International Management Concerns Lecture 22

Global Differences Average paid vacation days per year Average paid vacation days per year Paid vacation days per year required by law Paid vacation days per year required by law

Average paid vacation days per year Germany:30 Germany:30 Italy:30 Italy:30 France:25 France:25 Netherlands:25 Netherlands:25

Average paid vacation days per year Britain:25 Britain:25 Belgium:24 Belgium:24 Japan:17.5 Japan:17.5 U.S.: 10.2 U.S.: 10.2

Paid vacation days per year required by law France:25 France:25 Germany:24 Germany:24 Italy:20 Italy:20 Netherlands: 20 Netherlands: 20

Paid vacation days per year required by law Britain:20 Britain:20 Belgium:20 Belgium:20 Japan:10 Japan:10 U.S.: U.S.:

Labor Costs Average production worker compensation per hour Average production worker compensation per hour

Labor Costs (2002) U.S.$17.10 U.S.$17.10 Japan Japan Germany Germany Mexico 1.38 Mexico 1.38

Fastest Growing Auto Market? Total vehicle sales increase 75% from 2002 to Total vehicle sales increase 75% from 2002 to 2003.

Chinese consumption in ‘03 50% of world’s concrete output 50% of world’s concrete output 33% of world’s steel output 33% of world’s steel output 25% of world’s copper output 25% of world’s copper output 20% of world’s aluminum output 20% of world’s aluminum output (Fortune, ) (Fortune, )

Health Insurance Costs Per Capita UK$1400 UK$1400 Canada$2300 Canada$2300 Germany$2400 Germany$2400 US$4200 US$4200 (2003, in US dollars) (2003, in US dollars)

CEO Pay Manufacturing Sector Manufacturing Sector CEO pay as a factor of average worker pay CEO pay as a factor of average worker pay (Business Week, May 6, 2002) (Business Week, May 6, 2002)

CEO Pay England24x average worker’s pay England24x average worker’s pay Germany15x average worker’s pay Germany15x average worker’s pay Sweden 13x average worker’s pay Sweden 13x average worker’s pay US? US?

Global Pricing – Volkswagen Golf Finland: $ 8,290 Finland: $ 8,290 France:10,510 France:10,510 Italy:10,690 Italy:10,690 Germany:11,040 Germany:11,040 Britain:13,040 Britain:13,040 (Year 2000)

Economic Market Organizations

NAFTA United States United States Mexico Mexico Canada Canada

European Union 28 countries and counting (members & applicants) 28 countries and counting (members & applicants)

World Trade Organization 146 Member Countries 146 Member Countries

Mercosur (Southern Common Market) Argentina Argentina Brazil Brazil Paraguay Paraguay Uruguay Uruguay

Mercosur (Southern Common Market) Chile Chile Bolivia Bolivia Peru Peru (Venezuela) (Venezuela)

Andean Common Market Bolivia Bolivia Columbia Columbia Ecuador Ecuador Peru Peru Venezuela Venezuela

FTAA (Free Trade Area of the Americas) Alliance of the Americas From Alaska to Argentina From Alaska to Argentina

SAFTA South Asian Free Trade Area India India Pakistan Pakistan Sri Lanka Sri Lanka Bangladesh Bangladesh Nepal Nepal Bhutan Bhutan Maldives Maldives

2003 Top U.S. Trade Partners China 4. Japan 5. Germany

2003 Top U.S. Trade Partners 6. United Kingdom 7. South Korea 8. Taiwan 9. France 10. Italy

Global Business Terms Exporting Exporting Licensing/Franchising Licensing/Franchising Joint Venture Joint Venture Wholly Owned Subsidiary Wholly Owned Subsidiary

Exporting Selling products or services produced in one country to customers in another country Selling products or services produced in one country to customers in another country

Exporting Entry without ownership (EWO) Entry without ownership (EWO) Beware of tariffs (Hail Free Trade Zones!) Beware of tariffs (Hail Free Trade Zones!) Intracorporate Transfers Intracorporate Transfers –Ford plant in Mexico exports fuel tanks to Ford assembly plants in U.S.

Exporting Overseas Distributors Overseas Distributors –Understand the market –Understand the culture –Understand the product/service

Licensing/Franchising Using the logo/system of another company Using the logo/system of another company

Licensing Selling the right to brand names, patents, manufacturing technology, or intellectual property Selling the right to brand names, patents, manufacturing technology, or intellectual property EWO EWO Avoids high tariffs Avoids high tariffs

Licensing Licensor gives up considerable control Licensor gives up considerable control May be educating a potential rival May be educating a potential rival –Mitsubishi and Hyundai Microsoft in the PRC Microsoft in the PRC

Franchising Selling the contractual rights to methods, trademarks, products, procedures, and marketing strategies Selling the contractual rights to methods, trademarks, products, procedures, and marketing strategies EWO EWO Allows quick expansion by franchiser Allows quick expansion by franchiser

Joint Venture A company from one country pools its resources with those of a foreign company A company from one country pools its resources with those of a foreign company

Joint Ventures Shared ownership between companies Shared ownership between companies Set up as a separate legal entity Set up as a separate legal entity

Joint Ventures Large MNC with a product design and technological expertise partners with local firm that offers marketing expertise in that culture Large MNC with a product design and technological expertise partners with local firm that offers marketing expertise in that culture

Joint Ventures Sharing of costs/risks Sharing of costs/risks Chrysler and BMW built a $500 million engine plant. Chrysler and BMW built a $500 million engine plant.

Joint Ventures Economies of scale required selling 400,000 of those engines. Neither Chrysler nor BMW thought they could sell that many engines alone. Win-Win. Economies of scale required selling 400,000 of those engines. Neither Chrysler nor BMW thought they could sell that many engines alone. Win-Win.

Wholly Owned Subsidiary An independent company owned by the parent corporation An independent company owned by the parent corporation

Wholly Owned Subsidiaries Ownership Ownership More Control More Control More closely coordinate worldwide ops More closely coordinate worldwide ops Greater expense and risk Greater expense and risk

Wholly Owned Subsidiaries Greenfield approach Greenfield approach –Time consuming and expensive Acquisition approach Acquisition approach –Complicated negotiations and financial transactions