MGMT5 © 2012 Cengage Learning Global Management 8

MGMT5

© 2012 Cengage Learning

Global Management8

1. discuss the impact of global business and the trade rules and agreements that govern it

2. explain why companies choose to standardize or adapt their business procedures

3. explain the different ways that companies can organize to do business globally

4. explain how to find a favorable business climate5. discuss the importance of identifying and

adapting to cultural differences6. explain how to successfully prepare workers for

international assignments

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What is Global Business?

1. discuss the impact of global business and the trade rules and agreements that govern it

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The Impact of Global Business

• Multinational corporations

• Direct foreign investment

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Trade Barriers

• Tariff – direct tax on imported goods

• Nontariff barriers– quotas– voluntary export restraints– government import standards– subsidies– customs classification

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Trade Agreements

General Agreement on Tariffs and Trade (GATT)

• Existed from 1947 to 1995• Agreement to regulate trade among more

than 120 countries• “Substantial reduction of tariffs and other

trade barriers and the elimination of tariffs.”

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World Trade Organization

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Regional Trading Zones

• Maastricht Treaty of Europe• NAFTA• CAFTA-DR• UNASUR• ASEAN• APEC

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Global Map of Regional

Trade Agreements

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Consumers, Trade Barriers, and Trade Agreements

• Trade agreements increase choices, competition, and purchase power…decrease prices.

• Free trade agreements create new business opportunities…

• …but also intensify competition.

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How to Go Global?

2. explain why companies choose to standardize or adapt their business procedures

3. explain the different ways that companies can organize to do business globally

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Consistency or Adaptation

• Global consistency– when a multinational company has offices,

manufacturing plants, and distribution facilities in different countries and runs them all using 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

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Forms for Global Business

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Exporting

• Selling domestically made products to foreign markets

• Advantages– makes company less dependent on domestic sales– gives company more control

• Disadvantages– goods subject to trade barriers– transportation costs

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Cooperative Contracts

• Licensing– a domestic company, the licensor, receives royalty

payments for allowing another company, the licensee, to produce its product, sell its service, or use its brand name in a particular foreign market.

• Advantages– companies earn money without investing more money– companies can avoid trade barriers

• Disadvantages– licensor gives up control over product quality– licensees can become competitors

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Cooperative Contracts

• Franchise – a collection of networked firms in which the

manufacturer or marketer of a product or service, the franchisor, licenses the entire business to another person or organization, the franchisee.

• Advantages– fast way to enter foreign markets– gives franchisor additional cash flow

• Disadvantages– loss of control– culture bound

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Strategic Alliances

When companies combine key resources, costs, risks, technology, and people. Most common form

is joint ventures.

•Advantages– companies avoid trade barriers– companies only bear part of the costs– partners can learn from each other

•Disadvantages– Profits have to be shared– merging of cultures

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Wholly Owned Affiliates

Foreign offices, facilities, and manufacturing plants that are 100 percent owned by the parent company

• Advantages – parent company receives all of the profits and has

complete control

• Disadvantages– losses for parent company can be enormous

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Global New Ventures

Companies founded with an active global strategy.

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Where to Go Global?

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

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Growing Markets

• Purchasing power

• Growth potential

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How Consumption of Coca-Cola Varies with Purchasing Power around the World

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Choosing a Location

• Qualitative factors – workforce quality– company strategy

• Quantitative factors – kind of facility being built– trade barriers– exchange rates– transportation and labor costs

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World’s Best Cities for Business

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Minimizing Political Risk

• Political uncertainty

• Policy uncertainty

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Strategies for Dealing with Political Risk

• Avoidance– divesting or selling business to avoid risk

• Control – active strategy to prevent or reduce political

risks

• Cooperation– using joint ventures and collaborative

contracts

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Overview of Political Risk in the Middle East

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Becoming Aware of Cultural DifferencesFive Dimensions of Culture

• Power distance • Individualism• Masculinity/femininity• Uncertainty avoidance• Short-term/long-term orientation

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Hofstede’s Five Cultural Dimensions

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Language and Cross-Cultural Training

• Documentary training

• Cultural simulations

• Field simulation training

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Spouse, Family, and Dual-Career Issues

• Adaptability screening– assesses how well managers and families are

likely to adjust to a foreign culture

Language and cross-cultural training for the family is just as, if not more, important

than training for employees.

© 2012 Cengage Learning

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REELTOREAL

Lost in Translation

1. Imagine you have just arrived in Japan, and you are experiencing what Charlotte is for the first time. Do you understand everything you see?

2. If you were managing a company that had operations in foreign countries, how important do you think it would be to experience new places and learn about different cultures the way Charlotte does?

3. How might it change the way you did business in those countries if you had actually been to them?

4. Does Charlotte seem to be culturally sensitive or insensitive?

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REELTOREAL

Holden Outerwear

1. Which stage of globalization characterizes Holden Outerwear’s international involvement?

2. Identify Holden’s primary approach to entering the international market. What are the benefits of this entry strategy?

3. What are the challenges of international management for leaders at Holden?

© 2012 Cengage Learning