Chapter 10 The Impact of Globalization

Globalization: A World Business View Globalization: A way of thinking in which a business regards all of its operations all over the world as part of one integrated business. For many companies going global is a major strategic challenge. Globalization: A way of thinking in which a business regards all of its operations all over the world as part of one integrated business. For many companies going global is a major strategic challenge. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Approaches To Globalization Global Strategy: A strategy where a business sells a uniform product of service throughout the world. Multidomestic Strategy: A strategy where a business modifies its product or service to address the special needs of local markets. Exporting: The situation where a business sells products and services to customers in other countries. Importing: The situation where customers buy products and services from producers in other countries. Global Strategy: A strategy where a business sells a uniform product of service throughout the world. Multidomestic Strategy: A strategy where a business modifies its product or service to address the special needs of local markets. Exporting: The situation where a business sells products and services to customers in other countries. Importing: The situation where customers buy products and services from producers in other countries. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Issues Affecting Globalization Economic Issues: Influences that affect a company’s ability to compete across boarders. Supply and demand for products Strength of a country’s currency Exchange Rates: The value of currency compared with a foreign currency. Balance of Payments: A record of the inflow of money into a country and the outflows of money from that country. Balance of Trade: The difference between the value of a country’s imports and exports of goods and services. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

The Balance of Payments Report McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. Balance of Payments Report (1960 – 2005)

Government Involvement in Global Issues Free Trade: A situation where there are no government-imposed barriers to trade--no tariffs, quotas, or non-tariff barriers. Tariff: A tax on an imported product. Quota: A government’s restriction on the amount of a specific foreign product it allows into the country. Free Trade Area: A geographic area where free trade is permitted among the participating countries but imports from nonparticipating countries are limited. Free Trade: A situation where there are no government-imposed barriers to trade--no tariffs, quotas, or non-tariff barriers. Tariff: A tax on an imported product. Quota: A government’s restriction on the amount of a specific foreign product it allows into the country. Free Trade Area: A geographic area where free trade is permitted among the participating countries but imports from nonparticipating countries are limited. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Free Trade and Free Trade Areas General Agreement on Tariffs and Trade (GATT): An agreement between the U.S. and 22 other countries to regularly negotiate the reduction of trade barriers. Free Trade Area: A geographic area where free trade is permitted among the participating countries but imports from nonparticipating countries are limited. General Agreement on Tariffs and Trade (GATT): An agreement between the U.S. and 22 other countries to regularly negotiate the reduction of trade barriers. Free Trade Area: A geographic area where free trade is permitted among the participating countries but imports from nonparticipating countries are limited. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Free Trade Agreements McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. Free Trade AreaMember Countries NAFTACanada, Mexico, United States MercosurArgentina, Brazil, Paraguay, Uruguay Andean PactBolivia, Columbia, Ecuador, Peru, Venezuela European Union (EU)Austria, Belgium, Denmark, Finland, France Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, United Kingdom ASEANBrunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore,Thailand, Vietnam Proposed: Free Trade Area of The AmericasAll of Central, North, and South America NAFTACanada, Mexico, United States MercosurArgentina, Brazil, Paraguay, Uruguay Andean PactBolivia, Columbia, Ecuador, Peru, Venezuela European Union (EU)Austria, Belgium, Denmark, Finland, France Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, United Kingdom ASEANBrunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore,Thailand, Vietnam Proposed: Free Trade Area of The AmericasAll of Central, North, and South America

Government Support of Business Industrial Policy: Government assistance of various kinds to create a new industry or enable an existing industry to expand more than it could if market forces were the only determinants of output. Industrial Policy: Government assistance of various kinds to create a new industry or enable an existing industry to expand more than it could if market forces were the only determinants of output. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Cultural Differences Understanding cultural differences is critical to the success of the global organization. Areas of culture that cause problems: Language Customs Values Lifestyles Understanding cultural differences is critical to the success of the global organization. Areas of culture that cause problems: Language Customs Values Lifestyles McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Ethical Issues in Global Operations Different standards of right and wrong behavior. Create unique expectations for business interactions and negotiations. Being asked to do something that is considered unethical back home but perfectly acceptable in the country where the request is made. Different standards of right and wrong behavior. Create unique expectations for business interactions and negotiations. Being asked to do something that is considered unethical back home but perfectly acceptable in the country where the request is made. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Competing Ethical Views Cultural Relativism: The belief that what is right or wrong depends on the culture of the country where business is taking place. Cultural Relativism: The belief that what is right or wrong depends on the culture of the country where business is taking place. Universalism: The belief that there are commonly shared business standards and principles that are accepted throughout the world. Universalism: The belief that there are commonly shared business standards and principles that are accepted throughout the world. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Issues of Ethical Concern Bribery Working conditions provided by employers Whether or not to reduce employment in the home country and move production to foreign countries with cheaper labor Bribery Working conditions provided by employers Whether or not to reduce employment in the home country and move production to foreign countries with cheaper labor McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

How Businesses Participate in the Global Economy Import-Oriented Firms Bringing foreign manufactured goods into the home country for resale. Nike The Boeing Company The Limited Pier 1 Imports Huffy Corporation Oshkosh B’Gosh Haggar Import-Oriented Firms Bringing foreign manufactured goods into the home country for resale. Nike The Boeing Company The Limited Pier 1 Imports Huffy Corporation Oshkosh B’Gosh Haggar McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

How Businesses Participate in the Global Economy Expert-Oriented Domestic Firms The sale of goods and services produced in the home country to foreign buyers. Sony Toyota Yamaha Libbey Briggs and Stratton Timberland Expert-Oriented Domestic Firms The sale of goods and services produced in the home country to foreign buyers. Sony Toyota Yamaha Libbey Briggs and Stratton Timberland McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.