Copyright ©2011 by Cengage Learning. All rights reserved 1 Chapter 8 Global Management Designed & Prepared by B-books, Ltd. MGMT3 Chuck Williams

Copyright ©2011 by Cengage Learning. All rights reserved 2 What Is Global Business? After reading this section, you should be able to: 1.discuss the impact of global business and the trade rules and agreements that govern it.

Copyright ©2011 by Cengage Learning. All rights reserved 3 What Is Global Business? Global Business The buying and selling of goods and services by people from different countries. 1 1

4 The Impact of Global Business Multinational Corporation A corporation that owns businesses in two or more countries. Direct Foreign Investment A method of investment in which a company builds a new business or buys an existing business in a foreign country. 1.1

Copyright ©2011 by Cengage Learning. All rights reserved 5 Foreign Investment in the U.S. 1.1 Source: J. Koncz and D. Yorgason, “Direct Investment Positions for 2005: Country and Industry Detail,” available online at [accessed 7 February 2007].

Copyright ©2011 by Cengage Learning. All rights reserved 6 U.S. Foreign Investment Abroad 1.1 Source: J. Koncz and D. Yorgason, “Direct Investment Positions for 2005: Country and Industry Detail,” available online at [accessed 7 February 2007].

Copyright ©2011 by Cengage Learning. All rights reserved 7 Trade Barriers Nontariff Barriers Tariff Voluntary export restraints Government import standards Customs classification Quotas Government subsidies 1.2

Copyright ©2011 by Cengage Learning. All rights reserved 8 Beyond the Book The Politics of Global Trade On September 11, 2009, President Barack Obama approved a 35% tariff increase on imported Chinese tires. The issue was originally brought forward by the United Steelworkers union, which is also a key supporter of Obama’s health-care reform plans. While Chinese officials threatened retaliatory measures, they did suggest they would prefer a negotiated solution. Source: H. Maurer, C. Lindblad, eds. “Executive Summary: A Tiff Over Tires”, Business Week, 28 September

Copyright ©2011 by Cengage Learning. All rights reserved 9 Trade Agreements Regional Trading Zones General Agreement on Tariffs and Trade Maastricht Treaty of Europe NAFTA ASEAN and APEC CAFTA 1.3

Copyright ©2011 by Cengage Learning. All rights reserved 10 GATT GATT made it easier and cheaper for consumers in all countries to buy foreign products. –Tariffs were cut 40 percent on average worldwide by 2005 –Tariffs were eliminated in 10 specific industries –Stricter limits were put on government subsidies –GATT established protections for intellectual property –Trade disputes between countries now are fully settled by arbitration panels from the WTO 1.3

11 World Trade Organization Location: Geneva, Switzerland Established: January 1, 1995 Created by: Uruguay Round negotiations ( ) Membership:153 countries (on July 23, 2008) Budget: 189 million Swiss francs for 2008 Secretariat staff: 625 Head: Pascal Lamy (Director-General) Functions:  Administering WTO trade agreements  Forum for trade negotiations  Handling trade disputes  Monitoring national trade policies  Technical assistance and training for developing countries  Cooperation with other international organizations Web Link 1.3

12 Maastricht Treaty of Europe Formed in 1992 with 12 European countries Total membership is now 25 countries Transformed these countries into the European Union, forming one economic market and one common currency (the euro) Opened up and simplified trade among member nations Web Link 1.3

13 NAFTA North American Free Trade Agreement between Canada, United States, & Mexico Liberalizes trade among these three nations Eliminates most tariffs and barriers Web Link 1.3

14 CAFTA and USAN Central American Free Trade Agreement Union of South American Nations Fastest-growing place for U.S. exports. Common infrastructure to support trade. 1.3

15 ASEAN and APEC ASEAN –Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam APEC –Australia, Canada, Chile, China, Hong Kong, Japan, Mexico, New Zealand, Papua New Guinea, Peru, Russia, South Korea, Taiwan, the United States, and ASEAN members (except Cambodia, Lao PDR, and Myanmar) Web Link 1.3

Copyright ©2011 by Cengage Learning. All rights reserved 16 Consumers, Trade Barriers, and Trade Agreements American consumers get more for their money than most other consumers in the world because: The U.S. marketplace is easiest for foreign companies to enter AND the competitive market between domestic and foreign companies keeps prices low. 1.4

Copyright ©2011 by Cengage Learning. All rights reserved 17 Consumers, Trade Barriers, and Trade Agreements Decrease price of: food clothing other necessities luxuries Decrease price of: food clothing other necessities luxuries Increase: choices competition purchasing power Free Trade Agreements 1.4

Copyright ©2011 by Cengage Learning. All rights reserved 18 How to Go Global? After reading these sections, you should be able to: 2.explain why companies choose to standardize or adapt their business procedures. 3.explain the different ways that companies can organize to do business globally.

19 Consistency or Adaptation? Global Consistency When a multinational company has offices/plants in different countries and uses the same rules, guidelines, policies, and procedures Local Adaptation When a multinational company modifies its rules, guidelines, policies, and procedures to adapt to differences in foreign customers, governments, and regulatory agencies 2 2

Copyright ©2011 by Cengage Learning. All rights reserved 20 Beyond the Book Wal-Mart Goes Global After experiencing initial difficulties in its global expansion, Wal-Mart is finding more success in tailoring inventories and stores to local tastes. In some cases, Wal-Mart has used acquisitions of local retail chains instead of building traditional Wal-Mart stores, which might not function as well in places like the crowded city of São Paulo. Also Wal-Mart has started adopting successful innovations from locations outside the U.S. as it expands in new areas. Source: M. Bustillo, “After Early Errors, Wal-Mart Thinks Locally to Act Globally”, The Wall Street Journal, 14 August A1.

Copyright ©2011 by Cengage Learning. All rights reserved 21 Forms for Global Business Cooperative Contracts Strategic Alliances Exporting Wholly Owned Affiliates Global New Ventures 3 3

22 Exporting Less dependence on home market sales Greater degree of control over research, design, and production decisions Less dependence on home market sales Greater degree of control over research, design, and production decisions Advantages 3.1

23 Exporting  Many exports are subject to tariff and nontariff barriers  Transportation costs can increase price  Companies may depend on foreign importers for product distribution  Many exports are subject to tariff and nontariff barriers  Transportation costs can increase price  Companies may depend on foreign importers for product distribution Disadvantages 3.1

Copyright ©2011 by Cengage Learning. All rights reserved 24 Cooperative Contracts Licensing A domestic company receives royalty payments for allowing another company to produce its product, sell a service, or use its brand name in a specified foreign market Franchising A collection of networked firms in which the manufacturer or marketer of a product/service licenses the entire business to another person or organization 3.2

25 Licensing Allows companies to earn profits without investing more money The licensee invests in production equipment and facilities Helps companies avoid tariff and nontariff barriers Allows companies to earn profits without investing more money The licensee invests in production equipment and facilities Helps companies avoid tariff and nontariff barriers Advantages 3.2

26 Licensing  Licensor gives up control over quality of the product or service sold by the foreign licensee  Licensees can eventually become competitors  Licensor gives up control over quality of the product or service sold by the foreign licensee  Licensees can eventually become competitors Disadvantages 3.2

27 Franchising Fast way to enter foreign markets Good strategy when a company’s domestic sales have slowed Fast way to enter foreign markets Good strategy when a company’s domestic sales have slowed Advantages 3.2

28 Franchising  Franchisors face a loss of control  Franchising success may be culture-bound  Franchisors face a loss of control  Franchising success may be culture-bound Disadvantages 3.2

Copyright ©2011 by Cengage Learning. All rights reserved 29 Strategic Alliances Strategic Alliance An agreement in which companies combine key resources, costs, risks, technology, and people Joint Venture A strategic alliance in which two existing companies collaborate to form a third, independent company 3.3

30 Joint Ventures Help companies avoid tariffs and nontariff barriers to entry Participating companies bear only part of the costs and risks Advantageous to local partners Help companies avoid tariffs and nontariff barriers to entry Participating companies bear only part of the costs and risks Advantageous to local partners Advantages 3.3

31 Joint Ventures  Companies must share profits  A joint venture represents a merging of four cultures  With equal ownership, power struggles and a lack of leadership may occur  Companies must share profits  A joint venture represents a merging of four cultures  With equal ownership, power struggles and a lack of leadership may occur Disadvantages 3.3

Copyright ©2011 by Cengage Learning. All rights reserved 32 Beyond the Book GE Teams Up With Hyundai After years of poor results from its wholly owned subsidiaries in Korea, GE Capital tried a different approach, taking a minority stake in two financing subsidiaries of Hyundai Motor: Hyundai Capital, the carmaker’s auto-financing arm, and HyundaiCard, its credit-card affiliate. GE has offered its management and financial expertise to the joint venture, placing American managers in key positions, while Hyundai can leverage its marketing talent along with a 75% share of the Korean car market. Source: M. Ihlwan, “What GE Capital Learned in Korea”, Business Week, 27 April

33 Wholly Owned Affiliates (Build or Buy) Parent company receives all of the profits and has complete control Advantages  Expense of building new operations or buying existing business  Losses can be immense if the venture fails  Expense of building new operations or buying existing business  Losses can be immense if the venture fails Disadvantages 3.4

Copyright ©2011 by Cengage Learning. All rights reserved 34 Global New Ventures Quick, reliable air travel Low-cost communication technologies Critical mass of experienced businesspeople 3.5

Copyright ©2011 by Cengage Learning. All rights reserved 35 Common Factors of Global New Ventures Global vision is developed and communicated Several foreign markets are entered at the same time 3.5

Copyright ©2011 by Cengage Learning. All rights reserved 36 Where to Go Global? After reading these sections, you should be able to: 4.explain how to find a favorable business climate. 5.discuss the importance of identifying and adapting to cultural differences. 6.explain how to successfully prepare workers for international assignments.

Copyright ©2011 by Cengage Learning. All rights reserved 37 Finding the Best Business Climate Access to Growing Markets Location to Build Location to Build Minimal Political Risk 4 4

Copyright ©2011 by Cengage Learning. All rights reserved 38 Growing Markets Purchasing Power –comparison of a standard set of goods and services in different countries –more means greater growth potential Degree of Global Competition –the number and quality of –companies already in the market 4.1

Copyright ©2011 by Cengage Learning. All rights reserved 39 Choosing an Office or Manufacturing Location Qualitative factors –work force quality –company strategy Quantitative factors –kind of facility –tariff and nontariff barriers –exchange rates –transportation and labor costs 4.2

Copyright ©2011 by Cengage Learning. All rights reserved 40 World’s Best Cities for Business 4.2

Copyright ©2011 by Cengage Learning. All rights reserved 41 Choosing a Location: Multilingual Work Forces Beyond the Book

42 Minimizing Political Risk Political uncertainty –risk of major changes in political regimes Policy uncertainty –risk associated with changes in laws and government policies directed at businesses Strategies –avoidance –control –cooperation 4.3

Copyright ©2011 by Cengage Learning. All rights reserved 43 Long-Term Political Risk in the Middle East 4.3 Source: ”Chapter 1: Political Outlook,” UAE Business Forecast Report, rd Quarter, 9–13.

Copyright ©2011 by Cengage Learning. All rights reserved 44 Beyond the Book From Russia with…? With 140 million potential consumers holding a greater percentage of disposable household income than Chinese, Brazilians, and Indians, Russia presents strong potential for global corporations. Corporations must be careful how and where they invest. Corruption is still a serious problem in certain regions. Joint ventures with Russian corporations have often resulted in expensive conflicts, but government restrictions require it in some industries. Source: C. Matlack, “The Peril and Promise of Investing in Russia”, Business Week, 5 October

Copyright ©2011 by Cengage Learning. All rights reserved 45 Becoming Aware of Cultural Differences National Culture The set of shared values and beliefs that affects the perceptions, decisions, and behavior of the people from a particular country. 5 5

Copyright ©2011 by Cengage Learning. All rights reserved 46 Becoming Aware of Cultural Differences Cultural Dimensions (Geert Hofstede) Power distance Individualism Masculinity and femininity Uncertainty avoidance Short-term/long-term orientation 5 5

Copyright ©2011 by Cengage Learning. All rights reserved 47 Hofstede’s Five Cultural Dimensions 5 5

Copyright ©2011 by Cengage Learning. All rights reserved 48 Cultural Differences Recognize cultural differences Decide how to adapt your company to those differences Do not base adaptations on outdated and incorrect assumptions about a company’s culture 5 5

Copyright ©2011 by Cengage Learning. All rights reserved 49 Biz Flix: Lost in Translation Does Charlotte seem to be culturally sensitive or insensitive? Take Two Video Click Beyond the Book

Copyright ©2011 by Cengage Learning. All rights reserved 50 Preparing for an International Assignment Expatriate Someone who lives and works outside his or her native country. 6 6

Copyright ©2011 by Cengage Learning. All rights reserved 51 Preparing for an International Assignment Language and Cross-Cultural Training Consideration of Spouse, Family, and Dual-Career Issues 6 6

52 Language and Cross-Cultural Training Documentary Training Cultural Simulation Field Experiences 6.1

Copyright ©2011 by Cengage Learning. All rights reserved 53 Spouse, Family, and Dual-Career Issues Adaptability Screening Intercultural Training 6.2