Themes and Resources for Teaching International

Business

S. Tamer CavusgilUniversity Distinguished Faculty

John W. Byington Endowed Chair in Global Marketing

Michigan State University 7th Biennial International Business Institute for

Community College FacultyEast 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

EmergingMarkets

Strategy

International Entrepreneurship

Collaborative Ventures

ServiceSector

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 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 1920s

Fueled by electricity and steel

3rd Phase: 1948, peaking around 1970

GATT, end of WW II, Marshall Plan…

4th Phase: 1980, peaking around 1997

Tech. advances, Internet, Emerging Markets…

Globalization Trends

1. Global economic realignment2. Geography made redundant by

technological connectivity3. Consolidation of industries on a

worldwide scale4. Strains on natural resources and

the environment5. 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

CountryRank in MSU-

CIBER’s EMPI

Middle-class

population (millions)

% of Income held by

middle class

GDP per capita

( PPP, US $ )

China 1 587 45 6,800

India 8 534 49 3,300

Indonesia 20 105 48 3,600

Russia 12 67 47 11,100

Brazil 22 65 35 8,400

Mexico 13 42 41 10,000

Turkey 10 32 45 8,200

Thailand 14 28 45 8,300

South Korea

5 26 55 20,400

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 countries3. The “mean” is a poor indicator since income

distribution is typically bi-modal in EMs4. 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 knowledge3. 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 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

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 orMulti-localCompanies

Global orTransnationalCompanies

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

3. Products and Brands

Business Week – Interbrand’s Global Brands Scoreboard: World’s Top 100 Global Brands

2003 Global Brands Scoreboard

4. Economic Assets

Flows of capital (investment, debt, portfolio investment, etc.), technology, know-how, human resources, etc.

Delphion (patents), U.S. Patent Office

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 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

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 Attaché reports

•Country Commercial Guides

Aircraft (Civil)Computers

Credit CardsAutomobiles

Soft Drinks

Specialty Chemicals

Pharmaceuticals (Ethical)

Toothpaste

Electric InsulationCommercial Banking

Pharmaceuticals (OTC)

Book Publishing

Low HighStrength 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

Blah

The World Competitiveness Scoreboard 2005

Source: IMD World Competitiveness Yearbook 2004

• 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

10. Business Practices

Property rights, ethics and bribery, negotiation styles, entrepreneurial initiative, collective bargaining, labor-management relations.…

...and one good news; even in America there is corruption...

Laxman, Times of India, July 23, 2002

The 2003 Corruption Perceptions Index for Major Emerging Markets

Country rank Country

CPI 2003  score

Surveys used

Standard deviation

High-low range

5 Singapore 9.4 12 0.1 9.2 - 9.5

14 Hong Kong 8 11 1.1 5.6 - 9.3

20 Chile 7.4 12 0.9 5.6 - 8.8

21 Israel 7 10 1.2 4.7 - 8.1

37 Malaysia 5.2 13 1.1 3.6 - 8.0

40 Hungary 4.8 13 0.6 4.0 - 5.6

48 South Africa 4.4 12 0.6 3.6 - 5.5

50 South Korea 4.3 12 1 2.0 - 5.6

54 Czech Republic 3.9 12 0.9 2.6 - 5.6

Colombia 3.7 11 0.5 2.7 - 4.4

Peru 3.7 9 0.6 2.7 - 4.9

Mexico 3.6 12 0.6 2.4 - 4.9

Poland 3.6 14 1.1 2.4 - 5.6

66 China 3.4 13 1 2.0 - 5.5

Egypt 3.3 9 1.3 1.8 - 5.3

Egypt 3.3 9 1.3 1.8 - 5.3

Thailand 3.3 13 0.9 1.4 - 4.4

77 Turkey 3.1 14 0.9 1.8 - 5.4

83 India 2.8 14 0.4 2.1 - 3.6

86 Russia 2.7 16 0.8 1.4 - 4.9

92 Argentina 2.5 12 0.5 1.6 - 3.2

92 Philippines 2.5 12 0.5 1.6 - 3.6

100 Venezuela 2.4 12 0.5 1.4 - 3.1

122 Indonesia 1.9 13 0.5 0.7 - 2.9

70

64

59

A

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

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

• Diagnostic Tools available from MSU CIBER:globaledge.msu.edu/DiagTools/

• CIBER Web: ciberweb.msu.edu/• CKR Educators Consortium and Portal• Academy of International Business:

aib.msu.edu/

Knowledge Portals (con’t)

• McKinsey Quarterly www.mckinseyquarterly.com/

• AT Kearney – Globalization Index Data 2005

www.atkearney.com/main.taf?p=5,4,1,116,1– 2004 FDI Confidence Index

www.atkearney.com/main.taf?p=5,3,1,89

– Offshore Location Attractiveness Index www.atkearney.com/main.taf?p=5,3,1,75

– The 2005 Global Retail Development Indexwww.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/• Human Development Index commissioned

by UNDP, see especially Chapter 4 on International Trade: hdr.undp.org/reports/global/2005/

• Top 100 Global Brands from Interbrand Consultancy: www.interbrand.com/

Global Brands Scoreboard

Knowledge Portals (con’t)

• US Government’s Export portal: export.gov• US Department of Commerce’s National Trade

Data Bank (STAT-USA):– www.stat-usa.gov/tradtest.nsf

• Knowledge @ Wharton: knowledge.wharton.upenn.edu/

• Harvard Business Online for Educators: harvardbusinessonline.hbsp.harvard.edu/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/chinawebinar_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=pbsnh121603

• Globalization by New American Dream:  – http://www.newdream.org/consumer/globalization.php

• The Economist: The Big Mac Index, to illustrate purchasing power parity: www.economist.com/markets/Bigmac/index.cfm

• The Internet Center for Corruption Research, offered by Transparency International: 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/Globalization_Seminars.htm

• Indiana University CIBER’s Pedagogy for International Business Workshop: 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

• Other CIBER programs: 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.

• 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