TOPICS IN INTERNATIONAL
BUSINESS
BA 447
Instructor: Manolete V. Gonzalez
Ice breaker – on a sheet of paper
• Name
• Major
• As a student of international business,
what topic of a global nature interests
you? For example, as you scan a
newspaper, what article or news story
would attract your attention?
Introduction
• Learning Outcomes:
– An awareness of numerous issues of a global nature
that multinational enterprises face
– An appreciation of the complexity of selected issues
– Understand how multinational enterprises can be
affected
– A capacity to investigate one such issue in its
complexity
• Approach:
– Exploratory – identify possible topics/issues
– Investigative – understand a few select issues
– Focus: what may impact a multinational firm
Requirements
• Read and contribute
– Text: The World Is Flat: Updated and Expanded,
Thomas Friedman
– Readings: Economist, WSJ, NYT, etc.
– Websites of similar news sources, reputable
organizations
• Quizzes
• Class Preparation Assignments
– Relevant to topic assigned for the day
– Encourage participation and class discussion
– In-class writing
• Term project
Quizzes
• Short essay questions, covering
– Themes discussed in text
– Issues suggested in additional readings in
schedule and other material given to class
(including films that may be shown)
– In general, broad topics discussed in class
Class Preparation Assignments
• An article relevant to the subject matter to
be covered in class (see schedule)
• A typed statement (one page) that
– Summarizes the article
– States what it can contribute to class
discussion for that day
– Indicate Assignment number on top of page
Term Project
– Refer to instructions on website. Focus on a specific
issue drawn from current events, i.e. based on a
news story
– Submit proposal by 5th week of classes
• Article which contains the issue
• A description of the issue and questions to study
– Submit proposal end of dead week
• Describe it objectively
• Understand its different aspects through multiple
perspectives
• Stakeholders and their interests
• What are inherent conflicts and how might these be
resolved?
• Why relevant to a global/multinational company?
– Requirements: 10-page report plus presentation
Other Guidelines
• Assignments and Term Projects must be
typed and written well, for a professional
audience.
• Assignments must be submitted in class
during the session stated in schedule.
• No late submissions for Assignments.
These are intended as preparations for
class discussions.
• Term Projects are due last day of classes.
Course Structure
• Friedman book provides preliminary framework
for understanding issues affecting multinationals
– concept of a “flat world”,
– what flattened it,
– the implications of this ‘flat world”
• We will investigate/elaborate on additional
themes based on this framework
– We will challenge those ideas that we think require
more scrutiny
• Note major headings in schedule
REVIEW
GLOBAL STRATEGIES
Process of Expansion
• A global company emerges as a result of
significant international expansion.
• International expansion is a gradual
process and can involve different avenues.
– Exporting
– Licensing or franchising
– Joint-ventures, often with “local” companies
– Wholly-owned Subsidiaries
Why Global Expansion
• Competencies that provide advantages
– Technological
• Wholly-owned subsidiary is preferred over
licensing and joint ventures
– Management competency
• Franchising, joint ventures, subsidiaries
• Search for low cost locations
– Due to pressures to remain competitive,
improve margins
• Exporting and wholly-owned subsidiaries
Factors Leading to Continued
Global Expansion
• Location economies
– There are economic benefits to performing a value
creation activity in an optimal location
– Effects
• Can lower costs
• Can enable differentiation
• Underlying concept, the experience curve
– Serving a global market from one or a few plants is
consistent with moving down the experience curve
and establishing a low-cost position
Factors Leading to Continued
Global Expansion (cont’d)
• Transferring distinctive competencies
– Companies with distinctive competencies can
realize large returns by expanding to global
markets where competitors lack similar
competencies and products
• Caveats – Transportation costs
– Trade barriers
– Political and economic risks
If one were to take a snap shot of
global or international firms, some
would be . .
• Exporting from home country
• Licensing or franchising
• Operating in other countries through joint
ventures
• Operating in other countries through
wholly owned subsidiaries
• Or a combination of all of these
Typology of Global strategies –
factors to consider
• Pressures for cost reductions
• Pressures for local responsiveness
Four Basic Strategies
Description of each global
strategy
• International strategy
– Transfer competencies or products to foreign markets
where indigenous competitors lack those
competencies/products
– Makes sense if
• company has a valuable competence that indigenous
competitors lack
• weak pressure for local responsiveness and cost reductions
• Examples: Proctor and Gamble and Xerox
– Develop products at home, establish manufacturing
and marketing functions in each major country/region.
Description of each global
strategy (cont’d)
• Multi-domestic or localization strategy
– Develop a business model that allows
maximum local responsiveness
– Makes sense when there are
• high pressures for local responsiveness and
• low pressures for cost reductions
• Examples: MTV
Description of each global
strategy (cont’d)
• Global (standardization) strategy
– Focus on increasing profitability by reaping cost
reductions that come from experience curve effects
and location economies; pursuing a low-cost strategy
on a global scale
– Makes sense when there are
• strong pressures for cost reductions and
• demand for local responsiveness is minimal
• Example: Intel, Motorola, Texas Instrument –
market a standardized product worldwide,
products which serve universal need.
Description of each global
strategy (cont’d)
• Transnational strategy
– Simultaneously seek to lower costs, be
locally responsive, and transfer
competencies in a way consistent with
global learning
• Example: Caterpillar
Examples of companies
pursuing a global strategy
• International strategy
– Proctor and Gamble and Xerox
• Develop products at home, establish manufacturing and
marketing functions in each major country or region.
• Multi-domestic or localization strategy
– MTV
• Global (standardization) strategy
– Example: Intel, Motorola, Texas Instrument
• market a standardized product worldwide, products which
serve universal need.
• Transnational strategy
– Caterpillar
Different Companies, Different
Configuration
• S.C. Johnson & Sons
• LG
• NIKE
Example of international strategy:
S.C. Johnson & Sons, Inc.
• 119-year-old, fifth-generation, familyowned and managed.
• 12,000 employees in 70 countries, US
headquarters.
• Leading manufacturer of consumer
household products.
• Manufactures in over 20 countries,
markets to over 110.
• $6.5 billion in annual sales.
A Brief History of LG
• Established in 1958 as Goldstar, a pioneer
Korean electronics manufacturer
• In 1995 company name was changed to
LG Electronics, acquired US-based Zenith
• Joint venture with Philips in 1999
• As of 2004, annual sales of US $38 billion,
over 66,000 employees (32,000 in Korea)
in 76 subsidiaries in 39 countries
LG likes to vertically integrate…
• LG.Philips
– Operates vertically integrated plant - research and
development, parts, and materials companies as well
as the finished products
• LG Chem
– Vertically integrated since 1991 after merging LG
Advanced Materials, LG Polychemical, and LG
Pharmaceutical
• LG Telecom
– Network provided by Cisco Systems, Inc.
Transnational example: NIKE
Categories
Factories
o Running
o Korea
o Basketball/Brand Jordan
o Taiwan
o Training/Walking
o China
o Soccer
o Thailand
o Cleated/Golf
o Vietnam
o Outdoor
o Indonesia
o Tennis
o Italy
o Active Life
o Kids
Where We Manufacture
Italy
Pusan, ROK/China
Qingdao, China
Fuzhou, Putien and
Shanghai, China
Taichung, Taiwan
Guangzhou, China
Bangkok, Thailand
Ho Chi Minh, Vietnam
Jakarta, Indonesia
Our World - The Manufacturing Pie
o Currently contract approximately
37 Factories
o 5 Manufacturing Leadership Partners
(T2, PC, FT, PA, CS) Represent
Approx. 50% of NIKE Capacity
A Factory
o LN (made up of 4 sub-factories)
o Average Capacity 1.2 million pr/mo
o 25 Lines
o Models per PO: 60 SKU
o Average Daily Output 43,000 prs per day
o Number of Employees 25,000 +
The World Is Flat
Introduction to the Friedman book
Round World
• From ancient times to about the middle ages,
people believed the world was flat.
– If one walked too far, one could fall off into a deep
abyss.
– The sky was an inverted bowl covering the surface of
the known earth.
• There were those who tried to claim otherwise,
reasoning from observation, etc.
• However, adhering to this belief was convenient:
– Security: the “known world” could be understood.
– “Known world” could be carved up.
Round World
• The text talks about Columbus and his discovery of the
Americas in 1492.
• Columbus’s journey revealed the existence of another
land mass. (The Vikings seems to have gotten there first
but nobody at that time heard too much about it.)
• In the early 1500s, Magellan started a journey that led to
his fleet being the first to circumnavigate the earth.
– Remember: Columbus basically crossed the Atlantic and got as
far as the Caribean islands in 1492.
– Magellan did not make it past what is now the Philippines, but
his fleet was able to make it back to Spain.
• This later, singular event proved that the world was
round, that one could head out east and arrive from the
west.
Round World
• Columbus’ voyage and subsequent circumnavigation of
the world by Magellan’s fleet
– Challenged boundaries of the “known world.”
– Presented a challenge/opportunity to political status quo.
– Exploration to expand dominions, wealth.
• In terms of international trade
– There was at that time a search for a way to get to the “Indies”
and obtain spices without heading through the middle east.
• Those who could explore, the wealthy kingdoms, could
secure terms of trade by
– Monopolizing travel in terms of capability to allocate resources to
man fleets and to control navigational routes.
– Knowledge and resources were critical to trade.
Flat World
• Friedman’s notion of a flat world suggests a challenge to
how we think of things
– Globalization 1.0 (1492-1800): after discovery that the earth was
round, a flurry of exploration/expeditions shrank the known
world. The kingdoms in Europe pursued global expansion that
included discovering and controlling international trade.
– Globalization 2.0 (1800 – 2000): multinationals followed their
countries and took over international trade.
– Globalization 3.0 (2000- ): individuals of diverse backgrounds
able to collaborate and compete globally
• With Globalization 3.0, “playing field” has been leveled.
Flat world – Southwest Airlines
• Globalization 1.0 – ticket agent issues you
your ticket
• Globalization 2.0 – e-ticket machine
replaced ticket agent
• Globalization 3.0 – you are your own ticket
agent (get your boarding pass at home.)
Visible Signs of a Flat World
• ..\..\My Videos\conan.wmv
• Playing on a golf course in Bangalore,
India and staring at buildings owned by US
companies
– Also the apparent “westernization” of these
campuses
Signs of a “flat world” in text
• Accounting: basic returns done in India,
tax and financial planning done in US
• News reporting: wire service (write basic
news) is outsourced, analysis in US
• Medicine: analysis of CAT scans by
trained radiologists?
Call center examples
• At take home pay of $200 per month,
Indians can live well and at home. No
need to migrate
• Try the statement on p 27
– Conan film
• R&D? 1000 patent applications with US
patent office from Bangalore units of
Cisco, Intel, IBM, TI, GE . .
And it is not just “us and them”
• Japanese speaking Chinese do work for
Japanese companies
• Outsourcing conversion of hand drawings
into digital blueprints – Malaysia and
Philippines
• Home sourcing in UTAH
• McDonald’s drive through orders
More signs of a “flat world”
• Key: any activity whose value chain can
be digitized, decomposed, and moved
around, will be moved.
• Bill Ardolino and his InDC Journal
“Flat world” and global companies
• Friedman uses his concept of a flat world to
describe how the environment of international
trade has evolved.
– He describes what has contributed to this evolution
and the implications of this flat world.
– Global companies have been both instrumental to the
creation of and will be affected by this flat world.
• We will question some of his assumptions and
his conclusions by discussing specific issues in
more depth.
Moving Forward
• Elaborate on concept of a flat world
• What were the “flatteners” that resulted in
this flat world?
• Discuss the notion of a “triple
convergence” which summarizes these
flatteners.
• NOTE regarding reading the text: read for
substance, do not get lost in stories.
House Rules
• Read material before coming to class.
• We will discuss topics. Debate with each
other if you wish.
• Seek clarification of assignments early and
in class so all may benefit.
• Informal, but lets remember why we are
here.
House Rules
• Keep distractions to a minimum, respect your peers
– Shut off cell phones or place them in silent mode (note an
unattended vibrating cell phone is distracting)
– Avoid side discussions with your neighbor.
– Come to class on time; if you do arrive late, enter quietly
and unobtrusively, e.g. do not walk in front of the instructor.
– If you have to leave early, let the instructor know and sit
where you can leave without disturbing too many students.
• “Multi-tasking” during class is not appreciated, for example
reading the newspaper, working on a paper for another class,
sleeping, etc.
– Using laptops are ok for note taking or reference to notes.
House Rules
• Respect each other.
• Tolerate differences of opinion and manner of participating.
• If you have strong opinions, voice it and be heard, listen to
responses, engage in an exchange of opinions, and then
allow the class to move on.
• Humor, informal, ok. But do remember why we are in class.
• Other suggestions?
On your sheets of paper
• State a time during the week, other than
class time, that you can set aside for
group activity related to this class
• Other preferences