allows operations in one country to be relatively independent of those in another.

Multidomestic companyExport to neighbour countries may occur, but typically the multi-domestic company concentrates on the local business. Subsidiaries' interactions across borders mainly concern administration and finances, rather than production and services.

Global companyIt is an organization that attemps to standardize and integrate operations worldwide in all functional areas.

Global companyThe global company is the opposite of the Multi-domestic company. The global company strives to concentrate the activities in the value chains as much as possible to one country.

What is the difference between multi domestic companies and a global company

A multi domesticcompanyadapt its offer worlwide to every different market its targeted whereas a gloabl company have the same standardized offer everywhere, it means that wherever u are in the world, the product u find from a specific brand will have the same packaging, taste, colour etc.... like I-Pod is a product of a global company but Coca Cola is from a multi domestic , (example . in Mexico the coca cola is much more sweet than in Europe, this is the result of market studies that said that Mexican people were fond of sweet meals)

Functional areasThey are economic activities that can be separated from each other; such as advertising, research and development, production, asemblying, procurement, etc.

Example of a global company:Procter and GambleSells to 5 billion people around the world,Operates in more than 70 countries,Sells its products to more than 140 countries,Employs 103,000 people around the globe.

A brief history of international businessInternational business existed since very early days. Phoenicians were famous tradespeople. Marco Polo was the first man who went to China and came back. Britain established East India Company in 1600 AC.Ford Motor Company (1920), Singer Sewing Machine Company (1868), General Motors (1920), Chrysler (1920), General Electric (1919) were established around hundred years ago.

First McDonalds FIRST McDonald's

Coca Cola in TimeEvolution of the Coca Cola

Globalization forces:Political forces,Technological forces,Market forces,Cost pressures,Competitive forces.

Political forces:Trend towards formation of economic blocks, such as NAFTA, EU, ASEAN.(Association of Southeast Asian Nations,)Trend towards global integration. This is encouraged by;(a) agreements like GATT, (General Agreement on Tariffs and Trade) (b) reduction of barriers to trade and foreign investment by governments,(c) privatization of many state enterprises, even in ex-communist countries.

TheNorth American Free Trade Agreement(NAFTA) is an agreement signed by the governments ofCanada,Mexico, and theUnited States, creating a trilateraltrade blocin North America.

Association of Southeast Asian Nationsis ageo-politicaland economic organization of ten countries located inSoutheast Asia, which was formed on 8 August 1967 byIndonesia,Malaysia, thePhilippines,SingaporeandThailand.[9]Since then, membership has expanded to includeBrunei,Burma (Myanmar),Cambodia,Laos, andVietnam. Its aims include acceleratingeconomic growth,social progress,

Technological forces:Advances in computers, communication, transportation, mass production techniques made globalization easier.

First computer ever made

Market forces:Customers are becoming more international. Customer lifestyles, tastes, preferences are becoming similar.This way the market for global companies are expanding.

Cost pressuresEconomies of scale reduce the unit costs which is one of the management goals.Also the firm can place the production wherever cost of production is lowest. inmicroeconomics,economies of scaleare the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producers average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit cost as the size of a facility and the usage levels of other inputs increase

Competitive forces:There is very tough global competition among the global firms. Firms stemming from the newly industrialized countries are producing low-cost, high-quality products with which firms from industrial countries must compete.Also firms should protect their home markets. Thus they have to be very efficient.

Recent developmentsThere is an increase in foreign direct investment (FDI) until 2000, and then it started decreasing.FDI is direct investments into equipment, structures, and organizations in a foreign country at a level that is sufficient to obtain significant management control. It does not include investments in the stock markets of other countries (portfolio investment)Management control can be achieved through;golden share,more than 50% ownership, and/orappointing ther management team.

Recent developmentsFDI Data:1980199020002002Inflows$ 55 2091,393 651Outflows 54 2421,201 647Inward stock 6991,9546,147 7,122Outward stock 5641,7635,992 6,866

Recent developmentsThere is an increase in the total assets of the foreign affiliates:Foreign affiliate data:valueannual growth rate199620021996-20002002Sales $ 9,372 17,685 10.9%7.4%Total assets 11,246 26,543 19.28.3Exports1,841 2,613 9.64.2Emp. 30,941 53.094 14.25.7(000s)

Recent developmentsAfter the Second World War, most of the global companies were American, and some European.In 1996, out of 100 largest companies, 57 are American, 24 European, and 13 Japanese.In 2009, the trend continues and American share in global business is going down.

Mini-multinationals (mini-globals, or micro-multinationals)There are some small and medium size enterprises becoming global companies. Their characteristics are:Their annual sales are around $600 million, and they grow very fast, like 20% a year.International sales are 40-50% of their total sales.Their product is often unique because of their technology, design, cost, etc.Their target customers are sharply focused.They can take decisions very fastly. They have smaller beurocracy and small number of manufacturing locations.They underline research.They use foreigners in foreign operations and at the headquarters.

Google when they started in 1999Google in 1999, when they started.

Prof. Bartlett:Newcomers have the huge advantage of starting fresh. They can develop much more flexible structures.

International firms are under the influence of two forces:Uncontrollable forces: They are external forces over which management has no direct control, but sometimes they can exert an influence.Controllable forces: They are internal forces that management administers to adapt to changes.

Uncontrollable forcesCompetitive kinds and numbers of competitors, their locations, their activities.Distributive national and international agencies available for distributing goods and services.Economic variables such as GNP, unit labor costs, personal consumption expenditures that influence a firms ability to do business.Socioeconomic characteristics and distribution of the human population.Financial variables like interest rates, inflatin rates, tax rates.Legal foreign and domestic laws by which international firms must operate.Physical elements of nature such as climate, topography, natural resources.Political nationalism, forms of government, international organizations.Sociocultural elements of culture, such as, attitudes, beliefs, opinions.Labor composition, skills, attitudes of labor.Technological the technical skills and equipment that affect how resources are converted into products.