Chapter 8 Global Management 2015 Cengage Learning MGMT

Chapter 8 Global Management © 2015 Cengage Learning MGMT 7

8 -1 discuss the impact of global business and the trade rules and agreements that govern it 8 -2 explain why companies choose to standardize or adapt their business procedures 8 -3 explain the different ways that companies can organize to do business globally 8 -4 explain how to find a favorable business climate 8 -5 discuss the importance of identifying and adapting to cultural differences 8 -6 explain how to successfully prepare workers for international assignments © 2015 Cengage Learning

The Impact of Global Business • Multinational corporations • Direct foreign investment 8 -1 © 2015 Cengage Learning

Trade Barriers • Tariff – direct tax on imported goods • Nontariff barriers – quotas – voluntary export restraints – government import standards – subsidies – customs classification 8 -1 © 2015 Cengage Learning

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. ” © 2015 Cengage Learning 8 -1

World Trade Organization © 2015 Cengage Learning 8 -1

Regional Trading Zones • • • 8 -1 Maastricht Treaty of Europe NAFTA CAFTA-DR UNASUR ASEAN APEC © 2015 Cengage Learning

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. © 2015 Cengage Learning 8 -1

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 © 2015 Cengage Learning 8 -2

Forms for Global Business Exporting Cooperative contracts Strategic alliances © 2015 Cengage Learning Wholly owned affiliates 8 -3

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 8 -3 © 2015 Cengage Learning

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 8 -3 © 2015 Cengage Learning

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 8 -3 © 2015 Cengage Learning

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 © 2015 Cengage Learning 8 -3

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 8 -3 © 2015 Cengage Learning

Global New Ventures Companies founded with an active global strategy. © 2015 Cengage Learning 8 -3

Growing Markets • Purchasing power • Growth potential 8 -4 © 2015 Cengage Learning

How Consumption of Coca-Cola Varies with Purchasing Power around the World © 2015 Cengage Learning 8 -4

Choosing a Location • Qualitative factors – workforce quality – company strategy • Quantitative factors – – kind of facility being built trade barriers exchange rates transportation and labor costs © 2015 Cengage Learning 8 -4

World’s Best Cities for Business © 2015 Cengage Learning 8 -4

Minimizing Political Risk • Political uncertainty • Policy uncertainty © 2015 Cengage Learning 8 -4

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 8 -4 © 2015 Cengage Learning

Overview of Political Risk in the Middle East © 2015 Cengage Learning 8 -4

Becoming Aware of Cultural Differences • • • Five Dimensions of Culture Power distance Individualism Masculinity/femininity Uncertainty avoidance Short-term/long-term orientation © 2015 Cengage Learning 8 -5

Hofstede’s Five Cultural Dimensions © 2015 Cengage Learning 8 -5

Language and Cross-Cultural Training • Documentary training • Cultural simulations • Field simulation training 8 -6 © 2015 Cengage Learning

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. © 2015 Cengage Learning 8 -6

Holden Outerwear <click screenshot for video> 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? © 2015 Cengage Learning