Themes and Resources for Teaching International Business S. Tamer Cavusgil University Distinguished Faculty John W. Byington Endowed Chair in Global Marketing.
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Themes and Resources for Teaching International Business S. Tamer Cavusgil University Distinguished Faculty John W. Byington Endowed Chair in Global Marketing Michigan State University 7th Biennial International Business Institute for Community College Faculty East Lansing, Michigan, May 2007
The Agenda Globalization and its implications Key Trends in Global Business Implications for Management Learning resources Teaching tips and classroom exercises Course design Helpful publications
Themes for Teaching IB Offshoring Culture Globalization Technology Diverse Participants Smaller Firms in IB Emerging Markets Strategy International Entrepreneurship Collaborative Ventures Service Sector Industry
What is Globalization? At the macro level… Greater integration and interdependency of national economies Freer movement of goods, services, capital, and knowledge Prevalence of regional trading blocs Emergence of monetary unions Convergence of customer lifestyles, requirements, etc.
What is Globalization? For business enterprises… Foreign market entry and expansion Selective externalization of value chain Collaborative ventures with foreign partners Integration of operations on a global scale Building global capabilities and a global organization
The Many Dimensions of Globalization 1.Value-adding activities 2.Companies – The business enterprise 3.Products and brands 4.Economic assets 5.Business risks 6.Industries 7.Countries, markets 8.Regulations, laws, standards 9.Cultural values, mindsets, consumer behavior 10.Business practices
Phases of Globalization 1 st Phase: 1830, peaking around 1880 Aided by railroads, ocean transport, rise of manufacturing and trading companies 2 nd Phase: 1900, peaking around 1920s Fueled by electricity and steel 3 rd Phase: 1948, peaking around 1970 GATT, end of WW II, Marshall Plan… 4 th Phase: 1980, peaking around 1997 Tech. advances, Internet, Emerging Markets…
Globalization Trends 1. Global economic realignment 2. Geography made redundant by technological connectivity 3. Consolidation of industries on a worldwide scale 4. Strains on natural resources and the environment 5. Remarkable growth and potential of Emerging Markets…
Emerging Market Dynamics Source of customers, suppliers, ideas, and human capital. One billion new consumers will enter the global markets in the next decade! Household income will reach threshold level of $5,000 in EMs. Consumer spending will increase from $4 trillion to more than $9 trillion by 2015, nearly matching Western Europe.
Attractions and Challenges of EMs Dynamic, rapidly transforming Low competitive intensity Dominated by family conglomerates Political instability Bureaucracy, redtape, lack of transparency Legal, institutional vacuum Safeguarding intellectual property Cultural distance…
The Aspiring Consumer in EMs Young demographics Rapidly urbanizing Middle class coming into its own Engaged in technological leapfrogging Exposed to Western brands Rising expectations Eager to consume material things Highly brand conscious
Country Rank in MSU- CIBER’s EMPI Middle-class population (millions) % of Income held by middle class GDP per capita ( PPP, US $ ) China 1587456,800 India 8534493,300 Indonesia 20105483,600 Russia 12674711,100 Brazil 2265358,400 Mexico 13424110,000 Turkey 1032458,200 Thailand 1428458,300 South Korea 5265520,400
Why GDP Per Capita is a Poor Indicator of Market Potential for EMs? 1.Need to adjust for Purchasing Power Parity 2.Informal economy is often as large as the formal economy in developing countries 3.The “mean” is a poor indicator since income distribution is typically bi-modal in EMs 4.Household income several times larger than per capita income because of multiple wage earners 5.Developing country statistics may be unreliable 6.Typical exporter is more interested in a large enough “market niche” than huge potential
Implications for Management 1. Building interconnectedness: ‘global orchestration’ of value-chain activities 2. Exploiting knowledge 3. Search for maximum flexibility in manufacturing, sourcing and other value- adding activities 4. Relentless search for productivity gains and operational efficiency 5. Recognizing, cultivating, and measuring key global strategic assets of the organization 6. Gaining and sharpening partnering capabilities…
Research & Development Product Design Manufacturing Marketing Distribution Sales & Service Stage in Value Chain Strategic alliances Licensing/cross licensing Design contracting Global procurement Contract manufacturing Equity joint ventures (FDI) Agency agreements Licensing Exporting to distributors/ agents Franchising Exporting to end-users Business format franchising Agency/representative relationships Types of CollaborationCompany Examples Telecoms, computers, drugs, aircraft, satellite communication systems… Dow, Pharmacia-Upjohn Software, autos, fashion goods, shoes, furniture… Automotive Gerber (Novartis) IKEA, Guardian Industries Kmart, Manpower, Banks, Courier Services, Amway
2. Companies-The Business Enterprise Diagnostic tools from MSU CIBER: CORE, Distributor, Partner, Freight forwarder Business Week’s Global 1000; Fortune’s Global 500 Fortune Global Most Admired Companies Financial Times World’s Most Respected Companies UNCTAD World’s Largest Transnational Corporations
National or Multi-local Companies Global or Transnational Companies Nestle, Unilever, Asea Brown Boveri, Sony, Coca-Cola Strong national identity National endowments: talent pool, skills, capabilities Unique corporate governance/ownership patterns National regulations on employment National patterns of investment in R & D Planning and resource allocation Dependence on global markets Worldwide manufacturing capability Standardized products Globally integrated strategy Centralized structure and decision-making Uniform operational policies and routines Global organization and culture
5. Business Risk Economist’s Big Mac Index The concept of Purchasing Power Parity, the notion that a dollar should buy the same bundle of goods in all countries, is explained. Comparing actual exchange rates with PPP indicates whether a currency is under- or overvalued. MSU-CIBER’s Market Potential Indicators for Emerging Markets
Four Types of Risks Commercial Risk Types of Risks in International Business Country (Political and Legal) Risk Cross-Cultural Risk Weak Partner Operational Problems Timing of entry Competitive intensity Poor execution of strategy Currency exposure Asset valuation Foreign taxation Inflationary and transfer pricing Global sourcing Social/political unrest and instability Economic mismanagement; inflation Distribution of income; size of middle class Government intervention, bureaucracy, red tape Market access; barriers; profit repatriation Legal safeguards for intellectual property right Cultural distance Negotiation patterns Decision-making styles Ethical practices Currency/Financial Risk
6. Industries Stat-USA (NTDB) Hoover’s Industry Snapshots U.S. Commercial Service
Market and Country Research International Marketing Insight (IMI) Reports Multilateral Development Bank (MDB) Industry Sector Analysis Reports Best Market Reports Global Agriculture Information Network (GAIN) AgWorld Attach é reportsGlobal Agriculture Information Network (GAIN) AgWorld Attach é reports Country Commercial Guides
Aircraft (Civil) Computers Credit Cards Automobiles Soft Drinks Specialty Chemicals Pharmaceuticals (Ethical) Toothpaste Electric Insulation Commercial Banking Pharmaceuticals (OTC) Book Publishing Low High Strength of Competitive Globalization Drivers
7. Countries, Markets IMD World Competitiveness Scoreboard World Economic Forum Global Competitiveness Report A.T. Kearney/Foreign Policy Globalization Index Heritage Foundation and WSJ Index of Economic Freedom
Economic freedom explains from 54 to 74 percent of the variation in income among countries. A 10% increase in economic freedom in a country can produce an increase in GNP per capita of 7.4% to 13.6%. CONCLUSION: The message is clear: enhancing economic freedom can lead to significant improvements in living standards. Economic Freedom and Wealth
8. Regulations, Laws, Standards Harmonization is a slow process when it comes to these… 8. Regulations, Laws, Standards
9. Cultural Values, Mindsets, Consumer Behavior Mercer HR Consulting Quality of Life Survey Freedom House Freedom in the World Survey Euromonitor Market Research Monitor
Is Globalization a Good Thing? The Critics Benefits of globalization are not evenly distributed Globalization causes dislocation of jobs Wages for unskilled labor are declining Manufacturing moves offshore to avoid workplace safety and health regulations MNCs fail to protect the environment
Power shifts to multinational corporations and supranational organizations; nations loose sovereignty Concentration of power by multinational corporations leads to monopoly International financial markets are inherently unstable Globalization results in loss of national cultural values and identity Is Globalization a Good Thing? The Critics (cont.)
Cultural empathy / Open-mindedness Tolerance for ambiguity Perceptiveness Premium on personal relationships. Flexibility/Adaptability/Self reliance A good sense of humor Warmth in human relationships Curiosity Skills for Global Manager
Learning Resources The World is Flat: A Brief History of the Twenty-First Century by Thomas L. Friedman, New York: Farrar, Straus and Giroux, 2005. The Next Global Stage: Challenges and Opportunities in Our Borderless World by Kenichi Ohmae, Pearson Education, Inc./ Wharton School Publishing, 2005. Tectonic Shift: The Geoeconomic Realignment of Globalizing Markets by Jagdish N Sheth and Rajendra Sisodia, New Delhi: Response Books The Culture Code: An Ingenious Way to Understand Why People around the World Live and Buy As They Do by Clotaire Rapaille, Broadway Books, 2006.
Learning Resources 2 –One Billion Customers: Lessons from the Frontlines of Doing Business in China by James McGregor, A Wall Street Journal Book published by Free Press, 2005. – The Asian Mystique: Dragon Ladies, Geisha Girls, and our Fantasies of the Exotic Orient by Sheridan Prasso, Public Affairs, 2005. –China Shakes the World: The Rise of a Hungry Nation by James Hynge, forthcoming. –Doing Business in Emerging Markets, S.T. Cavusgil, P. Ghauri & M. Agarwal, Thousand Oaks, CA: Sage Publications, Inc., 2002.
Knowledge Portals IB course modules at globalEDGE: globaledge.msu.edu/academy/courses.asp globaledge.msu.edu/academy/courses.asp Diagnostic Tools available from MSU CIBER: globaledge.msu.edu/DiagTools/ CIBER Web: ciberweb.msu.edu/ciberweb.msu.edu/ CKR Educators Consortium and Portal Academy of International Business: aib.msu.edu/ aib.msu.edu/
Knowledge Portals (con’t) McKinsey Quarterly www.mckinseyquarterly.com/ www.mckinseyquarterly.com/ AT Kearney –Globalization Index Data 2005 www.atkearney.com/main.taf?p=5,4,1,116,1Globalization Index Data 2005 www.atkearney.com/main.taf?p=5,4,1,116,1 –2004 FDI Confidence Index www.atkearney.com/main.taf?p=5,3,1,892004 FDI Confidence Index www.atkearney.com/main.taf?p=5,3,1,89 –Offshore Location Attractiveness Index www.atkearney.com/main.taf?p=5,3,1,75 www.atkearney.com/main.taf?p=5,3,1,75 –The 2005 Global Retail Development Index www.atkearney.com/main.taf?p=5,3,1,110The 2005 Global Retail Development Index www.atkearney.com/main.taf?p=5,3,1,110
Knowledge Portals (con’t) World Bank’s Doing Business portal, Benchmarking Business Regulations: www.doingbusiness.org/ www.doingbusiness.org/ Human Development Index commissioned by UNDP, see especially Chapter 4 on International Trade: hdr.undp.org/reports/global/2005/ hdr.undp.org/reports/global/2005/ Top 100 Global Brands from Interbrand Consultancy: www.interbrand.com/www.interbrand.com/
Knowledge Portals (con’t) US Government’s Export portal: export.govexport.gov US Department of Commerce’s National Trade Data Bank (STAT-USA): – www.stat-usa.gov/tradtest.nsfwww.stat-usa.gov/tradtest.nsf Knowledge @ Wharton: knowledge.wharton.upenn.edu/ knowledge.wharton.upenn.edu/ Harvard Business Online for Educators: harvardbusinessonline.hbsp.harvard.e du/b02/en/academic/edu_home.jhtml harvardbusinessonline.hbsp.harvard.e du/b02/en/academic/edu_home.jhtml International Commercials
Other Online Sources A Detailed Study Tour of Retailing in China and India: www.retailforward.com/freecontent/marketing/chin awebinar_files/default.htm www.retailforward.com/freecontent/marketing/chin awebinar_files/default.htm Jim Lehrer News Hour on Offshoring –pbs-newshour.virage.com/cgi-bin/visearch?user=pbs- newshour&template=play220asf.html&query=paul+solman&squery=+ClipID %3A4++VideoAsset%3Apbsnh121603&inputField=paul%20solman&ccstart= 1985034&ccend=2621504&videoID=pbsnh121603pbs-newshour.virage.com/cgi-bin/visearch?user=pbs- newshour&template=play220asf.html&query=paul+solman&squery=+ClipID %3A4++VideoAsset%3Apbsnh121603&inputField=paul%20solman&ccstart= 1985034&ccend=2621504&videoID=pbsnh121603 Globalization by New American Dream: –http://www.newdream.org/consumer/globalization.phphttp://www.newdream.org/consumer/globalization.php The Economist: The Big Mac Index, to illustrate purchasing power parity: www.economist.com/markets/Bigmac/index.cfm www.economist.com/markets/Bigmac/index.cfm The Internet Center for Corruption Research, offered by Transparency International: http://www.icgg.org/http://www.icgg.org/
Faculty Development Programs Sponsored by CIBERs Globalization Seminars sponsored by several CIBERs and held at the University of Memphis: www.people.memphis.edu/~wangctr/Pages/Gl obalization_Seminars.htm www.people.memphis.edu/~wangctr/Pages/Gl obalization_Seminars.htm Indiana University CIBER’s Pedagogy for International Business Workshop: www.kelley.iu.edu/ciber/eventitem.cfm?ID=102 www.kelley.iu.edu/ciber/eventitem.cfm?ID=102 MSU CIBER’s International Business Institute for Community College Faculty, offered every other year at MSU: ciberweb.msu.edu/activitydetail.asp?ViewID=1 &SectionRecordID=552 ciberweb.msu.edu/activitydetail.asp?ViewID=1 &SectionRecordID=552 Other CIBER programs: ciberweb.msu.edu/facultydev/ ciberweb.msu.edu/facultydev/
Market entry, expansion, segmentation Standardization /adaptation Global brand success Joint ventures/alliances/partnerships Product liability laws; retail regulations Global supply chain management Emerging Markets; Family Conglomerates Offshoring Themes for General Business
Comparative advantage; gains from trade Drivers of globalization Purchasing Power Parity Global Competitiveness Index Index of Economic Freedom Culture and IB International entrepreneurship Attitudes toward work and leisure Unionization; collective bargaining Globalization Themes for Economics
The Iceberg Principle of Culture Cultural stereotypes, idioms, metaphors Cultural Dimensions (High Context; Collectivism, Power distance, Uncertainty avoidance, Masculinity) Language as the expression of culture Self Reference Criterion Critical incidence analysis Negotiation patterns Themes for Culture
Exchange rates and trade Currency risk; Euro in the E.U. Harmonized accounting practices Transfer pricing; Taxation of foreign income Foreign Corrupt Practices Act Operating in: High-inflation countries; Free Trade Areas Listing in foreign stock markets Themes for Accounting
Internet and Information Technology as a driver of globalization eBusiness /On-line strategies Virtual interconnectedness in the multinational corporation Globalization of IT sector; India’s advantage in this area Globalization of related industries such as office furniture industry (Steelcase, Herman Miller, etc.) Themes for Information Systems / Technology
Helpful Publications on Pedagogy Robert Boice, Advice for New Faculty Members: Nihil Nimus, 2000, Allyn and Bacon: Needham Heights, MA. Wilbert J. McKeachie, Teaching Tips, 1999, Houghton Mifflin Company: Boston, MA. Ilan Alon and Nancy Cannon, “Internet-Based Experiential Learning in International Marketing: The Case of Globalview.org,” Online Information Review, Vol. 24, No. 5 (2000), 349-356. R. F. Scherer, S. T. Beaton, M.F. Ainina and J. F. Meyer (eds.), A Field Guide to Internationalizing Business Education, Second Edition, 2003, Lakeshore Communications: Euclid, Ohio. Case collections from business schools at Western Ontario, IMD, Harvard, Virginia, etc.
Internationalizing Business Education: Toward Meeting the Challenge, (Cavusgil), East Lansing, Michigan, MSU Press, 1993. “Expanding Horizons with E-Learning” in A Field Guide to Internationalizing Business Education, R. F. Scherer, S. T. Beaton, M.F. Ainina and J. F. Meyer (eds.), Second Edition, 2003, 183-194, Cavusgil, I. Kiyak and T. Kiyak. Study Abroad Programs in Business Schools, Issues and Recommendations by Leading Educators, East Lansing, MI, MSU Press, 2002. Publications on Internationalizing Business Education