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Chapter
5Global Management
Learning Outcomes
1. Define global management
2. Compare and contrast importing and exporting
3. Explain the advantages and disadvantages of protectionism
4. Discuss the challenges of doing business globally
Global business• Opportunities• Risk of political instability• Currency exchange rates• Global economic interdependence• New skills dealing with:
• Cultures• Political system• Legal framework
• International Trade– Exchange of goods and services by different
countries– Reasons why countries trade:• Country can’t produce certain goods• Country may have an advantage over other countries
• Management takes on new meaning
• Absolute advantage– Ability to produce more of a good than another
producer with the same quantity of inputs– i.e., Jamaica’s sugar production
• Comparative advantage– Producers should produce the goods they are
most efficient at producing, and import goods they are less efficient at producing
Importing and Exporting
• Exports– Goods and services produced at home and sold
abroad
• Imports– Goods and services that are produced overseas
and purchased at home
Why Exporting?
–Increased sales–Diversification• Engage in a variety of operations so that
sluggish sales in one market can be offset by high sales in another market
Exporting
• Identifying export markets– Analysis of demographics, economic data, country
reports, consumer tastes and competition
– Need to know what restrictions they face • packaging restrictions, labeling and product safety• Documents needed• Amount of money that can be taken out of country
Imports
• Material importing– Importing materials needed to produce a product– Perhaps not available or too expensive in the
home country• Consumer goods importing– Some goods are also imported as a complete
product, which can also be sold in their own countries
Importing and Exporting
• Balance of trade–Trade surplus• Occurs when a country exports more
than it imports–Trade deficit• Occurs when a country imports more
than it exports
Importing and Exporting
• Foreign exchange– Exchange rates are the value of one
currency in terms of another– Fluctuate from day to day–Can have an effect on profits
Protectionism
• The practice of trying to protect home markets from foreign competitors
International trade:– benefits the trading partners– Hurts domestic partners trying to compete
Protectionism
• Tariffs– A tax charged on a imported good– Purpose is to raise the price of foreign goods to
allow domestic producers to compete– 2 classifications:• Specific tariff is levied per unit• Ad valorem tariff is levied as a percentage of the value
of the goods
Protectionism
• Quotas– A restriction on the quantity of goods that can
enter a country– Hurt companies that need the material– Help companies that produce the material
• Embargos– A total pan on the import of a good from a
particular country– Political reasons rather than economic
• Free Trade area
– A region where trade restrictions are reduced or eliminated
• NAFTA– Signed in 1994– USA, Mexico and Canada with no major trade
restrictions– Advantages and disadvantages• Consumers benefit from lower prices (no tariffs)• Increased sales• Possible job losses as factories have moved to Mexico
Maastricht Treaty– Created European Union of 27 countries– Candidate countries– Potential candidates– Economic bloc: 22% of world’s GDP; 16 members
use the euro
Doing Business Globally
• Foreign intermediaries– Wholesaler or agent that markets products for
companies wanting to do business abroad• Licensing agreements– Agreement that permits one company to sell
another company’s products abroad in return for a percentage of revenues
Doing Business Globally
• Strategic alliances– A pooling of resources and skills to achieve common
goals– Gain access to a market, share research, broaden
product lines, learn new skills• Multinational corporation– A business that maintains a presence in two or more
countries and has a considerable portion of assets invested in international activities
– Establishes manufacturing and distribution facilities in another country
International Challenges
• Cultures– Must understand foreign cultures and customs– Dress, language and ways of doing things
• Political changes– Political challenges caused by governments or
upheaval is a concern for international managers• Human rights and ethics– Norms of business ethics vary greatly– Understanding human rights laws and ethics is
essential to the international manager