Themes and Resources for Teaching International Business S. Tamer Cavusgil

1. Themes and Resources for Teaching International Business S. Tamer Cavusgil University Distinguished Faculty John W. Byington Endowed Chair in Global Marketing Michigan State University 7th Biennial International Business Institute for Community College Faculty East Lansing, Michigan, May 2007

2. The Agenda • Globalization and its implications • Key Trends in Global Business • Implications for Management • Learning resources • Teaching tips and classroom exercises • Course design • Helpful publications

3. Themes for Teaching IB Globalization Industry Technology Culture Service Sector Offshoring Collaborative Ventures Emerging Markets Diverse Participants Strategy Smaller Firms in IB International Entrepreneurship

4. What is Globalization? • At the macro level… • Greater integration and interdependency of national economies • Freer movement of goods, services, capital, and knowledge • Prevalence of regional trading blocs • Emergence of monetary unions • Convergence of customer lifestyles, requirements, etc.

5. What is Globalization? • For business enterprises… • Foreign market entry and expansion • Selective externalization of value chain • Collaborative ventures with foreign partners • Integration of operations on a global scale • Building global capabilities and a global organization

6. The Many Dimensions of Globalization • Value-adding activities • Companies – The business enterprise • Products and brands • Economic assets • Business risks • Industries • Countries, markets • Regulations, laws, standards • Cultural values, mindsets, consumer behavior • Business practices

7. Phases of Globalization 1st Phase: 1830, peaking around 1880 Aided by railroads, ocean transport, rise of manufacturing and trading companies 2nd Phase: 1900, peaking around 1920s Fueled by electricity and steel 3rd Phase: 1948, peaking around 1970 GATT, end of WW II, Marshall Plan… 4th Phase: 1980, peaking around 1997 Tech. advances, Internet, Emerging Markets…

8. Globalization Trends • Global economic realignment • Geography made redundant by technological connectivity • Consolidation of industries on a worldwide scale • Strains on natural resources and the environment • Remarkable growth and potential of Emerging Markets…

11. Emerging Market Dynamics • Source of customers, suppliers, ideas, and human capital. • One billion new consumers will enter the global markets in the next decade! • Household income will reach threshold level of $5,000 in EMs. • Consumer spending will increase from $4 trillion to more than $9 trillion by 2015, nearly matching Western Europe.

12. Attractions and Challenges of EMs • Dynamic, rapidly transforming • Low competitive intensity • Dominated by family conglomerates • Political instability • Bureaucracy, redtape, lack of transparency • Legal, institutional vacuum • Safeguarding intellectual property • Cultural distance…

13. The Aspiring Consumer in EMs • Young demographics • Rapidly urbanizing • Middle class coming into its own • Engaged in technological leapfrogging • Exposed to Western brands • Rising expectations • Eager to consume material things • Highly brand conscious

15. Why GDP Per Capita is a Poor Indicatorof Market Potential for EMs? • Need to adjust for Purchasing Power Parity • Informal economy is often as large as the formal economy in developing countries • The “mean” is a poor indicator since income distribution is typically bi-modal in EMs • Household income several times larger than per capita income because of multiple wage earners • Developing country statistics may be unreliable • Typical exporter is more interested in a large enough “market niche” than huge potential

16. Implications for Management • Building interconnectedness: ‘global orchestration’ of value-chain activities • Exploiting knowledge • Search for maximum flexibility in manufacturing, sourcing and other value- adding activities • Relentless search for productivity gains and operational efficiency • Recognizing, cultivating, and measuring key global strategic assets of the organization • Gaining and sharpening partnering capabilities…

17. Stage in Value Chain Types of Collaboration Company Examples Strategic alliances Licensing/cross licensing Design contracting Global procurement Contract manufacturing Equity joint ventures (FDI) Agency agreements Licensing Exporting to distributors/ agents Franchising Exporting to end-users Business format franchising Agency/representative relationships Telecoms, computers, drugs, aircraft, satellite communication systems… Dow, Pharmacia-Upjohn Software, autos, fashion goods, shoes, furniture… Automotive Gerber (Novartis) IKEA, Guardian Industries Kmart, Manpower, Banks, Courier Services, Amway Research & Development Product Design Manufacturing Marketing Distribution Sales & Service

18. 2. Companies-The Business Enterprise Diagnostic tools from MSU CIBER: CORE, Distributor, Partner, Freight forwarder Business Week’s Global 1000; Fortune’s Global 500 Fortune Global Most Admired Companies Financial Times World’s Most Respected Companies UNCTAD World’s Largest Transnational Corporations

20. Nestle, Unilever, Asea Brown Boveri, Sony, Coca-Cola Global or Transnational Companies National or Multi-local Companies • Planning and resource allocation • Dependence on global markets • Worldwide manufacturing capability • Standardized products • Globally integrated strategy • Centralized structure and decision-making • Uniform operational policies and routines • Global organization and culture • Strong national identity • National endowments: talent pool, skills, capabilities • Unique corporate governance/ownership patterns • National regulations on employment • National patterns of investment in R & D

23. 3. Products and Brands Business Week – Interbrand’s Global Brands Scoreboard: World’s Top 100 Global Brands

24. 2003 Global Brands Scoreboard

25. 4. Economic Assets Flows of capital (investment, debt, portfolio investment, etc.), technology, know-how, human resources, etc. Delphion (patents), U.S. Patent Office

27. 5. Business Risk Economist’s Big Mac Index The concept of Purchasing Power Parity, the notion that a dollar should buy the same bundle of goods in all countries, is explained. Comparing actual exchange rates with PPP indicates whether a currency is under- or overvalued. MSU-CIBER’s Market Potential Indicators for Emerging Markets

28. Four Types of Risks  Weak Partner  Operational Problems  Timing of entry  Competitive intensity  Poor execution of strategy Commercial Risk Types of Risks in International Business Cross-Cultural Risk Currency/Financial Risk  Cultural distance  Negotiation patterns  Decision-making styles  Ethical practices  Currency exposure  Asset valuation  Foreign taxation  Inflationary and transfer pricing  Global sourcing Country (Political and Legal) Risk  Social/political unrest and instability  Economic mismanagement; inflation  Distribution of income; size of middle class  Government intervention, bureaucracy, red tape  Market access; barriers; profit repatriation  Legal safeguards for intellectual property right

29. 6. Industries Stat-USA (NTDB) Hoover’s Industry Snapshots U.S. Commercial Service

30. Market and Country Research • International Marketing Insight (IMI) Reports • Multilateral Development Bank (MDB) • Industry Sector Analysis Reports • Best Market Reports • Global Agriculture Information Network (GAIN) AgWorld Attaché reports • Country Commercial Guides

31. Aircraft (Civil) Computers Credit Cards Automobiles Soft Drinks Specialty Chemicals Pharmaceuticals (Ethical) Toothpaste Electric Insulation Commercial Banking Pharmaceuticals (OTC) Book Publishing High Low Strength of Competitive Globalization Drivers

33. 7. Countries, Markets IMD World Competitiveness Scoreboard World Economic Forum Global Competitiveness Report A.T. Kearney/Foreign Policy Globalization Index Heritage Foundation and WSJ Index of Economic Freedom

35. The World Competitiveness Scoreboard 2005 Source: IMD World Competitiveness Yearbook 2004 Blah

37. Economic Freedom and Wealth • Economic freedom explains from 54 to 74 percent of the variation in income among countries. • A 10% increase in economic freedom in a country can produce an increase in GNP per capita of 7.4% to 13.6%. CONCLUSION: The message is clear: enhancing economic freedom can lead to significant improvements in living standards.

38. 8. Regulations, Laws, Standards 8. Regulations, Laws, Standards Harmonization is a slow process when it comes to these…

39. 9. Cultural Values, Mindsets, Consumer Behavior Mercer HR Consulting Quality of Life Survey Freedom House Freedom in the World Survey Euromonitor Market Research Monitor

41. 10. Business Practices Property rights, ethics and bribery, negotiation styles, entrepreneurial initiative, collective bargaining, labor-management relations.…

43. The 2003 Corruption Perceptions Index for Major Emerging Markets

44. A

46. Is Globalization a Good Thing? The Critics • Benefits of globalization are not evenly distributed • Globalization causes dislocation of jobs • Wages for unskilled labor are declining • Manufacturing moves offshore to avoid workplace safety and health regulations • MNCs fail to protect the environment

47. Is Globalization a Good Thing? The Critics (cont.) • Power shifts to multinational corporations and supranational organizations; nations loose sovereignty • Concentration of power by multinational corporations leads to monopoly • International financial markets are inherently unstable • Globalization results in loss of national cultural values and identity

49. Skills for Global Manager • Cultural empathy / Open-mindedness • Tolerance for ambiguity • Perceptiveness • Premium on personal relationships. • Flexibility/Adaptability/Self reliance  • A good sense of humor • Warmth in human relationships • Curiosity

50. Learning Resources • The World is Flat: A Brief History of the Twenty-First Century by Thomas L. Friedman, New York: Farrar, Straus and Giroux, 2005. • The Next Global Stage: Challenges and Opportunities in Our Borderless World by Kenichi Ohmae, Pearson Education, Inc./ Wharton School Publishing, 2005. • Tectonic Shift: The Geoeconomic Realignment of Globalizing Markets by Jagdish N Sheth and Rajendra Sisodia, New Delhi:Response Books • The Culture Code: An Ingenious Way to Understand Why People around the World Live and Buy As They Do by Clotaire Rapaille, Broadway Books, 2006.