Chapter 01: Multinational management in a Changing World

Chapter

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1Multinational Management in a Changing World

Copyright© 2005 South-Western/Thomson Learning All rights reserved

Learning Objectives

• Define multinational management• Understand the characteristics of a multinational

company• Understand the nature of the global economy and the

key forces that drive globalization• Know the basic classification of the world’s economies

• Define multinational management• Understand the characteristics of a multinational

company• Understand the nature of the global economy and the

key forces that drive globalization• Know the basic classification of the world’s economies


Learning Objectives

• Identify the characteristics of the next generation of multinational managers

• Identify the characteristics of the next generation of multinational managers


Multinational Management

• Formulation of strategies and management systems to take advantage of international opportunities and respond to international threats

• Formulation of strategies and management systems to take advantage of international opportunities and respond to international threats


The Nature of the Multinational Company

• Any company that engages in business functions beyond its domestic borders

• Includes both large and small companies

• Any company that engages in business functions beyond its domestic borders

• Includes both large and small companies


Exhibit 1.1 – The Largest Companies in the World


Globalization

• Worldwide trend of the economies of the world becoming borderless and interlinked.

• Not all economies are participating or benefiting equally in the process.

• Important forces are driving globalization.• It is also important to look at classifications of the

world’s economies.

• Worldwide trend of the economies of the world becoming borderless and interlinked.

• Not all economies are participating or benefiting equally in the process.

• Important forces are driving globalization.• It is also important to look at classifications of the

world’s economies.


Countries of the World: The Arrived, the Coming, and the Struggling

• Developed countries: mature economies with substantial per capita Gross Domestic Product, international trade, and investments.

• Developing countries: economies that have grown extensively over past two decades, e.g., Hong Kong, Singapore, South Korea.

• Developed countries: mature economies with substantial per capita Gross Domestic Product, international trade, and investments.

• Developing countries: economies that have grown extensively over past two decades, e.g., Hong Kong, Singapore, South Korea.


Countries of the World: The Arrived, the Coming, and the Struggling

• Transition economies: countries that have changed from mostly communist systems to market/capitalistic systems, • e.g., Czech republic, Hungary, Poland.

• Less developed countries: have yet to show much progress in the global economy• most are located in Central and South America and

Africa.

• Transition economies: countries that have changed from mostly communist systems to market/capitalistic systems, • e.g., Czech republic, Hungary, Poland.

• Less developed countries: have yet to show much progress in the global economy• most are located in Central and South America and

Africa.


Exhibit 1.2: Selected Economies of the World


The Globalizing Economy: Seven Key Trends

• Disintegrating borders• Growing cross-border trade and investment• The rise of global products and global customers• Privatizations

• Disintegrating borders• Growing cross-border trade and investment• The rise of global products and global customers• Privatizations


The Globalizing Economy: 7 Key Trends

• New competitors in the world market• The rise of global standards of quality and production• The Internet and information technology

• New competitors in the world market• The rise of global standards of quality and production• The Internet and information technology


Exhibit 1.3: The Globalizing Economy


Borders Are Disintegrating: The World Trade Organization

• Formal structure for continued negotiations and for settling trade disputes among nations.• 1947: Nations met to reduce tariffs from 45% to

less than 5%—resulted in the General Agreement on Tariffs and Trade (GATT).

• 1986: Negotiations began in Uruguay to continue reducing tariffs.

• Formal structure for continued negotiations and for settling trade disputes among nations.• 1947: Nations met to reduce tariffs from 45% to

less than 5%—resulted in the General Agreement on Tariffs and Trade (GATT).

• 1986: Negotiations began in Uruguay to continue reducing tariffs.


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.

• WTO has, nevertheless, some critics.• Not all countries are participating equally in WTO.

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

• WTO has, nevertheless, some critics.• Not all countries are participating equally in WTO.


Regional Trade Agreements

• Regional Trade Agreements—agreements among nations to reduce tariffs and develop similar technical and economic standards.• European Union: includes a large number of

European countries. • Allows free movement of goods and services and

a common currency.

• Regional Trade Agreements—agreements among nations to reduce tariffs and develop similar technical and economic standards.• European Union: includes a large number of

European countries. • Allows free movement of goods and services and

a common currency.


Regional Trade Agreements

• The North American Free Trade Agreement (NAFTA): links United States, Canada, and Mexico in an economic bloc. • Allows freer exchange of goods and services

• The Asia-Pacific-Economic Cooperation (APEC): looser confederation of 19 Asian nations with less specific agreements on trade facilitation.

• The North American Free Trade Agreement (NAFTA): links United States, Canada, and Mexico in an economic bloc. • Allows freer exchange of goods and services

• The Asia-Pacific-Economic Cooperation (APEC): looser confederation of 19 Asian nations with less specific agreements on trade facilitation.


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.

• 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.


Exhibit 1.5 – Leading Exporting and Importing Countries


Exhibit 1.5 – Leading Exporting and Importing Countries, continued


Exhibit 1.6: Recent Growth/Decline for Leading Importers and Exporters


Exhibit 1.6: Recent Growth/Decline for Leading Importers and Exporters


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.

• 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.


Exhibit 1.7 – 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.

• 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.


Exhibit 1.8: 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.

• 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.

• 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.

• 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.

• 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.

• 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.


Exhibit 1.9: Top 25 Emerging Market Economies


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.

• 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.

• 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).

• 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

• 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

• 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.

• 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.

Business

Chapter 01: Multinational management in a Changing World