Chapter 8 Global Management. Learning Outcomes After reading this chapter, you should be able to: 1.Discuss the impact of global business and the trade

Chapter 8

Global Management

Learning OutcomesAfter reading this chapter, you should beable to:

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 favourable business climate.5. Discuss the importance of identifying and adapting to

cultural differences.6. explain how to successfully prepare workers for

international assignments.

Copyright © 2015 by Nelson Education Ltd. 8-2

What Is Global Business?• The buying and selling of

goods and services by people from different countries

• Multinational corporation: corporation that owns businesses in two or more countries

• 1970: 7,000 multinational corporations

• 2010: more than 77,000


Foreign Direct Investment in Canada, 1998-2007 Cumulative at Year End

Copyright © 2015 by Nelson Education Ltd. 8-41.11.1

Direct Foreign Investment

• A method of investment in which a company builds a new business or buys an existing business in a foreign country– Molson purchased the fourth-largest beer

company in Mexico (Brewery Group).– Molson has since merged with Coors and is

known as the Molson Coors Brewing Company.


Trade Barriers

Trade Barriers•Reduce purchase of imported goodsTariff•Direct tax on imported goodsProtectionism•Protect local companies from foreign competition


Nontariff BarriersQuotas: Imports of raw sugar cane are

limited.Voluntary export restraints:

limit the amount of a product that can be imported annually

Government import standards:

protect the health and safety of citizens

Government subsidies:

Bombardier: Canadian taxpayers pick up the subsidy costs

Customs valuation/ classification:

CBSA customs classifications for imported goods


Trade Barriers in Canada

1.21.2

Class Activity: Canadian Border Services Agency

• Canadian Border Services Agency• Tariff Treatments

Read through the Canadian Border Services Agency website, and look through the guide of importing under tariff treatments.

What did you learn?


Beyond the Book

GATT: General Agreement on Tariffs and Trade

Purpose• To make it easier and cheaper to buy foreign products

in all countriesGATT Accomplishments• Tariffs cut 40 percent on average worldwide

by 2005• Tariffs eliminated in 10 specific industries• Stricter limits put on government subsidies• Established protections for intellectual property • Trade disputes between countries are fully settled by

arbitration panels from the WTO.Copyright © 2015 by Nelson Education Ltd. 8-9


World Trade Organization: Fact FileLocation: Geneva, SwitzerlandEstablished: January 1, 1995Created by: Uruguay Round negotiations (1986-1994)Membership: 159 countriesBudget: 197 million Swiss francs for 2013Secretariat staff: 640Head: Roberto Azevedo (director-general)

1.31.3


World Trade Organization: Fact FileFunctions:•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

1.31.3

Regional Trading Zones


Maastricht Treaty of Europe

Implemented in 1992 and includes Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, and the United Kingdom

NAFTA North American Free Trade Agreement between the United States, Canada, and Mexico went into effect January 1, 1994


CAFTA-DR Central America Free Trade Agreement between the United States, the Dominican Republic, and the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua went into effect August 2005

UNASUR Union of South American Nations,a regional trade agreement between Argentina, Brazil, Paraguay, Uruguay, Venezuela, Bolivia, Colombia, Ecuador, Peru, Guyana, Suriname, and Chile, went into effect May 23, 2008


ASEAN Association of Southeast Asian Nations trade agreement between Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam

APEC Asia-Pacific Economic Cooperation is a broader agreement that includes Australia, Canada, Chile, the People’s Republic of China, Hong Kong (China), Japan, Mexico, New Zealand, Papua New Guinea, Peru, Russia, South Korea, Taiwan, the United States, and all the members of ASEAN except Cambodia, Lao PDR, and Myanmar.

Global Map of Regional Trade Agreements


Consumers, Trade Barriers, and Trade Agreements


What $1 gets you in Canada

What $1 gets you in Japan

What $1 gets you in Switzerland

Why? Foreign and domestic competition.

1.41.4

How to Go Global?: Consistency or Adaptation?

Global Consistency•When a multinational company has offices/plants in different countries and uses the same rules, guidelines, policies, and proceduresLocal Adaptation•When a multinational company modifies its rules, guidelines, policies, and procedures to adapt to differences in foreign customers, governments, and regulatory agencies


Forms of Global Business

• Export– Produce products in home countries and sell to

customers in foreign countries• Cooperative Contract

– Franchise: the manufacturer or marketer licenses the entire business to another

– Licensing agreement: receives royalty payments from another company that produces its product, sell its service, or uses its brand name in a foreign market


Forms of Global Business

• Strategic Alliances – Joint venture: two existing companies

collaborate to form a third company– 100 percent owned by the parent

company• Global New Ventures

– new companies founded with an active global strategy


Exporting

ADVANTAGES• Less dependence on

home market sales• Greater degree of

control over research, design, and production decisions

DISADVANTAGES• Many exports are

subject to tariff and nontariff barriers.

• Transportation costs can increase the price.

• Companies may depend on foreign importers for product distribution.


Licensing

ADVANTAGES• Allows companies to

earn profits without investing more money

• The licensor invests in production equipment and facilities.

• Helps companies avoid tariff and nontariff barriers

DISADVANTAGES• The licensor gives up

control over quality of the product or service sold by the foreign licensee.

• Licensees can eventually become competitors.


Franchise

ADVANTAGES• Fast way to enter

foreign markets• Good strategy when a

company’s domestic sales have slowed

DISADVANTAGES• Franchisors face a loss of

control. • Franchising success may

be culture-bound.


Joint Venture

ADVANTAGES• Helps companies avoid

tariff and nontariff barriers to entry

• Participating companies bear only part of the costs and risks

• Advantageous to smaller local partners

DISADVANTAGES• Companies must share

profits.• Joint venture

represents a merging of four cultures.

• With equal ownership, power struggles and a lack of leadership may occur.


Wholly Owned Affiliates(Build or Buy)

ADVANTAGES• Parent company

receives all of the profits and has complete control

DISADVANTAGES• Expense of building new

operations or buying existing business

• Losses can be immense if the venture fails.


Finding the Best Business Climate


World’s Best Cities for Business


Class Activity:Ten Best Places to Start a Business in the World

Ten Best Places to Start A Business in the World

Read the article, and discuss the places you knew would be on the list and those that surprised you. Share your rationale.


Beyond the Book

Overview of Political Risk in the Middle East


Hofstede’s Five Cultural Dimensions


Class Activity: Hofstede’s Five Cultural Dimensions

To generate a graphical comparison of two different countries’ cultures, go to Hofstede's Five Cultural Dimensions.

•Select a “home culture.” •Then select a “host culture.” •A graph comparing the countries on each of Hofstede’s five cultural differences willautomatically be generated.


Beyond the Book

Hofstede’s Work

• Hofstede’s work is especially useful if we want to avoid charges of ethnocentricity.– where everything is seen from the

perception of an individual’s home country• The other thing that Hofstede’s work can help

us deal with is culture shock.• It is meant to help us explore the cultural

differences between North American companies and their suppliers and customers around the globe.


Becoming Aware of Cultural Differences

National Culture

• The set of shared values and beliefs that affects the perceptions, decisions, and behaviour of the people from a particular country

Cultural Dimensions(Geert Hofstede)

• Power distance• Individualism• Masculinity and

femininity• Uncertainty avoidance • Short-term/long-term

orientation


Preparing for an International Assignment

Expatriate: someone who lives and works outside his or her native country•1.5 million expatriates reside in the United States.•750,000 reside in the United Kingdom.•250,000 reside in China.•Average is $1 million/three-year assignment


Preparing for an International Assignment

Language and Cross-Cultural Trainingof managers about to working internationally receive pre-departure training

Consideration of Spouse, Family, and Dual-Career Issuesof families receive language and cross-culture training


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Chapter 8 Global Management. Learning Outcomes After reading this chapter, you should be able to: 1.Discuss the impact of global business and the trade