Global Management: CHAPTER EIGHT Management 3rd Edition Chuck Williams Global Management Prepared by Deborah Baker Texas Christian University


What Would You Do?: What Would You Do? You are founder of Pret à Manger, a London-based chain of more than 120 stores serving healthy “fast” food… You are considering expanding into the United States But the menu may not be familiar to American tastes If not America, where outside the U.K. could you consider? What’s the right way to go global? What changes will have to be made? What would you do?


What Is Global Business?: What Is Global Business?


Impact of Global Business?: Impact of Global Business? 1


Foreign Investment: Foreign Investment 1.1 Companies from many countries own U.S. businesses (Exhibit 8.1) U.S. companies have made large direct foreign investments throughout the world (Exhibit 8.2) Direct foreign investment worldwide is worth $1 trillion a year Direct foreign investment is an important and common method of conducting global business


Foreign Investment in the U.S.: Foreign Investment in the U.S. 1.1 Adapted from Exhibit 8.1


U.S. Foreign Investment Abroad: U.S. Foreign Investment Abroad 1.1 Adapted from Exhibit 8.2


American Companies Are No Longer Competitive in the World Market: American Companies Are No Longer Competitive in the World Market 1.2 U.S. has a 31 percent share of the global high-technology market U.S. producers are leading suppliers of high-tech products globally U.S. companies product 30 percent of the world GNP Only 5.3 percent of multinational corporations are U.S. based


American Companies Are Competitive in the World Market: American Companies Are Competitive in the World Market 1.2 Adapted from Exhibit 8.3


Americans Will Buy American-Made Goods: Americans Will Buy American-Made Goods 1.3 Americans say they want to “Buy American” Country of manufacture where the product is made Consumers don’t know or care. Country of origin company’s home country Customers confuse country of origin with country of manufacture.


Trade Rules and Agreements: 2 Trade Rules and Agreements


Trade Barriers: 2.1 Trade Barriers


Trade Agreements: 2.2 Trade Agreements


GATT: 2.2 GATT GATT made it easier and cheaper for consumers in all countries to buy foreign products By 2005, average tariffs will be cut worldwide by 40 percent Tariffs were eliminated in 10 specific industries GATT established protections for intellectual property


World Trade Organization (WTO): 2.2 World Trade Organization (WTO) Location: Geneva, Switzerland Established: 1 January 1995 Created by: Uruguay Round negotiations (1988-1994) Membership: 146 countries (as of 4 April 2003) Budget: 154 million Swiss francs for 2003 Secretariat staff: 550 Head: Supachai Panitchpakdi (director-general Functions: 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 Adapted from Exhibit 8.4


Regional Trade Agreements: 2.2 Regional Trade Agreements Adapted from Exhibit 8.5


Maastricht Treaty of Europe: 2.2 Maastricht Treaty of Europe Originally, 12 (now 15) European countries 13 other countries have applied Transformed these different countries into the European Union Opened up trade among member nations Created the “Euro” currency


NAFTA: 2.2 NAFTA North American Free Trade Agreement between Canada, United States, & Mexico Liberalizes trade among these three nations Eliminates most tariffs and barriers


FTAA: 2.2 FTAA Free Trade of the Americas Proposed agreement to establish a free trade zone through out the Western Hemisphere Reduce trade barriers to zero Standardize financial markets Process for handling trade disputes


ASEAN and APEC: 2.2 ASEAN and APEC ASEAN Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam APEC Australia, Canada, Chile, China, Hong Kong, Japan, Korea, Mexico, New Zealand, Papua New Guinea, Peru, Russia, Taiwan, United States, and ASEAN members (except Cambodia, Laos, and Myanmar)


Consumers, Trade Barriers, and Trade Agreements: 2.2 Consumers, Trade Barriers, and Trade Agreements American incomes are lower than in some countries American consumers get more for their money than most other consumers in the world U.S. marketplace is easiest for foreign companies to enter Competitive market between domestic and foreign companies


How to Go Global?: How to Go Global?


Consistency or Adaptation?: Consistency or Adaptation? 3


Forms for Global Business: Forms for Global Business 4 Global New Ventures


Exporting: Exporting 4.1


Exporting: Exporting 4.1


Cooperative Contracts: Cooperative Contracts 4.2


Licensing: Licensing 4.2


Licensing: Licensing 4.2


Been There Done That: Been There Done That Michael R. Quinlan, former McDonald CEO discusses McDonald’s international business… 13,500 restaurants in the U.S. 17,600 restaurants in 121 other countries Strong demand for brand Some countries may require a local product adaptation


Franchising: Franchising 4.2


Franchising: Franchising 4.2


Strategic Alliances: Strategic Alliances 4.3


Joint Ventures: Joint Ventures 4.3


Joint Ventures: Joint Ventures 4.3


Wholly Owned Affiliates (Build or Buy): Wholly Owned Affiliates (Build or Buy) 4.4 Advantages Disadvantages


Global New Ventures: Global New Ventures 4.5


Common Factors of Global New Ventures: Common Factors of Global New Ventures 4.5


Where to Go Global?: Where to Go Global?


Finding the Best Business Climate: Finding the Best Business Climate 5 Access to Growing Markets Location to Build Minimal Political Risk


Growing Markets: Growing Markets 5.1 Purchasing Power comparison of a standard set of goods and services in different countries more means greater growth potential Degree of Global Competition the number and quality of companies already in the market


Growing Markets and Purchasing Power: Growing Markets and Purchasing Power 5.1


Choosing an Office/Manufacturing Location: Choosing an Office/Manufacturing Location Quality factors work force quality company strategy Quantity factors kind of facility tariff and nontariff barriers exchange rates transportation and labor costs 5.2


World’s Best Cities for Business: World’s Best Cities for Business 5.2 Adapted from Exhibit 8.8


Minimizing Political Risk: Minimizing Political Risk 5.3 Political uncertainty risk of major changes in political regimes Policy uncertainty risk associated with changes in laws and government policies directed at businesses Strategies avoidance control cooperation


Riskiest Countries: Riskiest Countries International Country Risk Guide Ten Riskiest Countries 1. Sierra Leone 2. Yugoslavia 3. Somalia 4. Guinea-Bissau 5. Zimbabwe Congo Iraq 8. Moldova 9. Korea, D.P.R. 10. Liberia Coplin-O’Leary Risk Ratings Ten Riskiest Countries 1. Ecuador 2. Iraq 3. Cuba 4. Russia 5. Myanmar 6. Sudan 7. Vietnam 8. Cameroon 9. Pakistan 10. Nigeria 5.3 Adapted from Exhibit 8.9


Least Risky Countries: Least Risky Countries 5.3 International Country Risk Guide Ten Least Risky Countries 1. Singapore 2. Norway 2. Switzerland 4. Luxembourg 5. Netherlands 6. Finland 7. Brunei 8. Denmark 9. Canada 10. Sweden Coplin-O’Leary Risk Ratings Ten Least Risky Countries 1. Switzerland 2. Bulgaria 3. Singapore 4. Belgium 5. Ireland 6. Finland 7. Austria 8. Canada 9. Netherlands 10. United Kingdom Adapted from Exhibit 8.9


Becoming Aware of Cultural Differences: Becoming Aware of Cultural Differences 6 Power distance Individualism Masculinity and femininity Uncertainty avoidance Short-term/long-term orientation


Hofstede’s Five Cultural Dimensions: Hofstede’s Five Cultural Dimensions 6 Adapted from Exhibit 8.10


Cultural Differences: Cultural Differences Recognize cultural differences Decide how to adapt your company to those differences Do not base adaptations on outdated and incorrect assumptions about a company’s culture 6


Preparing for an International Assignment: Preparing for an International Assignment 7 Language and Cross-Cultural Training Consideration of Spouse, Family, and Dual-Career Issues


Language and Cross-Cultural Training: Language and Cross-Cultural Training 7.1


Spouse, Family, and Dual-Career Issues: Spouse, Family, and Dual-Career Issues 7.2


What Really Works: What Really Works 3 More


What Really Works: What Really Works 3 More


What Really Works: What Really Works 3 On-the-Job Performance 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 71% Job Performance


What Would You Do—II?Wipro Limited: What Would You Do—II? Wipro Limited Wipro has expanded from cooking oils into IT services around Bangalore Its competitive advantage on low cost is being challenged Wipro will need to reinvent itself to stay ahead, and reorganize its operation in foreign markets What type of global business model will work? Which countries should you explore first? What would you do?