chapter 8 global management
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MGMT3 Chuck Williams. Chapter 8 Global Management. Designed & Prepared by B-books, Ltd. What Is Global Business?. After reading this section, you should be able to:. discuss the impact of global business and the trade rules and agreements that govern it. What Is Global Business?. - PowerPoint PPT PresentationTRANSCRIPT
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1
Chapter 8Global Management
Designed & Prepared byB-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.
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3
What Is Global Business?
Global Business
The buying and selling of goods andservices by people from different countries.
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The Impact of Global Business
Multinational Corporation
A corporation that owns businesses intwo 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.
1.11.1
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Foreign Investment in the U.S.
1.11.1 Source: J. Koncz and D. Yorgason, “Direct Investment Positions for 2005: Country and Industry Detail,” available online at http://www.bea.gov/bea/ARTICLES/2006/07July/0706_DIP_WEB.pdf [accessed 7 February 2007].
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U.S. Foreign Investment Abroad
1.11.1 Source: J. Koncz and D. Yorgason, “Direct Investment Positions for 2005: Country and Industry Detail,” available online at http://www.bea.gov/bea/ARTICLES/2006/07July/0706_DIP_WEB.pdf [accessed 7 February 2007].
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Trade Barriers
Nontariff Barriers
Nontariff Barriers
TariffTariff
Voluntary export restraintsVoluntary export restraints
Government import standards Government import standards
Customs classificationCustoms classification
QuotasQuotas
Government subsidiesGovernment subsidies
1.21.2
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Beyond the BookThe Politics of Global TradeOn 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 2009. 4.
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Trade Agreements
Regional Trading Zones
Regional Trading Zones
General Agreementon Tariffs and Trade
General Agreementon Tariffs and Trade
Maastricht Treaty of EuropeMaastricht Treaty of Europe
NAFTANAFTA
ASEAN and APECASEAN and APEC
CAFTACAFTA
1.31.3
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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
1.31.3
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World Trade Organization
Location: Location: Geneva, SwitzerlandGeneva, SwitzerlandEstablished: Established: January 1, 1995January 1, 1995Created by: Created by: Uruguay Round Uruguay Round negotiations (1986-1994)negotiations (1986-1994)Membership:Membership: 153 countries 153 countries (on July 23, 2008)(on July 23, 2008)Budget: Budget: 189 million Swiss francs189 million Swiss francsfor 2008for 2008Secretariat staff: Secretariat staff: 625625Head: Head: Pascal Lamy Pascal Lamy (Director-General)(Director-General)
Functions:Functions: Administering WTO trade Administering WTO trade
agreementsagreements Forum for trade negotiationsForum for trade negotiations Handling trade disputesHandling trade disputes Monitoring national trade Monitoring national trade
policiespolicies Technical assistance and Technical assistance and
training for developing training for developing countriescountries
Cooperation with other Cooperation with other international organizationsinternational organizations
http://www.wto.orgWeb Link 1.31.3
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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
http://europa.eu.int/Web Link 1.31.3
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NAFTA
• North American Free Trade Agreement between Canada, United States, & Mexico
• Liberalizes trade among these three nations
• Eliminates most tariffs and barriers
http://www.export.gov/fta/nafta/doc_fta_nafta.asp/Web Link 1.31.3
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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.
1.31.3
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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)
http://www.aseansec.orghttp://www.apecsec.org.sg
Web Link 1.31.3
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Consumers, Trade Barriers, and Trade Agreements
American consumers get more for their moneythan most other consumers in the worldbecause:
The U.S. marketplace is easiest for foreign companies to enter AND the competitive market between domestic and foreign companies keeps prices low.
1.41.4
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Consumers, Trade Barriers, and Trade Agreements
Decrease price of:food
clothingother necessities
luxuries
Decrease price of:food
clothingother necessities
luxuries
Increase:choices
competitionpurchasing power
Increase:choices
competitionpurchasing power
Free Trade Free Trade AgreementsAgreementsFree Trade Free Trade AgreementsAgreements
1.41.4
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How to Go Global?
After reading these sections, you should be able to:
2. explain why companies choose to standardizeor adapt their business procedures.
3. explain the different ways that companiescan organize to do business globally.
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Consistency or Adaptation?
GlobalConsistency
GlobalConsistency
When a multinational company has offices/plants in different countries anduses the same rules, guidelines,policies, and procedures
When a multinational company has offices/plants in different countries anduses the same rules, guidelines,policies, and procedures
Local Adaptation
Local Adaptation
When a multinational company modifies its rules, guidelines, policies, and procedures to adapt to differences in foreign customers, governments, and regulatory agencies
When a multinational company modifies its rules, guidelines, policies, and procedures to adapt to differences in foreign customers, governments, and regulatory agencies
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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 2009. A1.
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Forms for Global Business
CooperativeContracts
StrategicAlliances
Exporting
Wholly OwnedAffiliates
GlobalNew
Ventures
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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
3.13.1
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Exporting
Many exports are subject to tariff and nontariff barriers
Transportation costs can increase price
Companies may depend on foreignimporters for product distribution
Many exports are subject to tariff and nontariff barriers
Transportation costs can increase price
Companies may depend on foreignimporters for product distribution
Disadvantages
3.13.1
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Cooperative Contracts
LicensingLicensing
A domestic company receives royaltypayments for allowing another company to produce its product, sella service, or use its brand name in aspecified foreign market
A domestic company receives royaltypayments for allowing another company to produce its product, sella service, or use its brand name in aspecified foreign market
FranchisingFranchising
A collection of networked firms in which the manufacturer or marketer ofa product/service licenses the entirebusiness to another person or organization
A collection of networked firms in which the manufacturer or marketer ofa product/service licenses the entirebusiness to another person or organization
3.23.2
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Licensing
Allows companies to earn profits withoutinvesting more money
The licensee invests in production equipment and facilities
Helps companies avoid tariff and nontariff barriers
Allows companies to earn profits withoutinvesting more money
The licensee invests in production equipment and facilities
Helps companies avoid tariff and nontariff barriers
Advantages
3.23.2
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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
3.23.2
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Franchising
Fast way to enter foreign markets
Good strategy when a company’sdomestic sales have slowed
Fast way to enter foreign markets
Good strategy when a company’sdomestic sales have slowed
Advantages
3.23.2
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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
3.23.2
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Strategic Alliances
StrategicAlliance
StrategicAlliance
An agreement in which companies combine key resources, costs, risks, technology, and people
An agreement in which companies combine key resources, costs, risks, technology, and people
Joint VentureJoint VentureA strategic alliance in which twoexisting companies collaborate toform a third, independent company
A strategic alliance in which twoexisting companies collaborate toform a third, independent company
3.33.3
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Joint Ventures
Help companies avoid tariffs and nontariff barriers to entry
Participating companies bear only partof the costs and risks
Advantageous to local partners
Help companies avoid tariffs and nontariff barriers to entry
Participating companies bear only partof the costs and risks
Advantageous to local partners
Advantages
3.33.3
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Joint Ventures
Companies must share profits
A joint venture represents a merging offour cultures
With equal ownership, power struggles and a lack of leadership may occur
Companies must share profits
A joint venture represents a merging offour cultures
With equal ownership, power struggles and a lack of leadership may occur
Disadvantages
3.33.3
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Beyond the BookGE Teams Up With HyundaiAfter 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 2009. 46-47.
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Wholly Owned Affiliates (Build or Buy)
Parent company receives all of the profits and has complete control
Parent company receives all of the profits and has complete control
Advantages
Expense of building new operationsor buying existing business
Losses can be immense if the venture fails
Expense of building new operationsor buying existing business
Losses can be immense if the venture fails
Disadvantages
3.43.4
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Global New Ventures
Quick, reliable air travelQuick, reliable air travel
Low-cost communication technologiesLow-cost communication technologies
Critical mass of experienced businesspeopleCritical mass of experienced businesspeople
3.53.5
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Common Factors of Global New Ventures
Global vision is developed and communicatedGlobal vision is developed and communicated
Several foreign markets are entered at the same time
Several foreign markets are entered at the same time
3.53.5
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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 andadapting to cultural differences.
6. explain how to successfully prepare workersfor international assignments.
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Finding the Best Business Climate
Access toGrowingMarkets
Access toGrowingMarkets
Location to
Build
Location to
BuildMinimalPolitical
Risk
MinimalPolitical
Risk
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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
4.14.1
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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
4.24.2
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World’s Best Cities for Business
4.24.2
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Choosing a Location:Multilingual Work Forces
Beyond the Book
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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
4.34.3
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Long-Term Political Risk in the Middle East
4.34.3Source: ”Chapter 1: Political Outlook,” UAE Business Forecast Report, 2009 3rd Quarter, 9–13.
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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 2009. 48-52.
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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.
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Becoming Aware of Cultural Differences
Cultural Dimensions (Geert Hofstede)
Power distance Individualism Masculinity and femininity Uncertainty avoidance Short-term/long-term orientation
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Hofstede’s Five Cultural Dimensions
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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
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Biz Flix: Lost in Translation
Does Charlotte seem to be culturally sensitive or insensitive?
Take Two Video
Click
Beyond the Book
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Preparing for an International Assignment
Expatriate
Someone who lives and works outside his or her native country.
66
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Preparing for an International Assignment
Language andCross-Cultural Training
Language andCross-Cultural Training
Considerationof Spouse, Family,
and Dual-Career Issues
Considerationof Spouse, Family,
and Dual-Career Issues
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Language and Cross-Cultural Training
Documentary TrainingDocumentary Training
Cultural SimulationCultural Simulation
Field ExperiencesField Experiences
6.16.1
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Spouse, Family, and Dual-Career Issues
Adaptability ScreeningAdaptability Screening
Intercultural TrainingIntercultural Training
6.26.2