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Global Economy (International Business)

Global Economy (International Business). Importance to DFW Area Why TXU Went International How TXU Decided Where to Enter (the Strategy) What TXU Has Learned in Order to Be Successful (the Execution). Global Economy Importance to DFW Area.

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Global Economy (International Business)

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  1. Global Economy(International Business) • Importance to DFW Area • Why TXU Went International • How TXU Decided Where to Enter (the Strategy) • What TXU Has Learned in Order to Be Successful (the Execution)

  2. Global EconomyImportance to DFW Area • Foreign trade in DFW totaled over $23 Billion in 1999, up from $16 Billion in 1997. • Nine Fortune Global 500 companies (and 10 additional Fortune 500 companies) are headquartered in DFW. DFW was ranked number one for international corporate location (by AA in 1997). • The number of foreign destinations served out of DFW Airport has more than doubled from 1990 to today. International air service yields $2.3 Billion to the local economy. This is expected to double by 2005. • Wholesale and retail trade is the second largest employment sector in Dallas, with 24% of the jobs. • If DFW were a country, we’d rank 24th in the world economy.

  3. Why TXU Went International • A way to diversify our market risk (financial & operational) • A way to learn “hands on” about deregulated energy markets • Leverage TXU management and technical expertise related to energy business (economies of scale and operational synergies) • Opportunity for growth and adding to shareholder value given international market deregulation compared to US

  4. Global Business DriversFor Other Industries • Global Products -- Leverage Brand • Joint Resources -- Move Work to Other Countries • Rationalized/Flexible Operations -- Production Capabilities • Suppliers -- Economies of Scale and Delivery or Scarcity • Corporate Customers -- Are They Global?

  5. TXU Transformation of Assets(From Texas Only) 1994 100% Total - $24.2 Billion

  6. TXU Transformation of Assets(From Texas Only) 2000 6% Resulting from 36% 44% Successful Strategic Acquisitions 7% 7% US Electric $15.2 Billion US Gas 2.4 Billion US Energy 2.4 Billion Europe 12.4 Billion Australia 2.0 Billion TOTAL $34.4 Billion

  7. $25,000 $20,000 $15,000 $10,000 $5,000 $0 1995 1996 1997 1998 1999 2000 TXU Operating Revenues 12 Months Ended 22,009 17,118 14,736 Millions of Dollars 7,946 6,551 5,639 US Electric Australia US Gas US Energy Communications/Other Europe

  8. How TXU Decided WhereTo Enter (The Strategy) • Stable economies and currencies • Growth potential • Rational government, regulatory and legal structure • Limited barriers to competition and foreign investment • Financial returns that are compelling (a good deal)

  9. Merchant Energy Model Portfolio Optimization Upstream Downstream Commercial & Industrial Power Generation Merchant Trading & Portfolio Management Residential & Small Business Gas Supply Wholesale & Alliances Contracts Strategy: TXU will achieve excellent operations of significant scale in selected regions, which optimize a portfolio of assets, capabilities and customer relationships across multiple products and services.

  10. Support ProcessesDriven by the needs of the GEM business Global Management Processes Support Processes • Transactional • scale, standardisation • Require specialized or specific knowledge • Examples - HR payroll, IT service Portfolios Australia Central Europe Midwest Nordic Northeast Texas UK Others Global Portfolio Processes Functional Processes Support Processes

  11. Critical Success Factors forInternational Business Operation • Dealing in different languages • Dealing in same language, but with different semantics • Dealing with different business cultures/practices • Dealing with different social cultures • Maintaining favorable laws/regulations • Currency management • Country infrastructure (communications, work force skills, …) • Managing time differences and travel

  12. Keys to Implementation • Don’t assume anything • Have company “IT” infrastructure in place to support communication and management control • Make effective use of business partners/alliances • Make sure “all” cultures are represented in the management team and staff

  13. Global Business Success • Same problem as domestic -- just different scale and more barriers

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