Chapter 8 Gobal Management

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Chapter 8Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved

Chapter 8

Prepared byDeborah Baker

Texas Christian University

Management4th Edition

Chuck Williams

GlobalManagement

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What Would You Do?

MTV and VH1 revolutionized the music business and pioneered some of the first reality shows

But, MTV is not successful internationally—competition is intense, revenues are low and costs are high

However, with population growth and increased TV purchases, there are tremendous opportunities

MTV International Headquarters, London, England.

How should MTV expand internationally?

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What Is Global Business?

After reading this section, you should be able to:

1. discuss the impact of global business and the trade rules and agreements that govern it.

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What Is Global Business?

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Global Business

The buying and selling of goods andservices by people from different countries.

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The Impact of Global Business

1.11.1

Multinational Corporation

A corporation that owns businesses intwo or more countries.

Direct Foreign Investment

A method of investment in which a company builds a new business or buys an existing business in a foreign country.

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Foreign Investment in the U.S.

1.11.1

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Foreign Investment in the U.S.

Adapted from Exhibit 8.1

1.11.1

Investment coming into the U.S., like this Honda Motor plant in Ohio, totaled $106 billion in 2004.

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U.S. Foreign Investment Abroad


1.11.1

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Trade Barriers

Nontariff Barriers

Nontariff Barriers

TariffTariff

Voluntary export restraintsVoluntary export restraints

Government import standards Government import standards

Customs Valuation / ClassificationCustoms Valuation / Classification

QuotasQuotas

Government SubsidiesGovernment Subsidies

1.21.2

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Trade Agreements

Regional Trading Zones

Regional Trading Zones

General Agreementon Tariffs and Trade

General Agreementon Tariffs and Trade

Maastricht Treaty of EuropeMaastricht Treaty of Europe

NAFTA and CAFTA NAFTA and CAFTA

ASEAN and APECASEAN and APEC

FTAAFTAA

1.31.3

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GATT

GATT made it easier and cheaper for consumers in all countries to buy foreign products.

Tariffs were cut 40 percent on average worldwide by 2005

Tariffs were eliminated in 10 specific industries Stricter limits were put on government subsidies GATT established protections for intellectual property Trade disputes between countries now are fully settled

by arbitration panels from the WTO

1.31.3

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World Trade Organization

Location: Location: Geneva, SwitzerlandGeneva, SwitzerlandEstablished: Established: 1 January 19951 January 1995Created by: Created by: Uruguay Round Uruguay Round negotiations (1986-1994)negotiations (1986-1994)Membership:Membership: 148 countries 148 countries (as of 13 October 2004)(as of 13 October 2004)Budget: Budget: 169 million Swiss francs169 million Swiss francsfor 2005for 2005Secretariat staff: Secretariat staff: 630630Head: Head: Supachai Panitchpakdi Supachai Panitchpakdi (director-general(director-general

Functions:Functions: Administering WTO trade Administering WTO trade

agreementsagreements Forum for trade negotiationsForum for trade negotiations Handling trade disputesHandling trade disputes Monitoring national trade Monitoring national trade

policiespolicies Technical assistance and Technical assistance and

training for developing training for developing countriescountries

Cooperation with other Cooperation with other international organizationsinternational organizations


1.31.3 http://www.wto.orgWeb Link

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Maastricht Treaty of Europe

Formed in 1992 with 12 European countries

Total membership is now 25 countries

Transformed these countries into the European Union, forming one economic market and one common currency (the Euro)

Opened up and simplified trade among member nations

1.31.3 http://europa.eu.int/Web Link

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NAFTA

North American Free Trade Agreement between Canada, United States, & Mexico

Liberalizes trade among these three nations

Eliminates most tariffs and barriers

1.31.3 http://www.mac.doc.gov/nafta/Web Link

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FTAA

Free Trade of the Americas

Proposed agreement to establish a free trade zone throughout the Western Hemisphere Remove nontariff barriers Reduce tariffs to zero Standardize financial markets Establish process for handling trade disputes

1.31.3 http://www.ftaa-alca.orgWeb Link

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ASEAN and APEC

ASEAN Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia,

Myanmar, Philippines, Singapore, Thailand, and Vietnam

APEC Australia, Canada, Chile, China, Hong Kong, Japan,

Mexico, New Zealand, Papua New Guinea, Peru, Russia, South Korea, Taiwan, United States, and ASEAN members (except Cambodia, Laos, and Myanmar)

1.31.3http://www.aseansec.org

http://www.apecsec.org.sgWeb Link

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Consumers, Trade Barriers, and Trade Agreements

American consumers get more for their moneythan most other consumers in the worldbecause:

1.41.4

U.S. marketplace is easiest for foreign companies to enter ANDCompetitive market between domestic and foreign companies keeps prices low

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Consumers, Trade Barriers, and Trade Agreements

1.41.4

Decrease price of:food

clothingnecessities

luxuries

Decrease price of:food

clothingnecessities

luxuries

Increase:choices

competitionpurchasing power

Increase:choices

competitionpurchasing power

Free Trade Free Trade AgreementsAgreementsFree Trade Free Trade AgreementsAgreements

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How to Go Global?

After reading these sections, you should be able to:

2. describe why companies choose to standardizeor adapt their business procedures.

3. explain the different ways that companiescan organize to do business globally.

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Consistency or Adaptation?

GlobalConsistency

GlobalConsistency

When a multinational company has offices/plants indifferent countries anduses the same rules, guidelines,policies, and procedures

When a multinational company has offices/plants indifferent countries anduses the same rules, guidelines,policies, and procedures

Local Adaptation

Local Adaptation

When a multinational company modifies its rules, guidelines, policies, and procedures to adapt to differences in foreign customers, governments, and regulatory agencies

When a multinational company modifies its rules, guidelines, policies, and procedures to adapt to differences in foreign customers, governments, and regulatory agencies

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Consistency or Adaptation

A blend of consistency and adaptation makes the “Pop Idol” TV show format successful around the world

Deutschland sucht den SuperStar

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Doing the Right Thing

Fair and Safe Working Conditions in Foreign Factories

Make sure there is no forced labor or child labor

Provide a safe and healthy working environment

Respect the right of employees to freedom of association and collective bargaining

Provide legally required benefits

Fair and Safe Working Conditions in Foreign Factories

Make sure there is no forced labor or child labor

Provide a safe and healthy working environment

Respect the right of employees to freedom of association and collective bargaining

Provide legally required benefits

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Forms for Global Business

CooperativeContracts

StrategicAlliances

Exporting

Wholly OwnedAffiliates

GlobalNew

Ventures

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Exporting

Less dependence on home market sales

Greater degree of control over research, design, and production decisions

Less dependence on home market sales

Greater degree of control over research, design, and production decisions

Advantages

3.13.1

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Exporting

Many exports are subject to tariff and nontariff barriers

Transportation costs can increase price

Companies may depend on foreignimporters for product distribution

Many exports are subject to tariff and nontariff barriers

Transportation costs can increase price

Companies may depend on foreignimporters for product distribution

Disadvantages

3.13.1

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Cooperative Contracts

LicensingLicensing

A domestic company receives royaltypayments for allowing another company to produce its product, sella service, or use its brand name in aspecified foreign market

A domestic company receives royaltypayments for allowing another company to produce its product, sella service, or use its brand name in aspecified foreign market

FranchisingFranchising

A collection of networked firms in which the manufacturer or marketer ofa product/service licenses the entirebusiness to another person or organization

A collection of networked firms in which the manufacturer or marketer ofa product/service licenses the entirebusiness to another person or organization

3.23.2

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Licensing

Allows companies to earn profits withoutinvesting more money

The licensor invests in production equipment and facilities

Helps companies avoid tariff and nontariff barriers

Allows companies to earn profits withoutinvesting more money

The licensor invests in production equipment and facilities

Helps companies avoid tariff and nontariff barriers

Advantages

3.23.2

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Licensing

Licensor gives up control over quality of the product or service sold by the foreign licensee

Licensees can eventually become competitors

Licensor gives up control over quality of the product or service sold by the foreign licensee

Licensees can eventually become competitors

Disadvantages

3.23.2

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Franchising

Fast way to enter foreign markets

Good strategy when a company’sdomestic sales have slowed

Fast way to enter foreign markets

Good strategy when a company’sdomestic sales have slowed

Advantages

3.23.2

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Franchising

Franchisors face a loss of control

Franchising success may be culture-bound

Franchisors face a loss of control

Franchising success may be culture-bound

Disadvantages

3.23.2

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Strategic Alliances

StrategicAlliance

StrategicAlliance

An agreement in which companies combine key resources, costs, risk, technology, and people

An agreement in which companies combine key resources, costs, risk, technology, and people

Joint VentureJoint VentureA strategic alliance in which twoexisting companies collaborate toform a third, independent company

A strategic alliance in which twoexisting companies collaborate toform a third, independent company

3.33.3

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Joint Ventures

Help companies avoid tariff and nontariff barriers to entry

Participating companies bear only partof the costs and risks

Advantageous to smaller local partners

Help companies avoid tariff and nontariff barriers to entry

Participating companies bear only partof the costs and risks

Advantageous to smaller local partners

Advantages

3.33.3

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Joint Ventures

Companies must share profits

Joint venture represent a merging offour cultures

With equal ownership, power struggles and a lack of leadership may occur

Companies must share profits

Joint venture represent a merging offour cultures

With equal ownership, power struggles and a lack of leadership may occur

Disadvantages

3.33.3

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Wholly Owned Affiliates (Build or Buy)

Parent company receives all of the profits and has complete control

Parent company receives all of the profits and has complete control

Advantages

Expense of building new operationsor buying existing business

Losses can be immense if the venture fails

Expense of building new operationsor buying existing business

Losses can be immense if the venture fails

Disadvantages

3.43.4

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Global New Ventures

Quick, reliable air travelQuick, reliable air travel

Low-cost communication technologiesLow-cost communication technologies

Critical mass of experienced businesspeopleCritical mass of experienced businesspeople

3.53.5

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Common Factors of Global New Ventures

Global vision is developed and communicatedGlobal vision is developed and communicated

Several foreign markets are entered at the same time

Several foreign markets are entered at the same time

3.53.5

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Where to Go Global?

After reading these sections, you should be able to:

4. explain how to find a favorable business climate.

5. discuss the importance of identifying andadapting to cultural differences.

6. explain how to successfully prepare workersfor international assignments.

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Finding the Best Business Climate

Access toGrowingMarkets

Access toGrowingMarkets

Location to

Build

Location to

BuildMinimalPolitical

Risk

MinimalPolitical

Risk

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Growing Markets

Purchasing Power comparison of a standard set of goods and

services in different countries more means greater growth potential

Degree of Global Competition the number and quality of companies already

in the market

4.14.1

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Choosing an Office/Manufacturing Location

Qualitative factors work force quality company strategy

Quantitative factors kind of facility tariff and nontariff barriers exchange rates transportation and labor

costs4.24.2

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Choosing an Office/Manufacturing Location

4.24.2Exhibit 8.6

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World’s Best Cities for Business

United States1. New York City2. Chicago3. Toronto4. Atlanta5. Los Angeles

Latin America1. Santiago2. Miami3. Sao Paulo4. Monterrey5. Mexico City

Asia Pacific1. Shanghai2. Beijing3. New Delhi4. Hong Kong5. Mumbai

Europe1. London2. Paris3. Frankfurt4. Brussels5. Amsterdam


4.24.2

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Minimizing Political Risk

Political uncertainty risk of major changes in political regimes

Policy uncertainty risk associated with changes in laws and

government policies directed at businesses

Strategies avoidance control cooperation

4.34.3

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Long-Term Political Risk in the Middle East


4.34.3

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Becoming Aware of Cultural Differences

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National Culture

The set of shared values and beliefs that affects the perceptions, decisions, and behavior of the people from a particular country.

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In Saudi Arabia, store mannequins must not have heads or limbs that would indicate gender.

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Cultural Dimensions (Geert Hofstede)

Power distance Individualism Masculinity and femininity Uncertainty avoidance Short-term/long-term orientation

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Hofstede’s Five Cultural Dimensions

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Cultural Differences

Recognize cultural differences

Decide how to adapt your company to those differences

Do not base adaptations on outdated and incorrect assumptions about a company’s culture

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Preparing for an International Assignment

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Expatriate

Someone who lives and works outside his or her native country.

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Preparing for an International Assignment

Language andCross-Cultural Training

Language andCross-Cultural Training

Considerationof Spouse, Family,

and Dual-Career Issues

Considerationof Spouse, Family,

and Dual-Career Issues

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Language and Cross-Cultural Training

Documentary TrainingDocumentary Training

Cultural SimulationCultural Simulation

Field ExperiencesField Experiences

6.16.1

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Spouse, Family, and Dual-Career Issues

Adaptability ScreeningAdaptability Screening

Intercultural TrainingIntercultural Training

6.26.2

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What Really Works:Cross-Cultural Training

Psychological Well-Being & Self Development10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

probability of success 79%

Self-Development

Fostering Relationships with Native Citizens10% 20% 30% 40% 50% 60% 70% 80% 90% 100%


Fostering Relationships

6.26.2

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What Really Works

Accurate Cultural Perceptions10% 20% 30% 40% 50% 60% 70% 80% 90% 100%


Accurate Perceptions of Culture

Rapid Adjustment to Foreign Cultures and Countries10% 20% 30% 40% 50% 60% 70% 80% 90% 100%


Rapid Adjustment

6.26.2

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What Really Works

On-the-Job Performance10% 20% 30% 40% 50% 60% 70% 80% 90% 100%


Job Performance

6.26.2

Chapter 8 Gobal Management

Business

Transcript of Chapter 8 Gobal Management