Global Context of
Business
Does Thinking Globally Matter?
1
Getting Started.. We Will Learn
• Difference between supply & demand global expansion
• Difference between supply & value chains
• Owned vs. sourced supply avenues
• Variety of corporate relationships (buyer & supplier)
• Global expansion drivers & current trends
• Corporate responsibility & ethics in a global economy
2
Topic Agenda
• Rise of a Global Economy
–
Demand-SideExpansion
Expansion
– Demand-Side
– Supply-Side Expansion: Supply & Value Chains
– Influencing Factors
– Trends & Directions
• Business Ethics in a Global Setting
– Cultural Understanding & Sensitivity
– Corporate Social Responsibility
3
Demand-Side Global Expansion
• What: Expanding an enterprise to provide
goods & services in new, international
markets
• Who: Most large, well established firms
• Why: Increased profits, market share,
economic diversity
4
Global Demand Growth: McDonalds
• #1 Fast Food ($15.4 Billion Sales in 2002)
• #1 Owner of Commercial Real Estate
• 30,000 Restaurants in 120 Countries (13k in US)
• 413,000 Employees in 2002
• 2/3 of Sales & 50% Profits from Non-US
• 70% Restaurants Franchised to Individuals
• 1st US in 1955, 1st Canada in 1967
• Creation of International Division 1969
5
Franchise Business Model
• McDonald’s Role
– Evaluates Sites
– Selects Locations
– Acquires Property
– Improves Site
– Constructs Building
– Selects Franchisees to Train & Support
• Franchiser’s Role
– Equip Building & Run Operation
– $461k-$789k start up; $45k to MCD
– Must have $100k-$175k non-borrowed money upfront
6
Examples of McDonalds Growth
7
Country
First
Site
Current
Sites
Country
First
Site
Current
Sites
Australia
1971
680
Chile
1990
70
Japan
1971
2400
Russia
1990
79
United
Kingdom
1974
1200
Greece
1991
48
Hong Kong
1975
158
Saudi Arabia
1993
71
Brazil
1979
118
Kuwait
1994
34
Mexico
1985
270
Peru
1996
10
Argentina
1986
173
India
1996
34
S. Korea
1988
270
China
2000
100/yr
12/15/03 Global Strategy Change
• From the Associated Press:
“McDonald’s Corp. plans to significantly narrow its outside brand
activity, retaining Chipotle and Boston Market in the US, but selling
Donatos Pizzeria (Germany) back to its founder and discontinuing
development of all partner brands outside the country.”
• Any guesses as to why?
– Profits (or lack thereof for non-McDonalds chains)
– KISS
– In overseas markets & cultures, stay with what you know
8
Global Demand Growth: Starbucks
• #1 US Specialty Coffee ($4 Billion 2003 Sales)
• Roughly 7225 Shops in 23 Countries
• Long-term Goal: 30,000 Shops
• 1st US in 1971; 1st in Canada 1987
• 1982 Howard Schultz Joins
• 1985 Incorporates
• Growth with Strategic Partnerships
• 2003: TMobile, Card Duetto, Acquires Seattle Coffee
9
Starbucks Strategic Partnerships
• Airlines
Horizon (90), United (95), Canadian (97)
• Hotels
Sheraton(94), Westin (96), Marriott (00), Hyatt (01)
• Retailers
Nordstrom(92), B&N (93), Albertson’s (99)
Canada: Chapters Bookstore (95), TransFair (02)
• CPG
PepsiCo (96), Kraft (98)
• Other
SAZABY (Japan) & Seattle Coffee (UK)
10
Starbucks Coffee Shop Growth
6000
100
90
5000
80
70
Number of Shops
60
50
3000
40
Percentage Growth
4000
Total Shops
Relative Growth
2000
30
20
2002
5700 Shops
1000
10
0
0
1987
1988
1989
1990
1991
1992
1993
1994
1995
Year
11
1996
1997
1998
1999
2000
2001
2002
2003
7225 Shops
Starbucks International Growth
•
•
•
•
•
•
•
•
1987 Canada
1996 Japan (with SAZABY Inc.), Singapore
1997 Philippines
1998 Taiwan, Thailand, New Zealand, Malaysia
1999 China, Kuwait, Korea, Lebanon*
2001 Switzerland, Israel, Austria
2002 Oman, Indonesia, Germany, Spain
2003 Turkey, Chile, Peru (1000th Shop in Asia)
* 2000 Howard Schultz becomes chief global strategist
12
Impact to Information Engineering
Strategic Planning
One - Five+ Year Horizon
Markets, Product Mix, Suppliers
Distribution Network (Re)Design
Technology/Infrastructure
Tactical or Operations Planning
Three - Twelve Month Horizon
Service Level & Inventory Planning
Contractual Agreements
Production & Distribution Planning
Scheduling/Execution
Near-Term Horizon (a few weeks)
Determine Tomorrow’s Schedule
Determine Sequence of Operations
Inventory, Order & Transport Mgmt.
13
Topic Agenda
• Rise of a Global Economy
– Demand-Side Expansion
– Supply-Side
Supply-SideExpansion:
Expansion Supply & Value Chains
– Influencing Factors
– Trends & Directions
• Business Ethics in a Global Setting
– Cultural Understanding & Sensitivity
– Corporate Social Responsibility
14
Supply-Side Global Expansion
• What: Expanding an enterprise’s supply
infrastructure to include global options
• Who: Variety of small & large, established and
emerging firms
• Why: Increased profits (via lower costs), easier
compliance with locally imposed laws,
availability of skilled workforce
15
Did You Ever Wonder?
• When Buying Coffee at Starbucks
– Where are the coffee beans grown & harvested?
– Where are the cows that make the milk for dairy?
– Where are the trees grown that make the cups?
– Where are the trees grown that make the slips?
– Where are the trees grown that make the stirrers?
– Where are the plastic covers made?
– Where is the sugar from & packaged?
– Where are the flavored liquids from?
16
Alternatively What About?
• When a Buying a Pair of Running Shoes
– Where and who designed the shoe?
– Where is the rubber made for the sole?
– Where are the plastic logo pieces made?
– Where are the animals whose hides are used?
– Where is the cotton grown that is used for fabric?
– Where & who makes the shoe laces?
– Where & who makes the plastic piece of laces?
– Where is the cotton grown that is used in laces?
17
Questions & Answers
These questions strike at what are the
SUPPLY and VALUE CHAINS
The answers likely have commonality
that more than one country/nation is
involved..
18
Supply Chains Encompass
• Supply To and Demand From an Enterprise
• Sourcing & Purchasing Raw Materials & Parts
• Manufacturing & Assembly
• Warehousing & Inventory Tracking
• Order Entry & Order Management
• Distribution (Logistics) Across All Channels
• Delivery to Customer
19
Supply Chain Management
• Oversight of materials, information & finances as they move:
Supplier > Manufacturer > Wholesaler or Retailer
• Coordinating & integrating flows within & among companies
20
Hypothetical Best Buy Environment
BestBuy.com
Retail
Stores
BestBuyBiz
(B2B)
Tele-Sales
Center
Best Buy
(Stores & DCs)
TI
Calculators
Intel
Praxair
Nokia
HP
Arrow
Seagate
Electronics Hard Drive
MEMC
MSA
Whirlpool
Arrow
Electronics
Bose
ADS
Casings
Buy From (Part of Supply Chain)
Sells Through (Customers)
21
Supply Chains Encompass
• Supply To and Demand From an Enterprise
• Sourcing & Purchasing Raw Materials & Parts
• Manufacturing & Assembly
• Warehousing & Inventory Tracking
• Order Entry & Order Management
• Distribution (Logistics) Across All Channels
• Delivery to Customer
22
Variety of Supply Chain Models
• Own All Supply Resources/Options
• Own Some of the Supply Resources/Options
• Own None of the Supply Resources/Options
23
Value Chains Encompass
• A string of companies working together to meet market
demand
• Typically consists of:
– One or a few primary value (product or service) suppliers
– Many suppliers that add on to the value that is ultimately sold
24
HP Value Chain / Intel Supply Chain
Best Buy
(Stores & DCs)
TI
Calculators
Intel
Praxair
Nokia
HP
Arrow
Seagate
Electronics Hard Drive
MEMC
MSA
Whirlpool
Arrow
Electronics
ADS
Casings
Buy From (Part of Supply Chain)
Sells To (Customers)
25
Bose
Class Example..
• Pick an industry or government agency
• Define the supply chain
• Define the value chain
26
Supply-Side Global Expansion
• What: Expanding an enterprise’s supply
infrastructure to include global options
• Who: Variety of small & large, established and
emerging firms
• Why: Increased profits (via lower costs), easier
compliance with locally imposed laws,
availability of skilled workforce
27
Different Types of Suppliers in Chain
•• Supplier
Supplier Provides
Core
or Complementary
Provides
Core
or Complementary
I.e., Nike Shoes, Starbucks Paper Cups
• Supplier Provides Value-Add to Intermediate
I.e., Assemble & Test a Semiconductor Fab Wafer
• Supplier Provides Services
I.e., DHL or FedEx; Fleming for Kmart
28
Global Supply Growth: Nike, Inc.
• World’s #1 Shoe Company ($9.9 Billion Sales)
• Controls 40% of US Athletic Shoe Market
• Sells Products in 140 Countries
• 22k Nike Employees
• 800 Manufacturing Contractors
200k Workers, 700 Factories, 50 Countries
Roughly 84% Workers in Asia, 7% EMEA
29
Relative (Advertised) Shoe Mark-Up
• Consumer Pays Retailer $65.00
• Retailer Pays Nike $32.50
• Nike Pays Factory $16.25
– Materials $10.75; Labor $2.43; Overhead $2.10
• Remaining $16.25 Received by Nike
– R&D, Shipping, Insurance, Profit
30
Different Types of Suppliers in Chain
• Supplier Provides Core or Complementary
I.e., Nike Shoes, Starbucks Paper Cups
Supplier Provides
to Intermediate
• Supplier
ProvidesValue-Add
Value-Add
to Intermediate
I.e., Assemble & Test a Semiconductor Fab Wafer
• Supplier Provides Services
I.e., DHL or FedEx; Fleming for Kmart
31
Semiconductor Manufacturing & Product Overview
Raw Wafer
Wafer w/Die
6-13 Wk
FAB
xxxx
xxxx
x x
Sorted Die
0-1 Wk
SORT
xxxx
xxxx
x x
yyyy
yyyy
yy
0-3 Wk
ASSEMBLY
Packaged Devices
XY-70-PC
Tested Bin Die
Finished Good
XY70-CC
Finished Good
XY-70-PC
33
0-1 Wk
Bin1 Die
FINISHING
Bin2 Die
Y-70-JC
0-1 Wk
TEST
W/BINNING
Bin3 Die
0-1 Wk
TEST W/OUT BINNING
Example Semiconductor Supply Chain
FAB
SORT
ASSEMBLY
TEST
FINISHING
• Fab/Sort
– Owns & Operates Several Fabs
– Anam (S. Korea)
• Assembly/Test/Finishing
– Owns & Operates Philippines ATF
– Amkor Technology/Anam (S. Korea, Philippines)
• All Stages (Foundries)
– TSMC (Taiwan)
– UMC (Taiwan & Japan)
34
Impact to Information Engineering
Strategic Planning
One - Five+ Year Horizon
Markets, Product Mix, Suppliers
Distribution Network (Re)Design
Technology/Infrastructure
Tactical or Operations Planning
Three - Twelve Month Horizon
Service Level & Inventory Planning
Contractual Agreements
Production & Distribution Planning
Scheduling/Execution
Near-Term Horizon (a few weeks)
Determine Tomorrow’s Schedule
Determine Sequence of Operations
Inventory, Order & Transport Mgmt.
35
Topic Agenda
• Rise of a Global Economy
– Demand-Side Expansion
– Supply-Side Expansion
–– Influencing
Factors
Influencing Factors
– Trends & Directions
• Business Ethics in a Global Setting
– Cultural Understanding & Sensitivity
– Corporate Social Responsibility
36
A Few Drivers Behind Global Expansion
• Technology Breakthroughs (Internet, Wireless)
• Manufacturing Breakthroughs & Economies of Scale
• Market Saturation
• Abrupt & Potentially Long-Term Supply Changes
• Multi-National Trade Agreements
– European Union
– NAFTA (North American Free Trade Agreement)
– FTAA (Free Trade Area of Americas)
• Political & Economic Changes
– Soviet Union
– Hong Kong & Taiwan to China
37
Highlights of NAFTA
• Declares Free Trade Area Across Canada, US & Mexico
• Each Country Agrees To:
– Give Most Favored Nation (MFN) Treatment & Transparency
– Commit to Cross-Border Movement of Goods & Services
– Commit to Provide Adequate & Effective Protection & Enforcement of
Intellectual Property Rights
– Statement Calling for Effective Domestic Procedures for
Implementation & Application
• Most Provisions Apply to Provincial, State or Local Gov’t
I.e., Investment, Cross-Border Trade in Services & Financial Services
Exempt All Local Government Measures DO NOT apply
38
Highlights of FTAA
• Extension of NAFTA to Western Hemisphere
• 34 Members of Organization of American States (OAS)
• Summits of the Americas
– 1994 Miami
– 1998 Chili
– 2001 Canada
• Negotiating Groups
Agriculture, Competition Policy, Dispute Settlement, Government,
Procurement, IP, Subsidies, Investments, Market Access, Services
• Additional Core Issues
Civil Society, Small Economies, E-Commerce, Business Facilitation
(Customs & Transparency)
39
Impact to Information Engineering..
• Increased Complexity in Planning & Execution
Practices to Handle MFN vs. non-MFN and
Other Aspects of Agreements
• Increased Complexity in Data Associated with
Tracking Agreement Compliance
40
Topic Agenda
• Rise of a Global Economy
– Demand-Side Expansion
– Supply-Side Expansion
– Influencing Factors
– Trends & Directions
• Business Ethics in a Global Setting
– Cultural Understanding & Sensitivity
– Corporate Social Responsibility
41
Likely Trends & Directions..
• Continuous Decline in Barriers to International Business
Transaction (I.e., Future Agreements)
• Continuous Growth of Trading Blocs
• Greater Opportunities & Pursuits to Develop New Markets in
Foreign Countries
• Continuing Shuffle of Direct Foreign Investments
• Continuing Shuffle of Who Does What Where
42
Topic Agenda
• Rise of a Global Economy
– Demand-Side Expansion
– Supply-Side Expansion
– Influencing Factors
– Trends & Directions
• Business Ethics in a Global Setting
– Cultural Understanding & Sensitivity
– Corporate Social Responsibility
43
In The News…
• 1984 Union Carbide, Bhopal India
– Worst Industrial Accident in History
– 40 Tons of Methyl Isocyanate Gas Released
– 2000-5000 Died Almost Immediately
– Hundreds of Thousands Permanently Disabled
– 1989 UCC/Indian Gov’t Settlement for $470Mil
– 1999 Dow Chemical Acquires UCC
44
Or What About Nike News…
• 1996 NY Times on Labor Conditions/Pay at Asian Factories
– Age, Pay, Benefits, Union, Freedoms are Primary Focus
– Nike Contracts to Wide Array of Factories Throughout Asia
– Frequent Claim: Nike Follows the Least Cost/Most Repressive
– Fair Labor Association (FLA) Membership
– May 2002 Kasky vs. Nike California Court Ruling
45
Nike Production Base Over Time
46
Also In The News…McDonalds France
•
First Site in 1979; As of 2002, 900 Restaurants; 35,000 Employees
•
November 2002 – Fire at construction site near Grenoble
•
October 2002 – McDonald’s France releases advertisement discouraging kids
to eat more than once a week.. Strong disagreement from MCD US
•
January 2001 – McDonald’s Europe 10% Sales Decrease after Mad Cow
•
August 1999 – 12 Farmers & Folk Hero Jose Bove Dismantle Millau Site
47
Alternatively: McDonalds India
• No beef or pork products sold
• Wide array of vegetarian offerings
• Maharaja Mac (chicken & mutton) = Big Mac
• Egg-less Mayonnaise
Is There
Demand?
48
Can The
Product Be
Modified?
Is It a Good
Business
Climate?
Are Skills &
Knowledge
Available?
Topic Agenda
• Rise of a Global Economy
– Demand-Side Expansion
– Supply-Side Expansion
– Influencing Factors
– Trends & Directions
• Business Ethics in a Global Setting
– Cultural Understanding & Sensitivity
–– Corporate
Corporate Social
Social Responsibility
Responsibility
49
One Way to Look At It…
“Corporate social responsibility (CSR) is
commercial success in ways that honor
ethical values and respect for communities,
natural environment and people”
Business for Social Responsibility (BSR)
50
Breadth of Social Responsibility Includes..
• Community – Development & Relief
• Environment – Conservation & Preservation
• Marketplace – Supplier Monitoring
• People – Commitment & Diversity
• Business Conduct – Accountability & Quality
51
Social Responsibility at Weyerhaeuser
•
Largest NA Producer of Softwood Lumber ($15 Billion Annual Sales)
•
5.9 Mil Acres of Timberland in NA & Cutting Rights to 32 Mil Canadian Acres
•
Products Span Lumber to Plywood to Paper
• Core Areas of Social Responsibility Focus:
– Environmental Performance
• Policy, Focus, Accountability, Remediation Programs
– Business Conduct & Community Activities
• Business Ethics, Community Giving, Global Business, Gov’t/Military
Contracts, Use of Animals in Testing
– Employee Relations
• Safety/Health, Comp & Benefits, Diversity, Work/Life
52
Summary.. What We Learned
• Difference between supply & demand global expansion
• Difference between supply & value chains
• Balance of owned vs. sourced supply avenues
• Variety of corporate relationships (buyer & supplier)
• Global expansion drivers & current trends
• Corporate responsibility & ethics in a global economy
53