TOPICS IN INTERNATIONAL BUSINESS

1. TOPICS IN INTERNATIONAL BUSINESS BA 447 Instructor: Manolete V. Gonzalez

2. Ice breaker – on a sheet of paper • Name • Major • As a student of international business, what topic of a global nature interests you? For example, as you scan a newspaper, what article or news story would attract your attention?

3. Introduction • Learning Outcomes: • An awareness of numerous issues of a global nature that multinational enterprises face • An appreciation of the complexity of selected issues • Understand how multinational enterprises can be affected • A capacity to investigate one such issue in its complexity • Approach: • Exploratory – identify possible topics/issues • Investigative – understand a few select issues • Focus: what may impact a multinational firm

4. Requirements • Read and contribute • Text: The World Is Flat: Updated and Expanded, Thomas Friedman • Readings: Economist, WSJ, NYT, etc. • Websites of similar news sources, reputable organizations • Quizzes • Class Preparation Assignments • Relevant to topic assigned for the day • Encourage participation and class discussion • In-class writing • Term project

5. Quizzes • Short essay questions, covering • Themes discussed in text • Issues suggested in additional readings in schedule and other material given to class (including films that may be shown) • In general, broad topics discussed in class

6. Class Preparation Assignments • An article relevant to the subject matter to be covered in class (see schedule) • A typed statement (one page) that • Summarizes the article • States what it can contribute to class discussion for that day • Indicate Assignment number on top of page

7. Term Project • Refer to instructions on website. Focus on a specific issue drawn from current events, i.e. based on a news story • Submit proposal by 5th week of classes • Article which contains the issue • A description of the issue and questions to study • Submit proposal end of dead week • Describe it objectively • Understand its different aspects through multiple perspectives • Stakeholders and their interests • What are inherent conflicts and how might these be resolved? • Why relevant to a global/multinational company? • Requirements: 10-page report plus presentation

8. Other Guidelines • Assignments and Term Projects must be typed and written well, for a professional audience. • Assignments must be submitted in class during the session stated in schedule. • No late submissions for Assignments. These are intended as preparations for class discussions. • Term Projects are due last day of classes.

9. Course Structure • Friedman book provides preliminary framework for understanding issues affecting multinationals • concept of a “flat world”, • what flattened it, • the implications of this ‘flat world” • We will investigate/elaborate on additional themes based on this framework • We will challenge those ideas that we think require more scrutiny • Note major headings in schedule

10. REVIEW GLOBAL STRATEGIES

11. Process of Expansion • A global company emerges as a result of significant international expansion. • International expansion is a gradual process and can involve different avenues. • Exporting • Licensing or franchising • Joint-ventures, often with “local” companies • Wholly-owned Subsidiaries

12. Why Global Expansion • Competencies that provide advantages • Technological • Wholly-owned subsidiary is preferred over licensing and joint ventures • Management competency • Franchising, joint ventures, subsidiaries • Search for low cost locations • Due to pressures to remain competitive, improve margins • Exporting and wholly-owned subsidiaries

13. Factors Leading to Continued Global Expansion • Location economies • There are economic benefits to performing a value creation activity in an optimal location • Effects • Can lower costs • Can enable differentiation • Underlying concept, the experience curve • Serving a global market from one or a few plants is consistent with moving down the experience curve and establishing a low-cost position

14. Factors Leading to Continued Global Expansion (cont’d) • Transferring distinctive competencies • Companies with distinctive competencies can realize large returns by expanding to global markets where competitors lack similar competencies and products • Caveats - • Transportation costs • Trade barriers • Political and economic risks

15. If one were to take a snap shot of global or international firms, some would be . . • Exporting from home country • Licensing or franchising • Operating in other countries through joint ventures • Operating in other countries through wholly owned subsidiaries • Or a combination of all of these

16. Typology of Global strategies – factors to consider • Pressures for cost reductions • Pressures for local responsiveness

17. Four Basic Strategies

18. Description of each global strategy • International strategy • Transfer competencies or products to foreign markets where indigenous competitors lack those competencies/products • Makes sense if • company has a valuable competence that indigenous competitors lack • weak pressure for local responsiveness and cost reductions • Examples: Proctor and Gamble and Xerox • Develop products at home, establish manufacturing and marketing functions in each major country/region.

19. Description of each global strategy (cont’d) • Multi-domestic or localization strategy • Develop a business model that allows maximum local responsiveness • Makes sense when there are • high pressures for local responsiveness and • low pressures for cost reductions • Examples: MTV

20. Description of each global strategy (cont’d) • Global (standardization) strategy • Focus on increasing profitability by reaping cost reductions that come from experience curve effects and location economies; pursuing a low-cost strategy on a global scale • Makes sense when there are • strong pressures for cost reductions and • demand for local responsiveness is minimal • Example: Intel, Motorola, Texas Instrument – market a standardized product worldwide, products which serve universal need.

21. Description of each global strategy (cont’d) • Transnational strategy • Simultaneously seek to lower costs, be locally responsive, and transfer competencies in a way consistent with global learning • Example: Caterpillar

22. Examples of companies pursuing a global strategy • International strategy • Proctor and Gamble and Xerox • Develop products at home, establish manufacturing and marketing functions in each major country or region. • Multi-domestic or localization strategy • MTV • Global (standardization) strategy • Example: Intel, Motorola, Texas Instrument • market a standardized product worldwide, products which serve universal need. • Transnational strategy • Caterpillar

23. Different Companies, Different Configuration • S.C. Johnson & Sons • LG • NIKE

24. Example of international strategy: S.C. Johnson & Sons, Inc. • 119-year-old, fifth-generation, family-owned and managed. • 12,000 employees in 70 countries, US headquarters. • Leading manufacturer of consumer household products. • Manufactures in over 20 countries, markets to over 110. • $6.5 billion in annual sales.

25. A Brief History of LG • Established in 1958 as Goldstar, a pioneer Korean electronics manufacturer • In 1995 company name was changed to LG Electronics, acquired US-based Zenith • Joint venture with Philips in 1999 • As of 2004, annual sales of US $38 billion, over 66,000 employees (32,000 in Korea) in 76 subsidiaries in 39 countries

26. LG likes to vertically integrate… • LG.Philips • Operates vertically integrated plant - research and development, parts, and materials companies as well as the finished products • LG Chem • Vertically integrated since 1991 after merging LG Advanced Materials, LG Polychemical, and LG Pharmaceutical • LG Telecom • Network provided by Cisco Systems, Inc.

27. Categories Running Basketball/Brand Jordan Training/Walking Soccer Cleated/Golf Outdoor Tennis Active Life Kids Factories Korea Taiwan China Thailand Vietnam Indonesia Italy Transnational example: NIKE

28. Pusan, ROK/China Fuzhou, Putien and Shanghai, China Taichung, Taiwan Guangzhou, China Bangkok, Thailand Jakarta, Indonesia Where We Manufacture Italy Qingdao, China Ho Chi Minh, Vietnam

29. Our World - The Manufacturing Pie • Currently contract approximately 37 Factories • 5 Manufacturing Leadership Partners (T2, PC, FT, PA, CS) Represent Approx. 50% of NIKE Capacity

30. A Factory • LN (made up of 4 sub-factories) • Average Capacity 1.2 million pr/mo • 25 Lines • Models per PO: 60 SKU • Average Daily Output 43,000 prs per day • Number of Employees 25,000 +

31. The World Is Flat Introduction to the Friedman book

32. Round World • From ancient times to about the middle ages, people believed the world was flat. • If one walked too far, one could fall off into a deep abyss. • The sky was an inverted bowl covering the surface of the known earth. • There were those who tried to claim otherwise, reasoning from observation, etc. • However, adhering to this belief was convenient: • Security: the “known world” could be understood. • “Known world” could be carved up.

33. Round World • The text talks about Columbus and his discovery of the Americas in 1492. • Columbus’s journey revealed the existence of another land mass. (The Vikings seems to have gotten there first but nobody at that time heard too much about it.) • In the early 1500s, Magellan started a journey that led to his fleet being the first to circumnavigate the earth. • Remember: Columbus basically crossed the Atlantic and got as far as the Caribean islands in 1492. • Magellan did not make it past what is now the Philippines, but his fleet was able to make it back to Spain. • This later, singular event proved that the world was round, that one could head out east and arrive from the west.

34. Round World • Columbus’ voyage and subsequent circumnavigation of the world by Magellan’s fleet • Challenged boundaries of the “known world.” • Presented a challenge/opportunity to political status quo. • Exploration to expand dominions, wealth. • In terms of international trade • There was at that time a search for a way to get to the “Indies” and obtain spices without heading through the middle east. • Those who could explore, the wealthy kingdoms, could secure terms of trade by • Monopolizing travel in terms of capability to allocate resources to man fleets and to control navigational routes. • Knowledge and resources were critical to trade.

35. Flat World • Friedman’s notion of a flat world suggests a challenge to how we think of things • Globalization 1.0 (1492-1800): after discovery that the earth was round, a flurry of exploration/expeditions shrank the known world. The kingdoms in Europe pursued global expansion that included discovering and controlling international trade. • Globalization 2.0 (1800 – 2000): multinationals followed their countries and took over international trade. • Globalization 3.0 (2000- ): individuals of diverse backgrounds able to collaborate and compete globally • With Globalization 3.0, “playing field” has been leveled.

36. Flat world – Southwest Airlines • Globalization 1.0 – ticket agent issues you your ticket • Globalization 2.0 – e-ticket machine replaced ticket agent • Globalization 3.0 – you are your own ticket agent (get your boarding pass at home.)

37. Visible Signs of a Flat World • ..\..\My Videos\conan.wmv • Playing on a golf course in Bangalore, India and staring at buildings owned by US companies • Also the apparent “westernization” of these campuses

38. Signs of a “flat world” in text • Accounting: basic returns done in India, tax and financial planning done in US • News reporting: wire service (write basic news) is outsourced, analysis in US • Medicine: analysis of CAT scans by trained radiologists?

39. Call center examples • At take home pay of $200 per month, Indians can live well and at home. No need to migrate • Try the statement on p 27 • Conan film • R&D? 1000 patent applications with US patent office from Bangalore units of Cisco, Intel, IBM, TI, GE . .

40. And it is not just “us and them” • Japanese speaking Chinese do work for Japanese companies • Outsourcing conversion of hand drawings into digital blueprints – Malaysia and Philippines • Home sourcing in UTAH • McDonald’s drive through orders

41. More signs of a “flat world” • Key: any activity whose value chain can be digitized, decomposed, and moved around, will be moved. • Bill Ardolino and his InDC Journal

42. “Flat world” and global companies • Friedman uses his concept of a flat world to describe how the environment of international trade has evolved. • He describes what has contributed to this evolution and the implications of this flat world. • Global companies have been both instrumental to the creation of and will be affected by this flat world. • We will question some of his assumptions and his conclusions by discussing specific issues in more depth.

43. Moving Forward • Elaborate on concept of a flat world • What were the “flatteners” that resulted in this flat world? • Discuss the notion of a “triple convergence” which summarizes these flatteners. • NOTE regarding reading the text: read for substance, do not get lost in stories.

44. House Rules • Read material before coming to class. • We will discuss topics. Debate with each other if you wish. • Seek clarification of assignments early and in class so all may benefit. • Informal, but lets remember why we are here.

45. House Rules • Keep distractions to a minimum, respect your peers • Shut off cell phones or place them in silent mode (note an unattended vibrating cell phone is distracting) • Avoid side discussions with your neighbor. • Come to class on time; if you do arrive late, enter quietly and unobtrusively, e.g. do not walk in front of the instructor. • If you have to leave early, let the instructor know and sit where you can leave without disturbing too many students. • “Multi-tasking” during class is not appreciated, for example reading the newspaper, working on a paper for another class, sleeping, etc. • Using laptops are ok for note taking or reference to notes.

46. House Rules • Respect each other. • Tolerate differences of opinion and manner of participating. • If you have strong opinions, voice it and be heard, listen to responses, engage in an exchange of opinions, and then allow the class to move on. • Humor, informal, ok. But do remember why we are in class. • Other suggestions?

47. On your sheets of paper • State a time during the week, other than class time, that you can set aside for group activity related to this class • Other preferences