concepts and resources for teaching globalization (12may’05)

Concepts and Resources for Teaching Globalization (12May’05)

S. Tamer Cavusgil

The John W. Byington Endowed Chair in Global Marketing, and Executive Director, Center for International Business Education and

Research, Michigan State University

2005 International Business Institute

East Lansing, Michigan

15 May 2005

S. Tamer Cavusgil/Michigan State University


Rationale for Internationalization

Faculty Professional development/enrichment; recognition

Students Liberating minds; informed citizens; appreciation of diversity develop cosmopolitan orientations

Business Become relevant; serve as resource and source of training

Your Create a total global culture; establish new traditions College and behavior; become a viable competitor

And… a goal common to all constituents:

Build global competence as a source of competitive advantage.


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

•Re-configuration and 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 activities2. Companies – The business enterprise3. Products and brands4. Economic assets5. Business risks6. Industries7. Countries, markets8. Regulations, laws, standards9. Cultural values, mindsets, consumer

behavior10.Business practices


Phases of Globalization1st Phase: 1830, peaking around 1880

Aided by railroads, ocean transport, rise of manufacturing and trading companies

2nd Phase: 1900, peaking around 1930

Fueled by electricity and steel

3rd Phase: 1948, peaking around 1970

GATT, End of WWII, Marshall Plan…

4th Phase: 1980, peaking around 1997

Technological advances, Internet, Privatization…


Perspectives on Globalization

Globalization can be studied as a …

•Process

•As a cause or driver

•Consequence


Comprehensive Agenda for

Internationalization

CURRICULAR INITIATIVES ENRICHMENT OF

STUDENT EXPERIENCES(on campus and

abroad)

FACULTY MOTIVATION AND

DEVELOPMENT

CAPITALIZING ON INSTITUTIONAL STRENGTHS:

BUILDING CAMPUS ALLIANCES

COLLABORATION WITH BUSINESS

FOREIGNINSTITUTIONAL

LINKAGES


Motivating the Student

•Companies face special challenges when operating in a broader, multi-country environment.

• The foreign country environment (political, legal, cultural, etc.) deserves special attention.

• Knowledge and practices developed at home may not be valid in other country contexts.

• Managers need to acquire new types of competence in order to compete in the global economy.

• The consequences of a global economy are felt daily around us.


Three Dimensions of International Context

• International/Cross Border dimension (Functional specialist)

Cross-border management paradigm

• Comparative dimension (Country enthusiast)

Extension paradigm

• Cross-cultural dimension (Behaviorist)

Inter-cultural paradigm


Layers of Knowledge in International Business

Cross-Cultural Knowledge

Country/Regional Knowledge

Cross-Border Transactions Knowledge

Domestic Business Knowledge

Layers of Knowledge in International Business

CulturalDifferences

NegotiationStyles

Ethical Values

Decision-making Styles

Language

OrganizationalFeatures

Cross-CulturalKnowledge

ProductAdaptation

CurrencyMarkets

InternationalSCM

LegalAgreements

Letters ofCredit

Payments

Cross-BorderTransactions Knowledge

CommercialInfrastructure

Contract Law

Market Access

ProductStandards

Trade/ DistributionChannels

Country/RegionalKnowledge

Domestic BusinessKnowledge

Attitudes towards IPR

Entry Barriers

Role of Government in Business


Vital Components for Global Competence

CROSS-BORDER

TRANSACTIONSKNOWLEDGE

CROSSCULTURAL

KNOWLEDGE

COUNTRYMARKET

KNOWLEDGE

CROSS-BORDER

TRANSACTIONSKNOWLEDGE

CROSSCULTURAL

KNOWLEDGE

Human ResourceDevelopment

LanguageProficiency

Cross-CulturalSkills

Currency Risk/Pricing/Getting

Paid

OrganizationalReadiness

andStructure

Ethics andSocial

Responsibilityand

GovernmentRelations

Cross-Cultural

NegotiationSkills

InternationalLogistics

Standardsand

Regulations andProduct Liability

COUNTRYMARKET

KNOWLEDGE

Global MarketingOpportunityAssessment(Research

and Intelligence)

Subsidiary/ProjectManagement

Product Strategy(Adaptation/

Standardization)SupplyChain

ManagementBusinessPartnering

Configuration ofValue Adding

Activities in targetmarket/entry mode

Market EntryPlanning and

Strategy

Vital Components for Global Competence

Leading IB Portal

http://globaledge.msu.edu

http://globaledge.msu.edu/


globalEDGE™A knowledge web-portal that connects international business professionals worldwide to a wealth of information, insights, and learning resources on global business activities. The site offers:

– Global Resources - more than 5,000 online resources – Country Insights - a wealth of information on all countries – Community - an interactive forum for business professionals – Knowledge Room - latest issues in international business – Academy - extensive research and teaching resources – Diagnostic Tools - decision-support tools for managers

globalEDGE™ - your source for global business knowledge


• 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


Globalization Drivers: Seven MacroTrends

1. Reduction of barriers to trade and investment

2. Regional trade agreements and economic blocs

3. Market liberalization and privatization

4. Industrialization, economic development and modernization

5. Integration of world financial markets

6. Transportation and communication technology

7. Information technology

The World Competitiveness Scoreboard 2004

Source: IMD World Competitiveness Yearbook 2004

Economic Freedom and Wealth


The Economist’s Big Mac Index

The concept of Purchasing Power Parity refers to the notion that a dollar should buy the same bundle of goods in all countries.

Comparing actual exchange rates with PPP indicates whether a currency is under- or overvalued.

Big Mac CurrenciesMay 27th 2004 From The Economist print edition

The world economy looks very different once countries' output is adjusted for differences in prices

Source: World Bank. Figures are for 2003.

COUNTRY GNP per capitaUS $

Purchasing Power Parity adjusted GNP

per capita

Argentina 6,950 10,980

Brazil 2,850 7,250

Bulgaria 1,790 6,840

Canada 22,300 28,070

China 940 4,390

Hungary 5,280 12,810

South Korea 9,930 16,480

Mexico 5,910 8,540

Russian Fed 2,140 7,820

Turkey 2,500 6,120

Capturing the Purchasing Power


• 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


• Cultural empathy / Open-mindedness•Tolerance for ambiguity• Flexibility/Adaptability/Self reliance• Perceptiveness• Curiosity• Premium on personal relationships • Good sense of humor• Warmth in human relationships

Critical Skills for the Manager


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.)


• 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

Research & Development

Product Design

Manufacturing

Marketing

Distribution

Sales & Service

Stage in Value Chain

Strategic alliancesLicensing/cross licensing

Design contracting

Global procurementContract manufacturingEquity joint ventures (FDI)Agency agreementsLicensing

Exporting to distributors/ agentsFranchising

Exporting to end-usersBusiness format franchising

Agency/representative relationships

Types of Collaboration Company 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


Pressures for Local Responsiveness

• Unique industry and product standards

• Local market requirements: customer need, competitive environment, distribution structure

• Cultural differences• Geographic separation• Nation states and protectionism• Tariffs and Non-Tariff trade barriers

Pressures for Global Integration

• Economic efficiency imperative

• Promoting cross-fertilization• Converging demand patterns• Acceptance of global brands• Harmonizing product

standards• Diffusion of uniform

technology• eBusiness integration• Availability of pan-regional

media• Integration of markets

through economic blocs• Spread of international

collaborative ventures• Need to monitor competitors

on a global basis


• High-growth, high-potential developing countries

• Rapid transformation

• Liberalization, modernization, industrialization

• Rising middle class

• Unique Aspects: Family Conglomerates; large informal economy; institutional vacuum; high risks…

Emerging Markets

Market Potential Indicators for Emerging Markets


• 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

Four Types of Risks

Commercial Risk

Types of Risksin 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


• 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

Economist Intelligence Unit e-readiness rankings, 2003

2003 e-readiness ranking (of 60)

2002 ranking Country 2003 e-readiness

score (of 10) 2002 score

1 4 (tie) Sweden 8.67 8.32

2 7 Denmark 8.45 8.29

3 (tie) 2 Netherlands 8.43 8.40

3 (tie) 1 US 8.43 8.41

3 (tie) 3 UK 8.43 8.38

6 10 Finland 8.38 8.18

7 11 (tie) Norway 8.28 8.17

8 4 (tie) Switzerland 8.26 8.32

9 6 Australia 8.25 8.30

10 (tie) 9 Canada 8.20 8.23

10 (tie) 14 Hong Kong 8.20 8.13


Organized by:

• Countries / Geographic regions

• Business functions

• Culture

• Exports

Online IB Course Modules on the globalEDGE


Your company has developed a new product that is expected to achieve high penetration rates in all the countries where it is introduced, regardless of the average income status of the local population. Considering the costs of the product launch, the management team has decided to initially introduce the product only in countries that have a sizeable population base. You are required to prepare a preliminary report with the top ten countries of the world in terms of population size. Since growth opportunities are another major concern, the average population growth rates should be also listed for management’s consideration.

How to?– “Global Resources” on globalEDGE– Research: Statistical Data Sources– Search “Population”– Source: “World Population Data Sheet”

http://globalEDGE.msu.edu


The Freedom in the World survey evaluates the state of political rights and civil liberties around the world. For a company location project, you need to provide a description of this survey and a ranking, in terms of “freedom” of the leaders and laggards of the world. What factors are taken into consideration in this survey when forming the rankings?

How to?– “Global Resources” on globalEDGE– Research: Multi-Country– Search: “Freedom”– Result: “Freedom House Surveys”




For a country selection project, you need to know which markets/countries are the most attractive in the global marketplace. Accordingly, the ranking of the top 25 countries in terms of FDI attractiveness is a crucial ingredient for your report. You have heard about the “FDI Confidence Index” which is updated periodically. Find this index, and provide additional information regarding how the index is constructed.

How to?– “Global Resources on globalEDGE– Research: Rankings– Search: “FDI Confidence Index”– Result: “A.T. Kearney: FDI Confidence Index”


• Handout

Web-Based Exercises and Projects for Internationalizing

Business Courses

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 Attaché reports

•Country Commercial Guides


Company’s Overall Readiness to Export

OrganizationalReadiness

Product Readiness

Competitive Capabilities in

Domestic Market

Motivation for Going

InternationalCommitment of Owners and Top

Management

Skill, Knowledge and

Resources

Experience and Training


Expertise SpecializationCommunicatio

n & Information

Responsiveness and

AttentionFinance

Efficiency and

Reliability

Geographical Specialization

Financial Position

Product/Service Specialization

Pricing

Freight Forwarder Overall

Qualifications

globalEDGE™ is a global business knowledge web-portal that connects international business professionals worldwide to a wealth of information, insights, and learning resources on global business activities. By serving as a gateway to specialized knowledge on countries, cross-border business transactions, and cross-cultural management, globalEDGE™ responds to a real interest expressed by an increasing number of global business professionals. It also creates a virtual community of both executives and academics with like interests.


• Internationalizing Business Education: Issues and Recommendations by Leading Educators, (Cavusgil, Schechter, Yaprak), East Lansing, Michigan, MSU Press, March 1992 (28pp.).

• Internationalizing Business Education: Toward Meeting the Challenge, (Cavusgil), East Lansing, Michigan, MSU Press, 1993 (342pp.)

• Internationalizing the Business Curriculum, R.F. Scherer, S.T. Beaton, M.F. Ainina, Euclid, OH: Lakeshore Comm.

• “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.

• Doing Business in Emerging Markets, Cavusgil, P. Ghauri and M. Agarwal, Thousand Oaks, CA: Sage Publications, Inc., 2002.

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concepts and resources for teaching globalization (12may’05)

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