BEHAVIOUR OF A GLOBAL CORPORATION [Hill, pp. 43-57], [Head, pp. 13-18, 23-31] and culture [R/H, Ch.5, 122-139]]

NORTEL NEWTWORKS CORP. (formerly Northern Telecom)Headoffice in Toronto, CanadaC.E.O. Mike S. Zafirovski (a U.S. citizen), (Former C.E.O., Bill Owens, also a U.S. citizen, was vice chairman of the United States Joint Chiefs of

Staff, the second-ranking military office in the United States, in the Clinton administration.)

Less than one fourth of its workforce in Canada:(At December 31, 2006, approximately 33,760 regular full-time employees)• 12,950 in the U.S.; • 7,080 in Canada;• 5,950 EMEA; and • 7,780 in other countries.

Canada accounts for less than 10% of Nortel’s sales revenue

For the Years Ended December 31 ($mil.) 2006 2005 2004United States . . . . . . . . . . . . . . $ 5,092 $ 5,203 $4,645EMEA (Europe, M.East, Africa). 3,239 2,704 2,483Canada. . . . . . . . . . . . . . . . . . . 720 571 552Asia . . . . . . . . . . . . . . . . . . . . 1,736 1,422 1,238CALA (Caribbean and L.America) 631 609 560Consolidated . . . . . . . . . . . . . $11,418 $10,509 $9,478

 Most of Nortel's corporate tax is paid in the U.S.

Most of its plant and equipment and key executives are located in the U.S.

Nortel says: the company owes no allegiance to Canada and could decamp if its key workers continue to bolt to lower-tax climes ("the U.S. states")

Is Canada relevant in Nortel's business decisions?

Nestle

LG Electronics (part of LG Group, formerly Goldstar Electronics)

(I) ASSESSING INTERNATIONAL BUSINESS ENVIRONMENT: MEASUREMENT DIMENSIONS (Sometimes termed “separations,” i.e. what separates a country from other countries? E.g. Head)

(A)Political Environment:

Collectivism vs. individualism

Totalitarian vs. democratic systems

Political freedom vs. economic freedom

(B)Economic Environment:

Market vs. command economies

Level of economic development

(C)Legal environment

Intellectual property rights

Product safety and liability

Contracts 

political freedom | | | | | |

| _____________________________ |____________________________|

| economic freedom | | | | | | | |

Implications for IB?

individualism (individual freedom, market orientation) | | | | | |

| _____________________________ |____________________________| totalitarian | democratic

| | | | | | | |

collectivism

(A)Political environment

level of economic development | | -life expectancy, literacy rate, etc.? | -per capita GDP/income based on PPP? | | |

| _____________________________ |____________________________| command economy | mixed economy market economy

| |

-prices determined by? | -private ownership? | -government intervention? |

| |

collectivism

(B)Economic environment

Implications for IB?

II. EVALUATING COUNTRY-SPECIFIC FACTORS

1A. POLITICAL FACTORS (Hill, CH.2)

1B. ECONOMIC FACTORS (Hill, CH.2) 1C. LEGAL FACTORS

2. CULTURE (Rugman/Hodgetts, CH.5)

POLITICAL / ECONOMIC FACTORS How should we evaluate the attractiveness of a country as a market and/or investment site?

ASSESS POTENTIAL BENEFITS VS COSTS AND RISKS

Benefits of doing business in a country determined by: market size (+),

purchasing power (current wealth) of the consumer (+),

economic growth (future wealth) (+), etc.

EXAMPLES: U.S., MEXICO, FRANCE, CHINA

Correct assessment of foreign markets is very important!

If a firm happens to be the first to succeed in an emerging market, it may reap

first-mover advantage.

EXAMPLES:

Coca-Cola vs Pepsi in Japan,

McDonald vs. ???

CAUTION: A FIRST-MOVER INTO A FOREIGN MARKET DOES NOT ALWAYS SUCCEED

Why?????

Why,

because of the cost to develop a foreign market for the kind of product to be sold.

A second mover may not have to pay for the cost to develop the market and/or consumers' taste.

THE COSTS OF DOING BUSINESS IN A COUNTRY DEPEND ON 4 FACTORS:

A) political factors (which may require the firm to pay bribes for doing business in that country)

B) economic factors

E.g. infrastructure and supporting business; for example, do parts/material supply, service network exist?

If not, vertical integration of the firm may be needed (e.g. McDonald in Moscow)

C) legal factors

E.g. Do they have:

-regulations (or lack thereof) on workplace safety, pollution, product liability? (E.g. Mattel, the world's biggest toy maker, and its product liability problem?)

- binding business contracts / dispute resolving mechanisms?

- protection of intellectual property rights (IPR)?

D) cultural factors

- does culture drive IB?

- its role in IB?

Which countries have more corruption?