Concepts and Resources for Teaching Globalization

1. Concepts and Resources for Teaching Globalization (12May’05) S. Tamer Cavusgil The John W. Byington Endowed Chair in Global Marketing, and Executive Director, Center for International Business Education and Research, Michigan State University 2005 International Business Institute East Lansing, Michigan 15 May 2005

3. Rationale for Internationalization Faculty  Professional development/enrichment; recognition Students  Liberating minds; informed citizens; appreciation of diversity develop cosmopolitan orientations Business  Become relevant; serve as resource and source of training Your  Create a total global culture; establish new traditions College and behavior; become a viable competitor And… a goal common to all constituents: Build global competence as a source of competitive advantage.

4. What is Globalization? • At the macro level… • Greater integration and interdependency of national economies • Freer movement of goods, services, capital, and knowledge • Prevalence of regional trading blocs • Emergence of monetary unions • Convergence of customer lifestyles, requirements, etc.

5. What is Globalization? • For business enterprises… • Foreign market entry and expansion • Re-configuration and externalization of value chain • Collaborative ventures with foreign partners • Integration of operations on a global scale • Building global capabilities and a global organization

6. The Many Dimensions of Globalization • Value-adding activities • Companies – The business enterprise • Products and brands • Economic assets • Business risks • Industries • Countries, markets • Regulations, laws, standards • Cultural values, mindsets, consumer behavior • Business practices

7. Phases of Globalization 1st Phase: 1830, peaking around 1880 Aided by railroads, ocean transport, rise of manufacturing and trading companies 2nd Phase: 1900, peaking around 1930 Fueled by electricity and steel 3rd Phase: 1948, peaking around 1970 GATT, End of WWII, Marshall Plan… 4th Phase: 1980, peaking around 1997 Technological advances, Internet, Privatization…

8. Perspectives on Globalization • Globalization can be studied as a … • Process • As a cause or driver • Consequence

9. CURRICULAR INITIATIVES ENRICHMENT OF STUDENT EXPERIENCES (on campus and abroad) FOREIGN INSTITUTIONAL LINKAGES Comprehensive Agenda for Internationalization FACULTY MOTIVATION AND DEVELOPMENT COLLABORATION WITH BUSINESS CAPITALIZING ON INSTITUTIONAL STRENGTHS: BUILDING CAMPUS ALLIANCES

10. Motivating the Student • Companies face special challenges when operating in a broader, multi-country environment. • The foreign country environment (political, legal, cultural, etc.) deserves special attention. • Knowledge and practices developed at home may not be valid in other country contexts. • Managers need to acquire new types of competence in order to compete in the global economy. • The consequences of a global economy are felt daily around us.

11. Three Dimensions of International Context • International/Cross Border dimension (Functional specialist) • Cross-border management paradigm • Comparative dimension (Country enthusiast) • Extension paradigm • Cross-cultural dimension (Behaviorist) • Inter-cultural paradigm

12. Layers of Knowledge in International Business Cross-Cultural Knowledge Country/Regional Knowledge Cross-Border Transactions Knowledge Domestic Business Knowledge

13. Cross-Border Transactions Knowledge Product Adaptation Currency Markets International SCM Legal Agreements Letters of Credit Payments Layers of Knowledge in International Business Cross-Cultural Knowledge Cultural Differences Negotiation Styles Ethical Values Decision- making Styles Language Organizational Features Attitudes towards IPR Country/Regional Knowledge Commercial Infrastructure Contract Law Market Access Product Standards Trade/ Distribution Channels Entry Barriers Role of Government in Business Domestic Business Knowledge

14. Vital Components for Global Competence COUNTRY MARKET KNOWLEDGE CROSS- BORDER TRANSACTIONS KNOWLEDGE CROSS CULTURAL KNOWLEDGE

15. COUNTRY MARKET KNOWLEDGE Configuration of Value Adding Activities in target market/entry mode Global Marketing Opportunity Assessment (Research and Intelligence) Market Entry Planning and Strategy Product Strategy (Adaptation/ Standardization) Supply Chain Management Standards and Regulations and Product Liability Business Partnering Subsidiary/Project Management Currency Risk/ Pricing/ Getting Paid Ethics and Social Responsibility and Government Relations Organizational Readiness and Structure Cross- Cultural Negotiation Skills International Logistics Human Resource Development CROSS- BORDER TRANSACTIONS KNOWLEDGE Language Proficiency Cross-Cultural Skills CROSS CULTURAL KNOWLEDGE Vital Components for Global Competence

16. Leading IB Portal http://globaledge.msu.edu

17. globalEDGE™ A knowledge web-portal that connects international business professionals worldwide to a wealth of information, insights, and learning resources on global business activities. The site offers: • Global Resources - more than 5,000 online resources • Country Insights - a wealth of information on all countries • Community - an interactive forum for business professionals • Knowledge Room - latest issues in international business • Academy - extensive research and teaching resources • Diagnostic Tools - decision-support tools for managers globalEDGE™ - your source for global business knowledge

18. Globalization Themes for Economics • Comparative advantage; gains from trade • Drivers of globalization • Purchasing Power Parity • Global Competitiveness Index • Index of Economic Freedom • Culture and IB • International entrepreneurship • Attitudes toward work and leisure • Unionization; collective bargaining

19. Reduction of barriers to trade and investment • Regional trade agreements and economic blocs • Market liberalization and privatization • Industrialization, economic development and modernization • Integration of world financial markets • Transportation and communication technology • Information technology Globalization Drivers: Seven MacroTrends

20. The World Competitiveness Scoreboard 2004 Source: IMD World Competitiveness Yearbook 2004

21. Economic Freedom and Wealth

22. The Economist’sBig Mac Index The concept of Purchasing Power Parity refers to the notion that a dollar should buy the same bundle of goods in all countries. Comparing actual exchange rates with PPP indicates whether a currency is under- or overvalued.

23. Big Mac CurrenciesMay 27th 2004 From The Economist print editionThe world economy looks very different once countries' output is adjusted for differences in prices

24. Capturing the Purchasing Power Source: World Bank. Figures are for 2003.

25. Themes for Culture • The Iceberg Principle of Culture • Cultural stereotypes, idioms, metaphors • Cultural Dimensions (High Context; Collectivism, Power distance, Uncertainty avoidance, Masculinity) • Language as the expression of culture • Self Reference Criterion • Critical incidence analysis • Negotiation patterns

28. Critical Skills for the Manager • Cultural empathy / Open-mindedness • Tolerance for ambiguity • Flexibility/Adaptability/Self reliance • Perceptiveness • Curiosity • Premium on personal relationships • Good sense of humor • Warmth in human relationships

29. Is Globalization a Good Thing? The Critics • Benefits of globalization are not evenly distributed • Globalization causes dislocation of jobs • Wages for unskilled labor are declining • Manufacturing moves offshore to avoid workplace safety and health regulations • MNCs fail to protect the environment

30. Is Globalization a Good Thing? The Critics (cont.) • Power shifts to multinational corporations and supranational organizations; nations loose sovereignty • Concentration of power by multinational corporations leads to monopoly • International financial markets are inherently unstable • Globalization results in loss of national cultural values and identity

31. Themes for General Business • Market entry, expansion, segmentation • Standardization /adaptation • Global brand success • Joint ventures/alliances/partnerships • Product liability laws; retail regulations • Global supply chain management • Emerging Markets; Family Conglomerates • Offshoring

32. Stage in Value Chain Types of Collaboration Company Examples Strategic alliances Licensing/cross licensing Design contracting Global procurement Contract manufacturing Equity joint ventures (FDI) Agency agreements Licensing Exporting to distributors/ agents Franchising Exporting to end-users Business format franchising Agency/representative relationships Telecoms, computers, drugs, aircraft, satellite communication systems… Dow, Pharmacia-Upjohn Software, autos, fashion goods, shoes, furniture… Automotive Gerber (Novartis) IKEA, Guardian Industries Kmart, Manpower, Banks, Courier Services, Amway Research & Development Product Design Manufacturing Marketing Distribution Sales & Service

33. Pressures for Global Integration • Economic efficiency imperative • Promoting cross-fertilization • Converging demand patterns • Acceptance of global brands • Harmonizing product standards • Diffusion of uniform technology • eBusiness integration • Availability of pan-regional media • Integration of markets through economic blocs • Spread of international collaborative ventures • Need to monitor competitors on a global basis • Pressures for Local Responsiveness • Unique industry and product standards • Local market requirements: customer need, competitive environment, distribution structure • Cultural differences • Geographic separation • Nation states and protectionism • Tariffs and Non-Tariff trade barriers

35. Emerging Markets • High-growth, high-potential developing countries • Rapid transformation • Liberalization, modernization, industrialization • Rising middle class • Unique Aspects: Family Conglomerates; large informal economy; institutional vacuum; high risks…

36. Market Potential Indicators for Emerging Markets

40. Themes for Accounting • Exchange rates and trade • Currency risk; Euro in the E.U. • Harmonized accounting practices • Transfer pricing; Taxation of foreign income • Foreign Corrupt Practices Act • Operating in: High-inflation countries; Free Trade Areas • Listing in foreign stock markets

41. Four Types of Risks • Weak Partner • Operational Problems • Timing of entry • Competitive intensity • Poor execution of strategy Commercial Risk Types of Risks in International Business Cross-Cultural Risk Currency/Financial Risk  Cultural distance  Negotiation patterns  Decision-making styles  Ethical practices • Currency exposure • Asset valuation • Foreign taxation • Inflationary and transfer pricing • Global sourcing Country (Political and Legal) Risk • Social/political unrest and instability • Economic mismanagement; inflation • Distribution of income; size of middle class • Government intervention, bureaucracy, red tape • Market access; barriers; profit repatriation • Legal safeguards for intellectual property right

42. Themes for Information Systems / Technology • Internet and Information Technology as a driver of globalization • eBusiness /On-line strategies • Virtual interconnectedness in the multinational corporation • Globalization of IT sector; India’s advantage in this area • Globalization of related industries such as office furniture industry (Steelcase, Herman Miller, etc.)

45. Online IB Course Modules on the globalEDGE • Organized by: • Countries / Geographic regions • Business functions • Culture • Exports

46. http://globalEDGE.msu.edu Your company has developed a new product that is expected to achieve high penetration rates in all the countries where it is introduced, regardless of the average income status of the local population. Considering the costs of the product launch, the management team has decided to initially introduce the product only in countries that have a sizeable population base. You are required to prepare a preliminary report with the top ten countries of the world in terms of population size. Since growth opportunities are another major concern, the average population growth rates should be also listed for management’s consideration. How to? • “Global Resources” on globalEDGE • Research: Statistical Data Sources • Search “Population” • Source: “World Population Data Sheet”

47. http://globalEDGE.msu.edu The Freedom in the World survey evaluates the state of political rights and civil liberties around the world. For a company location project, you need to provide a description of this survey and a ranking, in terms of “freedom” of the leaders and laggards of the world. What factors are taken into consideration in this survey when forming the rankings? How to? • “Global Resources” on globalEDGE • Research: Multi-Country • Search: “Freedom” • Result: “Freedom House Surveys”

48. http://globalEDGE.msu.edu For a country selection project, you need to know which markets/countries are the most attractive in the global marketplace. Accordingly, the ranking of the top 25 countries in terms of FDI attractiveness is a crucial ingredient for your report. You have heard about the “FDI Confidence Index” which is updated periodically. Find this index, and provide additional information regarding how the index is constructed. How to? • “Global Resources on globalEDGE • Research: Rankings • Search: “FDI Confidence Index” • Result: “A.T. Kearney: FDI Confidence Index”

49. Web-Based Exercises and Projects for Internationalizing Business Courses • Handout

50. Market and Country Research • International Marketing Insight (IMI) Reports • Multilateral Development Bank (MDB) • Industry Sector Analysis Reports • Best Market Reports • Global Agriculture Information Network (GAIN) AgWorld Attaché reports • Country Commercial Guides