Chapter 8 Global Management

1. MGMT3 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 Source: J. Koncz and D. Yorgason, “Direct Investment Positions for 2005: Country and Industry Detail,” available online at http://www.bea.gov/bea/ARTICLES/2006/07July/0706_DIP_WEB.pdf [accessed 7 February 2007].

6. U.S. Foreign Investment Abroad 1.1 Source: J. Koncz and D. Yorgason, “Direct Investment Positions for 2005: Country and Industry Detail,” available online at http://www.bea.gov/bea/ARTICLES/2006/07July/0706_DIP_WEB.pdf [accessed 7 February 2007].

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

8. Beyond the Book The Politics of Global Trade On September 11, 2009, President Barack Obama approved a 35% tariff increase on imported Chinese tires. The issue was originally brought forward by the United Steelworkers union, which is also a key supporter of Obama’s health-care reform plans. While Chinese officials threatened retaliatory measures, they did suggest they would prefer a negotiated solution. Source: H. Maurer, C. Lindblad, eds. “Executive Summary: A Tiff Over Tires”, Business Week, 28 September 2009. 4.

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

10. 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

11. Web Link http://www.wto.org World Trade Organization Location: Geneva, Switzerland Established: January 1, 1995 Created by: Uruguay Round negotiations (1986-1994) Membership: 153 countries (on July 23, 2008) Budget: 189 million Swiss francsfor 2008 Secretariat staff: 625 Head: Pascal Lamy (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

12. 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

13. 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

14. 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

15. Web Link http://www.aseansec.org http://www.apecsec.org.sg ASEAN and APEC • ASEAN • Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam • APEC • Australia, Canada, Chile, China, Hong Kong, Japan, Mexico, New Zealand, Papua New Guinea, Peru, Russia, South Korea, Taiwan, the United States, and ASEAN members (except Cambodia, Lao PDR, and Myanmar) 1.3

16. 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

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

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

19. 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

20. Beyond the Book Wal-Mart Goes Global After experiencing initial difficulties in its global expansion, Wal-Mart is finding more success in tailoring inventories and stores to local tastes. In some cases, Wal-Mart has used acquisitions of local retail chains instead of building traditional Wal-Mart stores, which might not function as well in places like the crowded city of São Paulo. Also Wal-Mart has started adopting successful innovations from locations outside the U.S. as it expands in new areas. Source: M. Bustillo, “After Early Errors, Wal-Mart Thinks Locally to Act Globally”, The Wall Street Journal, 14 August 2009. A1.

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

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 licensee 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, risks, 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 tariffs and nontariff barriers to entry • Participating companies bear only partof the costs and risks • Advantageous to 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. Beyond the Book GE Teams Up With Hyundai After years of poor results from its wholly owned subsidiaries in Korea, GE Capital tried a different approach, taking a minority stake in two financing subsidiaries of Hyundai Motor: Hyundai Capital, the carmaker’s auto-financing arm, and HyundaiCard, its credit-card affiliate. GE has offered its management and financial expertise to the joint venture, placing American managers in key positions, while Hyundai can leverage its marketing talent along with a 75% share of the Korean car market. Source: M. Ihlwan, “What GE Capital Learned in Korea”, Business Week, 27 April 2009. 46-47.

33. 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

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

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

36. 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.

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

38. 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

39. Choosing an Office or 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

40. World’s Best Cities for Business 4.2

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

42. 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

43. Long-Term Political Risk in the Middle East 4.3 Source: ”Chapter 1: Political Outlook,” UAE Business Forecast Report, 2009 3rd Quarter, 9–13.

44. Beyond the Book From Russia with…? • With 140 million potential consumers holding a greater percentage of disposable household income than Chinese, Brazilians, and Indians, Russia presents strong potential for global corporations. • Corporations must be careful how and where they invest. • Corruption is still a serious problem in certain regions. • Joint ventures with Russian corporations have often resulted in expensive conflicts, but government restrictions require it in some industries. Source: C. Matlack, “The Peril and Promise of Investing in Russia”, Business Week, 5 October 2009. 48-52.

45. 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

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. Beyond the Book Biz Flix: Lost in Translation Does Charlotte seem to be culturally sensitive or insensitive? Take Two Video Click

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