Chapter 5: International Agreements,
Organizations, and Policies
• 5.1 POSITIONING IN THE GLOBAL ECONOMY
• In order to position itself in world markets,
a business must figure out what makes its
products or services unique and superior
to others.
• Well-run companies know how their
reputation is doing at all times.
Strategies toward Global
Positioning
1. A form of exporting and importing done through a
licensing agreement, where a company pays a fee to
another company from a different country to
produce or sell that company’s products.
2. Franchising a business: the franchisee pays a fee
percentage in order to be able to ride on the
success of the franchisor
3. Wholly owned subsidiary that operates in the
host country - A subsidiary may bear, and
operate under, a different name or be owned
by a company’s larger subsidiary in similar
area of business
4. The next popular international market
entry strategy is to purchase in foreign
markets the parts or materials required
for manufacturing a product in the home
market.
• This method is mostly used in the
automotive industry.
5. Joint Venture – combining parts, expertise,
and complementary technologies from
different countries to produce a product
• Many Japanese and North American
automobile firms frequently use this approach
6. Strategic Alliance
• two or more firms cooperate to co-develop,
co-produce, or co-market their products
• Sometimes such partners also cross-invest;
that is, they buy each others shares, usually to
ensure supply or to share risk and profit.
• The Japanese term for this is keiretsu; in South
Korea, it is known as chaebol. In Western
nations it has been referred to as “Japan Inc.”
International and Global Companies
• We live in an age characterized by
interdependence among nations and
economies.
• Today’s trend toward the globalization of
business influences everyone.
• Individuals everywhere must be able to work
with people of different cultures and be aware
of international events.
• Companies expand internationally to increase
sales and profit, and for a variety of other
reasons.
• Some international companies think of their
foreign operations as appendages, which usually
produce and sell products designed and
engineered in the domestic market and
sometimes adapted for local needs, culture, and
tastes.
• A global company is one in which top
management makes decisions to maximize
worldwide revenues, income, and profits. Global
companies encourage employees to move from
country to country, and they promote foreign
nationals to top management positions.
Benefits and Challenges in
Global Companies
Advantages:
Challenges:
• Savings in raw materials and
labor by moving production
facilities to locations where
wages are lower
• Worldwide access to the most
innovative ideas and designs
• Ability to market a product to
meet worldwide needs and
wants
• Job creation in developing
nations
• Cost of creating and
maintaining a global
presence
• Political, economic,
commercial, and foreign
currency exchange risks
5.2 CORPORATE GLOBALIZATION
• growing trend toward families of interrelated and cooperating
companies operating throughout the world
• An example of a multinational collaboration is the Airbus. The
production of airbus commercial airliners spans several
countries in Europe and draws upon a global network of
suppliers.
Multinational Companies
• MNC’s operate worldwide on a borderless
basis while still observing national regulations
and policies in the countries where they
operate.
• The global influence of these economies is
illustrated by their dominance in the following
areas: oil and gasoline, hydroelectric and
nuclear plants, minerals, construction of
transportation crafts, lumber and agriculture.
• The MNC’s account for more than 70 percent
of the world’s trade. They are mainly based in
the northern hemisphere and operate on
multinational agreements established among
countries to regulate international trade.
Multinational companies operate globally in one of three ways:
Type of MNC
Description
Example
Ethnocentric
Polycentric
Geocentric
(uncommon)
-Treats international
business is the same way
as national.
-Main control of foreign
operations is done from a
head office
-Foreign operations ran
from hubs in different
countries
- Takes into consideration
cultural differences in
business
-Strives for total integration
of global operations
-Takes the multinational
approach
Coca- Cola’s headquarters
in Atlanta, Georgia control
most of the company’s
foreign affairs
3M Corporation- 35, 00 of
its employees are
positioned in countries
around the world
Colgate- Palmolive
Triad
• The unity between the USA, EU, and Japan
• These three economies joined together create a
huge power in the business world
• Because their economies are so strong, it is hard
for other countries to compete against them
• To stay relevant, other countries must create
freer trade agreements and lower their standards
to give them an advantage against the Triad.
Challenges to a Multinational
Organization
• The challenge to Canadian companies may
now be to develop global customers beyond
the Triad. At the moment, the great majority
of our exports travel only as far as the United
States
Global Organizational Structure
• The international marketplace is very
unpredictable
• that the question to ask is not “if” something will
go wrong, but “when.”
• Caution along with good planning and
organization, can help to minimize global
problems.
• Companies that are expanding internationally
require an organizational structure that will
accommodate their wider vision.
International Organizational Structures
Separate International Divisions:
• International staff is isolated and function
separately from the company
• department has its own systems for sales,
marketing, customer support, and logistics
• This department handles all products going to all
foreign markets
• quite efficient but has the potential disadvantage
of requiring special plans for communication with
the main operations of the company, which can
cause delays.
Functional Divisions
• separate departments in sales, accounting,
logistics, and research and development, with
one or more individuals in each department
responsible for handling international
activities
• This structure assures that employees work in
their assigned professional or technical
specialty and capacity
Product Division
• International and domestic activities are
separated by product grouping
• the division usually shares support or staff
functions, such as accounting, with other
divisions
Matrix Organization
• allows more meaningful, more frequent, and
more informal communication among staff
and departments, but it is difficult to
implement
• Companies can choose among several possible
structure that will suit their needs, size, and
markets