Mgmt.

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Chapter 1
Change of Global Business

Globalization
It is trend away from distinct national
economic units and toward one
huge global market.
It is the international integration of
goods, technology, labor, and
capital; that is, firms implement
strategies that link and coordinate
their international activities on a
worldwide basis.

a common term for processes of international

integration arising from increasing human activity and
interchange of worldviews, products, ideas, and other
aspects of culture. In particular, advances in
transportation and telecommunications infrastructure,
including the rise of the Internet, represent major driving
factors in globalization and precipitate further
interdependence of economic and cultural activities.

Good sides of Globalization

Globalization lets countries do what they can do best. If,
for example, you buy cheap steelfrom another country
you dont have to make your own steel. You can focus
oncomputers or other things.
Globalization gives you a larger market. You can sell
more goodsand make more money. You can
createmore jobs.
Consumers also profit from globalization. Products
become cheaper and you can get new goodsmore
quickly.

bad sides of Globalization

Globalization causesunemploymentin industrialized countries

because firmsmove their factoriesto places where they can get cheaper
workers.
Globalization may leadto more environmentalproblems. A company may
want to build factoriesin other countries because environmentallawsare
not as strictas they are at home. Poor countries in the Third World may have
to cut down more trees so that they can sell wood to richer countries.
Globalization can leadto financial problems . In the 1970s and 80s countries
like Mexico, Thailand, Indonesia or Brazil got a lot of money
from investorswho hoped they could build up new businessesthere. These
new companies often didnt work, so they had to closedownand
investors pulledouttheir money.
Some of the poorest countries in the world, some may get even poorer. Their
population is not as educatedas in developedcountriesand they dont have
the new technology.
Human, animal and plant diseasescan spreadmore quickly through
globalization

As a result of globalization;
1)
2)
3)

40% of the world output is produced by

500 largest companies in the world.
Only 22 nations have GNP greater than
the total annual sales of Mitsubishi.
Total money spent on Wal-Mart in the
world is greater than the sums of GNPs
of 161 nations.

Global firms management;

1. Searches the world for;
(a) Market opportunities,
(b) Threats from competitors,
(c) Sources of products, raw materials, knowledge,
innovation, and financing,
(d) Personnel,

2. Seeks to maintain a presence in key markets,

3. Looks for similarities, not differences, among
markets.

Multidomestic company
A company with international
operations that allows
operations in one country to be
relatively independent of those
in another.

Multidomestic company
Export to neighbour countries may occur,
but typically the multi-domestic company
concentrates on the local business.
Subsidiaries' interactions across borders
mainly concern administration and
finances, rather than production and
services.

Globalcompany
It is an organization that attemps
to standardize and integrate
operations worldwide in all
functional areas.

Globalcompany
The global company is the opposite of the
Multi-domestic company. The global
company strives to concentrate the
activities in the value chains as much as
possible to one country.

What is the difference between multi domestic companies

and a global company
A multi domestic company adapt its offer worlwide to every
different market its targeted
whereas a gloabl company have the same standardized
offer everywhere, it means that wherever u are in the world,
the product u find from a specific brand will have the same
packaging, taste, colour etc.... like I-Pod is a product of a
global company but Coca Cola is from a multi domestic ,
(example . in Mexico the coca cola is much more sweet than
in Europe, this is the result of market studies that said that
Mexican people were fond of sweet meals)

Functional areas
They are economic activities that can be
separated from each other; such as
advertising, research and development,
production, asemblying, procurement, etc.

Example of a global company:

Procter and Gamble
Sells to 5 billion people around the world,
Operates in more than 70 countries,
Sells its products to more than 140
countries,
Employs 103,000 people around the
globe.

A brief history of international

business
International business existed since very early
days. Phoenicians were famous tradespeople.
Marco Polo was the first man who went to China
and came back. Britain established East India
Company in 1600 AC.
Ford Motor Company (1920), Singer Sewing
Machine Company (1868), General Motors
(1920), Chrysler (1920), General Electric (1919)
were established around hundred years ago.

First McDonalds
FIRST McDonald's

Coca Cola in Time

EvolutionoftheCocaCola

Globalization forces:

Political forces,
Technological forces,
Market forces,
Cost pressures,
Competitive forces.

Political forces:
1. Trend towards formation of economic blocks, such as
NAFTA, EU, ASEAN.(Association of Southeast Asian
Nations,)
2. Trend towards global integration. This is encouraged
by;
(a) agreements like GATT,(GeneralAgreementon
TariffsandTrade)
(b) reduction of barriers to trade and foreign
investment by governments,
(c) privatization of many state enterprises, even in excommunist countries.

The NorthAmericanFreeTradeAgreement (NAFTA) is an agreement signed by

the governments of Canada, Mexico, and the United States, creating a trilateral
trade bloc in North America.

AssociationofSoutheastAsianNations
is a geo-political and economic organization of ten countries located in
Southeast Asia, which was formed on 8 August 1967 by Indonesia, Malaysia, the
Philippines, Singapore and Thailand.[9]Since then, membership has expanded to
include Brunei, Burma (Myanmar),Cambodia, Laos, and Vietnam. Its aims include
accelerating economic growth,social progress,

Technological forces:
Advances in computers, communication,
transportation, mass production
techniques made globalization easier.

Firstcomputerevermade

Market forces:
Customers are becoming more
international. Customer lifestyles, tastes,
preferences are becoming similar.
This way the market for global companies
are expanding.

Cost pressures
Economies of scale reduce the unit costs
which is one of the management goals.
Also the firm can place the production
wherever cost of production is lowest.
in microeconomics, economiesofscale are the cost advantages that an enterprise
obtains due to expansion. There are factors that cause a producers average cost per
unit to fall as the scale of output is increased. "Economies of scale" is a long run
concept and refers to reductions in unit cost as the size of a facility and the usage
levels of other inputs increase

Competitive forces:
There is very tough global competition
among the global firms. Firms stemming
from the newly industrialized countries are
producing low-cost, high-quality products
with which firms from industrial countries
must compete.
Also firms should protect their home
markets. Thus they have to be very
efficient.

Recent developments
There is an increase in foreign direct investment (FDI)
until 2000, and then it started decreasing.
FDI is direct investments into equipment, structures, and
organizations in a foreign country at a level that is
sufficient to obtain significant management control. It
does not include investments in the stock markets of
other countries (portfolio investment)
Management control can be achieved through;
golden share,
more than 50% ownership, and/or
appointing ther management team.

Recent developments
FDIData:
1980
Inflows
$ 55
Outflows
54
Inward stock 699
Outward stock 564

1990
209
242
1,954
1,763

2000
1,393
1,201
6,147
5,992

2002
651
647
7,122
6,866

Recent developments
There is an increase in the total assets of
the foreign affiliates:
Foreignaffiliatedata:
value
1996
Sales
$ 9,372
Total assets 11,246
Exports
1,841
Emp.
30,941
(000s)

2002
17,685
26,543
2,613
53.094

annual growth rate

1996-2000 2002
10.9% 7.4%
19.2
8.3
9.6
4.2
14.2
5.7

Recent developments
After the Second World War, most of the
global companies were American, and
some European.
In 1996, out of 100 largest companies, 57
are American, 24 European, and 13
Japanese.
In 2009, the trend continues and American
share in global business is going down.

Mini-multinationals (mini-globals, or
micro-multinationals)
There are some small and medium size enterprises becoming
global companies. Their characteristics are:
1. Their annual sales are around $600 million, and they grow
very fast, like 20% a year.
2. International sales are 40-50% of their total sales.
3. Their product is often unique because of their technology,
design, cost, etc.
4. Their target customers are sharply focused.
5. They can take decisions very fastly. They have smaller
beurocracy and small number of manufacturing locations.
6. They underline research.
7. They use foreigners in foreign operations and at the
headquarters.

Google when they started in 1999

Googlein1999,whentheystarted.

Prof. Bartlett:
Newcomers have the huge advantage of
starting fresh. They can develop much
more flexible structures.

International firms are under the

influence of two forces:
Uncontrollable forces: They are external
forces over which management has no
direct control, but sometimes they can
exert an influence.
Controllable forces: They are internal
forces that management administers to
adapt to changes.

Uncontrollable forces
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.

Competitive kinds and numbers of competitors, their locations, their

activities.
Distributive national and international agencies available for distributing
goods and services.
Economic variables such as GNP, unit labor costs, personal
consumption expenditures that influence a firms ability to do business.
Socioeconomic characteristics and distribution of the human population.
Financial variables like interest rates, inflatin rates, tax rates.
Legal foreign and domestic laws by which international firms must
operate.
Physical elements of nature such as climate, topography, natural
resources.
Political nationalism, forms of government, international organizations.
Sociocultural elements of culture, such as, attitudes, beliefs, opinions.
Labor composition, skills, attitudes of labor.
Technological the technical skills and equipment that affect how
resources are converted into products.