7.2 The Global Economy

1. 7.2 The Global Economy • Objectives: • Understand impact of NAFTA on trade in North America • How Managers decide to enter into the Global economy • Challenges working in a different culture

2. International Regions North America Region Europe Middle East Africa Asia Pacific Caribbean And Latin America

3. 7.2 The Global Economy • Political changes beginning in the 1980s across many countries – China, Russia, United States • Created by countries opening their borders to foreign companies • Free Trade Areas eliminated restrictions - NAFTA • Influenced by technology and the Internet

4. 7.2 The Global Economy • Free Trade Areas eliminated restrictions • 1994 North America Free Trade Agreement • United States, Mexico, and Canada free to trade with minimal restrictions or tariffs • USA – increased imports of clothes and exports of food and cars • Mexico and Canada – lower labor costs (Outsourcing jobs from USA) • Fact: Chrysler has factories in Canada and Mexico

5. 7.2 The Global Economy • Companies are going Global because: • Expands sales opportunities • Provides protection from economic slowdown in a single market • Reduce costs – manufacturing, salaries, materials • Competition • Is quality of goods always part of buying decision?

6. 7.2 The Global Economy • Forms of International Operations • Foreign Intermediary is a wholesaler or agent marketing a foreign companies products – common in Poland and Russia • Licensing Agreements used to partner with a foreign company to sell another companies goods and services. Many restaurants use License Agreements (TGIF)

7. 7.2 The Global Economy • Forms of International Operations (cont.) • Strategic Alliances used to pool resources and skills with a foreign company. • Used to enter new markets • Leverage another companies name or reputation • Share research, technology, and knowledge of market and culture • Expand product portfolio – Daimler Chrysler

8. 7.2 The Global Economy • Multinational Corporations establish a presence in foreign countries • Manufacturing and distribution facilities • Most major corporations are now considered multinational! • Expand markets and reduce costs!

9. 7.2 Case of Lucent Technologies • Manufacturing arm of AT&T – one of the last Monopolies • Spun off as a separate company in 1996 • Owned factories all across USA • Most customers were in USA • USA Markets slowed down and competition increased – expanded internationally • Factories were consolidated to reduce costs • Contract manufacturers were hired and moved factories to Mexico and Canada • Integration centers opened in South America, Ireland, Poland, and China • How do you think the economy of the USA was affected?

10. 7.2 Challenges of Working Internationally • Understanding local laws • Respecting local customs and religions • Time Zones, Holidays, Travel • Cultural differences – role of women, rank within company • Business Customs – dress codes, Boss vs. Coach, Gifts vs. Bribes

11. Country’s Culture • Culture • Learned set of assumptions, values, and behaviors • Accepted as successful • Passed on to newcomers • Begins when a group of people faces a set of challenges • Evolves and changes with time

12. Cultural Dimensions

13. Cultural Dimensions: Power Distance • Extent to which people accept power and authority differences among people • High power distance = people accept power differences • Low power distance = people like to regard themselves as more or less equal Power Distance Cultural Dimensions

14. Cultural Dimensions: Uncertainty Avoidance • Extent to which people can accept uncertainty or ambiguity • High uncertainty avoidance = prefer clear norms that govern behavior (i.e., avoid uncertainty) • Low uncertainty avoidance = have fewer rules and are comfortable in ambiguous situations (i.e., can accept uncertainty) Uncertainty Avoidance Cultural Dimensions

15. Cultural Dimensions: Individualism/Collectivism Individualism: • Extent to which people’s identities are self-oriented; people take care of themselves and immediate family • High emotional independence • Emphasize and reward individual achievement Collectivism: • Extent to which a people’s identities are a function of the group(s) to which they belong (family firm, community, etc.) • Emotional dependence on institutions • Emphasize group membership Cultural Dimensions Individualism/ Collectivism

16. Cultural Dimensions: Gender Focus • Extent to which people in a country value masculine or feminine traits • Masculine = activities leading to success, money, possessions • Feminine = activities showing caring of others and enhancing quality of life Gender Focus Cultural Dimensions

17. Cultural Values and Scores • Higher scores indicate higher power distance • Higher scores suggest more uncertainty avoidance • Higher scores indicate greater collectivism • Higher scores suggest greater gender equality; lower scores indicate • male domination Adapted from Exhibit 3.2

18. Cultural Values and Scores (cont.) • Higher scores indicate higher power distance • Higher scores suggest more uncertainty avoidance • Higher scores indicate greater collectivism • Higher scores suggest greater gender equality; lower scores indicate • male domination Adapted from Exhibit 3.2

19. Based On The Culture Value And Scores On The Two Previous Slides, Get In Partner Pairs, And Pick One Of The 12 Countries (1st Mover Advantage!!) Locate 2 Popular Products That Exist Within That Country Currently Based On Your Research, Connect Why This Product Is Successful To Their Scores On The Values Table. Your Work Should Be Submitted in MS Word. Put A Copy In Your Binder! How culture impacts…assignment

20. The Bottom-line! • International Business is a fact of life! • Grow sales by expanding into new markets – raise stock price! • Reduce costs to beat the competition! • Diversify into new markets to minimize impact of economic slowdown!