1 Global Context of Business Does Thinking Globally Matter?

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Global Context of Business

Does Thinking Globally Matter?

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Getting Started.. We Will Learn

• Difference between supply & demand global expansion

• Difference between supply & value chains

• Owned vs. sourced supply avenues

• Variety of corporate relationships (buyer & supplier)

• Global expansion drivers & current trends

• Corporate responsibility & ethics in a global economy

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Topic Agenda

• Rise of a Global Economy– Demand-Side Expansion

– Supply-Side Expansion: Supply & Value Chains

– Influencing Factors

– Trends & Directions

• Business Ethics in a Global Setting– Cultural Understanding & Sensitivity

– Corporate Social Responsibility

– Demand-Side Expansion

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Demand-Side Global Expansion

• What: Expanding an enterprise to provide goods & services in new, international markets

• Who: Most large, well established firms

• Why: Increased profits, market share, economic diversity

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Global Demand Growth: McDonalds

• #1 Fast Food ($15.4 Billion Sales in 2002)

• #1 Owner of Commercial Real Estate

• 30,000 Restaurants in 120 Countries (13k in US)

• 413,000 Employees in 2002

• 2/3 of Sales & 50% Profits from Non-US

• 70% Restaurants Franchised to Individuals

• 1st US in 1955, 1st Canada in 1967

• Creation of International Division 1969

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Franchise Business Model

• McDonald’s Role– Evaluates Sites

– Selects Locations

– Acquires Property

– Improves Site

– Constructs Building

– Selects Franchisees to Train & Support

• Franchiser’s Role– Equip Building & Run Operation

– $461k-$789k start up; $45k to MCD

– Must have $100k-$175k non-borrowed money upfront

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Examples of McDonalds Growth

Country First Site

Current Sites

Australia 1971 680

Japan 1971 2400

United Kingdom

1974 1200

Hong Kong 1975 158

Brazil 1979 118

Mexico 1985 270

Argentina 1986 173

S. Korea 1988 270

Country First Site

Current Sites

Chile 1990 70

Russia 1990 79

Greece 1991 48

Saudi Arabia 1993 71

Kuwait 1994 34

Peru 1996 10

India 1996 34

China 2000 100/yr

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12/15/03 Global Strategy Change

• From the Associated Press: “McDonald’s Corp. plans to significantly narrow its outside brand

activity, retaining Chipotle and Boston Market in the US, but selling

Donatos Pizzeria (Germany) back to its founder and discontinuing

development of all partner brands outside the country.”

• Any guesses as to why?

– Profits (or lack thereof for non-McDonalds chains)– KISS– In overseas markets & cultures, stay with what you know

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Global Demand Growth: Starbucks

• #1 US Specialty Coffee ($4 Billion 2003 Sales)

• Roughly 7225 Shops in 23 Countries

• Long-term Goal: 30,000 Shops

• 1st US in 1971; 1st in Canada 1987

• 1982 Howard Schultz Joins

• 1985 Incorporates

• Growth with Strategic Partnerships

• 2003: TMobile, Card Duetto, Acquires Seattle Coffee

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Starbucks Strategic Partnerships

• AirlinesHorizon (90), United (95), Canadian (97)

• HotelsSheraton(94), Westin (96), Marriott (00), Hyatt (01)

• RetailersNordstrom(92), B&N (93), Albertson’s (99)

Canada: Chapters Bookstore (95), TransFair (02)

• CPGPepsiCo (96), Kraft (98)

• Other SAZABY (Japan) & Seattle Coffee (UK)

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Starbucks Coffee Shop Growth

0

1000

2000

3000

4000

5000

6000

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year

Nu

mb

er o

f S

ho

ps

0

10

20

30

40

50

60

70

80

90

100

Per

cen

tag

e G

row

th

Total Shops

Relative Growth

20025700 Shops

20037225 Shops

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Starbucks International Growth

• 1987 Canada• 1996 Japan (with SAZABY Inc.), Singapore• 1997 Philippines• 1998 Taiwan, Thailand, New Zealand, Malaysia• 1999 China, Kuwait, Korea, Lebanon*• 2001 Switzerland, Israel, Austria• 2002 Oman, Indonesia, Germany, Spain• 2003 Turkey, Chile, Peru (1000th Shop in Asia)

* 2000 Howard Schultz becomes chief global strategist

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Impact to Information Engineering

Strategic Planning

One - Five+ Year HorizonMarkets, Product Mix, SuppliersDistribution Network (Re)DesignTechnology/Infrastructure

Three - Twelve Month HorizonService Level & Inventory PlanningContractual AgreementsProduction & Distribution Planning

Tactical or Operations Planning

Scheduling/ExecutionNear-Term Horizon (a few weeks)Determine Tomorrow’s ScheduleDetermine Sequence of OperationsInventory, Order & Transport Mgmt.

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Topic Agenda


– Supply-Side Expansion





– Supply-Side Expansion: Supply & Value Chains

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Supply-Side Global Expansion

• What: Expanding an enterprise’s supply infrastructure to include global options

• Who: Variety of small & large, established and emerging firms

• Why: Increased profits (via lower costs), easier compliance with locally imposed laws, availability of skilled workforce

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Did You Ever Wonder?

• When Buying Coffee at Starbucks– Where are the coffee beans grown & harvested?

– Where are the cows that make the milk for dairy?

– Where are the trees grown that make the cups?

– Where are the trees grown that make the slips?

– Where are the trees grown that make the stirrers?

– Where are the plastic covers made?

– Where is the sugar from & packaged?

– Where are the flavored liquids from?

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Alternatively What About?

• When a Buying a Pair of Running Shoes– Where and who designed the shoe?

– Where is the rubber made for the sole?

– Where are the plastic logo pieces made?

– Where are the animals whose hides are used?

– Where is the cotton grown that is used for fabric?

– Where & who makes the shoe laces?

– Where & who makes the plastic piece of laces?

– Where is the cotton grown that is used in laces?

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Questions & Answers

These questions strike at what are the SUPPLY and VALUE CHAINS

The answers likely have commonality that more than one country/nation is

involved..

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Supply Chains Encompass

• Supply To and Demand From an Enterprise

• Sourcing & Purchasing Raw Materials & Parts

• Manufacturing & Assembly

• Warehousing & Inventory Tracking

• Order Entry & Order Management

• Distribution (Logistics) Across All Channels

• Delivery to Customer

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Supply Chain Management

• Oversight of materials, information & finances as they move:

Supplier > Manufacturer > Wholesaler or Retailer

• Coordinating & integrating flows within & among companies

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Hypothetical Best Buy Environment

Best Buy(Stores & DCs)

NokiaTI

CalculatorsHP Whirlpool

ArrowElectronics

Bose

Intel

Praxair MEMC MSA

ArrowElectronics

SeagateHard Drive

ADSCasings

Buy From (Part of Supply Chain)

Sells Through (Customers)

BestBuy.comRetailStores

BestBuyBiz(B2B)

Tele-SalesCenter

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Supply Chains Encompass

• Supply To and Demand From an Enterprise

• Sourcing & Purchasing Raw Materials & Parts

• Manufacturing & Assembly

• Warehousing & Inventory Tracking

• Order Entry & Order Management

• Distribution (Logistics) Across All Channels

• Delivery to Customer

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Variety of Supply Chain Models

• Own All Supply Resources/Options

• Own Some of the Supply Resources/Options

• Own None of the Supply Resources/Options

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Value Chains Encompass

• A string of companies working together to meet market

demand

• Typically consists of:

– One or a few primary value (product or service) suppliers

– Many suppliers that add on to the value that is ultimately sold

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HP Value Chain / Intel Supply Chain

Best Buy(Stores & DCs)

NokiaTI

CalculatorsHP Whirlpool

ArrowElectronics

Bose

Intel

Praxair MEMC MSA

ArrowElectronics

SeagateHard Drive

ADSCasings

Buy From (Part of Supply Chain)

Sells To (Customers)

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Class Example..

• Pick an industry or government agency

• Define the supply chain

• Define the value chain

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Supply-Side Global Expansion

• What: Expanding an enterprise’s supply infrastructure to include global options

• Who: Variety of small & large, established and emerging firms

• Why: Increased profits (via lower costs), easier compliance with locally imposed laws, availability of skilled workforce

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Different Types of Suppliers in Chain

• Supplier Provides Core or Complementary

I.e., Nike Shoes, Starbucks Paper Cups

• Supplier Provides Value-Add to Intermediate

I.e., Assemble & Test a Semiconductor Fab Wafer

• Supplier Provides Services

I.e., DHL or FedEx; Fleming for Kmart


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Global Supply Growth: Nike, Inc.

• World’s #1 Shoe Company ($9.9 Billion Sales)

• Controls 40% of US Athletic Shoe Market

• Sells Products in 140 Countries

• 22k Nike Employees

• 800 Manufacturing Contractors

200k Workers, 700 Factories, 50 Countries

Roughly 84% Workers in Asia, 7% EMEA

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Relative (Advertised) Shoe Mark-Up

• Consumer Pays Retailer $65.00

• Retailer Pays Nike $32.50

• Nike Pays Factory $16.25

– Materials $10.75; Labor $2.43; Overhead $2.10

• Remaining $16.25 Received by Nike

– R&D, Shipping, Insurance, Profit

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Different Types of Suppliers in Chain


I.e., Nike Shoes, Starbucks Paper Cups


I.e., Assemble & Test a Semiconductor Fab Wafer

• Supplier Provides Services

I.e., DHL or FedEx; Fleming for Kmart


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Semiconductor Manufacturing & Product Overview

FAB

Raw Wafer Wafer w/Die

x x x x x x x x x x SORT

x x x x x x x x x x

Sorted Die

ASSEMBLY

Packaged Devices

XY-70-PC

Y-70-JC

TEST W/BINNING

TEST W/OUT BINNING

Tested Bin Die

Finished Good

XY-70-PC

Bin1 Die

Bin2 Die

Bin3 Die

FINISHING

Finished Good

XY-70-CC

y y y y y y y y y y

6-13 Wk0-1 Wk 0-3 Wk

0-1 Wk

0-1 Wk

0-1 Wk

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Example Semiconductor Supply Chain

• Fab/Sort

– Owns & Operates Several Fabs

– Anam (S. Korea)

• Assembly/Test/Finishing

– Owns & Operates Philippines ATF

– Amkor Technology/Anam (S. Korea, Philippines)

• All Stages (Foundries)

– TSMC (Taiwan)

– UMC (Taiwan & Japan)

FAB SORT ASSEMBLY TEST FINISHING

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Impact to Information Engineering

Strategic Planning

One - Five+ Year HorizonMarkets, Product Mix, SuppliersDistribution Network (Re)DesignTechnology/Infrastructure

Three - Twelve Month HorizonService Level & Inventory PlanningContractual AgreementsProduction & Distribution Planning

Tactical or Operations Planning

Scheduling/ExecutionNear-Term Horizon (a few weeks)Determine Tomorrow’s ScheduleDetermine Sequence of OperationsInventory, Order & Transport Mgmt.

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Topic Agenda








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A Few Drivers Behind Global Expansion

• Technology Breakthroughs (Internet, Wireless)

• Manufacturing Breakthroughs & Economies of Scale

• Market Saturation

• Abrupt & Potentially Long-Term Supply Changes

• Multi-National Trade Agreements– European Union

– NAFTA (North American Free Trade Agreement)

– FTAA (Free Trade Area of Americas)

• Political & Economic Changes– Soviet Union

– Hong Kong & Taiwan to China

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Highlights of NAFTA

• Declares Free Trade Area Across Canada, US & Mexico• Each Country Agrees To:

– Give Most Favored Nation (MFN) Treatment & Transparency

– Commit to Cross-Border Movement of Goods & Services

– Commit to Provide Adequate & Effective Protection & Enforcement of

Intellectual Property Rights

– Statement Calling for Effective Domestic Procedures for

Implementation & Application

• Most Provisions Apply to Provincial, State or Local Gov’tI.e., Investment, Cross-Border Trade in Services & Financial Services

Exempt All Local Government Measures DO NOT apply

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Highlights of FTAA

• Extension of NAFTA to Western Hemisphere• 34 Members of Organization of American States (OAS)• Summits of the Americas

– 1994 Miami– 1998 Chili– 2001 Canada

• Negotiating Groups Agriculture, Competition Policy, Dispute Settlement, Government,

Procurement, IP, Subsidies, Investments, Market Access, Services

• Additional Core Issues Civil Society, Small Economies, E-Commerce, Business Facilitation

(Customs & Transparency)

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Impact to Information Engineering..

• Increased Complexity in Planning & Execution Practices to Handle MFN vs. non-MFN and Other Aspects of Agreements

• Increased Complexity in Data Associated with Tracking Agreement Compliance

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Topic Agenda

• Rise of a Global Economy





• Business Ethics in a Global Setting

– Cultural Understanding & Sensitivity



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Likely Trends & Directions..

• Continuous Decline in Barriers to International Business

Transaction (I.e., Future Agreements)

• Continuous Growth of Trading Blocs

• Greater Opportunities & Pursuits to Develop New Markets in

Foreign Countries

• Continuing Shuffle of Direct Foreign Investments

• Continuing Shuffle of Who Does What Where

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Topic Agenda










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In The News…

• 1984 Union Carbide, Bhopal India

– Worst Industrial Accident in History

– 40 Tons of Methyl Isocyanate Gas Released

– 2000-5000 Died Almost Immediately

– Hundreds of Thousands Permanently Disabled

– 1989 UCC/Indian Gov’t Settlement for $470Mil

– 1999 Dow Chemical Acquires UCC

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Or What About Nike News…

• 1996 NY Times on Labor Conditions/Pay at Asian Factories

– Age, Pay, Benefits, Union, Freedoms are Primary Focus

– Nike Contracts to Wide Array of Factories Throughout Asia

– Frequent Claim: Nike Follows the Least Cost/Most Repressive

– Fair Labor Association (FLA) Membership

– May 2002 Kasky vs. Nike California Court Ruling

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Nike Production Base Over Time

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Also In The News…McDonalds France

• First Site in 1979; As of 2002, 900 Restaurants; 35,000 Employees

• November 2002 – Fire at construction site near Grenoble

• October 2002 – McDonald’s France releases advertisement discouraging kids

to eat more than once a week.. Strong disagreement from MCD US

• January 2001 – McDonald’s Europe 10% Sales Decrease after Mad Cow

• August 1999 – 12 Farmers & Folk Hero Jose Bove Dismantle Millau Site

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Alternatively: McDonalds India

• No beef or pork products sold

• Wide array of vegetarian offerings

• Maharaja Mac (chicken & mutton) = Big Mac

• Egg-less Mayonnaise

Is ThereDemand?

Can The Product BeModified?

Is It a GoodBusinessClimate?

Are Skills & KnowledgeAvailable?

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Topic Agenda








– Corporate Social Responsibility– Corporate Social Responsibility

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One Way to Look At It…

“Corporate social responsibility (CSR) is

commercial success in ways that honor

ethical values and respect for communities,

natural environment and people”

Business for Social Responsibility (BSR)

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Breadth of Social Responsibility Includes..

• Community – Development & Relief

• Environment – Conservation & Preservation

• Marketplace – Supplier Monitoring

• People – Commitment & Diversity

• Business Conduct – Accountability & Quality

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Social Responsibility at Weyerhaeuser

• Largest NA Producer of Softwood Lumber ($15 Billion Annual Sales)

• 5.9 Mil Acres of Timberland in NA & Cutting Rights to 32 Mil Canadian Acres

• Products Span Lumber to Plywood to Paper

• Core Areas of Social Responsibility Focus:

– Environmental Performance

• Policy, Focus, Accountability, Remediation Programs

– Business Conduct & Community Activities

• Business Ethics, Community Giving, Global Business, Gov’t/Military

Contracts, Use of Animals in Testing

– Employee Relations

• Safety/Health, Comp & Benefits, Diversity, Work/Life

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Summary.. What We Learned

• Difference between supply & demand global expansion

• Difference between supply & value chains

• Balance of owned vs. sourced supply avenues

• Variety of corporate relationships (buyer & supplier)

• Global expansion drivers & current trends

• Corporate responsibility & ethics in a global economy

Documents

1 Global Context of Business Does Thinking Globally Matter?