Chapter 8 Global Management - Orange Coast · PDF fileConsumers, Trade Barriers, and Trade Agreements American consumers get more for their money than most other consumers in the world

Chapter 8

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1Copyright ©2011 by Cengage Learning. All rights reserved

Chapter 8Global Management

Designed & Prepared byB-books, Ltd.

MGMT3

Chuck Williams


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.


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


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].


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].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


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.


Trade Agreements

Regional Trading Zones

Regional Trading Zones

General Agreementon Tariffs and TradeGeneral Agreementon Tariffs and Trade

Maastricht Treaty of EuropeMaastricht Treaty of Europe

NAFTANAFTA

ASEAN and APECASEAN and APEC

CAFTACAFTA

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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 (1986negotiations (1986--1994)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 Pascal LamyLamy(Director(Director--General)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.

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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


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 AgreementsFree Trade Free Trade AgreementsAgreements

1.41.4


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.


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

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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


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

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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

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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


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


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

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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


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 timeSeveral foreign markets are entered at the same time

3.53.5


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


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 costs4.24.2

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World’s Best Cities for Business

4.24.2


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

– cooperation4.34.3

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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.


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.


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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Preparing for an International Assignment

Expatriate

Someone who lives and works outside his or her native country.

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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

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Spouse, Family, and Dual-Career Issues

Adaptability ScreeningAdaptability Screening

Intercultural TrainingIntercultural Training

6.26.2

Documents

Chapter 8 Global Management - Orange Coast · PDF fileConsumers, Trade Barriers, and Trade Agreements American consumers get more for their money than most other consumers in the world