MGMT

Global Management
Chapter 8
Impact of Global Business
 Multinational corporation: Owns
businesses in two or more countries

 Direct foreign investment: Company builds

a new business or buys an existing business
in a foreign country

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Trade Rules
 Trade barriers: Government-imposed regulations
that increase the cost and restrict the number of
imported goods
 Tariff: Direct tax on imported/exported goods
 Nontariff: Nontax methods of increasing the cost or
reducing volume of imported/exported goods
 Quota - limits
 Voluntary export restraints – WTO says illegal
 Government import standard
 Subsidies
 Customs classification - custom agents decide classification
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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.”
 Reduces and eliminates tariffs
 Limits government subsidies
 Establishes protections for intellectual property
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World Trade Organization -
WTO
 Deals with global
rules of trade
between nations

 Ensures that trade

flows as smoothly,
predictably, and
freely as possible

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Regional Trading Zones
 Areas in which barriers on trade between
countries are reduced or eliminated
Trading zones Agreements
Africa • African Free Trade Zone Agreement (AFTZ)
• Tripartite Free Trade Area (TFTA)

Asia • Association of Southeast Asian Nations (ASEAN)

• Asia-Pacific Economic Cooperation (APEC)
• Trans-Pacific Partnership (TPP)

Central America • Dominican Republic-Central America Free Trade Agreement

(CAFTA-DR)

Europe • The Maastricht Treaty

North America • North American Free Trade Agreement (NAFTA)
South America • Union of South American Nations (USAN)
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Key Issue When Going Global
 Global consistency: Multinational company
conducting business in different countries using the
same rules, guidelines, policies, and procedures
 Valued because it simplifies decisions
 Involves risk of using management procedures poorly suited
to particular countries

 Local adaptation: Modifying rules, guidelines, policies,

and procedures to adapt to differences in foreign
countries
 Typically preferred by local managers in their countries
 Involves risk of losing the cost effectiveness and productivity
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Forms of Global Business
 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
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Forms of Global Business
 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
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Forms of Global Business
 Cooperative Contracts continued.
 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

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Forms of Global Business
 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

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Forms of Global Business
 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
 complete control
 Disadvantages
 losses for parent company can be enormous
 expenses to start/buy business

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Forms of Global Business
 Global new ventures - New companies
that are founded with an active global
strategy and have sales, employees, and
financing in different countries

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Finding the Best Business
Climate
 Attractive global business climate
 Positions the company for easy access to growing
markets
 Effective but cost-efficient place to build an office
or manufacturing facility
 Minimizes the political risk to the company
 Factors that determine the growth potential of
foreign markets
 Purchasing power
 Foreign competitors
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Finding the Best Business
Climate
 Criteria for choosing an office location
 Qualitative factors
 Work force quality and company strategy
 Quantitative factors
 Tariff and nontariff barriers, exchange rates,
transportation and labor costs
 Global business requires firms to identify
political uncertainty and policy uncertainty

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World’s Best Countries for Business
 Becoming Aware of Cultural
Differences - Hofstede
 National culture: Set of shared values and beliefs
 Affects the perceptions, decisions, and behavior of the people from a
particular country
 Consistent cultural dimensions across countries
 Power distance – extent people think power distributed unequally
 Individualism – extent people think individual should be self-sufficient
 Masculinity – extent people think difference between highly assertive &
highly nurturing
 Uncertainty avoidance – uncomfortable w/ unpredictable
 Short-term (consumer driven) versus long-term (savings driven)
orientation
 Indulgence versus restraint – free gratification to enjoy life/have fun
versus suppress gratification for needs and wants based on strict social
norms 17
Preparing for an International
Assignment
 Expatriate

 Chances for a successful international

assignment can be increased through:
 Language and cross-cultural training
 Consideration of spouse, family, and dual-
career issues – may be the most important
factor for success of international assignment

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Summary
 Global business is the buying and selling of
goods and services by people from different
countries
 Free-trade agreements create new business
opportunities, and intensify competition
 Forms of global business include exporting,
cooperative contracts, strategic alliances,
wholly owned affiliates, and global new
ventures
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Key Terms
 Global business  Global consistency
 Multinational corporation  Local adaptation
 Direct foreign investment  Exporting
 Trade barriers  Cooperative contract
 Protectionism  Licensing
 Tariff  Franchise
 Nontariff barriers  Strategic alliance
 Quota  Joint venture
 Voluntary export restraints  Wholly owned affiliates
 Government import standard
 Global new ventures
 Subsidies
 Purchasing power
 Customs classification
 Political uncertainty
 General Agreement on Tariffs and Trade
 Policy uncertainty
(GATT)
 World Trade Organization (WTO)  National culture
 Regional trading zones  Expatriate
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