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UGBA 178 FINAL REVIEW Nelda Gabbay Erik Kiewiet de Jonge May 8, 2009.
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Transcript of UGBA 178 FINAL REVIEW Nelda Gabbay Erik Kiewiet de Jonge May 8, 2009.
Remember!
One page front/back of notes 3 hour exam Review the articles! They are all fair
game Review Erik’s CSR lecture Review all textbook assigned
chapters/PPT slides on class website…
Today’s Roadmap
Global Strategy and Entry Modes Global Supply Chain Management Global Capital Markets Financial Management in Int’l Business Remember: we’re just covering the most
requested and challenging topics today – review the other material, too!
Global Strategy and Entry Modes
Make sure to review articles: “Big Mac’s Local Flavor” “Philippines Jollibee Goes Abroad” “Material Fitness” “Making It in China”
Strategy, Profitability, Profit Growth
A firm’s strategy refers to the actions that managers take to attain the goals of the firm
Profitability can be defined as the rate of return the firm makes on its invested capital
Profit growth is the percentage increase in net profits over time
Expanding internationally can boost profitability and profit growth
Global Standardization Strategy
The global standardization strategy focuses on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies
The strategic goal is to pursue a low-cost strategy on a global scale
The global standardization strategy makes sense when: there are strong pressures for cost reductions demands for local responsiveness are minimal
Localization Strategy
The localization strategy focuses on increasing profitability by customizing the firm’s goods or services so that they provide a good match to tastes and preferences in different national markets
The localization strategy makes sense when: there are substantial differences across nations with
regard to consumer tastes and preferences where cost pressures are not too intense
Transnational Strategy
The transnational strategy tries to simultaneously: achieve low costs through location economies, economies
of scale, and learning effects differentiate the product offering across geographic
markets to account for local differences foster a multidirectional flow of skills between different
subsidiaries in the firm’s global network of operations
The transnational strategy makes sense when: cost pressures are intense pressures for local responsiveness are intense
International Strategy
The international strategy involves taking products first produced for the domestic market and then selling them internationally with only minimal local customization
The international strategy makes sense when there are low cost pressures low pressures for local responsiveness
Things to Consider… Entry Modes
Firms expanding internationally must decide: which markets to enter when to enter them and on what scale which entry mode to use
Entry modes include: exporting licensing or franchising to a company in the host nation establishing a joint venture with a local company establishing a new wholly owned subsidiary acquiring an established enterprise
Greenfield Ventures vs. Acquisitions
Firms can establish a wholly owned subsidiary in a country by:
Using a greenfield strategy - building a subsidiary from the ground up
Using an acquisition strategy
Greenfield or Acquisition?
The choice between a greenfield investment and an acquisition depends on the situation confronting the firm
Acquisition may be better when the market already has well-established competitors or when global competitors are interested in building a market presence
A greenfield venture may be better when the firm needs to transfer organizationally embedded competencies, skills, routines, and culture
Strategic Aliances
Strategic alliances refer to cooperative agreements between potential or actual competitors
Strategic alliances range from formal joint ventures to short-term contractual agreements
The number of strategic alliances has exploded in recent decades
Global Production and Supply Chain Management
Make sure to review articles: “A Tale of Two Factories” “Pace-Setting Zara Seeks More Speed To
Fight Its Rising Cheap-Chic Rivals” “Low-skilled Jobs: Do They Have to Leave?”
Things to ask…
International firms must answer five interrelated questions: 1. Where should production activities be located? 2. What should be the long-term strategic role of foreign
production sites? 3. Should the firm own foreign production activities, or is it better
to outsource those activities to independent vendors? 4. How should a globally dispersed supply chain be managed,
and what is the role of Internet-based information technology in the management of global logistics?
5. Should the firm manage global logistics itself, or should it outsource the management to enterprises that specialize in this activity?
Strategy, Production, And Logistics
Firms need to identify how production and logistics can be conducted internationally to:
lower the costs of value creation add value by better serving customer needs
Production refers to activities involved in creating a product
Logistics refers to the procurement and physical transmission of material through the supply chain, from suppliers to customers
Three factors are important when making location decisions:
country factorsFirms should locate manufacturing activities in those locations where economic, political, and cultural conditions, including relative factor costs, are most conducive to the performance of that activity
technological factorsThe type of technology a firm uses in its manufacturing can affect location decisions
product factorsthe product's value-to-weight ratiowhether the product serves universal needs
Global Capital Markets
Make sure to review articles and Ch 11: “The Business of Making Money” “Savings and Souls” China Mobile Case Brazil Gol Case Notes from G-20 discussion, particularly
regarding tax havens
Global Capital Markets
In concept, global capital markets are like domestic capital markets – just larger and more diverse
Capital markets unite investors, “market-makers” (banks, etc) and borrowers
The globalization of capital markets has occurred within the last few decades thanks to the liberalization of financial markets
Growth in Global Capital Markets
We can thank: Advances in technology
Capital markets are information intensive – computing power has driven growth and made it a 24 hr business
Deregulation by governmentsElimination/reduction of restrictions on citizens’
cross-border investing restrictionsGrowth in foreign direct investment and capital flows
between countries
Why Go Global to Raise Capital?
Supply up, price (cost) down the cost of borrowing (cost of capital, cost of debt, etc) is driven down by an increased supply of available funds
Remember: bond prices up, yields (cost to firm) down, and vice versa
Establish a presence in a new market – think Brazil Gol and listing on the NYSE
Global Capital Markets: Investors’ Perspective
Investors (you, me, Warren Buffet, mutual funds) benefit from global diversification of investments
Diversification works because countries’ returns are not perfectly correlated, meaning losses in one country may be offset by gains in another
Remember the global economy: countries’ economic performances can vary greatly
Eurocurrencies
A eurocurrency is any currency banked outside of its country of origin (the USD in the UK, the Euro in Iceland, etc.)
Arose from the Cold War and the USSR’s need to deposit its dollars outside of the US
OPEC countries continue to fuel the eurocurrency market
Eurocurrencies: Why the Buzz?
Regulation low, cost of lending/managing low interest rates for lending low, investing interest rates high
Remember those deposit requirements? Not applicable for eurocurrencies…
With high rewards comes higher risks for investors (depositors)…
Bonds with fancy names
Foreign bonds – sold outside the borrower’s country but in local currency (e.g., GE bonds sold in Switzerland in CHF)
Eurobonds – bonds underwritten by and international syndicate of banks and sold in countries other than the one is whose currency the bond is denominated (e.g., P&G selling bonds in USD outside of the US)
Global Capital Markets: Too Good to Be True?
Don’t forget currency risks! These can be offset through:
Currency swaps Future exchange contracts
Things to Consider…
Exchange rate risk Availability of capital domestically Effects on cost of capital (Future) intentions of raising capital in new markets
(China Mobile, Brazil Gol) Direct listing vs ADR Debt vs Equity Reporting and tax requirements and implications
Financial Management in Int’l Business
Financial managers focus on: Investment decisions – what to finance? Financing decisions – how to finance? Money management decisions – what’s most
efficient and will provide the best return? Tax decisions – what tax regime is most favorable? Difficult enough domestically – managing
internationally adds a whole new layer of complexity
Financial Management in Int’l Business
Make sure to review articles and Ch 20: “The Finance Function in a Global Corporation” China Mobile Case Brazil Gol Case
Investment Decisions
Decide what projects or investments will provide the highest return, often measured in terms of net present value (NPV)
Show me the money: when assessing projects, NPV isn’t the only concern – remember that cash is (usually) king consider project cash flows, too
Don’t forget to incorporate all the risks (political, economic, etc.)!
Financing Decisions
Raising capital and keeping costs low Must consider both local, national and global capital
market options Debt versus equity – consider the advantages of both:
Debt usually involves more known costs and may be payable in the instance of bankruptcy
Equity involves selling ownership of the companyTax benefits often greatest when using debtExchange rate movements affect choices
Money Management
Bags of cash “under the mattress” are not earning companies money – financial managers must judiciously hold cash
Tradeoff between liquidity and returns Don’t run cash balances too close to zero –
firms need cash for notes payable and unexpected events
Certainties in Life: Death and Taxes
Watch out for double taxation, which occurs when host and home countries tax foreign subsidiaries
Tax credits, treaties and deferrals are complicated – hire a good accountant
Tax havens coming under fire from the Obama administration and the G-20
Other Financial Issues
Transfer costs – moving money around costs money
Dividends – foreign subsidiaries often remit earnings in the form of dividends
Transfer prices – the prices firms charge internally to transfer goods and services
Bilateral and multilateral netting – reduce transfer payments to settle debts (see pg 690)
Bilateral and Multilateral Netting
If a Mexican subsidiary owes a French sub$4M and the French sub owes the Mexican sub $6M, the French sub could pay the Mexican sub $2M and call it even
The same logic applies to multiple foreign subsidiaries to arrive at multilateral netting check out page 690 for a good diagram
Other Topics
You also requested these topics: Toyota Production System – see the article on the
course website and the article in the book CSR – see Erik’s slides on the website Marketing – think back to Aldi and review Ch 17 Human Resource Management – think back to Molex
and review Ch 18 Cumulative concepts – review your midterm and make
sure understand the fundamentals
Keys to Success
Use your time wisely On short answer questions:
Completely answer the questions being asked Write legibly Organize your thoughts – we must be able to understand your answers Create answer outlines if you need help organizing (but don’t forget to
write out your answer!) Demonstrate your understanding – go beyond the superficial answer
and show depth of knowledge Bulleted answers usually not sufficient
The Five Essential Takeaways from UGBA 178
1. Global firms must find an appropriate mix of globalization and localization in their strategy and operations.
2. Developing countries are increasingly important in international business as markets, production sites, and sources of capital.
3. Supply chain integration resulting in fast and lean partnerships with suppliers and customers is critical to success of global firms.
4. High quality and efficient production is possible anywhere in the world by using modern production methods.
5. Sustainable business practices (environmental and working conditions) have become essential to global success.