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MGMT Chuck Williams. Chapter 8 Global Management. Designed & Prepared by B-books, Ltd. What Is Global Business?. After reading this section, you should be able to:. discuss the impact of global business and the trade rules and agreements that govern it. What Is Global Business?.

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chapter 8 global management

MGMT

Chuck Williams

Chapter 8Global Management

Designed & Prepared byB-books, Ltd.

what is global business
What Is Global Business?

After reading this section, you should be able to:

  • discuss the impact of global business and the trade rules and agreements that govern it.
what is global business3
What Is Global Business?

Global Business

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

1

the impact of global business

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.

The Impact of Global Business

1.1

trade barriers
Trade Barriers

Tariff

Quotas

Voluntary export restraints

Nontariff Barriers

Government import standards

Government subsidies

Customs valuation / classification

1.2

trade agreements
Trade Agreements

General Agreementon Tariffs and Trade

Maastricht Treaty of Europe

NAFTA

Regional Trading Zones

CAFTA

ASEAN and APEC

1.3

slide9
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

1.3

world trade organization

Web Link

http://www.wto.org

World Trade Organization
  • Functions:
  • Administering WTO trade agreements
  • Forum for trade negotiations
  • Handling trade disputes
  • Monitoring national trade policies
  • Technical assistance and training for developing countries
  • Cooperation with other international organizations

Location: Geneva, Switzerland

Established: 1 January 1995

Created by: Uruguay Round negotiations (1986-1994)

Membership: 153 countries (as of 23 July 2008)

Budget: 185 million Swiss francsfor 2008

Secretariat staff: 625

Head: Pascal Lamy (director-general)

1.3

Adapted from Fact File

maastricht treaty of europe

Web Link

http://europa.eu.int/

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

1.3

nafta

Web Link

http://www.export.gov/fta/nafta/doc_fta_nafta.asp/

NAFTA
  • North American Free Trade Agreement between Canada, United States, & Mexico
  • Liberalizes trade among these three nations
  • Eliminates most tariffs and barriers

1.3

cafta and usan
CAFTA and USAN
  • Central American Free Trade Agreement
  • Union of South American Nations
  • Fastest-growing place for U.S. exports.
  • Common infrastructure to support trade.

1.3

asean and apec

Web Link

http://www.aseansec.org

http://www.apecsec.org.sg

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)

1.3

consumers trade barriers and trade agreements
Consumers, Trade Barriers, and Trade Agreements

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

  • The U.S. marketplace is easiest for foreign companies to enter AND the competitive market between domestic and foreign companies keeps prices low.

1.4

consumers trade barriers and trade agreements16

Increase:choicescompetitionpurchasing power

Free Trade Agreements

Decrease price of:food

clothing

necessities

luxuries

Consumers, Trade Barriers, and Trade Agreements

1.4

how to go global
How to Go Global?

After reading these sections, you should be able to:

  • describe why companies choose to standardizeor adapt their business procedures.
  • explain the different ways that companiescan organize to do business globally.
consistency or adaptation

GlobalConsistency

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

Local Adaptation

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

Consistency or Adaptation?

2

local adaptation aided by advertising

Beyond the Book

Local Adaptation Aided by Advertising
  • McCann, an international advertising firm, is helping companies like Nestlé market their products globally.
  • The target is people at the bottom of the economy, who live on $350-700/month.
  • Nestlé hopes to sell fortified powdered milk, but local perception in Latin America sees powdered milk as for babies and too expensive for families.
  • McCann must help companies like Nestlé locally adapt their product promotion to overcome such stereotypes.

Source: A. Regalado, “ McCann Offers Peek at Lives of Low-Income Latins,” The Wall Street Journal, 8 December 2008, B6.

forms for global business

Exporting

CooperativeContracts

Wholly OwnedAffiliates

StrategicAlliances

Forms for Global Business

GlobalNew

Ventures

3

american apparel competes against outsourcing

Beyond the Book

American ApparelCompetes against Outsourcing
  • Because of low labor costs, 20 percent of textiles globally are imported from China—and 42 percent from Asia on the whole.
  • American Apparel, the largest garment manufacturer in the United States, pays its workers $12-13 per hour and medical benefits.
  • Building a brand around ethics alone doesn’t make American Apparel profitable. For example, only 10-12 percent of Americans buy a product because it is environmentally sound.
  • But selling its clothes using an “image soaked in youth and sex” makes American Apparel profitable…and ethical.

Source: R. Walker, “American Apparel’s New Image,” Fast Company, 9 May 2008.

exporting

Advantages

  • Less dependence on home market sales
  • Greater degree of control over research, design, and production decisions
Exporting

3.1

exporting23

Disadvantages

  • Many exports are subject to tariff and nontariff barriers
  • Transportation costs can increase price
  • Companies may depend on foreignimporters for product distribution
Exporting

3.1

cooperative contracts

Licensing

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

Franchising

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

Cooperative Contracts

3.2

licensing

Advantages

  • Allows companies to earn profits withoutinvesting more money
  • The licensor invests in production equipment and facilities
  • Helps companies avoid tariff and nontariff barriers
Licensing

3.2

licensing26

Disadvantages

  • Licensor gives up control over quality of the product or service sold by the foreign licensee
  • Licensees can eventually become competitors
Licensing

3.2

franchising

Advantages

  • Fast way to enter foreign markets
  • Good strategy when a company’sdomestic sales have slowed
Franchising

3.2

franchising28

Disadvantages

  • Franchisors face a loss of control
  • Franchising success may be culture-bound
Franchising

3.2

strategic alliances

StrategicAlliance

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

Joint Venture

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

Strategic Alliances

3.3

joint ventures

Advantages

  • Help companies avoid tariff and nontariff barriers to entry
  • Participating companies bear only partof the costs and risks
  • Advantageous to smaller local partners
Joint Ventures

3.3

joint ventures31

Disadvantages

  • Companies must share profits
  • A joint venture represents a merging offour cultures
  • With equal ownership, power struggles and a lack of leadership may occur
Joint Ventures

3.3

wholly owned affiliates build or buy
Wholly Owned Affiliates (Build or Buy)

Advantages

  • Parent company receives all of the profits and has complete control

Disadvantages

  • Expense of building new operationsor buying existing business
  • Losses can be immense if the venture fails

3.4

global new ventures
Global New Ventures

Quick, reliable air travel

Low-cost communication technologies

Critical mass of experienced businesspeople

3.5

common factors of global new ventures
Common Factors of Global New Ventures

Global vision is developed and communicated

Several foreign markets are entered at the same time

3.5

where to go global
Where to Go Global?

After reading these sections, you should be able to:

  • explain how to find a favorable business climate.
  • discuss the importance of identifying andadapting to cultural differences.
  • explain how to successfully prepare workersfor international assignments.
growing markets
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

4.1

choosing an office manufacturing location
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 costs

4.2

world s best cities for business

United States

1. Washington

2. Atlanta

3. Phoenix

4. Houston

5. Minneapolis-

St. Paul

Latin America

1. Santiago

2. Miami

3. Sao Paulo

4. Monterrey

5. Mexico City

Europe

1. London

2. Paris

3. Frankfurt

4. Barcelona

5. Amsterdam

Asia Pacific

1. Shanghai

2. Beijing

3. Shenzhen

4. Bangalore

5. Mumbai

World’s Best Cities for Business

4.2

minimizing political risk
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

4.3

bp ceo leaves russia

Beyond the Book

BP CEO Leaves Russia
  • British-based BP has a joint venture with Russian partners, TNK-BP.
  • Change in Russian government, including new president Dmitry Medvedev, means new focus on “rule of law” and an effort by the Kremlin to put TNK-BP under control of the nationalized oil company Gazprom.
  • Members of the British board accuse TNK-BP’s Russian shareholders of putting administrative pressure on the company, including denial of a work visa for TNK-BP president Robert Dudley, who consequently had to leave Russia.

Source: G. Chazan, “Head of BP Venture, Citing Harassment, Leaves Russia,” The Wall Street Journal, 25 July 2008, B1.

becoming aware of cultural differences

National Culture

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

Becoming Aware of Cultural Differences

5

becoming aware of cultural differences45
Becoming Aware of Cultural Differences

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

5

© Mahmoud Mahmoud/AFP/Getty Images

becoming aware of cultural differences46

Cultural Dimensions (Geert Hofstede)

Becoming Aware of Cultural Differences
  • Power distance
  • Individualism
  • Masculinity and femininity
  • Uncertainty avoidance
  • Short-term/long-term orientation

5

cultural differences
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

5

preparing for an international assignment

Expatriate

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

Preparing for an International Assignment

6

preparing for an international assignment50
Preparing for an International Assignment

Language andCross-Cultural Training

Considerationof Spouse, Family, and Dual-Career Issues

6

language and cross cultural training
Language and Cross-Cultural Training

Documentary Training

Cultural Simulation

Field Experiences

6.1

spouse family and dual career issues
Spouse, Family, and Dual-Career Issues

Adaptability Screening

Intercultural Training

6.2