CHAPTER THIRTEEN Global Management

1. CHAPTER THIRTEENGlobal Management

2. What Would You Do? You are founder of Pret à Manger, a London-based chain of more than 120 stores serving healthy “fast” food…You are considering expanding into the United States • But the menu may not be familiar to American tastes If not America, where outside the U.K. could you consider? What’s the right way to go global? What changes will have to be made? What would you do?

3. What Is Global Business? After reading the next two sections, you should be able to: • describe the impact of global business on theUnited States. • discuss the trade rules and agreements thatgovern global trade.

4. Global Business The buying and selling of goods and services by people from different countries TRUE or FALSE? “Foreigners” are buying up American companies at an astounding rate. American companies are no longer competitive in theworld market. If given a choice, Americans will buy American-made goods rather than foreign-made goods. Impact of Global Business? 1

5. Foreign Investment • Companies from many countries own U.S. businesses (Exhibit 7.1) • U.S. companies have made large direct foreign investments throughout the world (Exhibit 7.2) • Direct foreign investment worldwide is worth $1 trillion a year • Direct foreign investment is an important and common method of conducting global business 1.1

6. Foreign Investment in the U.S. Adapted from Exhibit 7.1 1.1

7. U.S. Foreign Investment Abroad Adapted from Exhibit 7.2 1.1

8. American Companies Are No Longer Competitive in the World Market • U.S. has a 31 percent share of the global high-technology market • U.S. producers are leading suppliers of high-tech products globally • U.S. companies product 30 percent of the world GNP • Only 5.3 percent of multinational corporations are U.S. based 1.2

9. Americans Will Buy American-Made Goods • Americans say they want to “Buy American” • Country of manufacture • where the product is made • consumers don’t know or care. • Country of origin • company’s home country • customers confuse country of origin with country of manufacture. 1.3

10. Tariff Quotas Voluntary export restraints Nontariff Barriers Government import standards Subsidies Customs classification Trade Barriers 2

11. General Agreementon Tariffs and Trade Maastricht Treaty of Europe NAFTA Regional Trading Zones FTAA ASEAN and APEC Trade Agreements 2

12. GATT • GATT made it easier and cheaper for consumers in all countries to buy foreign products • By 2005, average tariffs will be cut worldwide by 40 percent • Tariffs were eliminated in 10 specific industries • GATT established protections for intellectual property 2

13. World Trade Organization (WTO) • 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 Location: Geneva, Switzerland Established: 1 January 1995 Created by: Uruguay Round negotiations (1988-1994) Membership: 146 countries (as of 4 April 2003) Budget: 154 million Swiss francsfor 2003 Secretariat staff: 550 Head: Supachai Panitchpakdi (director-general Adapted from Exhibit 7.3 2

14. Maastricht Treaty of Europe • Originally, 12 (now 15) European countries • 13 other countries have applied • Transformed these different countries into the European Union • Opened up trade among member nations • Created the euro currency 2

15. NAFTA • North American Free Trade Agreement between Canada, United States, & Mexico • Liberalizes trade among these three nations • Eliminates most tariffs and barriers 2

16. FTAA • Free Trade of the Americas • Proposed agreement to establish a free trade zone throughout the Western Hemisphere • Reduce trade barriers to zero • Standardize financial markets • Process for handling trade disputes 2

17. ASEAN and APEC • ASEAN • Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam • APEC • Australia, Canada, Chile, China, Hong Kong, Japan, Korea, Mexico, New Zealand, Papua New Guinea, Peru, Russia, Taiwan, United States, and ASEAN members (except Cambodia, Laos, and Myanmar) 2

18. How to Go Global? After reading the next two sections, you should be able to: • explain why companies choose to standardizeor adapt their business procedures. • explain the different ways that companiescan organize to do business globally.

19. GlobalConsistency When a multinational company has offices/plants indifferent countries anduses 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 Consistency or Adaptation? 3

20. Exporting CooperativeContracts Wholly OwnedAffiliates StrategicAlliances Forms for Global Business GlobalNew Ventures 4

21. Advantages • Less dependence on home market sales • Greater degree of control over research, design, and production decisions Exporting 4.1

22. Disadvantages • Many exports are subject to tariff and nontariff barriers • Transportation costs can increase price • Companies may depend on foreignimporters for product distribution Exporting 4.1

23. Licensing A domestic company receives royaltypayments for allowing another company to produce its product, sella service, or use its brand name in aspecified foreign market Franchising A collection of networked firms in which the manufacturer or marketer ofa product/service licenses the entirebusiness to another person or organization Cooperative Contracts 4.2

24. Advantages • Allows companies to earn profits withoutinvesting more money • The licensor invests in production equipment and facilities • Helps companies avoid tariff and nontariff barriers Licensing 4.2

25. Disadvantages • Licensor gives up control over quality ofthe product or service sold by the foreign licensee • Licensees can eventually become competitors Licensing 4.2

26. Advantages • Fast way to enter foreign markets • Good strategy when a company’sdomestic sales have slowed Franchising 4.2

27. Disadvantages • Franchisors face a loss of control • Franchising success may be culture-bound Franchising 4.2

28. StrategicAlliance An agreement in which companies combine key resources, costs, risk, technology, and people Joint Venture A strategic alliance in which twoexisting companies collaborate toform a third, independent company Strategic Alliances 4.3

29. Advantages • Help companies avoid tariff and nontariff barriers to entry • Participating companies bear only partof the costs and risks • Advantageous to smaller local partners Joint Ventures 4.3

30. Disadvantages • Companies must share profits • Joint ventures represent a merging offour cultures • With equal ownership, power struggles and a lack of leadership Joint Ventures 4.3

31. Wholly Owned Affiliates (Build or Buy) Advantages • Parent company receives all of the profits and has complete control Disadvantages • Expense of building new operationsor buying existing business • Losses can be immense if the venture fails 4.4

32. Global New Ventures Quick, reliable air travel Low-cost communication technologies Critical mass of experienced businesspeople 4.5

33. Common Factors of Global New Ventures Global vision is developed and communicated Several foreign markets are entered at the same time 4.5

34. Where to Go Global? After reading the next three sections, you should be able to: • explain how to find a favorable business climate. • discuss the importance of identifying andadapting to cultural differences. • explain how to successfully prepare workersfor international assignments.

35. Access toGrowingMarkets Location toBuild MinimalPoliticalRisk Finding the Best Business Climate 5

36. 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 5.1

37. Choosing an Office/Manufacturing Location • Quality factors • work force quality • company strategy • Quantity factors • kind of facility • tariff and nontariff barriers • exchange rates • transportation and labor costs 5.2

38. Latin America 1. Buenos Aires 2. San Juan 3. Mexico City 4. Sao Paulo 5. Santiago Europe 1. London 2. Frankfurt 3. Helsinki 4. Amsterdam 5. Dublin Asia Pacific 1. Hong Kong 2. Sydney 3. Singapore 4. Auckland 5. Tokyo United States 1. New York City 2. San Francisco 3. Chicago 4. Wash. D.C. area 5. San Jose World’s Best Cities for Business Adapted from Exhibit 7.4 5.2

39. 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 5.3

40. Cultural Dimensions (Geert Hofstede) Becoming Aware of Cultural Differences • Power distance • Individualism • Masculinity and femininity • Uncertainty avoidance • Short-term/long-term orientation 6

41. Cultural Differences • Recognize cultural differences • Decide how to adapt your company tothose differences • Do not base adaptations on outdated and incorrect assumptions about a company’s culture 6

42. Preparing for an International Assignment Language andCross-Cultural Training Considerationof Spouse, Family, and Dual-Career Issues 7

43. Language and Cross-Cultural Training Documentary Training Cultural Simulation Field Experiences 7.1

44. Spouse, Family, and Dual-Career Issues Adaptability Screening Intercultural Training 7.2