1. Chapter Copyright© 2007 Thomson Learning All rights reserved 1 Multinational Management in a Changing World

2. Copyright© 2007 South-Western/Thomson Learning All rights reserved Learning Objectives Define multinational management Understand the characteristics of a multinational company Understand the nature of the global economy and the key forces that drive globalization Know the basic classification of the world’s economies Identify the characteristics of the next generation of multinational managers Define multinational management Understand the characteristics of a multinational company Understand the nature of the global economy and the key forces that drive globalization Know the basic classification of the world’s economies Identify the characteristics of the next generation of multinational managers

3. Copyright© 2007 South-Western/Thomson Learning All rights reserved Multinational Management Formulation of strategies and management systems to take advantage of international opportunities and respond to international threats

4. Copyright© 2007 South-Western/Thomson Learning All rights reserved The Nature of The Multinational Company Any company that engages in business functions beyond its domestic borders Includes both large and small companies Any company that engages in business functions beyond its domestic borders Includes both large and small companies

5. Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 1.1 – The Largest Companies in the World

6. Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 1.2 – The 15 cities With The Most Fortune Global 500 Companies

7. Copyright© 2007 South-Western/Thomson Learning All rights reserved The Globalizing Economy Globalization: the worldwide trend of the economies of the world becoming borderless and interlinked.

8. Copyright© 2007 South-Western/Thomson Learning All rights reserved Negatives of Globalization Not all economies of the world are benefiting equally or participating equally in the process. Terrorism, wars, and a worldwide economic stagnation have limited or reversed some aspects of globalization. Producing negative effects such as scarcity of natural resources, environmental pollution, negative social impacts, and increased interdependence of the world’s economies. Widening the gap between rich and poor countries Not all economies of the world are benefiting equally or participating equally in the process. Terrorism, wars, and a worldwide economic stagnation have limited or reversed some aspects of globalization. Producing negative effects such as scarcity of natural resources, environmental pollution, negative social impacts, and increased interdependence of the world’s economies. Widening the gap between rich and poor countries

9. Copyright© 2007 South-Western/Thomson Learning All rights reserved The Benefits of Globalization Resulting in lower prices in many countries as multinationals are becoming more efficient. Benefiting many emerging markets such as India and China as these countries enjoy greater availability of jobs and better access to technology. Major reason why many new companies from Mexico, Brazil, China, India, and South Korea are the new dominant global competitors. Resulting in lower prices in many countries as multinationals are becoming more efficient. Benefiting many emerging markets such as India and China as these countries enjoy greater availability of jobs and better access to technology. Major reason why many new companies from Mexico, Brazil, China, India, and South Korea are the new dominant global competitors.

10. Copyright© 2007 South-Western/Thomson Learning All rights reserved The Globalizing Economy: 7 Key Trends Disintegrating borders Growing cross-border trade and investment The rise of global products and global customers The internet and information technology Privatizations New competitors in the world market The rise of global standards of quality and production Disintegrating borders Growing cross-border trade and investment The rise of global products and global customers The internet and information technology Privatizations New competitors in the world market The rise of global standards of quality and production

11. Copyright© 2007 South-Western/Thomson Learning All rights reserved Countries of the World: The Arrived, The Coming, and The Struggling Developed countries: mature economies with substantial per capita Gross Domestic Product, international trade and investments. Developing countries: economies that have grown extensively over past two decades E.g., Hong Kong, Singapore, South Korea. Developed countries: mature economies with substantial per capita Gross Domestic Product, international trade and investments. Developing countries: economies that have grown extensively over past two decades E.g., Hong Kong, Singapore, South Korea.

12. Copyright© 2007 South-Western/Thomson Learning All rights reserved Countries of the World: The Arrived, The Coming, and The Struggling Transition economies: countries that have changed from mostly communist systems to market/capitalistic systems E.g., Czech republic, Hungary, Poland. Emerging markets: those countries that are currently between developed and developing countries and are rapidly growing E.g., India, China, Brazil, and Russia. Transition economies: countries that have changed from mostly communist systems to market/capitalistic systems E.g., Czech republic, Hungary, Poland. Emerging markets: those countries that are currently between developed and developing countries and are rapidly growing E.g., India, China, Brazil, and Russia.

13. Copyright© 2007 South-Western/Thomson Learning All rights reserved Countries of the World: The Arrived, The Coming, and the Struggling Less developed countries: have yet to show much progress in the global economy Most are located in Central and South America and Africa. Less developed countries: have yet to show much progress in the global economy Most are located in Central and South America and Africa.

14. Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 1.3: Divisions of the World’s Economies

15. Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 1.4: Forces Driving Globalization

16. Copyright© 2007 South-Western/Thomson Learning All rights reserved Borders are Disintegrating: The World Trade Organization Formal structure for continued negotiations and for settling trade disputes among nations. 1947 Nations met to reduce tariffs from 45% to less than 7% - resulted in the General Agreement on Tariffs and Trade (GATT). 1986 Negotiations began in Uruguay to continue reducing tariffs. Formal structure for continued negotiations and for settling trade disputes among nations. 1947 Nations met to reduce tariffs from 45% to less than 7% - resulted in the General Agreement on Tariffs and Trade (GATT). 1986 Negotiations began in Uruguay to continue reducing tariffs.

17. Copyright© 2007 South-Western/Thomson Learning All rights reserved World Trade Organization 1997 – Trade ministers from countries representing 92 % of world trade agreed to eliminate tariffs on software, computer chips, telecommunication equipment and computers. WTO has some critics. Not all countries are participating equally in WTO. 1997 – Trade ministers from countries representing 92 % of world trade agreed to eliminate tariffs on software, computer chips, telecommunication equipment and computers. WTO has some critics. Not all countries are participating equally in WTO.

18. Copyright© 2007 South-Western/Thomson Learning All rights reserved Regional Trade Agreements Regional Trade Agreements - agreements among nations to reduce tariffs and develop similar technical and economic standards. European Union (EU) - includes a large number of European countries. Allows free movement of goods and services and a common currency. Regional Trade Agreements - agreements among nations to reduce tariffs and develop similar technical and economic standards. European Union (EU) - includes a large number of European countries. Allows free movement of goods and services and a common currency.

19. Copyright© 2007 South-Western/Thomson Learning All rights reserved Regional Trade Agreements The North American Free Trade Agreement (NAFTA): links United States, Canada, and Mexico in an economic bloc. Allows freer exchange of goods and services The Asia-Pacific-Economic Cooperation (APEC): looser confederation of 19 Asian nations with less specific agreements on trade facilitation. The North American Free Trade Agreement (NAFTA): links United States, Canada, and Mexico in an economic bloc. Allows freer exchange of goods and services The Asia-Pacific-Economic Cooperation (APEC): looser confederation of 19 Asian nations with less specific agreements on trade facilitation.

20. Copyright© 2007 South-Western/Thomson Learning All rights reserved Sell Anywhere, Locate Anywhere World trade growth: average of 6.5% per year between 1990 and 2000. Nearly half of the over $5 trillion in world trade is among the European union, the U.S., and Japan – the TRIAD. World trade growth: average of 6.5% per year between 1990 and 2000. Nearly half of the over $5 trillion in world trade is among the European union, the U.S., and Japan – the TRIAD.

21. Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 1.6 – Leading Exporting and Importing Countries

22. Copyright© 2007 South-Western/Thomson Learning All rights reserved Sell Anywhere, Locate Anywhere Foreign Direct Investment (FDI) : occurs when a multinational company from one country has an ownership position located in another country. FDI increased by more that 36% between 1996 and 2000. Post 9/11 has seen a decline in FDI. Nevertheless, it remains a significant factor. Foreign Direct Investment (FDI) : occurs when a multinational company from one country has an ownership position located in another country. FDI increased by more that 36% between 1996 and 2000. Post 9/11 has seen a decline in FDI. Nevertheless, it remains a significant factor.

23. Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 1.7: The Growth of FDI in a Few Emerging Markets and Selected Developed Countries

24. Copyright© 2007 South-Western/Thomson Learning All rights reserved Foreign Direct Investment Developed countries get the bulk of FDI (69%) while developing countries get around 30%. Least developed countries get minimal FDI. Implications for managers - significant opportunities around the world. Multinational managers should look at risk rating of countries. Developed countries get the bulk of FDI (69%) while developing countries get around 30%. Least developed countries get minimal FDI. Implications for managers - significant opportunities around the world. Multinational managers should look at risk rating of countries.

25. Copyright© 2007 South-Western/Thomson Learning All rights reserved Two Types of Risks Economic risk: considers all factors of a nation’s economic climate that may affect a foreign investor. Political risk: anything a government might do or not do that might adversely affect a company. Economic risk: considers all factors of a nation’s economic climate that may affect a foreign investor. Political risk: anything a government might do or not do that might adversely affect a company.

26. Copyright© 2007 South-Western/Thomson Learning All rights reserved Factors Outside of The Control of The Multinational The recent increases in oil prices have the potential to slow down global trade Natural disasters International terrorism The recent increases in oil prices have the potential to slow down global trade Natural disasters International terrorism

27. Copyright© 2007 South-Western/Thomson Learning All rights reserved The Internet and Information Technology Electronic Communication - E-mail, World Wide Web,etc. Allows multinationals to communicate with company locations throughout the world. Multinationals can also monitor worldwide operations. Information technology is spurring a borderless financial market. Electronic Communication - E-mail, World Wide Web,etc. Allows multinationals to communicate with company locations throughout the world. Multinationals can also monitor worldwide operations. Information technology is spurring a borderless financial market.

28. Copyright© 2007 South-Western/Thomson Learning All rights reserved The Internet and Information Technology Information technologies make available many new tools that facilitate business operations E.g., Voice-Over-Internet Protocol (VOIP) such as Skype, MSN Messenger and AOL, WIKIs Information technologies make available many new tools that facilitate business operations E.g., Voice-Over-Internet Protocol (VOIP) such as Skype, MSN Messenger and AOL, WIKIs

29. Copyright© 2007 South-Western/Thomson Learning All rights reserved The Rise of Global Products and Global Customers The needs of customers for many products and services are growing more similar E.g., McDonald’s, Boeing, Toyota. Global customers search the world for their supplies without regard for national boundaries. The needs of customers for many products and services are growing more similar E.g., McDonald’s, Boeing, Toyota. Global customers search the world for their supplies without regard for national boundaries.

30. Copyright© 2007 South-Western/Thomson Learning All rights reserved Privatization Sale of government-owned businesses to private investors, usually through stock or direct sale to other companies. Two types of privatization contribute to the global economy – the developed world and the developing world. Sale of government-owned businesses to private investors, usually through stock or direct sale to other companies. Two types of privatization contribute to the global economy – the developed world and the developing world.

31. Copyright© 2007 South-Western/Thomson Learning All rights reserved Privatization - Types The Developed Countries Use privatization to make formerly government- controlled enterprises more competitive in the global economy. The Developing Countries Use privatization to jump-start their economies or to speed the transition from a communist to a capitalist system. The Developed Countries Use privatization to make formerly government- controlled enterprises more competitive in the global economy. The Developing Countries Use privatization to jump-start their economies or to speed the transition from a communist to a capitalist system.

32. Copyright© 2007 South-Western/Thomson Learning All rights reserved New Competitors Free market reforms are creating a potential group of new competitors. Korean, Russian, Taiwanese, and Mexican companies are all emerging. Chinese companies are also on the move. Free market reforms are creating a potential group of new competitors. Korean, Russian, Taiwanese, and Mexican companies are all emerging. Chinese companies are also on the move.

33. Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 1.9: Top 25 Emerging Market Economies

34. Copyright© 2007 South-Western/Thomson Learning All rights reserved New Competitors are Emerging Global trade has two important effects in developing new competitors: When developing countries are used as low-wage platforms for high-tech assembly, multinationals facilitate the transfer of technology. Aggressive multinationals are also expanding beyond their own borders. Global trade has two important effects in developing new competitors: When developing countries are used as low-wage platforms for high-tech assembly, multinationals facilitate the transfer of technology. Aggressive multinationals are also expanding beyond their own borders.

35. Copyright© 2007 South-Western/Thomson Learning All rights reserved The Rise of Global Standards Companies can make 1 or only a few versions of product for the world market. This is cheaper than making different versions for different countries. Drive to develop common standards to save money. Companies can make 1 or only a few versions of product for the world market. This is cheaper than making different versions for different countries. Drive to develop common standards to save money.

36. Copyright© 2007 South-Western/Thomson Learning All rights reserved Global Standards Consistency in quality also an important requirement of doing business in many countries. International organization for standardization (ISO) in Geneva, Switzerland Developed a set of technical standards (ISO 9001:2000 series). Consistency in quality also an important requirement of doing business in many countries. International organization for standardization (ISO) in Geneva, Switzerland Developed a set of technical standards (ISO 9001:2000 series).

37. Copyright© 2007 South-Western/Thomson Learning All rights reserved Next Generation of Multinational Managers: Characteristics Global mindset Ability to work with people from diverse backgrounds Long-range perspective Ability to manage change and transition Ability to create systems for learning and changing organizations Global mindset Ability to work with people from diverse backgrounds Long-range perspective Ability to manage change and transition Ability to create systems for learning and changing organizations

38. Copyright© 2007 South-Western/Thomson Learning All rights reserved Next Generation of Multinational Managers: Characteristics Talent to motivate all employees to achieve excellence Accomplished negotiation skills Willingness to seek overseas assignments Understanding of national cultures Talent to motivate all employees to achieve excellence Accomplished negotiation skills Willingness to seek overseas assignments Understanding of national cultures

39. Copyright© 2007 South-Western/Thomson Learning All rights reserved Multinational Management: A Strategic Approach Considers how managers formulate and implement strategies to compete successfully in the global economy. Strategies are the maneuvers or activities used to increase and sustain organizational performance. Multinational strategies must include maneuvers that deal with operating in more than one country and culture. Considers how managers formulate and implement strategies to compete successfully in the global economy. Strategies are the maneuvers or activities used to increase and sustain organizational performance. Multinational strategies must include maneuvers that deal with operating in more than one country and culture.

40. Copyright© 2007 South-Western/Thomson Learning All rights reserved Trends Shaping Future Business Environment Blurring of industry boundaries Flexibility matters more than size Focusing on niche Hyper-competition Emphasis on innovation and the learning organization Blurring of industry boundaries Flexibility matters more than size Focusing on niche Hyper-competition Emphasis on innovation and the learning organization

41. Copyright© 2007 South-Western/Thomson Learning All rights reserved Conclusion Chapter provides key background information to support study of multinational management Chapter also provides the foundation to understand the latest challenges and practices of multinational management Field is dynamic and learning never stops Chapter provides key background information to support study of multinational management Chapter also provides the foundation to understand the latest challenges and practices of multinational management Field is dynamic and learning never stops