TOPICS IN INTERNATIONAL BUSINESS

BA 447

Instructor: Manolete V. Gonzalez

Ice breaker – on a sheet of paper

• Name

• Major

• As a student of international business, what topic of a global nature interests you? For example, as you scan a newspaper, what article or news story would attract your attention?

Introduction

• Learning Outcomes: – An awareness of numerous issues of a global nature

that multinational enterprises face– An appreciation of the complexity of selected issues– Understand how multinational enterprises can be

affected– A capacity to investigate one such issue in its

complexity• Approach:

– Exploratory – identify possible topics/issues– Investigative – understand a few select issues– Focus: what may impact a multinational firm

Requirements

• Read and contribute– Text: The World Is Flat: Updated and Expanded,

Thomas Friedman– Readings: Economist, WSJ, NYT, etc.– Websites of similar news sources, reputable

organizations• Quizzes• Class Preparation Assignments

– Relevant to topic assigned for the day– Encourage participation and class discussion– In-class writing

• Term project

Quizzes

• Short essay questions, covering– Themes discussed in text– Issues suggested in additional readings in

schedule and other material given to class (including films that may be shown)

– In general, broad topics discussed in class

Class Preparation Assignments

• An article relevant to the subject matter to be covered in class (see schedule)

• A typed statement (one page) that– Summarizes the article– States what it can contribute to class

discussion for that day– Indicate Assignment number on top of page

Term Project

– Refer to instructions on website. Focus on a specific issue drawn from current events, i.e. based on a news story

– Submit proposal by 5th week of classes• Article which contains the issue• A description of the issue and questions to study

– Submit proposal end of dead week• Describe it objectively• Understand its different aspects through multiple

perspectives• Stakeholders and their interests• What are inherent conflicts and how might these be

resolved?• Why relevant to a global/multinational company?

– Requirements: 10-page report plus presentation

Other Guidelines

• Assignments and Term Projects must be typed and written well, for a professional audience.

• Assignments must be submitted in class during the session stated in schedule.

• No late submissions for Assignments. These are intended as preparations for class discussions.

• Term Projects are due last day of classes.

Course Structure

• Friedman book provides preliminary framework for understanding issues affecting multinationals– concept of a “flat world”, – what flattened it, – the implications of this ‘flat world”

• We will investigate/elaborate on additional themes based on this framework– We will challenge those ideas that we think require

more scrutiny

• Note major headings in schedule

REVIEW

GLOBAL STRATEGIES

Process of Expansion

• A global company emerges as a result of significant international expansion.

• International expansion is a gradual process and can involve different avenues.– Exporting– Licensing or franchising– Joint-ventures, often with “local” companies– Wholly-owned Subsidiaries

Why Global Expansion

• Competencies that provide advantages– Technological

• Wholly-owned subsidiary is preferred over licensing and joint ventures

– Management competency• Franchising, joint ventures, subsidiaries

• Search for low cost locations– Due to pressures to remain competitive,

improve margins• Exporting and wholly-owned subsidiaries

Factors Leading to Continued Global Expansion

• Location economies– There are economic benefits to performing a value

creation activity in an optimal location– Effects

• Can lower costs• Can enable differentiation

• Underlying concept, the experience curve– Serving a global market from one or a few plants is

consistent with moving down the experience curve and establishing a low-cost position

Factors Leading to Continued Global Expansion (cont’d)

• Transferring distinctive competencies– Companies with distinctive competencies can

realize large returns by expanding to global markets where competitors lack similar competencies and products

• Caveats - – Transportation costs– Trade barriers– Political and economic risks

If one were to take a snap shot of global or international firms, some

would be . . • Exporting from home country

• Licensing or franchising

• Operating in other countries through joint ventures

• Operating in other countries through wholly owned subsidiaries

• Or a combination of all of these

Typology of Global strategies – factors to consider

• Pressures for cost reductions

• Pressures for local responsiveness

Four Basic Strategies

Description of each global strategy

• International strategy– Transfer competencies or products to foreign markets

where indigenous competitors lack those competencies/products

– Makes sense if • company has a valuable competence that indigenous

competitors lack • weak pressure for local responsiveness and cost reductions

• Examples: Proctor and Gamble and Xerox– Develop products at home, establish manufacturing

and marketing functions in each major country/region.

Description of each global strategy (cont’d)

• Multi-domestic or localization strategy– Develop a business model that allows

maximum local responsiveness– Makes sense when there are

• high pressures for local responsiveness and • low pressures for cost reductions

• Examples: MTV

Description of each global strategy (cont’d)

• Global (standardization) strategy– Focus on increasing profitability by reaping cost

reductions that come from experience curve effects and location economies; pursuing a low-cost strategy on a global scale

– Makes sense when there are • strong pressures for cost reductions and • demand for local responsiveness is minimal

• Example: Intel, Motorola, Texas Instrument – market a standardized product worldwide, products which serve universal need.

Description of each global strategy (cont’d)

• Transnational strategy– Simultaneously seek to lower costs, be

locally responsive, and transfer competencies in a way consistent with global learning

• Example: Caterpillar

Examples of companies pursuing a global strategy

• International strategy– Proctor and Gamble and Xerox

• Develop products at home, establish manufacturing and marketing functions in each major country or region.

• Multi-domestic or localization strategy– MTV

• Global (standardization) strategy– Example: Intel, Motorola, Texas Instrument

• market a standardized product worldwide, products which serve universal need.

• Transnational strategy– Caterpillar

Different Companies, Different Configuration

• S.C. Johnson & Sons

• LG

• NIKE

Example of international strategy: S.C. Johnson & Sons, Inc.

• 119-year-old, fifth-generation, family-owned and managed.

• 12,000 employees in 70 countries, US headquarters.

• Leading manufacturer of consumer household products.

• Manufactures in over 20 countries, markets to over 110.

• $6.5 billion in annual sales.

A Brief History of LG

• Established in 1958 as Goldstar, a pioneer Korean electronics manufacturer

• In 1995 company name was changed to LG Electronics, acquired US-based Zenith

• Joint venture with Philips in 1999

• As of 2004, annual sales of US $38 billion, over 66,000 employees (32,000 in Korea) in 76 subsidiaries in 39 countries

LG likes to vertically integrate…

• LG.Philips– Operates vertically integrated plant - research and

development, parts, and materials companies as well as the finished products

• LG Chem– Vertically integrated since 1991 after merging LG

Advanced Materials, LG Polychemical, and LG Pharmaceutical

• LG Telecom– Network provided by Cisco Systems, Inc.

Transnational example: NIKETransnational example: NIKE

Categorieso Running

o Basketball/Brand Jordan

o Training/Walking

o Soccer

o Cleated/Golf

o Outdoor

o Tennis

o Active Life

o Kids

Factorieso Korea

o Taiwan

o China

o Thailand

o Vietnam

o Indonesia

o Italy

Jakarta, Indonesia

Bangkok, Thailand

Guangzhou, China

Fuzhou, Putien and Shanghai, ChinaTaichung, Taiwan

Pusan, ROK/China

Ho Chi Minh, Vietnam

Where We ManufactureWhere We Manufacture

Qingdao, China

ItalyItaly

o Currently contract approximately 37 Factories

o 5 Manufacturing Leadership Partners (T2, PC, FT, PA, CS) Represent Approx. 50% of NIKE Capacity

Our World - The Manufacturing PieOur World - The Manufacturing Pie

o LN (made up of 4 sub-factories)

o Average Capacity 1.2 million pr/mo

o 25 Lines

o Models per PO: 60 SKU

o Average Daily Output 43,000 prs per day

o Number of Employees 25,000 +

A FactoryA Factory

The World Is Flat

Introduction to the Friedman book

Round World

• From ancient times to about the middle ages, people believed the world was flat.– If one walked too far, one could fall off into a deep

abyss.– The sky was an inverted bowl covering the surface of

the known earth.• There were those who tried to claim otherwise,

reasoning from observation, etc.• However, adhering to this belief was convenient:

– Security: the “known world” could be understood.– “Known world” could be carved up.

Round World

• The text talks about Columbus and his discovery of the Americas in 1492.

• Columbus’s journey revealed the existence of another land mass. (The Vikings seems to have gotten there first but nobody at that time heard too much about it.)

• In the early 1500s, Magellan started a journey that led to his fleet being the first to circumnavigate the earth.– Remember: Columbus basically crossed the Atlantic and got as

far as the Caribean islands in 1492.– Magellan did not make it past what is now the Philippines, but

his fleet was able to make it back to Spain.• This later, singular event proved that the world was

round, that one could head out east and arrive from the west.

Round World

• Columbus’ voyage and subsequent circumnavigation of the world by Magellan’s fleet– Challenged boundaries of the “known world.” – Presented a challenge/opportunity to political status quo.– Exploration to expand dominions, wealth.

• In terms of international trade– There was at that time a search for a way to get to the “Indies”

and obtain spices without heading through the middle east.• Those who could explore, the wealthy kingdoms, could

secure terms of trade by– Monopolizing travel in terms of capability to allocate resources to

man fleets and to control navigational routes.– Knowledge and resources were critical to trade.

Flat World

• Friedman’s notion of a flat world suggests a challenge to how we think of things– Globalization 1.0 (1492-1800): after discovery that the earth was

round, a flurry of exploration/expeditions shrank the known world. The kingdoms in Europe pursued global expansion that included discovering and controlling international trade.

– Globalization 2.0 (1800 – 2000): multinationals followed their countries and took over international trade.

– Globalization 3.0 (2000- ): individuals of diverse backgrounds able to collaborate and compete globally

• With Globalization 3.0, “playing field” has been leveled.

Flat world – Southwest Airlines

• Globalization 1.0 – ticket agent issues you your ticket

• Globalization 2.0 – e-ticket machine replaced ticket agent

• Globalization 3.0 – you are your own ticket agent (get your boarding pass at home.)

Visible Signs of a Flat World

• ..\..\My Videos\conan.wmv

• Playing on a golf course in Bangalore, India and staring at buildings owned by US companies– Also the apparent “westernization” of these

campuses

Signs of a “flat world” in text

• Accounting: basic returns done in India, tax and financial planning done in US

• News reporting: wire service (write basic news) is outsourced, analysis in US

• Medicine: analysis of CAT scans by trained radiologists?

Call center examples

• At take home pay of $200 per month, Indians can live well and at home. No need to migrate

• Try the statement on p 27– Conan film

• R&D? 1000 patent applications with US patent office from Bangalore units of Cisco, Intel, IBM, TI, GE . .

And it is not just “us and them”

• Japanese speaking Chinese do work for Japanese companies

• Outsourcing conversion of hand drawings into digital blueprints – Malaysia and Philippines

• Home sourcing in UTAH

• McDonald’s drive through orders

More signs of a “flat world”

• Key: any activity whose value chain can be digitized, decomposed, and moved around, will be moved.

• Bill Ardolino and his InDC Journal

“Flat world” and global companies

• Friedman uses his concept of a flat world to describe how the environment of international trade has evolved.– He describes what has contributed to this evolution

and the implications of this flat world.– Global companies have been both instrumental to the

creation of and will be affected by this flat world.

• We will question some of his assumptions and his conclusions by discussing specific issues in more depth.

Moving Forward

• Elaborate on concept of a flat world

• What were the “flatteners” that resulted in this flat world?

• Discuss the notion of a “triple convergence” which summarizes these flatteners.

• NOTE regarding reading the text: read for substance, do not get lost in stories.

House Rules

• Read material before coming to class.

• We will discuss topics. Debate with each other if you wish.

• Seek clarification of assignments early and in class so all may benefit.

• Informal, but lets remember why we are here.

House Rules

• Keep distractions to a minimum, respect your peers– Shut off cell phones or place them in silent mode (note an

unattended vibrating cell phone is distracting)– Avoid side discussions with your neighbor.– Come to class on time; if you do arrive late, enter quietly

and unobtrusively, e.g. do not walk in front of the instructor.

– If you have to leave early, let the instructor know and sit where you can leave without disturbing too many students.

• “Multi-tasking” during class is not appreciated, for example reading the newspaper, working on a paper for another class, sleeping, etc.– Using laptops are ok for note taking or reference to notes.

House Rules

• Respect each other. • Tolerate differences of opinion and manner of participating.• If you have strong opinions, voice it and be heard, listen to

responses, engage in an exchange of opinions, and then allow the class to move on.

• Humor, informal, ok. But do remember why we are in class.• Other suggestions?

On your sheets of paper

• State a time during the week, other than class time, that you can set aside for group activity related to this class

• Other preferences