Chapter 8
Global Management
© 2014 Cengage Learning
MGMT6
8-1 discuss the impact of global business and the trade rules
and agreements that govern it
8-2 explain why companies choose to standardize or adapt
their business procedures
8-3 explain the different ways that companies can organize to
do business globally
8-4 explain how to find a favorable business climate
8-5 discuss the importance of identifying and adapting to
cultural differences
8-6 explain how to successfully prepare workers for
international assignments
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The Impact of Global Business
• Multinational corporations
• Direct foreign investment
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8-1
Trade Barriers
• Tariff – direct tax on imported goods
• Nontariff barriers
– quotas
– voluntary export restraints
– government import standards
– subsidies
– customs classification
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8-1
Trade Agreements
General Agreement on Tariffs and Trade (GATT)
• Existed from 1947 to 1995
• Agreement to regulate trade among more
than 120 countries
• “Substantial reduction of tariffs and other
trade barriers and the elimination of tariffs.”
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8-1
© 2014 Cengage Learning
8-1
Regional Trading Zones
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•
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•
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8-1
Maastricht Treaty of Europe
NAFTA
CAFTA-DR
UNASUR
ASEAN
APEC
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Consumers, Trade Barriers,
and Trade Agreements
• Trade agreements increase choices,
competition, and purchase
power…decrease prices.
• Free trade agreements create new
business opportunities…
• …but also intensify competition.
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8-1
Consistency or Adaptation
• Global consistency
– when a multinational company has offices,
manufacturing plants, and distribution
facilities in different countries and runs them
all using 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
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8-2
Forms for Global Business
Exporting
Cooperative
contracts
Strategic
alliances
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Wholly
owned
affiliates
8-3
Exporting
• Selling domestically made products to
foreign markets
• Advantages
– makes company less dependent on domestic sales
– gives company more control
• Disadvantages
– goods subject to trade barriers
– transportation costs
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8-3
Cooperative Contracts
• Licensing
– a domestic company, the licensor, receives royalty payments for
allowing another company, the licensee, to produce its product, sell its
service, or use its brand name in a particular foreign market.
• Advantages
– companies earn money without investing more money
– companies can avoid trade barriers
• Disadvantages
– licensor gives up control over product quality
– licensees can become competitors
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8-3
Cooperative Contracts
• Franchise
– a collection of networked firms in which the manufacturer or
marketer of a product or service, the franchisor, licenses the
entire business to another person or organization, the
franchisee.
• Advantages
– fast way to enter foreign markets
– gives franchisor additional cash flow
• Disadvantages
– loss of control
– culture bound
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8-3
Strategic Alliances
When companies combine key resources, costs, risks,
technology, and people. Most common form is joint
ventures.
•Advantages
– companies avoid trade barriers
– companies only bear part of the costs
– partners can learn from each other
•Disadvantages
– Profits have to be shared
– merging of cultures
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8-3
Wholly Owned Affiliates
Foreign offices, facilities, and manufacturing plants that
are 100 percent owned by the parent company
•
Advantages
– parent company receives all of the profits and has complete
control
•
Disadvantages
– losses for parent company can be enormous
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8-3
Global New Ventures
Companies founded with an active global
strategy.
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8-3
Growing Markets
• Purchasing power
• Growth potential
8-4
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8-4
Choosing a Location
• Qualitative factors
– workforce quality
– company strategy
• Quantitative factors
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–
–
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kind of facility being built
trade barriers
exchange rates
transportation and labor costs
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8-4
© 2014 Cengage Learning
8-4
Minimizing Political Risk
• Political uncertainty
• Policy uncertainty
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8-4
Strategies for Dealing with
Political Risk
• Avoidance
– divesting or selling business to avoid risk
• Control
– active strategy to prevent or reduce political
risks
• Cooperation
– using joint ventures and collaborative contracts
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8-4
© 2014 Cengage Learning
8-4
Becoming Aware of
Cultural Differences
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Five Dimensions of Culture
Power distance
Individualism
Masculinity/femininity
Uncertainty avoidance
Short-term/long-term orientation
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8-5
© 2014 Cengage Learning
8-5
Language and Cross-Cultural
Training
• Documentary training
• Cultural simulations
• Field simulation training
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8-6
Spouse, Family, and
Dual-Career Issues
• Adaptability screening
– assesses how well managers and families
are likely to adjust to a foreign culture
Language and cross-cultural training for
the family is just as, if not more,
important than training for employees.
© 2014 Cengage Learning
8-6
Holden Outerwear
<click screenshot for video>
1. Which stage of
globalization characterizes
Holden Outerwear’s
international involvement?
2. Identify Holden’s primary
approach to entering the
international market. What
are the benefits of this
entry strategy?
3. What are the challenges of
international management
for leaders at Holden?
© 2014 Cengage Learning