INTERNATIONAL BUSINESS

Stephan Langdon, MBA, M.ED

The Globalizing Economy

Boarderless World

End of nation state

World Trade Organization

1997: Trade ministers from countries representing 92% of world trade agreed to eliminate tariffs on software, computer chips, telecommunication equipment, and computers.

Regional Trade Agreements

Regional Trade Agreements—agreements among nations to reduce tariffs and develop similar technical and economic standards. European Union, NATFA

Sell Anywhere, Locate Anywhere World trade growth: average of 6.5% per

year between 1990 and 2000. Nearly half of the over $5 trillion in world

trade is among the European union, the U.S., and Japan—the TRIAD.

Leading Exporting and Importing Countries

Leading Exporting and Importing Countries, continued

Sell Anywhere, Locate Anywhere Foreign Direct Investment (FDI) occurs

when a multinational company from one country has an ownership position located in another country.

FDI increased by more that 36% between 1996 and 2000.

Post 9/11 has seen a decline in FDI. Nevertheless, it remains a significant

factor.

Top 25 Companies by Foreign Asset Ownership

Foreign Direct Investment

Developed countries get the bulk of FDI (69%) while developing countries get around 30%.

Least developed countries get minimal FDI.

Implications for managers—significant opportunities around the world.

Multinational managers should look at risk rating of countries.

Risk Ratings of Selected Countries

The Internet and Information Technology

Electronic Communication — E-mail, World Wide Web, etc. Allows multinationals to communicate with

company locations throughout the world. Multinationals can also monitor worldwide

operations. Information technology is spurring a

borderless financial market.

The Rise of Global Products and Global Customers

The needs of customers for many products and services are growing more similar, e.g., McDonald’s, Boeing, Toyota.

Global customers search the world for their supplies without regard for national boundaries.

Privatization

Sale of government-owned businesses to private investors, usually through stock or direct sale to other

companies. Two types of privatization contribute to

the global economy — the developed world and the developing world.

Privatization—Types

The Developed Countries Use privatization to make formerly

government-controlled enterprises more competitive in the global economy.

The Developing Countries Use privatization to jump-start their

economies or to speed the transition from a communist to a capitalist system.

New Competitors

Free market reforms are creating a potential group of new competitors.

Korean, Russian, Taiwanese, and Mexican companies are all emerging.

Chinese companies are also on the move.

Top 25 Emerging Market Companies

New Competitors are Emerging Global trade has two important effects in

developing new competitors: When developing countries are used as

low-wage platforms for high-tech assembly, multinationals facilitate the transfer of technology.

Aggressive multinationals are also expanding beyond their own borders.

The Rise of Global Standards Companies can make one or only a few

versions of product for the world market. This is cheaper than making different

versions for different countries. Drive to develop common standards to

save money.

Global Standards

Consistency in quality also an important requirement of doing business in many countries.

International organization for standardization (ISO) in Geneva, Switzerland Developed a set of technical standards (ISO

9001:2000 series).

Next Generation of Multinational Managers: Characteristics

Global mindset

Ability to work with people from diverse backgrounds

Long-range perspective

Ability to manage change and transition

Ability to create systems for learning and changing organizations

Next Generation of Multinational Managers: Characteristics

Talent to motivate all employees to achieve excellence

Accomplished negotiation skills

Willingness to seek overseas assignments

Understanding of national cultures

Multinational Management: A Strategic Approach

Considers how managers formulate and implement strategies to compete successfully in the global economy.

Strategies are the maneuvers or activities used to increase and sustain organizational performance.

Multinational strategies must include maneuvers that deal with operating in more than one country and culture.

Internationalization

Internationalization is the process by which Firms increase their awareness of

the influence of international activities on their future

Establish and conduct transactions with firms from other countries.

BRICOffshoring

BRICOffshoring

5 reasons global sourcing programs1. To focus on core competencies

2. To reduce and/or variablize costs

3. To gain expertise that is not currently in house

4. To increase quality, efficiency, and speed of delivery

5. To be able to scale operations effectively

Source:  ITESA

REZNOR CASE

TWO

Moving Forward

Friedman’s view of a “flat world” “Flatteners” or developments that

helped create this flat world Summarize these flatteners into his

notion of a “triple convergence”

Flat World

Globalization 1.0 (1492-1800): discovery that the earth was round, exploration, European powers expand their power, including trading reach

Globalization 2.0 (1800 – 2000): multinationals followed their countries

Globalization 3.0 (2000- ): individuals of diverse backgrounds able to collaborate and compete globally

Flat World

Playing field has been flattened traditional advantages accruing to one country

or a large multinational are being challenged Coefficient of globalization

Completion for global knowledge work Intellectual work, intellectual capital, can

be delivered, distributed, produced, and put back together again . . . with relative freedom in the way we do work

WHAT IS THE SIGNIFICANCE OF ALL THIS?

Significance of Flat World

Level playing field Traditional, comparative advantages

held by those with access to information and/or technology can now be challenged

Individuals from non-traditional backgrounds can now engage in economic activity, at times in ways not seen before

FLATTENERSFIRST THREE ARE PLATFORMS CONTRIBUTING TO COLLABORATION

Flatteners: first three are platforms contributing to collaboration

11/9: the fall of the Berlin Wall opening Windows Fall of the “Wall” between East and West Berlin Political systems that were once closed opened

up Windows

8/9: Netscape goes public Emergence of an internet browser

Work flow software: Development of software which when installed

in different computers and in different places allows them to work with each other

11/9 as a platform for collaboration

11/9: the fall of the Berlin Wall which separated East and West Berlin and Germany

The fall of the “wall” resulted in the eventual collapse of countries that were part of the Council for Mutual Economic Assistance or COMECON, sometimes referred to as the “Eastern bloc”, or

the Soviet empire Included in this “bloc” were countries like the

Czech Republic, Bulgaria, Romania, East Germany, Poland, etc.

Friedman’s claim

this event tipped balance of power across the world towards more democratic, free-market oriented governments

11/9 as a platform for collaboration (Continued)

Centrally planned countries “opened up” In 1991, India abolished trade controls China accelerated reforms (although some of

china’s economic reforms started in the 70s) Global exchange of digital information

now possible as political restrictions eased up Huge personal empowerment

8/9 as a platform for collaboration

8/9: Netscape goes public The initial browser was Mosaic which was

designed to allow researchers/scientists in remote locations to access each other’s work

Mosaic was transformed into the first browser to be made available to the public (for free)

Coupled with introduction of Windows 95, including GUI capability, these made accessing the internet much easier Early access to the internet were text based

8/9 as a platform for collaboration (Continued)

Browsers as gateway to Internet From internal systems to systems of

systems Dot com bubble allowed massive

investments in the internet highway; by the time the bubble burst, an initial physical infrastructure – fiber optic cables, switches, etc. – was in place

From resistance to email and cell phones (early 90s) to emergence of terms like B2B and B2C.

Work-flow software as a platform for collaboration

Work flow software: software that allows computers and in different places to communicate and work with each other using different modes, e.g. audio, video, etc.

Example: Wild Brain produces cartoons in SF Recording sessions Design and direction Writers Animation All in different locations using Virtual Private

Network (VPN)

Work-flow software as a platform for collaboration (Continued)

Example 2: Pay Pal Emergence of protocols and standards to

facilitate communication among systems

Flat World and NIN

Berlin Wall Windows Netscape Browser Workflow

Flat World NIN

Flat World and NIN

Berlin Wall Windows

Netscape Browser Workflow

Global Market Websites Facebook.com Access Musician Work

Danial Lanois Pay Pal

Flat World NIN

FLATTENERS: THE NEXT SEVEN ARE NEW FORMS OF COLLABORATION

Flatteners: the next seven are new forms of collaboration

Uploading Outsourcing Offshoring Supply-chaining In-sourcing In-forming Steroids

Flattener 4: Uploading

Power or capability of individuals to send up, out, and around their own products and ideas Apache – a web server that allow web

browsers (in different computers) to interact with different web servers. Web servers allow a user to use his or her home or office to host a web site.

Flattener 4: Uploading (Continued)

Open source communities “community rules” Examples:

Linux operating system - offers a family of operating systems; can be adapted to run on the smallest desk top computer, laptop, palm pilot, etc.

Firefox (Mozilla) Blogging, Wikis, etc.

Flattener 5: Outsourcing

India as an example of how outsourcing began

Educational infrastructure in India 7 Indian Institute of Technology 6 Institute of Management As a result, Indian nationals would go to the US

or developed countries to find work Dot-com boom created “physical highway”

to allow for India to get “connected” Reform of telecommunications system in

India

Flattener 5: Outsourcing (Continued)

US companies start looking for opportunities to utilize labor pool in India

Late in the 1990s, the Y2K issue emerged

Indian “expats” return to India after “dot.com bubble” burst

Friedman sees the massive amount of programming to prevent a “Y2K” disaster and return of expats catalysts India’s emergence as an outsourcing destination

Flattener 6: Offshoring

Offshoring: move a strategic process or portion of a company’s value chain to a foreign location

Distinction Outsourcing: have another company do a

specific, but limited function, e.g. accounting

Offshoring: move production or an important process offshore

Flattener 6: Offshoring (Continued)

China as an example of the emergence of offshoring

1977: Deng Xiaoping starts economic reforms in China

Mid 1980s: applies for membership in WTO

Finally accepted into WTO mid 1990s Watershed moment in the sense that as a

member of WTO, China has to play by international rules

Flattener 6: Offshoring (Continued)

Example: ASIMCO From efforts to find “new china” managers to

manage their business to investing in the US US operation takes care of finishing, also allows

company to keep abreast with technology Film: China Brands Friedman does mention possible limits to

growth in China, including need for further reforms

Work-types companies avoid offshoring

Relationship-oriented work Process where repeatable process map cannot be

created Roles with complex industry structure and/or long

product learning curves Success criteria are not well defined or

measurable Strategic aspect to the business High levels of sensitive intellectual property are

shared across wide groups of people

Work-types companies push offshoring

High transaction volume High repeatability Low domain knowledge needed Low mission criticality Few touch points Low complexity Low training efforts Non-strategic Well defined process and metrics Easily transmitted over electronic wires Outcomes can be easily managed

India Advantages

Low cost Native English Early market entrance

Governmental software export strategy since 1972

Early adoption to quality standards Strong educational programs Government incentives

Technology park development Tax advantages and tax breaks Low import duties

India Disadvantages

Geo-political risk with Pakistan Electrical Power issues 24 hour travel Time zone Costly Turnover Salaries rising 20% annually for skilled workers Mid-manager staffing difficulties Cultural differences

Brazil Advantages

Low cost Time Zone and Proximity Early adoption to quality standards Strong educational programs Multilingual Support (Spanish and Portuguese

support) Government incentives

Technology park development (but need more) Tax advantages and tax breaks

Brazil Disadvantages

Corruption Lack of Qualified People Delays Infrastructure IP Problems English Brain Drain Higher cost than India and China Poor infrastructure especially off coast High sunk cost Costly turnover

China Advantages

Scale Labor Speed Low cost Strong educational programs and joint university

programs Government incentives

Technology park development Tax advantages and tax breaks

China Disadvantages

Focus on Asia English Cultural differences and inward thinking Uncertain governmental actions Communist effect on property laws Communist bureaucracy Intellectual property theft is rampant Data Privacy Poor infrastructure especially off coast Manufacturing focus Poor customer service Need for local representation/local partner Indian offshore companies are having problems with

offloading their own work to China

Flattener 7: Supply Chaining

Wal-Mart as an example of a company that pursues supply chain management aggressively

Coefficient of Globalization Learning to sell new products: sushi

Flattener 8: Insourcing

World Synchronized: Supply Manager Trust through systemes Toshiba Repairs Shoes.com UPS

Flattener 9: In-forming

In-forming: capability to build your own supply chain . . . of information, knowledge, entertainment

Flattener 10: Steroids

Computing capability has increased in terms of computational, storage, and input/output capacity

Instant messaging and file sharing VOIP Video conferencing Computer graphics Wireless communication

Flat World and NIN

Uploading Outsourcing Offshoring Supply-chaining In-sourcing In-forming Steroids

Flat World NIN

Flat World and NIN

Uploading Outsourcing Offshoring Supply-chaining In-sourcing In-forming Steroids

Flat World NIN