Chapter 8
Global Management
Learning Outcomes
After reading this chapter, you should be
able to:
1. Discuss the impact of global business and the trade rules
and agreements that govern it.
2. Explain why companies choose to standardize or adapt
their business procedures.
3. Explain the different ways that companies can organize to
do business globally.
4. Explain how to find a favourable business climate.
5. Discuss the importance of identifying and adapting to
cultural differences.
6. explain how to successfully prepare workers for
international assignments.
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What Is Global Business?
• The buying and selling of
goods and services by people
from different countries
• Multinational corporation:
corporation that owns
businesses in two or more
countries
• 1970: 7,000 multinational
corporations
• 2010: more than 77,000
1
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Foreign Direct Investment in Canada,
1998-2007 Cumulative at Year End
1.1
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Direct Foreign Investment
• A method of investment in which a company
builds a new business or buys an existing
business in a foreign country
– Molson purchased the fourth-largest beer
company in Mexico (Brewery Group).
– Molson has since merged with Coors and is
known as the Molson Coors Brewing Company.
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Trade Barriers
Trade Barriers
• Reduce purchase of imported goods
Tariff
• Direct tax on imported goods
Protectionism
• Protect local companies from foreign
competition
1.2
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Trade Barriers in Canada
Nontariff Barriers
Quotas:
Imports of raw sugar cane are
limited.
Voluntary export
limit the amount of a product
restraints:
that can be imported annually
Government import protect the health and safety of
standards:
citizens
Government
Bombardier: Canadian taxpayers
subsidies:
pick up the subsidy costs
Customs valuation/
classification:
1.2
CBSA customs classifications for
imported goods
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Class Activity:
Canadian Border Services Agency
Beyond the Book
• Canadian Border Services Agency
• Tariff Treatments
Read through the Canadian Border Services Agency
website, and look through the guide of importing
under tariff treatments.
What did you learn?
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8-8
GATT: General Agreement
on Tariffs and Trade
Purpose
• To make it easier and cheaper to buy foreign products
in all countries
GATT Accomplishments
• Tariffs cut 40 percent on average worldwide
by 2005
• Tariffs eliminated in 10 specific industries
• Stricter limits put on government subsidies
• Established protections for intellectual property
• Trade disputes between countries are fully settled by
arbitration panels from the WTO.
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World Trade Organization: Fact File
Location: Geneva, Switzerland
Established: January 1, 1995
Created by: Uruguay Round negotiations (19861994)
Membership: 159 countries
Budget: 197 million Swiss francs for 2013
Secretariat staff: 640
Head: Roberto Azevedo (director-general)
1.3
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World Trade Organization: Fact File
Functions:
• Administering WTO trade agreements
• Forum for trade negotiations
• Handling trade disputes
• Monitoring national trade policies
• Technical assistance and training for
developing countries
• Cooperation with other international
organizations
1.3
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Regional Trading Zones
Maastricht
Treaty of
Europe
NAFTA
1.3
Implemented in 1992 and includes
Belgium, Denmark, France, Germany,
Greece, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, Spain, and the
United Kingdom
North American Free Trade Agreement
between the United States, Canada,
and Mexico went into effect January 1,
1994
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1.3
CAFTA-DR
Central America Free Trade Agreement
between the United States, the
Dominican Republic, and the Central
American countries of Costa Rica, El
Salvador, Guatemala, Honduras, and
Nicaragua went into effect August 2005
UNASUR
Union of South American Nations,
a regional trade agreement between
Argentina, Brazil, Paraguay, Uruguay,
Venezuela, Bolivia, Colombia, Ecuador,
Peru, Guyana, Suriname, and Chile, went
into effect May 23, 2008
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ASEAN
APEC
1.3
Association of Southeast Asian Nations trade
agreement between Brunei Darussalam,
Cambodia, Indonesia, Lao PDR, Malaysia,
Myanmar, the Philippines, Singapore,
Thailand, and Vietnam
Asia-Pacific Economic Cooperation is a
broader agreement that includes Australia,
Canada, Chile, the People’s Republic of China,
Hong Kong (China), Japan, Mexico, New
Zealand, Papua New Guinea, Peru, Russia,
South Korea, Taiwan, the United States, and
all the members of ASEAN except Cambodia,
Lao PDR, and Myanmar.
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Global Map of
Regional Trade Agreements
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Consumers, Trade Barriers,
and Trade Agreements
What $1 gets you in Canada
What
$1
gets
What $1 gets you
you in
in Japan
Switzerland
Why? Foreign and domestic competition.
1.4
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How to Go Global?:
Consistency or Adaptation?
Global Consistency
• When a multinational company has offices/
plants in different countries and uses the same
rules, guidelines, policies, and procedures
Local Adaptation
• When a multinational company modifies its rules,
guidelines, policies, and procedures to adapt to
differences in foreign customers, governments,
and regulatory agencies
2
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Forms of Global Business
• Export
– Produce products in home countries and sell to
customers in foreign countries
• Cooperative Contract
– Franchise: the manufacturer or marketer
licenses the entire business to another
– Licensing agreement: receives royalty
payments from another company that
produces its product, sell its service, or uses its
brand name in a foreign market
3
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Forms of Global Business
• Strategic Alliances
– Joint venture: two existing companies
collaborate to form a third company
– 100 percent owned by the parent
company
• Global New Ventures
– new companies founded with an active
global strategy
3
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Exporting
ADVANTAGES
• Less dependence on
home market sales
• Greater degree of
control over research,
design, and production
decisions
DISADVANTAGES
• Many exports are
subject to tariff and
nontariff barriers.
• Transportation costs can
increase the price.
• Companies may depend
on foreign importers for
product distribution.
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Licensing
ADVANTAGES
• Allows companies to
earn profits without
investing more money
• The licensor invests in
production equipment
and facilities.
• Helps companies avoid
tariff and nontariff
barriers
DISADVANTAGES
• The licensor gives up
control over quality of
the product or service
sold by the foreign
licensee.
• Licensees can
eventually become
competitors.
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Franchise
ADVANTAGES
• Fast way to enter
foreign markets
• Good strategy when a
company’s domestic
sales have slowed
DISADVANTAGES
• Franchisors face a loss of
control.
• Franchising success may
be culture-bound.
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Joint Venture
ADVANTAGES
DISADVANTAGES
• Helps companies avoid • Companies must share
tariff and nontariff
profits.
barriers to entry
• Joint venture
• Participating companies
represents a merging of
bear only part of the
four cultures.
costs and risks
• With equal ownership,
• Advantageous to smaller
power struggles and a
local partners
lack of leadership may
occur.
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Wholly Owned Affiliates
(Build or Buy)
ADVANTAGES
• Parent company
receives all of the
profits and has
complete control
DISADVANTAGES
• Expense of building new
operations or buying
existing business
• Losses can be immense
if the venture fails.
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Finding the Best Business Climate
Access to
Growing
Markets
4
Location to
Build
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Minimal
Political
Risk
8-25
World’s Best Cities for Business
4.2
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Class Activity:
Ten Best Places to Start a Business in the World
Beyond the Book
Ten Best Places to Start
A Business in the World
Read the article, and discuss the places
you knew would be on the list and those
that surprised you. Share your rationale.
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Overview of Political Risk
in the Middle East
4.3
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Hofstede’s Five Cultural Dimensions
5
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Class Activity:
Hofstede’s Five Cultural Dimensions
Beyond the Book
To generate a graphical comparison of
two different countries’ cultures, go to
Hofstede's Five Cultural Dimensions.
•Select a “home culture.”
•Then select a “host culture.”
•A graph comparing the countries on each
of Hofstede’s five cultural differences will
automatically be generated.
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Hofstede’s Work
• Hofstede’s work is especially useful if we want
to avoid charges of ethnocentricity.
– where everything is seen from the
perception of an individual’s home country
• The other thing that Hofstede’s work can help
us deal with is culture shock.
• It is meant to help us explore the cultural
differences between North American
companies and their suppliers and customers
around the globe.
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Becoming Aware of
Cultural Differences
National Culture
Cultural Dimensions
(Geert Hofstede)
• The set of shared values
and beliefs that affects
the perceptions,
decisions, and
behaviour of the people
from a particular
country
5
• Power distance
• Individualism
• Masculinity and
femininity
• Uncertainty avoidance
• Short-term/long-term
orientation
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Preparing for an
International Assignment
Expatriate: someone who lives and
works outside his or her native
country
• 1.5 million expatriates reside in
the United States.
• 750,000 reside in the United
Kingdom.
• 250,000 reside in China.
• Average is $1 million/
three-year assignment
6
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Preparing for an
International Assignment
Language and CrossCultural Training
1/3 of managers about to working
internationally receive predeparture training
Consideration of Spouse,
Family, and Dual-Career Issues
40% of families receive language
and cross-culture training
6
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