GBE-romlan_rev1

8/8/2019 GBE-romlan_rev1

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What Is Globalization? The world is moving away from self-contained national

economies toward an interdependent, integrated globaleconomic system

Globalization refers to the shift toward a more integratedand interdependent world economy

Borderless

Globalization has two facets:

1) the globalization of markets2) the globalization of production


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The Globalization Of Markets

The globalization of markets refers to the merging ofhistorically distinct and separate national marketsinto one huge global marketplace

In many industries, it is no longer meaningful to talkabout the German market or the American market

Instead, there is only the global market

Falling trade barriers make it easier to sell

internationally The tastes and preferences of consumers are

converging on some global norm

Firms help create the global market by offering thesame basic products worldwide


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The Globalization Of Production

The globalization of production refers to the sourcing ofgoods and services from locations around the globe totake advantage of national differences in the cost and

quality offactors of production like land, labor, andcapital.

ieNike never have a factory

Companies compete more effectively by lowering their

overall cost structure or improving the quality orfunctionality of their product offering


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The Emergence Of Global Institutions

Institutions created over the past half century

include:

the General Agreement on Tariffs and Trade (GATT)

the World Trade Organization (WTO)

the International Monetary Fund (IMF)

the World Bank

the United Nations (UN


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The World Trade Organization (like its predecessorGATT) is primarily responsible for policing the worldtrading system and making sure that nation-states

adhere to the rules laid down in trade treaties signed byWTO members

In 2007, the 150 nations that accounted for 97% of worldtrade were WTO members

The WTO promotes lower barriers to trade andinvestment


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The International Monetary Fund and the World Bank werecreated in 1944

The IMF was established to maintain order in theinternational monetary system

The World Bank was established to promote economicdevelopment

The United Nations was established in 1945 to:

maintain international peace and security develop friendly relations among nations

cooperate in solving international problems and inpromoting respect for human rights

be a center for harmonizing the actions of nations


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Global Business Strategy

Global Business Strategy can be defined as the business

strategies engaged by the businesses, companies or

firms operating in a global business environment and

serving consumers throughout the world.

Global business strategies are closely related to the

business developing strategies adopted by businesses to

meet their short and long term objectives.


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Global Business Strategy

2 types of strategies:

The short term goals of the business would be related to

improving the day-to-day operations of the company

the long term objectives are generally targeted towards

increment of the profits, sales and earnings of the

company in the long run ensuring growth and stability ofthe business and dominance over the national or

regional market.


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DRIVERS OF GLOBALISATION

Four drivers determine the extent and nature ofglobalisation in an industry:

(1) Market drivers Degree of homogeneity of customer needs

Existence global distribution networks

Transferable marketing

(2) Cost drivers Potential for economies of scale

Transportation cost

Product development costs

Economies of scope


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DRIVERS OF GLOBALISATION

(3) Government drivers

Favour trade policies e.g. market liberalisation

Compatible technical standards and common marketingregulations

Privatisation

(4) Competitive drivers

The greater the strength of the competitive drivers thegreater the tendency for an industry to globalise


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International Business - activities that require the movement of resources,

goods, services, and skills across nationalboundaries

all business transactions that involve two or more

countries International Trade -

the export or import ofgoods or services toconsumers in another country

International Investment -

investment of resources in business activities outsidea firms home country

International Management -

the performance of the management functions

(POLC) across national borders

Globalisation-Characterictics


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International Strategy Formulation

Why Globalize?

expand sales

when domestic markets are saturated, should go

overseas to increase sales and profits acquire resources

resources may be more readily available and less

costly in other countries

diversify sources of sales and supplies different business cycles between countries

may avoid impact of price swings or shortages

avoid tariffs


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The Changing Global Environment

In the past, managers have viewed the global sectoras closed

Each country or market was assumed to be isolated

from others

Firms did not consider global competition, exports

Todays environment is very different

Managers need to view it as an open market

Organizations buy and sell around the world Managers need to learn to compete globally

The McGraw-Hill Companies, Inc., 2000


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The Changing Global Environment

Global organizations

organizations that operate and compete in more

than one country

are free to establish foreign subsidiaries to become

strong world competitors

Home Country

country in which the parent organization is based

Host Country

country in which the parent organization makes

the investment


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Barriers to Free Trade

Free TradeBarriers

Tariffs

EconomicCommunities

Export

Restraints

Buy NationalCampaigns

Quotas

Local OwnershipRequirements

Distance

CulturalDifferences


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Distance and Cultural Barriers

Distance and Cultural barriers also closed the globalenvironment

Distance closed the markets as far as some managerswere concerned

Communications could be difficult Languages and cultures were different

During the last 50 years, communications andtransportation technology has dramatically improved

Jet aircraft, fiber optics, satellites have provided fast,secure communications and transportation

These have also reduced cultural differences


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Economic Integration

Free Trade Area: all barriers to trade among member

countries are removed, so that goods and services are freely

traded among the member countries

NAFTA (North American Free Trade Agreement)

Customs Union: barriers to trade among members are

dismantled while a common trade policy with respect to

nonmembers is established

Common Market: no barriers to trade exists betweenmembers and a common external trade policy is in force;

also, factors of production, such as labor, capital, and

technology move freely between member countries

European Union (EU)


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Global Task EnvironmentGlobal Task Environment

Suppliers

Distributor

s

Customers

CompetitorsForces Yielding

Opportunities

and Threats

Figure 4.2



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Suppliers & DistributorsSuppliers & Distributors

Managers buy products from global suppliers or makeitems abroad and supply themselves

Key is to keep quality high and costs low

Global outsourcing: firms buy inputs from throughout the

world GM might build engines in Mexico, transmissions in

Korea, and seats in the U.S.

Finished goods become global products

Distributors: each country often has a unique system ofdistribution

Managers must identify all the issues


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Customers & CompetitorsCustomers & Competitors

Formerly distinct national markets are merging into ahuge global market

True for both consumer and business goods

Creates large opportunities

Still, managers often must customize products to fitthe culture

McDonald's sells a local soft drink in Brazil

Global competitors present new threats

Increases competition abroad as well as at home.


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Forces in the Global General EnvironmentForces in the Global General Environment

Political &

Legal Systems

Economic

system

Sociocultural

System

Forces yielding

Opportunitiesand threats

Figure 4.3



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Political/Legal Environment

Different legal systems: common law or civil law

Representative democracies: such as the U.S.,

Britain, and Canada Citizens elect leaders who make decision for

electorate.

Usually has a number of safeguards such as

freedom of expression, a fair court system, regular

elections, and limited terms for officials

Well-defined legal system and economic freedom


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Political/Legal Environment

Totalitarian regimes: a single political party or

person monopolize power in a country

Typically do not recognize or permit opposition Do not have most safeguards found in a

democracy

Difficult to do business with given the lack of

economic freedom

Human rights issues also cause managers to avoid

dealing with these countries


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Economic Environment

Economic Systems

Market Economy production and prices are dictated by supply and

demand

production of goods and services is privately owned competitive markets

strong currencies

institutional support

well-functioning infrastructures investment opportunities for individuals

social welfare, consumer-directed, administratively

guided


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Command Economy

government sets goals and determines the price

and quantity of what is produced

most command economies are moving away from

the command economic system

Mixed Economy

certain economic sectors controlled by private

business, while others are government controlled

many mixed countries are moving toward a freeenterprise system


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Key Economic Issues (and indicators)

economic growth, inflation, quality of life, GDP

exchange rates


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Recent TrendsRecent Trends

Current shift away from totalitarian dictators towarddemocratic regimes

very dramatic example seen in the collapse of theformer Soviet Republic

also very pronounced in Latin America and Africa

With this shift, has come a strong movement towardfree market systems

this provides great opportunities to business managers

on a global level many businesses are investing millions in former

totalitarian countries to seize these opportunities


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Global Islamic Business Environment

DAY TWO

DATE: SUN , 11 JULY 2010

TIME : 9.00 AM 5.00 PM

History belongs to those who execute best


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The impacts of Globalization in Malaysia

The set of one stop centre to facilitate Foreign DirectInvestment (FDI) ie MATRADE, MDEC, EPU

The set up Regional Economic Corridor

ie Wilayah Pembangunan Iskandar ( WPI ), East CoastEconomic Region ( ECER ), Sabah Development Corridor( SEDIA ) etc

Introduced technical subject to all higher Learning

Institution and Set up of Technical University ie GermanMalaysian Institute (GMI ), MFI , SMI and UTM to ensuresufficient supply of manpower

Relax and flexible of skilled and semi skilled foreign

workers to address shortage of manpower


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The Introduction of Free Trade Zone ( FTZ ) ie PasirGudang FTZ, Prai FTZ, Klang FTZ etc

Government undivided support on development through

-Financial support ie EXIM Bank, Bank Pembangunan &Industri, Labuan off-shore Financial Centre

-Advisory through MITI, MATRADE, FAMA

-Infrastructures support ie Penang Port, PTP, KLIA,Enhancement on mode of transportation ( expressways )


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Tax incentives / relax on duty / trade tariff

Encourage technology transfer to boost up developmentand set up of policy like LOOK EAST POLICY

Malaysia become Asia Economic Tiger , along with

Hong Kong, Singapore, India , China


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Strategy and the Firm

Strategy can be defined as the actions that managersmust take to attain the goals of the firm

For most firms, the preeminent goal is to maximize the

value of the firm for its ownersProfitability can be defined as the rate of return that the

firm makes on its invested capital (ROIC), which iscalculated by dividing the net profits of the firm by totalinvested capital

Profit growth is measured by the percentage increase innet profits over time


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Strategy and the Firm


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How Do Organizations Globalize?

Stage One: Passive Response

Importing: firm makes products and sells abroad

Exporting: to foreign countries

Stage Two: Initial (Overt) Entry

Hiring foreign representation

Contracting with foreign manufacturers

Stage Three: Fully-established operationsLicensing/Franchising

Foreign Direct Investment (FDI)

- Joint Ventures

- Foreign Subsidiary


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Exporting: selling abroad, either directly to target

customers or indirectly by retaining foreign sales

agents and distributors

Importing: selling other countries products in the

home country, either directly to target customers or

indirectly

Adv: quick and relatively inexpensive

test the waters and learn aboutcustomers

Disadv: high transportation costs

tariffs and quotas

danger of poor intermediary selection


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Licensing:

def : an arrangement where a firm (licensor) grants a

foreign firm the right to use intangible (intellectual)

property such as patents, copyrights, manufacturing

processes, or trade names for a specified period oftime, usually in return for a percentage of the

earnings, called royalty

Adv: small or insignificant investmentDisadv: loss of control


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Franchising: an arrangement where a parent company(franchisor) grants a foreign firm (franchisee) the right to

do business in a prescribed manner. Usually involves a

longer time commitment by both parties than required

under licensing agreements

Adv: small or insignificant investment

Disadv: loss of quality control


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Foreign Direct Investment:

operations in one country that are controlled by

entities in a foreign countries

acquiring control by owning more than 50 percent

of the operation

turns a firm into a multinational enterprise


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Foreign Direct Investment Strategic Alliance:

a cooperative agreement between potential or

actual competitors

an agreement between firms that is of strategic

importance to one or both firms; competitive

viability Joint Venture:

the participation of two or more companies jointly

in an enterprise in which each party contributes

assets, owns the entity to some degree, andshares risk

Wholly Owned Foreign Subsidiaries

provide for tightest controls by foreign firms

very costly but can yield high returns


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Why International strategy might fail???

1) Unrealistic objective

-do not contain attainable objective

-lack of time frame, no priorities, no action plan

2) Failure to anticipate obstacles

-no indicator to recognise problem

-no admission of possible mistakes/weaknesses

-NO CONTINGENCY PLAN

3) No commitment and dedication

-commitment on capital and human investment


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Why international strategy might fail???

4) Poor execution of the strategy

-heavily dependent on third party

ie ;dealer, distributor, transporter

5) Lack of business or tehnical experience ie oil&gas

6) No market niche ie alado of china

7) Problems of business culture-resistance to change


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Changing Political and Economic ForcesChanging Political and Economic Forces

Russia

1985

Russia

1995

Democratic

Political

Freedom

TotalitarianChina

1985

China

1995

Command MarketMixed

Economic Freedom

Britain

1985

Britain

1995

Hungary

1985

Hungary

1995

Figure 4.4



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International ExpansionInternational Expansion

Importing

Exporting

Licensing

Franchising

Joint Ventures

Strat. Alliances

Wholly-

ownedFor.

Subsidiary

LowHigh

Level of Foreign involvement and investmentneeded by a global organization



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The Global Manager

Home

Marketriented

Et nocentric

Ind i idua l

orei nMarkets

Pol centric

Integrated

Worldw ideMarketing

Geocentric

Managerial ttitudes


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International Managerial Attitudes

Ethnocentric: the belief that the home (originating)countrys management style is superior to the host

(recipient) countrys management style

companies with this type of management may do

business in foreign countries but their subsidiaries willbe managed by home country personnel with home

management style

Geocentric: (sometimes called regiocentric management)

tends to see the whole world as a single marketplace and

as such employ a mix of management styles of the homecountry and host country

managers and other key personnel are selected based

on merit without regard to their country of origin


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International Managerial Attitudes

Polycentric: the philosophy that the host

countrys management style is superior to

the home countrys style

will employ host country managers to run each

subsidiary


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Value Creation

The way to increase the profitability of a firm is to createmore value

The amount of value a firm creates is measured bythe difference between its costs of production and thevalue that consumers perceive in its products

Michael Porter states that there are two basic strategiesfor creating value and attaining a competitive advantagein an industry

Low-cost strategy suggests that a firm has high profitswhen it creates more value for its customers and doesso at a lower cost

Differentiation strategy focuses primarily on increasingthe attractiveness of a product


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Value Creation


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Strategic Choice in the International

Hotel Industry


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The Value Chain

Any firm is composed of a series of distinct value creatingactivities

Primary activities

Research & development

Production

Marketing & sales

Service

Support Activities

Materials management or logistics Human resource

Information systems

Company infrastructure


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Global Expansion, Profitability, Profit and

Growth

Expanding globally allows firms to increase their

profitability and rate of profit growth in ways not available

to purely domestic enterprises

Firms that operate internationally are able to

Expand the market for their domestic products

Realize location economies by dispersing individual

value creation activities

Realize greater cost economies

Earn a greater return by leveraging any valuable skills

developed in foreign operations


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