Principles of Business

Global Business Models – Part 1

2

Overview

• Overview of the key trends of globalisation; considering different FDI routes to market

• What are the factors and costs involved that drive global business

• Describe the cultural factors that affect global business (using Hofestede’s Cultural Framework)

• Critically evaluate different legal systems and the implications on global business models

• Consider the role of trade barriers and uncompetitive business practises across the world

• Detail the different forms of international business activity

3

Learning Outcomes

• Explain the role of global business and effects of culture and legal systems

• Critically evaluate why nations and companies trade and describe how international trade is measured

• Discuss the nature of conflicts in global business, including free trade and government interventions

• Define the major forms of business activities internationally

Global Competitiveness

View video: http://www.youtube.com/watch?v=-2547RlpEIM

Top Trading Countries

Source: World Economic Forum, 2013

Global Trade: Overview

Source: World Economic Forum, 2013

Global Inflows/Outflows

Source: World Economic Forum, 2013

Regional Trade

Source: Daniels et al,, 2013

Regional Trade

Source: World Economic Forum, 2013

Global Business Model to Market

Source: Daniels et al, 2013

Forms of International Business Activity

ImportingPurchasing goods or services from another country

and bringing them into one’s own

country

ExportingSelling and

shipping goods or services to

another country

LicensingAgreement to

produce and market another company’s

product in exchange for a royalty or fee

Foreign Direct InvestmentInvestment of

money by foreign companies in

domestic business enterprises

Multinational Corporations

Companies with operations in

more than one country

Global Organisation Structures

Source: Daniels, 2013

Geographic & Division Structure

Source: unc.edu

Matrix Structure at Unilever

Source: Emeraldinsight.com

• Problem areas that can hinder managers’ cultural awareness…– Subconscious reactions to circumstances– The assumption that all societal subgroups are similar

• Managers that educate themselves about other cultures have a greater chance of succeeding abroad

Culture and Global Business

• The nation is a useful definition of society because similarity among people is a cause and an effect of national boundaries– laws apply primarily along national lines– language and values are shared within borders– rites and symbols are shared along national lines

Hofstede’s Cultural Dimensions

• Geert Hofstede• Dutch management

researcher

• Gathered data from 100,000 IBM employees

• Wanted to determine values on which cultures vary

• Surveyed workers from 50 countries and 3 regions

• Concluded that there are five dimensions used to differentiate and rate cultures

Geert Hofstede

Source: www.geerthofstede.com

Hofstede’s Cultural Dimensions

• How people define themselves and their relationship to others

• Individualist• Believe individual is most

important• Stress independence over

dependence

• Collectivist• Views, needs and goals of

group most important• Obligation to the group is the

norm• Self is defined in relation to

others

Individualism/Collectivism Uncertainty Avoidance

• People within a culture are made nervous by situations which they percieve as unstructured, unclear and unpredictable

• High Uncertainty Avoidance• Avoid ambiguity• Strict code of behavior• Belief in absolute truths

• Low Uncertainty Avoidance• Accept ambiguity and lack

of structure• More inclined to take risks• Rules are rejected or

ignored

Hofstede’s Cultural Dimensions

• Extent to which people view inequality as normal

• High Power Distance• Power is scarce resource• Natural and inevitable• Centralisation of power

• Low Power Distance• Minimal power differences• Power can be achieved

through work• Superiority not rigid

Power Distance Masculinity-Femininity

• Relationship between gender and sex-appropriate behaviour

• Masculinity• Distinct roles• Men are assertive,

ambitious and competitive• Women are supportive and

nurturing

• Femininity • Fewer rigid gender roles• Men and women are more

equal• Interpersonal relationships

Hofstede’s Cultural Dimensions

• Long-term orientation• Savings• Do anything to achieve a

goal• “Eye on the prize”

• Short-term orientation• Immediate gratification• “Make money, spend

money”• Less willing to sacrifice

Long-term/Short-terms

Managing Cultural Differences

• Do managers have to alter their customary practices to succeed in countries with different cultures?

• Must consider– Host society acceptance– Degree of cultural

differences• cultural distance

– Ability to adjust• culture shock and

reverse culture shock– Company and

management orientation

• Three company and management orientations– Polycentrism

• business units abroad should act like local companies

– Ethnocentrism• home culture is

superior to local culture• overlook national

differences– Geocentrism

• integrate home and host practices

The Legal Environment

• The legal system is the mechanism for creating, interpreting, and enforcing the laws in a specified jurisdiction

Source: Daniels et al, 2013

Trends in Legal Systems

• What is the basis of rule in a country?

– The rule of man• legal rights derive from the individual who

commands the power to impose them • associated with a totalitarian system

– The rule of law• systematic and objective laws applied by

public officials who are held accountable for their administration

• associated with a democratic system

Trends in Legal Systems

The Worldwide Practice of the Rule of Law

Source: Daniels et al, 2013

Flow of Goods and Services Globally

Source: Daniels et al, 2013

Economic Rationales for Government Intervention

• Why governments intervene in trade– Economic rationales

• Fighting unemployment• Protecting infant industries• Promoting industrialization• Improving comparative position

– Non-economic rationales• Maintaining essential industries• Promoting acceptable practices abroad• Maintaining or extending spheres of influence• Preserving national culture

Tariff and Non-Tariff Barriers

• Tariffs are also known as duties– refer to a government

levied tax on goods shipped internationally

• Tariffs may be levied – on goods entering,

leaving, or passing through a country

– for protection or revenue– on a per unit basis or a

value basis• export tariffs• transit tariffs• import tariffs

• Subsidies – direct assistance to

companies to make them more competitive

• agricultural subsidies • overcoming market

imperfections• valuation problems

• Aid and loans– tied – untied

• Customs valuation• Other direct-price

influences – special fees and

requirements

Nontariff Barriers: Quantity Controls

• Quotas– limit the quantity of a

product that can be imported or exported in a given time frame

• Voluntary export restraint (VER)

• Embargoes

• “Buy local” legislation• Standards and labels• Specific permission

requirements– import or export

license • Administrative delays• Reciprocal requirements

– Countertrade or offsets

• Restrictions on services

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Essential work for next week

• Please consult the OLE for details of:– Essential readings*– Seminar/workshop preparation work*– Recommended further readings– Any additional learning

* Essential readings and preparation work must always be completed in time for the next session

End of presentation

© Pearson College 2013