Mgmt. 308 Chapter 1 Change of Global Business

Globalization It is trend away from distinct national economic units and toward one huge global market. It is the international integration of goods, technology, labor, and capital; that is, firms implement strategies that link and coordinate their international activities on a worldwide basis.

As a result of globalization; 1)40% of the world output is produced by 500 largest companies in the world. 2)Only 22 nations have GNP greater than the total annual sales of Mitsubishi. 3)Total money spent on Wal-Mart in the world is greater than the sums of GNPs of 161 nations.

Global firm’s management; 1.Searches the world for; (a)Market opportunities, (b)Threats from competitors, (c)Sources of products, raw materials, knowledge, innovation, and financing, (d)Personnel, 2.Seeks to maintain a presence in key markets, 3.Looks for similarities, not differences, among markets.

Multidomestic company It is an organization with multicountry affiliates, each of which formulates its own business strategy based on perceived market differences.

Global company It is an organization that attemps to standardize and integrate operations worldwide in all functional areas.

Functional areas They are economic activities that can be separated from each other; such as advertising, research and development, production, asemblying, procurement, etc.

Example of a global company: Procter and Gamble→ Sells to 5 billion people around the world, Operates in more than 70 countries, Sells its products to more than 140 countries, Employs 103,000 people around the globe.

A brief history of international business International business existed since very early days. Phoenicians were famous tradespeople. Marco Polo was the first man who went to China and came back. Britain established East India Company in 1600 AC. Ford Motor Company (1920), Singer Sewing Machine Company (1868), General Motors (1920), Chrysler (1920), General Electric (1919) were established around hundred years ago.

Globalization forces: Political forces, Technological forces, Market forces, Cost pressures, Competitive forces.

Political forces: 1.Trend towards formation of economic blocks, such as NAFTA, EU, ASEAN. 2.Trend towards global integration. This is encouraged by; (a) agreements like GATT, (b) reduction of barriers to trade and foreign investment by governments, (c) privatization of many state enterprises, even in ex-communist countries.

Technological forces: Advances in computers, communication, transportation, mass production techniques made globalization easier.

Market forces: Customers are becoming more international. Customer lifestyles, tastes, preferences are becoming similar. This way the market for global companies are expanding.

Cost pressures Economies of scale reduce the unit costs which is one of the management goals. Also the firm can place the production wherever cost of production is lowest.

Competitive forces: There is very tough global competition among the global firms. Firms stemming from the newly industrialized countries are producing low-cost, high-quality products with which firms from industrial countries must compete. Also firms should protect their home markets. Thus they have to be very efficient.

Recent developments There is an increase in foreign direct investment (FDI) until 2000, and then it started decreasing. FDI is direct investments into equipment, structures, and organizations in a foreign country at a level that is sufficient to obtain significant management control. It does not include investments in the stock markets of other countries (portfolio investment) Management control can be achieved through; golden share, more than 50% ownership, and/or appointing ther management team.

Recent developments FDI Data: Inflows$ , Outflows , Inward stock 6991,9546,147 7,122 Outward stock 5641,7635,992 6,866

Recent developments There is an increase in the total assets of the foreign affiliates: Foreign affiliate data: valueannual growth rate Sales $ 9,372 17, %7.4% Total assets 11,246 26, Exports1,841 2, Emp. 30, (000s)

Recent developments After the Second World War, most of the global companies were American, and some European. In 1996, out of 100 largest companies, 57 are American, 24 European, and 13 Japanese. In 2009, the trend continues and American share in global business is going down.

Mini-multinationals (mini-globals, or micro-multinationals) There are some small and medium size enterprises becoming global companies. Their characteristics are: 1.Their annual sales are around $600 million, and they grow very fast, like 20% a year. 2.International sales are 40-50% of their total sales. 3.Their product is often unique because of their technology, design, cost, etc. 4.Their target customers are sharply focused. 5.They can take decisions very fastly. They have smaller beurocracy and small number of manufacturing locations. 6.They underline research. 7.They use foreigners in foreign operations and at the headquarters.

Prof. Bartlett: “Newcomers have the huge advantage of starting fresh. They can develop much more flexible structures.”

International firms are under the influence of two forces: Uncontrollable forces: They are external forces over which management has no direct control, but sometimes they can exert an influence. Controllable forces: They are internal forces that management administers to adapt to changes.

Uncontrollable forces 1.Competitive – kinds and numbers of competitors, their locations, their activities. 2.Distributive – national and international agencies available for distributing goods and services. 3.Economic – variables such as GNP, unit labor costs, personal consumption expenditures that influence a firm’s ability to do business. 4.Socioeconomic – characteristics and distribution of the human population. 5.Financial – variables like interest rates, inflatin rates, tax rates. 6.Legal – foreign and domestic laws by which international firms must operate. 7.Physical – elements of nature such as climate, topography, natural resources. 8.Political – nationalism, forms of government, international organizations. 9.Sociocultural – elements of culture, such as, attitudes, beliefs, opinions. 10.Labor – composition, skills, attitudes of labor. 11.Technological – the technical skills and equipment that affect how resources are converted into products.