7 Globalization The way it was…. The way it is… Self-contained national economies, isolation, differences in govt., culture, and business systemsThe way it is…Reduced barriers (GATT, tariffs), shrinking distance (technology, transportation, culture), interdependent economiesSample slides
8 Average Tariff Rates (Manufactured Products as % of Value) 1913 1950 19902000France21185.93.9Germany2026Italy25Japan305.3Holland511Sweden94.4Britain23U.S.44144.8
9 Growth – World Trade & Output 500100015002000250019501960197019801990TradeOutput(GDP)
10 National Composition of MNCs 10002000300040005000600070008000Rest of WorldLatin AmericaW.EuropeAsia PacificNorth America197319901997U.S.A.48.5%31.5%32.4%26%Japan3.51215.717U.K.184.108.40.206France7.310.49.813Germany8.1.912.7
11 The Changing World Order The fall of Communism in Eastern Europe and the former Soviet Union.Czechoslovakia has divided itself into two states.Yugoslavia has divided into 5 (often warring) successor states.Pro-democracy movement (suppressed) in China.Latin America has seen both democracy and free market reforms.
12 Globalization Driving to work: The typical “American” experience Your carYour gasolineYour investmentsYour entertainmentYour morning snackYour newsCars: designed in Germany, assembled in Mexico, US/Japanese components, Korean steel, Malaysian rubberGas: oil well off coast of Africa, French oil company, transported to US on Greek ship, BP gas stationInvestment: talk to stockbroker on Nokia cell phone (Finland) assembled in Texas using chips from Taiwan, designed in India, working at Qualcomm (San Diego); buy shares in Deutsche Telekom (former German monopoly run by Israeli CEO)Entertainment: car radio made in Malaysia by Japanese firm, hip-hop composed by Swede, sung by Danes, in English, French music companyMorning snack: Coffee stall run by Korean immigrant, single-tall-non-fat-latte and chocolate-covered biscotti (coffee from Brazil, chocolate from Peru, Italian recipe)News: Globalization protests in Genoa Italy turns violent, economic slowdown in US sends Japan’s Nikkei stock market index to 16-year low
13 Globalization “Has Globalization Gone Too Far?” Rodrik - California Management Review, Vol. 39, No. 3, Spring 1997What are the tensions between social stability and globalization?
14 The Impact of Globalization Jobs and incomeFirms move jobs to low cost countriesCountries specialize in efficiently produced goods and import those they can not efficiently produceIncreases income in less developed countriesMay lead to income inequality
15 The Impact of Globalization Labor policies and the environmentFirms move to countries with weak lawsEconomic progress leads to stronger lawsBy creating wealth and incentives for technology improvements, world will be betterTie strong laws to international agreements
16 What makes a company global? Kogut - HBR Reprint 99106Multinational / MultidomesticProducts differ greatly among country markets; high transportation costs, no scale economiesGlobalBenefit from worldwide volume; larger production plants (MES), larger production runs, more efficient logistics networks, higher volume distribution networks
17 Global Success Factors Industry potentialTimingEntry barriersFirst mover advantagePreempting leading positions in NICsCreate switching costsBlock access to supply chainArbitrage – exploiting differencesCulture, administration, geography, economics“The Forgotten Strategy”Ghemawat - HBR Reprint R0311E
20 Guiding Principles Three Guiding Principles Respect for core human values, which determine the absolute moral threshold for all business activities.Respect for local traditions.The belief that context matters when deciding what is right and what is wrong.“Values in Tension: Ethics Away From Home”Donaldson – HBR Reprint 96502
21 Global Ethical Perspective Treat corporate values and formal standards as absolutes.Design and implement conditions of engagement for suppliers and customers.Allow foreign business units to help formulate ethical standards and interpret ethical issues.In host countries, support efforts to decrease institutional corruption.Exercise moral imagination.
22 Global Ethics Incentives to be ethical Ethics and corruption Avoid legal penalties, bad PR, employee satisfactionEthics and corruptionForeign Corrupt Practices Act 1977ExampleEthics and human rightChina & TibetAlien Tort Statute 1789 – Unocal in Myanmar
23 Ethics and CorruptionAfter graduating, your first assignment lands you in Asia as the local director of a U.S. pharmaceutical firm. It was a small operation, but you have big plans. You hope to segment your customers, empower your workers, implement just-in-time production, and use the balanced scorecard to keep score. You figure to double your business in the first year.But right now, you’re thinking it might have been a better idea to take that consulting offer instead.The first million-dollar shipment of your company’s new HIV-fighting drug has just been removed from the refrigerated C-130 cargo plane. It sits on the steaming tarmac, not 30 feet away, practically melting in the midday heat. Another twenty minutes, and it’s ruined. Unfortunately, you can’t seem to clear it through customs. There is some question as to the approval process that a new product has to go through to enter the country. You’re not sure you can wait.The friendly local customs official cruising around the airport looks from you to the metal container, trying to decide which of you is sweating more profusely. Leaning against the counter, he reviews your bills of lading and other customs documents. “Your papers look to be in order, but I am just not sure about the proper approval process,” he says. You despair. Re-opening the approval process will take time you don’t have. What should you do?!?Fortunately, you remember the $1000 traveler’s check in your back pocket that’s supposed to pay for your apartment deposit. You walk over to the official, grab the manifest, stuff the check into the stack of papers, and hand it back to him. A smile spreads across his face. He decides that his insecurity about the approval process has lessened. “You are so thoughtful to understand. I look forward to conducting further business with you. Your cargo is cleared through customs.”
24 Global Ethics - CaseHitting the Wall: Nike and International Labor Practices – HBSManaging a multinational firm involves managing and exploiting differences among countries. In the case of workplace standards and environmental protection, managers have to understand the underlying tradeoffs and balance exploitation of differences with global ethics.
25 CultureSocial insurance: unemployment compensation, trade adjustment assistance, training programs
26 CultureCulture is a system of values and norms shared among a group of people and, when taken together, constitute a design for living.NormsSocial rules and guidelines that prescribe appropriate behavior in particular situationsFolkways:Routine conventions of everyday lifeMores:Central to functioning of society and its social lifeValuesAbstract ideas about what a group believes to be good, right, and desirableThe bedrock of cultureHave emotional significance.Freedom
27 What are “American Values?” Achievement and successIndividualismFreedomProgressDemocracyEquality
28 Views of Another Culture How the Americans see the French:-arrogantflamboyanthierarchicalemotionalHow the French see the Americans:-naiveaggressiveunprincipledworkaholicFrench cultureAmerican cultureNorms and Values
29 Hofstede’s Work-Related Values Theory and empirical foundation is used in a general way to look at differences between cultures.5 dimensionsPower distanceIndividualism vs. collectivismUncertainty avoidanceMasculinity vs. femininityST vs. LT orientationButDon’t assume everyone in a country has the same norms and valuesU.S.China
30 Determinants of Culture ReligionLanguageEducationCulture:Norms andValueSystemsPoliticalPhilosophyEconomicPhilosophySocialStructure
32 Impact of Religion on Business BuddhismLittle emphasis on entrepreneurial behaviorChristianity“Protestant Work Ethic” and “The Spirit of Capitalism”ConfucianismLoyalty, reciprocal obligations, and honesty in dealingsHinduismAsceticism may have an impact (spiritual achievements)Caste system plays a roleIslamFavors market-based systems (free enterprise)No payment or receipt of interest
33 Language Allows people to communicate Structures the way the world is perceivedDirects attention to certain features of the world rather than othersHelps define cultureCreates separatist tendencies?Canada, Belgium, Spain, CyprusNon-verbal (93% of communication)Eyebrows, fingers/thumbs, hand gestures, feet, personal space, body gestures (ok, thumbs up)
34 Education For int’l business, it is a determinant of national Formal educationsupplements family rolein teaching valuesand normsFocus on facts of socialand political natureof societyObligations ofcitizenshipFor int’l business, it is adeterminant of nationalcompetitive advantage(post-war Japan)Medium to learnlanguage, conceptual,and math skillsValue of personalachievement andcompetition
35 Political Philosophy (System) Democracy and TotalitarianismDemocracyGovernment by the people, exercised either directly or through elected representatives.TotalitarianismGovernment in which one person or political party exercises absolute control over all spheres of human life and opposing political parties are prohibited.
36 Economic Philosophy (System) Market EconomyAll productive activities are privately ownedCommand EconomyGoods and services produced, their quantity, and prices are determined by the governmentMixed EconomyParts of the economy are left to private ownership and free market mechanisms while other sectors are state-owned and have government planningState-Directed EconomyThe state plays a significant role through its “industrial policy” and setting national goals
37 Social Structure Individuals vs. Groups Social Stratification Shared sense of identificationDegree to which group is viewed as the primary means of social organizationCooperation – MIT StudySocial StratificationSocial strataSocial mobilityClass system
38 Cultural Change Americanization/Westernization Global brands McDonald’s in ChinaLevi’s in IndiaSony Walkman in South AfricaMTV everywhereCountertrendsQuebec, Russia, Islamic fundamentalism
39 Culture - Case Euro Disney: The First 100 Days” – HBS 9-693-013 Planning processThe role of cultureDifferences in culture vs. attitude about cultureAdapting versus adopting – what is core?
41 Foreign Exchange & Strategy “Note on Operating Exposure to Exchange-Rate Changes”Luehrman – HBSExample: Losses at JAL Airlines (Hill)Case: Japan’s Automakers Face Endaka – HBSImpact on business model - What they sell, how they sell, where they manufacture, manufacturing processJapanese response vs. U.S. response
43 Foreign Exchange Markets The FOREX market provides the physical and institutional structure through which the money of one country is exchanged for that of another countryA foreign exchange transaction is an agreement between a buyer and a seller that a fixed amount of one currency will be delivered for some other currency at a specified rate
44 Foreign Exchange Markets There are six main characteristics of the FOREX markets which will be discussedThe geographic extentThe three main functionsThe market’s participantsIts daily transaction volumeTypes of transactions including spot, forward and swapsMethods of stating exchange rates, quotations, and changes in exchange rates
45 FOREX Market Geography Geographically, the FOREX market spans the globe with prices moving and currencies trading on a 24 hour basisMajor exchanges are located in Singapore, Hong Kong and Tokyo in the EastThen it moves to Bahrain, and London for the European areaAnd on to New York, San Francisco and Sydney
46 FOREX Market Geography Measuring FOREX Market Activity: Average Electronic Conversations Per HourGreenwich Mean TimeTokyoopensAsiaclosing10 AMIn TokyoAfternoonin AmericaLondon6 pmIn NYAmericasopenEuropeopeningLunch
47 FOREX Market Functions The FOREX market is the mechanism by which participants transfer purchasing power between countries, obtains or provides credit for international trade, and minimizes exposure to exchange rate riskTransferring of purchasing power is necessary because international trade and capital transactions normally involve parties in countries with different currencies yet each party wishes to transact in their own currency
48 FOREX Market Functions Because the movement of goods between countries takes time, inventory in transit must be financed. The FOREX market provides a source of credit via specialized instruments such as letters of creditThe FOREX market provides “hedging” facilities for transferring foreign exchange risk to someone else more willing to carry that risk
49 FOREX Market Participants The FOREX market consists of two tiers, the interbank or wholesale market, and the client or retail marketFive broad categories of participants operate within these two tiersBank and non bank foreign exchange dealersIndividuals and firms conducting commercial or investment transactionsSpeculators and arbitragersCentral banks and treasuriesForeign exchange brokers
50 Bank/Non-Bank Dealers These participants profit from buying currencies at a bid price and then reselling them at an offer or ask priceCompetition among dealers narrows the spread between the bid and offer rate contributing to the market’s efficiencyDealers on behalf of large international banks often act as market makers, often willing to stand in and buy or sell these currencies without having a counterpart with which to unload the “inventory”Bid price: The price a buyer is willing to pay.Offer (Ask price): the price a seller is willing to receive.Bid-Ask spread: The amount that the ask price exceeds the bid.Market maker: A broker-dealer willing to accept the risk of holding a particular currency in order to facilitate trading in that currency.
51 Bank/Non-Bank Dealers They trade amongst other banks and dealers in order to keep their inventory levels at manageable levelsCurrency trading is profitable and often contributes between 10% - 20% of a banks’ average net incomeSmall- to medium-sized banks rarely act as market makers yet still participate in the interbank market
52 Commercial Investment Importers, exporters, portfolio investors, MNEs, tourists and others use the FOREX market to facilitate execution of commercial or investment transactionsSome of these participants use the market to hedge foreign exchange rate risk
53 Speculators & Arbitragers Speculators and arbitragers seek to profit from trading in the market itselfThey operate for their own interest, without need or obligation to serve clients or ensure a continuous marketSpeculators seek all their profit from exchange rate changesArbitragers try to profit from simultaneous differences in exchange rates in different marketsA large proportion of speculation and arbitrage is conducted on behalf of major banks by traders employed by those banks
54 Central Banks & Treasuries Central banks and treasuries use the market to acquire or spend their country’s currency reserves as well as to influence the price at which their own currency tradesThey may act to support the value of their currency because of their government’s policies or obligations or because of commitments entered through joint float agreements such as the European Monetary System (EMS)Consequently their motive is not to profit but rather influence the foreign exchange value of their currency in a manner that will benefit their interests
55 Foreign Exchange Brokers Foreign exchange brokers are agents who facilitate trading between dealers without themselves becoming principals in the transactionFor this service they charge a small commissionThey maintain instant access to hundreds of dealers worldwide via open lines and at times may maintain such lines with several banks, with separate lines for differing currencies, spot and forward rates
57 Inter-Bank Market Transactions Transactions within this market can be executed on a spot, forward, or swap basisA spot transaction requires almost immediate delivery of foreign exchangeA forward transaction requires delivery of foreign exchange at some future dateA swap transaction is the simultaneous exchange of one foreign currency for another
58 Spot TransactionsA spot transaction in the interbank market is the purchase of foreign exchange, with delivery and payment between banks to take place, normally, on the second following business dayThe settlement date is often referred to as the value dateThis is the date when most dollar transactions are settled through the computerized Clearing House Interbank Payment Systems (CHIPS) in New York
59 Outright Forward Transactions This transaction requires delivery at a future value date of a specified amount of one currency for anotherThe exchange rate is agreed upon at the time of the transaction, but payment and delivery are delayedForward rates are contracts quoted for value dates of one, two, three, six, nine and twelve monthsTerminology typically used is buying or selling forwardA contract to deliver dollars for euros in six months is both buying euros forward for dollars and selling dollars forward for euros
60 Swap TransactionsA swap transaction in the interbank market is the simultaneous purchase and sale of a given amount of foreign exchange for two different value datesBoth purchase and sale are conducted with the same counterpartA common type of swap is a spot against forwardThe dealer buys a currency in the spot market and simultaneously sells the same amount back to the same bank in the forward marketSince this transaction occurs at the same time and with the same counterpart, the dealer incurs no exchange rate exposure
61 Swap TransactionsForward-forward swaps – A dealer sells £20,000 forward for dollars for delivery in two months at $1.6870/£ and simultaneously buys £20,000 forward for delivery in three months at $1.6820/£The difference between the buying and selling price is equivalent to the interest rate differentialThus a swap can be viewed as a technique for borrowing another currency on a fully collateralized basis
62 Swap TransactionsNon-deliverable forwards (NDFs) – NDFs possess the same characteristics as traditional forward contracts except that they are settled only in US dollars and the foreign currency being sold or bought forward is not deliveredThe dollar-settlement feature reflects the fact that NDFs are contracted offshore and are beyond the reach and regulatory frameworks of the home country governmentsPricing of NDFs reflects basic interest rate differentials
63 FOREX Market SizeThe Bank for International Settlements (BIS) estimates that daily global net turnover in traditional FOREX market activity to be US$1,210 billion in April 2001
64 FOREX Market SizeGlobal Foreign Exchange Market Turnover (daily averages in April, billions of US dollars)Source: Bank for International Settlements, “Central Bank Survey of Foreign Exchange and Derivatives Market Activity in April 2001,” October 2001, Next survey planned for April 2004.
65 FOREX Market SizeTwo of the three categories fell between 1998 and 2001 with spot market daily turnover falling the most, from $568 billion in 1998 to $387 billion in 2001Forward transactions increased slightly from $128 billion in 1998 to $131 billion in 2001Swaps fell to $656 billion in 2001 from $734 billion in 1998BIS attributes the introduction of the Euro, the growing share of electronic broking in the spot market and consolidation in banking as explanations for the reduction
66 FOREX Market SizeGeographic Distribution of Foreign Exchange Market Turnover (daily averages in April, billions of US dollars)Source: Bank for International Settlements, “Central Bank Survey of Foreign Exchange and DerivativesMarket Activity in April 2001,” October 2001, Next survey planned for April 2004.
67 FOREX Market SizeCurrency Distribution of Global Foreign Exchange Market Turnover (percentage shares of average daily turnover in April)Source: Bank for International Settlements, “Central Bank Survey of Foreign Exchange and DerivativesMarket Activity in April 2001,” October 2001, Next survey planned for April 2004.
68 FOREX Rates & QuotesA foreign exchange quote is a statement of willingness to buy or sell at an announced rateIn the retail market (newspapers and exchange booths), quotes are often given as the home currency price of the foreign currencyInterbank quotes – professionals state forex quotes in one of two waysThe foreign currency price of one dollarSfr1.6000/$, read as Swiss francs per dollarEuropean quoteThe dollar price of a unit of foreign currency$0.6250/Sfr, read as dollars per Swiss francAmerican quote
69 FOREX Rates & QuotesThe former quote is considered the “European quote” and the latter is the “American quote”Almost all European currencies, except two, are quoted the European wayThe Pound Sterling and the Euro are the exceptionsAdditionally, Australian and New Zealand dollars are also quoted in American terms
70 FOREX Rates & Quotes Bid and Ask Quotations Interbank quotes are given as a bid and askThe bid is the price at which a dealer will buy another currencyThe ask or offer is the price at which a dealer will sell another currencyExample: ¥ ¥118.37/$ is the bid/ask for Japanese yenThe bank will buy yen at ¥ per dollar and sell yen at ¥ per dollar making profit on the spread
71 FOREX Rates & Quotes Expressing Forward Quotations on a Points Basis The previously mentioned rates for yen were considered outright quotesForward quotes are different and typically quoted in terms of pointsA point is the last digit of a quotation, with convention dictating the number of digits to the right of the decimalHence a point is equal to of most currencies
72 FOREX Rates & Quotes Expressing Forward Quotations on a Points Basis The yen is quoted only to two decimal pointsA forward quotation is not a foreign exchange rate, rather the difference between the spot and forward ratesExample:Bid AskOutright spot: ¥ ¥118.37Plus points (3 months)Outright forward: ¥ ¥116.97
73 FOREX Rates & Quotes Forward Quotations in Percentage Terms Forward quotations may also be expressed as the percent-per-annum deviation from the spot rateThis is similar to the forward discount or premium calculated earlierThe important thing to remember is which currency is being used as the home or base currencyFor indirect quotes (i.e. quote expressed in foreign currency terms), the formula is
74 FOREX Rates & Quotes Forward Quotations in Percentage Terms For direct quotes (i.e. quote expressed in home currency terms), the formula is
75 FOREX Rates & Quotes Forward Quotations in Percentage Terms Example: Indirect quoteExample: Direct quote
76 FOREX Rates & Quotes Direct and Indirect Quotes A direct quote is a home currency price of a unit of a foreign currencySfr1.6000/$ is a direct quote in Switzerland$0.625/Sfr is a direct quote in the USAn indirect quote is a foreign currency price in a unit of the home currencySfr1.600/$ is an indirect quote in the US,$0.625/Sfr is a direct quote in the US and an indirect quote in Switzerland
77 FOREX Rates & Quotes Cross Rates Many currencies pairs are inactively traded, so their exchange rate is determined through their relationship to a widely traded third currencyExample: A Mexican importer needs Japanese yen to pay for purchases in Tokyo. Both the Mexican peso (Ps) and Japanese yen (¥) are quoted in US dollarsAssume the following quotes:Japanese yen ¥121.13/$Mexican peso Ps9.190/$
78 FOREX Rates & Quotes Cross Rates The Mexican importer can buy one US dollar for Ps9.190 and with that dollar buy ¥121.13; the cross rate would be
79 FOREX Rates & Quotes Intermarket Arbitrage Cross rates can be used to check on opportunities for intermarket arbitrageExample: Assume the following exchange rates are quotedCitibank $0.9045/€Barclays Bank $1.4443/£Dresdner Bank €1.6200/£
80 FOREX Rates & Quotes Intermarket Arbitrage The cross rate between Citibank and Barclays isThis cross rate is not the same as Dresdner’s rate quote of €1.5800/£, so an opportunity exists for risk-less profit€
81 FOREX Rates & Quotes Citibank Dresdner Bank Barclays Bank End with $1,014,533Start with $1,000,000Sell €1,121,651 to Citibankat $0.9045/€(6) Receive $1,014,533Sell $1,000,000 to BarclaysBank at $1.4443/£(2) Receive £692,377Sell £692,377 to Dresdner Bankat €1.6200/£(4) Receive €1,121,651
82 Managing Global Expansion Social insurance: unemployment compensation, trade adjustment assistance, training programs
83 Managing Global Expansion “Managing Global Expansion: A Conceptual Framework”Gupta & Govindarajan – Business Horizons, March/April 2000, (Reprint BH043)Globalization imperativesDegree of local adaptationLearning potentialEntry barriersCompetitive intensity
85 Exporting Ship to another country for sale or exchange Advantages: Sony TVs, Matsushita VCRsExportingShip to another country for sale or exchangeAdvantages:Avoid cost of establishing manufacturing operationsHelp achieve experience curve and location economiesDisadvantages:May compete with low-cost location manufacturersPossible high transportation costsTariff barriersPossible lack of control over marketing repsExample: Heineken Beer (Hill)
86 Improving Export Performance Information fromgovernment sourcesExport ManagementCompaniesExportstrategiesBundesregierung.deMiti.go.jpExim.govIta.doc.govExport specialists who act as the export management department or international department for client firmsTop management commitmentStart smallEnter to learn, add to growBuild relationshipsHire locals
87 An Interesting FactAlthough the U.S. is the largest single market, exporting does not seem to come naturally to U.S. companies. In the U.S., exports account for 5.4% of GNP compared to 26% in Germany, 25% in Canada, and 10.5% in Japan (not most recent statistics).3
88 globalEDGE – Core Exercise Advanced Biomedical Devices, Inc.Assessment of Readiness to ExportTeam In-Class Exercise (50 points)Your team has been “hired” to evaluate ABD’s readiness to export.Drawing on information from the case, your knowledge of factors affecting global expansion, and what you learn from the CORE diagnostic tool, prepare a two-page (double-spaced) memo with your team’s assessment and recommendations.You may structure the memo however you see fit.Attach the CORE output as supporting documentation.The memo is due in two hours. The break-out rooms are available.
89 LicensingEuro-Disney JapanLicensor grants rights to intangible property to another entity for a specified period of time in returnAdvantages:Reduces development costs and risks of establishing foreign enterpriseLack capital for venture; Unfamiliar/volatile marketOvercomes restrictive investment barriersOthers can develop business applications of intangible propertyDisadvantages:Lack of controlCross-border licensing may be difficultCreating a competitor
90 FranchisingA franchiser sells intangible property and provides guidelines for operating the business.Advantages:Reduces costs and risk of establishing enterpriseDisadvantages:May prohibit movement of profits from one country to support operations in another countryQuality control
91 Joint Ventures Advantages: Disadvantages: Benefit from local partner’s knowledgeShared costs/risks with partnerReduced political riskDisadvantages:Risk giving control of technology to partnerMay not realize experience curve or location economiesShared ownership can lead to conflict
92 Strategic Alliances “Collaborate with your Competitors & Win” Hamel, Doz & Prahalad – HBR Reprint 89104Learning
93 Establishing a Wholly Owned Subsidiary AcquisitionGreenfieldPro:Quick to executePreempt competitorsPossibly less riskyCon:Often produce disappointing resultsOverpay for firmToo optimistic about value creation (hubris)Culture clashProblems with proposed synergiesPro:Can build subsidiary it wantsEasy to establish operating routinesCon:Slow to establishRiskyPreemption by aggressive competitors
94 Selecting an Entry Mode Basis for CompetitionEntry ModeTechnological Know-HowWholly owned subsidiary unless 1. Venture is structured to reduce risk of loss of technology 2. Technology advantage transitoryThen licensing or joint venture OKManagement Know-HowFranchising, subsidiaries (wholly owned or joint venture)Pressure for Cost ReductionCombination of exporting and wholly owned subsidiary
95 Which Foreign Markets? Market potential Learning potential Market size (e.g., China vs. Taiwan)DemandCosts: Customer acquisition, infrastructureDistance:Cultural, administrative, geographic, economic (Comparisons – Wal-Mart in Mexico)Learning potentialSophisticated/demanding customers?Pace of technology?
97 Wal-Mart de Mexico Sam’s Club, Mexico City, 1991 Per capita income $2,000Monterrey (Laredo)Distribution problems (no NAFTA yet)Ice skates, riding mowers, leaf blowers, fishing1994 (post NAFTA)Labels on 80,000 productsDecember: Peso crisis, 40% depreciationBy mid-1997, 373 of 1000 non-US storesDistribution centerLocal sourcing (Sony Wega $1600,$600); scaleJoint venture w/ Cifra (WalMex)
98 Timing of Entry First-mover advantage. Disadvantages: Preempt rivals and capture demandBuild sales volumeMove down experience curve before rivals and achieve cost advantageCreate switching costsDisadvantages:First mover disadvantage - pioneering costsChanges in government policyCosts early entrantbears that laterentrant can avoid.
99 Global Expansion - Cases Citibank: Launching the Credit Card in Asia Pacific (A) - HBSPreempting rivals and capturing demand, Market entry analysis, market evaluation, target market selection, product positioning issuesXerox and Fuji Xerox – HBSImportance of structural flexibility, autonomy/integration tradeoff, drivers of collaboration, multi-market contact
100 International Manufacturing Strategy Social insurance: unemployment compensation, trade adjustment assistance, training programs
101 Where to manufacture? “How to Integrate Work and Deepen Expertise” Leonard-Barton, Bowen, Clark, Holloway, & Wheelwright – HBR Reprint 94502Key factorsCountry: Factor costs, CAGE, location externalities, infrastructureTechnological: Economies of scale, MES, manufacturing flexibilityProduct: Value to weight ratio, universality of needs
102 Location Strategy Technological Factors Flexible manufacturing technology Available Not AvailableMinimum efficient scale High LowFixed costs High LowProduct FactorsServes universal needs Yes NoValue-to-weight ratio High LowCountry FactorsDifferences in factor costs Substantial FewSubstantial FewTrade barriers Few ManyDifferences in political economyDifferences in culture Substantial FewConcentrated DecentralizedFavored Manufactured Strategy
103 Manufacturing Location - Case The Acer Group’s China Manufacturing Decision – HBS 99M009Decentralized structureRole of core competenciesKey considerationsCosts, market presence, infrastructure, materials management, expats (safety, desire), labor laws, time frame, environmentPEST framework - environment
104 International Marketing Strategy (Global Branding) Social insurance: unemployment compensation, trade adjustment assistance, training programs
105 Global Branding “The Lure of Global Branding” Advantages Disadvantages Aaker and Joachimsthaler – HBR Reprint 99601AdvantagesDisadvantagesWhen is it possible?Developing a global brandManaging a global brand
106 Global Branding - Case EMDICO (A) – HBS 9-597-029 Re-launching a global brand in an emerging marketChallenges faced by a late entrantImpact of cultural and religious considerations on market demand and marketing strategyMarketing program calculations
107 International Human Resource Management Social insurance: unemployment compensation, trade adjustment assistance, training programs
108 Developing an Expatriate Policy “The Right Way to Manage Expats”Black & Gregersen – HBR Reprint 99201Benefits: Enhance management experience, knowledge transfer, best allocation of people, reducing turnoverConstraints: willingness to travel/live abroad, costs, achieving equity (pay, taxes, cost of living), impact on career
109 Expatriate Policy - Case Colgate-Palmolive: Managing International Careers – HBSLeader in attention and carePre-departure, moving, financialNeeds of expat AND familyCompare C-P’s policy to your company’s policyContinuous improvementPre-departure concerns, spouse assistanceSurveys to review and reviseEffective but costlyFocus on selection