Chapter 17Globalization and International Business

EXPLORING MANAGEMENT

Chapter 17

• How does globalization affect international business?

• What are global corporations and how do they work?

17.1

Globalization• Globalization involves the growing

interdependence of the world’s economies• Globalization creates a variety of international

business opportunities• International business is done by global sourcing,

import/export, licensing and franchising• Internal business is done by joint ventures and

wholly owned subsidiaries• International business is complicated by different

legal and political systems

GLOBALIZATION

World Economies

• Global economy– Resources, markets and competition are

worldwide in scope

• Globalization– Process of growing

interdependence of global economies

GLOBALIZATION

World Economies

• Insourcing– Domestic jobs are created by foreign

employers

• Outsourcing– Jobs are shifted to foreign locations to take

advantage of lower wages, infrastructure, educated workforce or government support

GLOBALIZATION

International Opportunities

• International Business– Conducts transaction across international

boundaries

• Reasons to “go international”

Profits

Customers

Suppliers

Capital

Labor

Risk

Market Entry Strategies

Global Sourcingmaterials,

components or services

are purchased worldwide

Exportingselling locally

made products in

foreign markets

Importingbuying

foreign-made products and

selling them in domestic markets

Licensingforeign firm

pays for rights to make or sell

another company’s products

Franchisingforeign firm

buys rights to another’s name and operating

method in its home country

GLOBALIZATION

International Opportunities

Direct Investment Strategies

Joint Venture co-ownership

arrangement in which the foreign

and local business jointly operate the

new business

Global Strategic Alliance

Cooperative partnership to

achieve task that would be difficult for partners alone

Foreign Subsidiary

operation completely owned and controlled by

a foreign firm

Greenfield Venturesubsidiary

established after firm has

experience in joint ventures

GLOBALIZATION

International Opportunities

GLOBALIZATION

Legal and Political Issues

• International business is complicated by different legal and political systems– Health and safety– Equal employment– Sexual harassment– Incorporation and ownership– Foreign currency exchange– Intellectual property

GLOBALIZATION

Legal and Political Issues

• Tariffs– Taxes placed on imports

• Protectionism– Tariffs, subsidies and other tactics that give

advantages to domestic producers

GLOBALIZATION

Legal and Political Issues

• World Trade Organization– Global institution to promote free trade and

open markets around the world– Membership of around 153 countries– Most Favored Nation status– www.wto.org

17.2

Global Corporations

• Global corporations or MNCs do substantial business in many countries

• The actions of global corporations can be controversial at home and abroad

• Managers of global corporations face a variety of ethical challenges

17.2 CONTINUED

Global Corporations

• Planning and controlling are complicated in global corporations

• Organizing can be difficult in global corporations

• Leading is challenging in global corporations

GLOBAL CORPORATIONS

Global Corporations

• Global corporations and also known as Multinational corporations (MNC)– Extensive foreign operations in more than one

country

• Transnational corporations– Operate without one national home

GLOBAL CORPORATIONS

Issues

GLOBAL CORPORATIONS

Ethical Challenges

• Corruption– Illegal practices

• Foreign Corrupt Practices Act– U.S. legal standards apply to companies

when operating in foreign countries– Prevents

• Bribes, gifts to foreign officials in return for business favors

GLOBAL CORPORATIONS

Ethical Challenges

• Sweatshops– Employees work long hours in poor or unsafe

conditions

• Child labor– Full-time employment of children

GLOBAL CORPORATIONS

Planning and Controlling Challenges

• Currency Risk

Scenario 1: Weak dollar

• .75 Euros = 1 $US • Take home revenue

= $133,00

Scenario 2: Strong dollar

• 1.25 Euros = 1 $US• Take home revenue

= $80,000

GLOBAL CORPORATIONS

Planning and Controlling Challenges

• Political risk– Risk of loss because of political instability in

foreign country

• Political risk analysis– Forecasts how political events may impact

foreign investments

• Currency risk– Possible loss because of

fluctuating exchange rates

GLOBAL CORPORATIONS

Organizing Challenges

GLOBAL CORPORATIONS

Leading Challenges

• Global managers– Competent in working in different cultures