Chapter 8 Global Management

2. MGMT3 Chuck Williams Chapter 8Global Management Designed & Prepared byB-books, Ltd.

3. Global Business The buying and selling of goods andservices by people from different countries. What Is Global Business? 1

4. Multinational Corporation A corporation that owns businesses intwo 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. The Impact of Global Business 1.1

5. Foreign Investment in the U.S. 1.1 Source: J. Koncz and D. Yorgason, “Direct Investment Positions for 2005: Country and Industry Detail,” available online at http://www.bea.gov/bea/ARTICLES/2006/07July/0706_DIP_WEB.pdf [accessed 7 February 2007].

6. U.S. Foreign Investment Abroad 1.1 Source: J. Koncz and D. Yorgason, “Direct Investment Positions for 2005: Country and Industry Detail,” available online at http://www.bea.gov/bea/ARTICLES/2006/07July/0706_DIP_WEB.pdf [accessed 7 February 2007].

7. Trade Barriers Tariff Quotas Voluntary export restraints Nontariff Barriers Government import standards Government subsidies Customs classification 1.2

8. Beyond the Book The Politics of Global Trade On September 11, 2009, President Barack Obama approved a 35% tariff increase on imported Chinese tires. The issue was originally brought forward by the United Steelworkers union, which is also a key supporter of Obama’s health-care reform plans. While Chinese officials threatened retaliatory measures, they did suggest they would prefer a negotiated solution. Source: H. Maurer, C. Lindblad, eds. “Executive Summary: A Tiff Over Tires”, Business Week, 28 September 2009. 4.

9. General Agreementon Tariffs and Trade Maastricht Treaty of Europe NAFTA Regional Trading Zones CAFTA ASEAN and APEC Trade Agreements 1.3

10. 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

11. Web Link http://www.wto.org World Trade Organization Location: Geneva, Switzerland Established: January 1, 1995 Created by: Uruguay Round negotiations (1986-1994) Membership: 153 countries (on July 23, 2008) Budget: 189 million Swiss francsfor 2008 Secretariat staff: 625 Head: Pascal Lamy (Director-General) • 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 1.3

12. Web Link http://europa.eu.int/ Maastricht Treaty of Europe • Formed in 1992 with 12 European countries • Total membership is now 25 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

13. Web Link http://www.export.gov/fta/nafta/doc_fta_nafta.asp/ NAFTA • North American Free Trade Agreement between Canada, United States, & Mexico • Liberalizes trade among these three nations • Eliminates most tariffs and barriers 1.3

14. 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

15. Web Link http://www.aseansec.org http://www.apecsec.org.sg ASEAN and APEC • ASEAN • Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam • APEC • Australia, Canada, Chile, China, Hong Kong, Japan, Mexico, New Zealand, Papua New Guinea, Peru, Russia, South Korea, Taiwan, the United States, and ASEAN members (except Cambodia, Lao PDR, and Myanmar) 1.3

16. Increase:choicescompetitionpurchasing power Free Trade Agreements Decrease price of:food clothing other necessities luxuries Consumers, Trade Barriers, and Trade Agreements 1.4

17. GlobalConsistency When a multinational company has offices/plants in different 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? 2

18. Beyond the Book Wal-Mart Goes Global After experiencing initial difficulties in its global expansion, Wal-Mart is finding more success in tailoring inventories and stores to local tastes. In some cases, Wal-Mart has used acquisitions of local retail chains instead of building traditional Wal-Mart stores, which might not function as well in places like the crowded city of São Paulo. Also Wal-Mart has started adopting successful innovations from locations outside the U.S. as it expands in new areas. Source: M. Bustillo, “After Early Errors, Wal-Mart Thinks Locally to Act Globally”, The Wall Street Journal, 14 August 2009. A1.

19. Exporting CooperativeContracts Wholly OwnedAffiliates StrategicAlliances Forms for Global Business GlobalNew Ventures 3

20. Advantages • Less dependence on home market sales • Greater degree of control over research, design, and production decisions Exporting 3.1

21. 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 3.2

22. Advantages • Allows companies to earn profits withoutinvesting more money • The licensee invests in production equipment and facilities • Helps companies avoid tariff and nontariff barriers Licensing 3.2

23. Disadvantages • Licensor gives up control over quality of the product or service sold by the foreign licensee • Licensees can eventually become competitors Licensing 3.2

24. Advantages • Fast way to enter foreign markets • Good strategy when a company’sdomestic sales have slowed Franchising 3.2

25. StrategicAlliance An agreement in which companies combine key resources, costs, risks, technology, and people Joint Venture A strategic alliance in which twoexisting companies collaborate toform a third, independent company Strategic Alliances 3.3

26. 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 3.4

27. Access toGrowingMarkets Location toBuild MinimalPoliticalRisk Finding the Best Business Climate 4

28. 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

29. World’s Best Cities for Business 4.2

30. 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

31. Cultural Dimensions (Geert Hofstede) Becoming Aware of Cultural Differences • Power distance • Individualism • Masculinity and femininity • Uncertainty avoidance • Short-term/long-term orientation 5

32. 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

33. Expatriate Someone who lives and works outside his or her native country. Preparing for an International Assignment 6

34. Spouse, Family, and Dual-Career Issues Adaptability Screening Intercultural Training 6.2