Chapter 8 Global Management

1. MGMT Chuck Williams Chapter 8Global Management Designed & Prepared byB-books, Ltd.

2. What Is Global Business? After reading this section, you should be able to: • discuss the impact of global business and the trade rules and agreements that govern it.

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

4. 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

5. Foreign Investment in the U.S. 1.1

6. U.S. Foreign Investment Abroad 1.1

7. Trade Barriers Tariff Quotas Voluntary export restraints Nontariff Barriers Government import standards Government subsidies Customs valuation / classification 1.2

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

9. 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

10. Web Link http://www.wto.org World Trade Organization • 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 Location: Geneva, Switzerland Established: 1 January 1995 Created by: Uruguay Round negotiations (1986-1994) Membership: 153 countries (as of 23 July 2008) Budget: 185 million Swiss francsfor 2008 Secretariat staff: 625 Head: Pascal Lamy (director-general) 1.3 Adapted from Fact File

11. 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

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

13. CAFTA and USAN • Central American Free Trade Agreement • Union of South American Nations • Fastest-growing place for U.S. exports. • Common infrastructure to support trade. 1.3

14. 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

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

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

17. How to Go Global? After reading these sections, you should be able to: • describe why companies choose to standardizeor adapt their business procedures. • explain the different ways that companiescan organize to do business globally.

18. GlobalConsistency When a multinational company has offices/plants in different 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

19. Beyond the Book Local Adaptation Aided by Advertising • McCann, an international advertising firm, is helping companies like Nestlé market their products globally. • The target is people at the bottom of the economy, who live on $350-700/month. • Nestlé hopes to sell fortified powdered milk, but local perception in Latin America sees powdered milk as for babies and too expensive for families. • McCann must help companies like Nestlé locally adapt their product promotion to overcome such stereotypes. Source: A. Regalado, “ McCann Offers Peek at Lives of Low-Income Latins,” The Wall Street Journal, 8 December 2008, B6.

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

21. Beyond the Book American ApparelCompetes against Outsourcing • Because of low labor costs, 20 percent of textiles globally are imported from China—and 42 percent from Asia on the whole. • American Apparel, the largest garment manufacturer in the United States, pays its workers $12-13 per hour and medical benefits. • Building a brand around ethics alone doesn’t make American Apparel profitable. For example, only 10-12 percent of Americans buy a product because it is environmentally sound. • But selling its clothes using an “image soaked in youth and sex” makes American Apparel profitable…and ethical. Source: R. Walker, “American Apparel’s New Image,” Fast Company, 9 May 2008.

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

23. 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

24. 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

25. 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

26. 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

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

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

29. 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

30. 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

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

32. Wholly Owned Affiliates (Build or Buy) 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 3.4

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

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

35. Where to Go Global? After reading these sections, you should be able to: • explain how to find a favorable business climate. • discuss the importance of identifying andadapting to cultural differences. • explain how to successfully prepare workersfor international assignments.

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

37. 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

38. 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

39. United States 1. Washington 2. Atlanta 3. Phoenix 4. Houston 5. Minneapolis- St. Paul Latin America 1. Santiago 2. Miami 3. Sao Paulo 4. Monterrey 5. Mexico City Europe 1. London 2. Paris 3. Frankfurt 4. Barcelona 5. Amsterdam Asia Pacific 1. Shanghai 2. Beijing 3. Shenzhen 4. Bangalore 5. Mumbai World’s Best Cities for Business 4.2

40. Beyond the Book Choosing a Location:Multilingual Work Forces

41. 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

42. Beyond the Book BP CEO Leaves Russia • British-based BP has a joint venture with Russian partners, TNK-BP. • Change in Russian government, including new president Dmitry Medvedev, means new focus on “rule of law” and an effort by the Kremlin to put TNK-BP under control of the nationalized oil company Gazprom. • Members of the British board accuse TNK-BP’s Russian shareholders of putting administrative pressure on the company, including denial of a work visa for TNK-BP president Robert Dudley, who consequently had to leave Russia. Source: G. Chazan, “Head of BP Venture, Citing Harassment, Leaves Russia,” The Wall Street Journal, 25 July 2008, B1.

43. Long-Term Political Risk in the Middle East 4.3

44. 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

45. Becoming Aware of Cultural Differences In Saudi Arabia, store mannequins must not have heads or limbs that would indicate gender. 5 © Mahmoud Mahmoud/AFP/Getty Images

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

47. Hofstede’s Five Cultural Dimensions 5

48. 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

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

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