Chapter 8
Global Management
MGMT
Chuck Williams
Designed & Prepared by
B-books, Ltd.
1
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.
2
What Is Global Business?
Global Business
The buying and selling of goods and
services by people from different countries.
1
3
The Impact of Global
Business
Multinational Corporation
A corporation that owns businesses in
two 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.
1.1
4
Foreign Investment in the U.S.
1.1
5
U.S. Foreign Investment Abroad
1.1
6
Trade Barriers
Tariff
Quotas
Voluntary export restraints
Nontariff
Barriers
Government import standards
Government subsidies
Customs valuation / classification
1.2
7
Trade Agreements
General Agreement
on Tariffs and Trade
Maastricht Treaty of Europe
Regional Trading
Zones
NAFTA
CAFTA
ASEAN and APEC
1.3
8
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
1.3
9
World Trade Organization
Location:
Geneva, Switzerland
Established: 1 January 1995
Created by: Uruguay Round
negotiations (1986-1994)
Membership: 153 countries
(as of 23 July 2008)
Budget: 185 million Swiss francs
for 2008
Secretariat staff: 625
Head: Pascal Lamy (director-general)
1.3
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
Web Link
http://www.wto.org
Adapted from10
Fact File
Maastricht Treaty of Europe
• Formed in 1992 with
12 European countries
• Total membership is now
27 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
1.3
Web Link
http://europa.eu.int/
11
NAFTA
• North American Free Trade
Agreement between Canada,
United States, & Mexico
• Liberalizes trade among these
three nations
• Eliminates most tariffs and
barriers
1.3
Web Link
http://www.export.gov/fta/nafta/doc_fta_nafta.asp/
12
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.
1.3
13
ASEAN and APEC
• ASEAN
– Brunei Darussalam, Cambodia, Indonesia, Laos,
Malaysia, Myanmar, Philippines, Singapore,
Thailand, and Vietnam
• APEC
– Australia, Canada, Chile, China, Hong Kong, Japan,
Mexico, New Zealand, Papua New Guinea, Peru,
Russia, South Korea, Taiwan, United States, and
ASEAN members (except Cambodia, Laos, and
Myanmar)
1.3
Web Link
http://www.aseansec.org
http://www.apecsec.org.sg
14
Consumers, Trade Barriers,
and Trade Agreements
American
consumers get
more for their
money
than most
other
consumers in
the world
because:
The U.S. marketplace is easiest for foreign companies to enter AND
the competitive market between domestic and foreign companies
keeps prices low.
1.4
15
Consumers, Trade Barriers,
and Trade Agreements
Increase:
choices
competition
purchasing power
Free Trade
Agreements
Decrease price of:
food
clothing
necessities
luxuries
1.4
16
How to Go Global?
After reading these sections,
you should be able to:
2. describe why companies choose to standardize
or adapt their business procedures.
3. explain the different ways that companies
can organize to do business globally.
17
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
18
Forms for Global Business
Exporting
Cooperative
Contracts
Global
New
Ventures
Wholly Owned
Affiliates
Strategic
Alliances
3
19
Exporting
Advantages
 Less dependence on home market sales
 Greater degree of control over research,
design, and production decisions
3.1
20
Exporting
Disadvantages
 Many exports are subject to tariff
and nontariff barriers
 Transportation costs can increase price
 Companies may depend on foreign
importers for product distribution
3.1
21
Cooperative Contracts
Licensing
A domestic company receives royalty
payments for allowing another
company to produce its product, sell
a service, or use its brand name in a
specified foreign market
Franchising
A collection of networked firms in
which the manufacturer or marketer of
a product/service licenses the entire
business to another person or
organization
3.2
22
Licensing
Advantages
 Allows companies to earn profits without
investing more money
 The licensee invests in production
equipment and facilities
 Helps companies avoid tariff and
nontariff barriers
3.2
23
Licensing
Disadvantages
 Licensor gives up control over quality
of the product or service sold by the
foreign licensee
 Licensees can eventually become
competitors
3.2
24
Franchising
Advantages
 Fast way to enter foreign markets
 Good strategy when a company’s
domestic sales have slowed
3.2
25
Franchising
Disadvantages
 Franchisors face a loss of control
 Franchising success may be
culture-bound
3.2
26
Strategic Alliances
Strategic
Alliance
An agreement in which companies
combine key resources, costs, risk,
technology, and people
Joint Venture
A strategic alliance in which two
existing companies collaborate to
form a third, independent company
3.3
27
Joint Ventures
Advantages
 Help companies avoid tariff and
nontariff barriers to entry
 Participating companies bear only part
of the costs and risks
 Advantageous to smaller local partners
3.3
28
Joint Ventures
Disadvantages
 Companies must share profits
 A joint venture represents a merging of
four cultures
 With equal ownership, power struggles
and a lack of leadership may occur
3.3
29
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
3.4
 Losses can be immense if the venture fails
30
Global New Ventures
Quick, reliable air travel
Low-cost communication technologies
Critical mass of experienced businesspeople
3.5
31
Common Factors of
Global New Ventures
Global vision is developed and communicated
Several foreign markets are entered at
the same time
3.5
32
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 and
adapting to cultural differences.
6. explain how to successfully prepare workers
for international assignments.
33
Finding the Best Business Climate
Access to
Growing
Markets
Location
to
Build
Minimal
Political
Risk
4
34
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
4.1
35
Choosing an
Office/Manufacturing Location
• Qualitative factors
– work force quality
– company strategy
4.2
• Quantitative factors
– kind of facility
– tariff and nontariff barriers
– exchange rates
– transportation and labor costs
36
World’s Best Cities for Business
United States
1. Washington
2. Atlanta
3. Phoenix
4. Houston
5. MinneapolisSt. Paul
Latin America
1. Santiago
2. Miami
3. Sao Paulo
4. Monterrey
5. Mexico City
Europe
1. London
2. Paris
3. Frankfurt
4. Barcelona
5. Amsterdam
Asia Pacific
1. Shanghai
2. Beijing
3. Shenzhen
4. Bangalore
5. Mumbai
4.2
37
Beyond the Book
Choosing a Location:
Multilingual Work Forces
38
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
– cooperation
4.3
39
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.
5
40
Becoming Aware of Cultural
Differences
Cultural Dimensions
(Geert Hofstede)





Power distance
Individualism
Masculinity and femininity
Uncertainty avoidance
Short-term/long-term orientation
5
41
Hofstede’s Five Cultural Dimensions
5
42
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
5
43
Preparing for an
International Assignment
Expatriate
Someone who lives and works outside his or
her native country.
6
44
Preparing for an
International Assignment
Language and
Cross-Cultural Training
Consideration
of Spouse, Family,
and Dual-Career Issues
6
45
Language and
Cross-Cultural Training
Documentary Training
Cultural Simulation
Field Experiences
6.1
46
Spouse, Family, and
Dual-Career Issues
Adaptability Screening
Intercultural Training
6.2
47