Chapter 4 Managing Globally
Learning Objectives • State several characteristics of the global economy. • Describe how a country’s culture can affect an organization's business practices. • Explain the impact of political–legal forces on international business. • Discuss how three major trade agreements affect global competition. • Describe six strategies used by in international business.
Global Economic Trends(adapted from Table 4.1) • Foreign exchange rates • Importance of exports and imports • Expanding nature of trade • Worldwide communication • Borderless organizations • Worldwide labor pool
Five Aspects of Culture(adapted from Figure 4.1) Cultural Distance Culture Value Systems Social Change Language Time Orientation
Managerial Implications of Power Distance Differences(adapted from Table 4.2)
Aspects of Distance Different languages Different ethnicities Different religions Different social norms Industries Affected by Cultural Distance Include: Consumer foods Tobacco products Products that have high linguistic content (TV) Auto (size, features) Examples of Cultural Distance and Industries Affected by It(adapted from Table 4.3)
Political-Legal Forces • Political risk is the probability that political decisions or events in a country will negatively affect the long-term profitability of an investments.
Low Low Domestic Instability High High Foreign Conflict Stable Political Climate Unstable Stable Unstable Economic Climate Noncorrupt Corruption Corrupt Assessing Political Risk(adapted from Figure 4.3)
Political Mechanisms • Protectionism - refers to the many mechanisms designed to help home-based industries or firms avoid or reduce potential or actual competitive threats from abroad. • A tariff is a government tax on goods or services entering the country. • A quota is a restriction on the quantity of a country’s imports and sometimes exports. • A subsidy is a direct or indirect payment by a government to domestic firms to make selling or investing abroad cheaper for them. • A cartel is an alliance of producers engaged in the same type of business that is formed to limit or eliminate competition and control production and prices.
Political Mechanisms • A bribe is an improper payment made to induce the recipient to do something for the payer. • Extortion is a payment made to ensure that the recipient doesn’t harm the payer in some way.
Global Trade Agreements • The World Trade Organization was established in 1995 as an outgrowth of the General Agreement on Tariffs and Trade (GATT). • North American Free Trade Agreement • European Union
Strategies for International Operations(adapted from Figure 4.4) High Global Multidomestic Alliances Complexity Franchising Licensing Exporting Low Low High Resource Commitment
Strategies for International Operations • Exporting:-It involves producing a good at home, and then shipping it to another country. • Licensing:- It involves an enterprise licensing a foreign firm to produce its product in a country or region in return for royalty fees on any sales that licensee makes. • Franchising:- It is similar to licensing, but here what is licensed to the foreign enterprise is not the right to produce a physical good, but the right to offer a service in a particular format.
Alliances:-are agreements between a firm and its foreign partners to establish a new enterprise. Generally, the firms which emerged by alliances are termed as Joint Ventures. • Multidomestic:- It is adopted as mean of operation where firms deals in consumers goods. It is used when there are high pressures for local responsiveness and low pressures for cost reductions • Global:- The firms operate globally through wholly owned subsidiaries which are foreign subsidiaries that have 100 % owned by global firms. Strategies for International Operations