BA 447 TOPICS IN INTERNATIONAL BUSINESS

1. BA 447TOPICS IN INTERNATIONAL BUSINESS Instructor: Manolete V. Gonzalez

2. Four Basic Strategies

3. Examples of companies pursuing a global strategy • International strategy • Proctor and Gamble and Xerox • Develop products at home, establish manufacturing and marketing functions in each major country or region. • Multi-domestic or localization strategy • MTV • Global (standardization) strategy • Example: Intel, Motorola, Texas Instrument • market a standardized product worldwide, products which serve universal need. • Transnational strategy • Caterpillar

4. Different Companies, Different Configuration • S.C. Johnson & Sons • LG • NIKE

5. Example of international strategy: S.C. Johnson & Sons, Inc. • 119-year-old, fifth-generation, family-owned and managed. • 12,000 employees in 70 countries, US headquarters. • Leading manufacturer of consumer household products. • Manufactures in over 20 countries, markets to over 110. • $6.5 billion in annual sales.

6. A Brief History of LG • Established in 1958 as Goldstar, a pioneer Korean electronics manufacturer • In 1995 company name was changed to LG Electronics, acquired US-based Zenith • Joint venture with Philips in 1999 • As of 2004, annual sales of US $38 billion, over 66,000 employees (32,000 in Korea) in 76 subsidiaries in 39 countries

7. LG likes to vertically integrate… • LG.Philips • Operates vertically integrated plant - research and development, parts, and materials companies as well as the finished products • LG Chem • Vertically integrated since 1991 after merging LG Advanced Materials, LG Polychemical, and LG Pharmaceutical • LG Telecom • Network provided by Cisco Systems, Inc.

8. Categories Running Basketball/Brand Jordan Training/Walking Soccer Cleated/Golf Outdoor Tennis Active Life Kids Factories Korea Taiwan China Thailand Vietnam Indonesia Italy Transnational example: NIKE

9. Pusan, ROK/China Fuzhou, Putien and Shanghai, China Taichung, Taiwan Guangzhou, China Bangkok, Thailand Jakarta, Indonesia Where We Manufacture Italy Qingdao, China Ho Chi Minh, Vietnam

10. Our World - The Manufacturing Pie • Currently contract approximately 37 Factories • 5 Manufacturing Leadership Partners (T2, PC, FT, PA, CS) Represent Approx. 50% of NIKE Capacity

11. A Factory • LN (made up of 4 sub-factories) • Average Capacity 1.2 million pr/mo • 25 Lines • Models per PO: 60 SKU • Average Daily Output 43,000 prs per day • Number of Employees 25,000 +

12. Moving forward • We will discuss Friedman and issues that emerge as we talk about the book • We will always return to global strategy, asking what do these mean for a specific strategy. • We will attempt to raise additional questions.

13. Related Concepts/Theories • Theory of comparative advantage • Tariff and non-tariff barriers

14. Theory of comparative advantage • Simply stated: two countries are ahead in terms of providing for the common good, if • Each country produces a product where it has comparative advantage, i.e. land, skills, etc. • Uses the revenues to purchase other products • Factors of production have changed • Labor costs and skill • Transportation costs • Communication and reduction of lead times

15. Tariff and non-tariff barriers • Tariff duties are levied on incoming products, has the effect of increasing cost • Non-tariff barriers come in different forms; the intent is to protect local production • Related issues • WTO • Relative influence of industry groups in each country • Political stability: impact on cost of doing business

16. Symptoms of a “flat world” • Accounting: basic returns done in India, tax and financial planning done in US • News reporting: wire service (write basic news) is outsourced, analysis in US • Medicine: analysis of CAT scans by trained radiologists? • Key: any activity whose value chain can be digitized, decomposed, and moved around, will be moved.

17. More call center stories • At take home pay of $200 per month, Indians can live well and at home. No need to migrate • Try the statement on p 27 • R&D? 1000 patent applications with US patent office from Bangalore units of Cisco, Intel, IBM, TI, GE . .

18. And it is not just “us and them” • Japanese speaking Chinese do work for Japanese companies • Outsourcing conversion of hand drawings into digital blueprints – Malaysia and Philippines • Home sourcing in UTAH • McDonald’s drive through orders

19. Flat World • The notion of a flat world suggests a challenge to how we think of things • Globalization 1.0 (1492-1800): after discovery that the earth was round, and big, exploration/expansion shrank the world • Globalization 2.0 (1800 – 2000): multinationals followed their countries • Globalization 3.0 (2000- ): individuals of diverse backgrounds able to collaborate and compete globally

20. The world is flat . . . (Friedman) • Three converging developments • A global, Web-enabled playing field that allows multiple forms of collaboration • Gradual adaptation of organizations through horizontal collaboration in the value creation process • Opening of economies like China, India, Russia, and in Eastern Europe, Latin America, and Central Asia to the world economy – 3 billion people

21. What are assumptions Friedman makes? • These are relevant to global companies • Political stability • All 3 billion have ready access to technology, knowledge, etc.? • Products, services, or portions thereof can be shipped by or facilitated by the internet • Tariffs and other entry barriers will continue to decline • What else?

22. Studying “Issues” Before we jump to conclusions . . .

23. Examples of Global “Issues” • Some examples: • Terrorism • Unfair labor practices and multinationals • Global Warming • Waste, particularly e-waste, and developing countries • Resource constraints, e.g. oil, water • Genetically modified products

24. When Studying or Seeking to Understand an Issue/Topic • There is an objective reality out there. • We can only infer the “truth” through collection and examination of data, evidence, etc. • Science is about inference from available data • Subject to different interpretation • There are usually overarching, presumably socially desirable objectives, for example: • Global peace, • Right to self rule, • Preserve environment for future generations, • Feed world’s poor, • Science and technological development as a good.

25. When Studying or Seeking to Understand an Issue/Topic • Define the “objective reality.” Tell the story without making a value judgment. • Describe the scope and dimension of the issue. • Examine different perspectives of the issue. • Who are the key players or stakeholders? What are their interests? • What are the conflicts inherent in the issue? • How might these conflicts be resolved?

26. “Objective Reality” • Describe the “story” as objectively as possible. • Get the story from different sources to avoid bias. • Avoid interpretations of experts as to “what is really happening.”

27. Define the Scope and Dimension • Is this global, regional issue, or country-specific? • Are there implications beyond the regional or country that makes it larger than it sounds? • Get data: provide numbers to give an idea of the scale of the issue.

28. Different Perspectives • The popular press sometimes picks up on one but forgets or minimizes another. • Economic perspective: this can range from business aspect, e.g. what is gained from importing ewaste into a developing country, to national aspect, e.g. what is the contribution to national income of a developing country of outsourcing. • Religious perspective: this can range from conflicts involving two religions, e.g. Hindus and Muslims, to conflicts within religions, e.g. Shiites and Sunnis. • Social perspective: some issues contain or involve conflicts across different races, cultures, ethnicities, etc. • Political perspective: who or what are the key political social groups involved in the conflict and how might they gain or lose from possible resolutions of the conflict. • Technological perspective:

29. Different Perspectives: Also consider • Historical perspective: most issues of a social or political nature are best understood from the perspective of history. For example, did you know that Iraq was carved out of the Ottoman Empire only after World War II? Grouping Kurds, Shiites, and Sunnis into one political entity was a decision by the allied powers.

30. Stakeholders or Interest Groups • Who are most affected by a resolution of the issue? The different perspectives provide a better idea of players and stakeholders. • Understand what each stakeholder can gain or lose from the issue.

31. Stakeholders: example • Stakeholders will have different needs, goals • In the case of unfair labor practice charges against NIKE, some examples: • Senior Managers and stockholders of NIKE • Consumers/customers • Employees of NIKE (Beaverton) • Sub-contractors (separate, legitimate companies) • Employees of sub-contractors (overseas) • Distributors of NIKE products • Governments (where produced and sold) • Families, communities supported by plants

32. Conflicts • Most issues have inherent conflicts, and can explain why they remain unresolved or difficult to resolve. • While most conflicts have numerous stakeholders, it is often important to determine which stakeholder has the means or resources to influence the outcome of the conflict. Or is already spending resources to do so.

33. Conflicts and Ethical Models • Try using ethical models as a way of understanding the conflicts inherent in the issue: who are at an advantage? disadvantaged? • Utilitarian - the good of as many stakeholders. • Justice - fair treatment for as many stakeholders as possible • Moral rights - protect rights of as many stakeholders • An important question to resolve is by what criteria to we judge “fair treatment”, “rights”, what is “good” for a person in another country.

34. Ethical and Illegal Decisions • There is a difference between unethical and illegal acts. • Issues can be seen to be unfair to some stakeholders but allowed under the law. • The influence of lobby groups in Washington, DC are governed by laws. • Planting of genetically modified seeds are governed by regulations.

35. Resolution of Conflict • Issues evolve towards closure when inherent conflicts are resolved. • Some conjecture as to what players can or will do can help figure out how the conflict can be resolved. • Reading up on what experts think can be helpful. (After going through the preceding analysis, one can accept or reject their opinion on the basis of sound judgment.)

36. Legal and Regulatory Venues Where Issues are Resolved • US government (Judicial, Legislative, Exec, either by regulation or vote) • European government (same) • WTO • Member countries • The institution itself and its parts • The force of public opinion can influence decisions in these venues. • Vehicles by which public opinion can be harnessed • Industry associations • NGOs representing various interests • Grass roots movements that become organized

37. Given “Hat” You Wear • For example, are you a concerned citizen, stockholder/manager, member of a NGO? • Understand the issue, including arguments from “other side.” • Who are the stakeholders directly involved? With most to gain or lose? What do they have at stake? • If you are taking the offensive, in what venue is the issue best resolved? Judicial system? Parliament? Make a lot of noise at meetings? • If you are on the defensive, what tactics are being employed? In what venues?

38. Example of Using Different Perspectives • Understand the economics behind the issue or conflict? For example, why do workers flock to factory locations in China? Vietnam? What is “profitability” of shipping e-waste? to whom? • What is the political and/or economic “price” in winning sectarian “war” in Iraq? “costs” to participants? • What is the history between Iran and Great Britain?

39. Genetically Modified Seeds • The uncertainty over the effects of planting these seeds is at the core of the discussion on whether these seeds should be sold or not. Each side to this debate has done its own studies. • It is important to understand that legal decisions may not necessarily support what is ethically desirable.

40. Role of WTO • Formulate and implement set of rules and procedures to govern international trade. • Provide a mechanism by which governments and companies with global operations, through their governments, to ensure that products and services are given equal treatment.

41. GMO “Battle Grounds” • Harnessing public opinion through websites, press releases, etc. • Vote through stock market, i.e. do not buy stock • Courts, e.g. TRO in Brazil, • Regulatory, e.g. in the US a threatened law suit caused EPA to back off • Legislature, e.g. ban by EU parliament • The US has resorted to the WTO on the premise that the EU ban violates WTO agreements. • Examples of stakeholders and their goals • Monsanto stockholders? • European farmers? • US farmers who are already invested? • Consumers who see the science differently? Budget?

42. Article on Venezuela Inc. • Friedman discusses privatization in a later portion of the book as a reform tool. • What questions does article raise on • the use of privatization as a “reform” tool? • how Venezuela is governed? • what risks does this mean to a global company, like Verizon? • other, more profitable forms of privatization? • Value of privatization to a developing economy?