What Is Global Business?

1. Global Business The buying and selling of goods andservices by people from different countries. What Is Global Business? 1

2. 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

3. Foreign Investment in the U.S. 1.1

4. Foreign Investment in the U.S. Investment coming into the U.S., like this Honda Motor plant in Ohio, totaled $106 billion in 2004. 1.1 Adapted from Exhibit 8.1

5. U.S. Foreign Investment Abroad 1.1 Adapted from Exhibit 8.2

6. Trade Barriers Tariff Quotas Voluntary export restraints Nontariff Barriers Government import standards Government Subsidies Customs Valuation / Classification 1.2

7. General Agreementon Tariffs and Trade Maastricht Treaty of Europe NAFTA and CAFTA Regional Trading Zones FTAA ASEAN and APEC Trade Agreements 1.3

8. 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

9. Web Link http://www.wto.org World Trade Organization Location: Geneva, Switzerland Established: 1 January 1995 Created by: Uruguay Round negotiations (1986-1994) Membership: 148 countries (as of 13 October 2004) Budget: 169 million Swiss francsfor 2005 Secretariat staff: 630 Head: Supachai Panitchpakdi (director-general • 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 1.3 Adapted from Exhibit 8.3

10. 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

11. Web Link http://www.mac.doc.gov/nafta/ NAFTA • North American Free Trade Agreement between Canada, United States, & Mexico • Liberalizes trade among these three nations • Eliminates most tariffs and barriers 1.3

12. Web Link http://www.ftaa-alca.org FTAA • Free Trade of the Americas • Proposed agreement to establish a free trade zone throughout the Western Hemisphere • Remove nontariff barriers • Reduce tariffs to zero • Standardize financial markets • Establish process for handling trade disputes 1.3

13. 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

14. Consumers, Trade Barriers, and Trade Agreements • American consumers get more for their moneythan most other consumers in the worldbecause: • U.S. marketplace is easiest for foreign companies to enter AND • Competitive market between domestic and foreign companies keeps prices low 1.4

15. Increase:choicescompetitionpurchasing power Free Trade Agreements Decrease price of:food clothing necessities luxuries Consumers, Trade Barriers, and Trade Agreements 1.4

16. GlobalConsistency When a multinational company has offices/plants indifferent 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

17. Doing the Right Thing • Fair and Safe Working Conditions in Foreign Factories • Make sure there is no forced labor or child labor • Provide a safe and healthy working environment • Respect the right of employees to freedom of association and collective bargaining • Provide legally required benefits DOING THE RIGHT THING

18. Exporting CooperativeContracts Wholly OwnedAffiliates StrategicAlliances Forms for Global Business GlobalNew Ventures 3

19. Advantages • Less dependence on home market sales • Greater degree of control over research, design, and production decisions Exporting 3.1

20. 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

21. 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

22. 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

23. 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

24. Advantages • Fast way to enter foreign markets • Good strategy when a company’sdomestic sales have slowed Franchising 3.2

25. Disadvantages • Franchisors face a loss of control • Franchising success may be culture-bound Franchising 3.2

26. 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

27. 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

28. Disadvantages • Companies must share profits • Joint venture represent a merging offour cultures • With equal ownership, power struggles and a lack of leadership may occur Joint Ventures 3.3

29. 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 Wholly Owned Affiliates (Build or Buy) 3.4

30. Global New Ventures Quick, reliable air travel Low-cost communication technologies Critical mass of experienced businesspeople 3.5

31. Common Factors of Global New Ventures Global vision is developed and communicated Several foreign markets are entered at the same time 3.5

32. Access toGrowingMarkets Location toBuild MinimalPoliticalRisk Finding the Best Business Climate 4

33. 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

34. 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

35. Choosing an Office/Manufacturing Location 4.2 Exhibit 8.6

36. United States 1. New York City 2. Chicago 3. Toronto 4. Atlanta 5. Los Angeles Latin America 1. Santiago 2. Miami 3. Sao Paulo 4. Monterrey 5. Mexico City Europe 1. London 2. Paris 3. Frankfurt 4. Brussels 5. Amsterdam Asia Pacific 1. Shanghai 2. Beijing 3. New Delhi 4. Hong Kong 5. Mumbai World’s Best Cities for Business 4.2 Adapted from Exhibit 8.7

37. 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

38. Long-Term Political Risk in the Middle East 4.3 Adapted from Exhibit 8.8

39. 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

40. Becoming Aware of Cultural Differences In Saudi Arabia, store mannequins must not have heads or limbs that would indicate gender. 5

41. Cultural Dimensions (Geert Hofstede) Becoming Aware of Cultural Differences • Power distance • Individualism • Masculinity and femininity • Uncertainty avoidance • Short-term/long-term orientation 5

42. Hofstede’s Five Cultural Dimensions 5

43. 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

44. Expatriate Someone who lives and works outside his or her native country. Preparing for an International Assignment 6

45. Preparing for an International Assignment Language andCross-Cultural Training Considerationof Spouse, Family, and Dual-Career Issues 6

46. Language and Cross-Cultural Training Documentary Training Cultural Simulation Field Experiences 6.1

47. Spouse, Family, and Dual-Career Issues Adaptability Screening Intercultural Training 6.2