Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 1 What Is Global Business? 1
1 Global Business The buying and selling of goods and services by
people from different countries.
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 2 The Impact of Global
Business 1.1 Multinational Corporation A corporation that owns
businesses in two or more countries. Direct Foreign Investment A
method of investment in which a company builds a new business or
buys an existing business in a foreign country.
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 3 Foreign Investment in the
U.S. 1.1
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 4 Foreign Investment in the
U.S. Adapted from Exhibit 8.1 1.1 Investment coming into the U.S.,
like this Honda Motor plant in Ohio, totaled $106 billion in
2004.
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 5 U.S. Foreign Investment
Abroad Adapted from Exhibit 8.2 1.1
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 6 Trade Barriers Nontariff
Barriers Tariff Voluntary export restraints Government import
standards Customs Valuation / Classification Quotas Government
Subsidies 1.2
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 7 Trade Agreements Regional
Trading Zones General Agreement on Tariffs and Trade Maastricht
Treaty of Europe NAFTA and CAFTA ASEAN and APEC FTAA 1.3
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 8 GATT GATT made it easier
and cheaper for consumers in all countries to buy foreign products.
Tariffs were cut 40 percent on average worldwide by 2005 Tariffs
were eliminated in 10 specific industries Stricter limits were put
on government subsidies GATT established protections for
intellectual property Trade disputes between countries now are
fully settled by arbitration panels from the WTO 1.3
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 9 World Trade Organization
Location: Geneva, Switzerland Established: 1 January 1995 Created
by: Uruguay Round negotiations (1986-1994) Membership:148 countries
(as of 13 October 2004) Budget: 169 million Swiss francs for 2005
Secretariat staff: 630 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 8.3 1.3 http://www.wto.org Web
Link
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 10 Maastricht Treaty of
Europe Formed in 1992 with 12 European countries Total membership
is now 25 countries Transformed these countries into the European
Union, forming one economic market and one common currency (the
Euro) Opened up and simplified trade among member nations 1.3
http://europa.eu.int/ Web Link
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 11 NAFTA North American Free
Trade Agreement between Canada, United States, & Mexico
Liberalizes trade among these three nations Eliminates most tariffs
and barriers 1.3 http://www.mac.doc.gov/nafta/ Web Link
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 12 FTAA Free Trade of the
Americas Proposed agreement to establish a free trade zone
throughout the Western Hemisphere Remove nontariff barriers Reduce
tariffs to zero Standardize financial markets Establish process for
handling trade disputes 1.3 http://www.ftaa-alca.org Web Link
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 13 ASEAN and APEC ASEAN
Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar,
Philippines, Singapore, Thailand, and Vietnam APEC Australia,
Canada, Chile, China, Hong Kong, Japan, Mexico, New Zealand, Papua
New Guinea, Peru, Russia, South Korea, Taiwan, United States, and
ASEAN members (except Cambodia, Laos, and Myanmar) 1.3
http://www.aseansec.org http://www.apecsec.org.sg Web Link
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 14 Consumers, Trade Barriers,
and Trade Agreements American consumers get more for their money
than most other consumers in the world because: 1.4 U.S.
marketplace is easiest for foreign companies to enter AND
Competitive market between domestic and foreign companies keeps
prices low
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 15 Consumers, Trade Barriers,
and Trade Agreements 1.4 Decrease price of: food clothing
necessities luxuries Decrease price of: food clothing necessities
luxuries Increase: choices competition purchasing power Free Trade
Agreements
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 16 Consistency or Adaptation?
Global Consistency When a multinational company has offices/plants
indifferent countries and uses 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 2 2
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 17 Doing the Right Thing Fair
and Safe Working Conditions in Foreign Factories Make sure there is
no forced labor or child labor Provide a safe and healthy working
environment Respect the right of employees to freedom of
association and collective bargaining Provide legally required
benefits Fair and Safe Working Conditions in Foreign Factories Make
sure there is no forced labor or child labor Provide a safe and
healthy working environment Respect the right of employees to
freedom of association and collective bargaining Provide legally
required benefits
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 18 Forms for Global Business
Cooperative Contracts Strategic Alliances Exporting Wholly Owned
Affiliates Global New Ventures 3 3
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 19 Exporting Less dependence
on home market sales Greater degree of control over research,
design, and production decisions Less dependence on home market
sales Greater degree of control over research, design, and
production decisions Advantages 3.1
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 20 Exporting Many exports are
subject to tariff and nontariff barriers Transportation costs can
increase price Companies may depend on foreign importers for
product distribution Many exports are subject to tariff and
nontariff barriers Transportation costs can increase price
Companies may depend on foreign importers for product distribution
Disadvantages 3.1
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 21 Cooperative Contracts
Licensing A domestic company receives royalty payments for allowing
another company to produce its product, sell a service, or use its
brand name in a specified foreign market Franchising A collection
of networked firms in which the manufacturer or marketer of a
product/service licenses the entire business to another person or
organization 3.2
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 22 Licensing Allows companies
to earn profits without investing more money The licensor invests
in production equipment and facilities Helps companies avoid tariff
and nontariff barriers Allows companies to earn profits without
investing more money The licensor invests in production equipment
and facilities Helps companies avoid tariff and nontariff barriers
Advantages 3.2
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 23 Licensing Licensor gives
up control over quality of the product or service sold by the
foreign licensee Licensees can eventually become competitors
Licensor gives up control over quality of the product or service
sold by the foreign licensee Licensees can eventually become
competitors Disadvantages 3.2
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 24 Franchising Fast way to
enter foreign markets Good strategy when a companys domestic sales
have slowed Fast way to enter foreign markets Good strategy when a
companys domestic sales have slowed Advantages 3.2
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 25 Franchising Franchisors
face a loss of control Franchising success may be culture-bound
Franchisors face a loss of control Franchising success may be
culture-bound Disadvantages 3.2
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 26 Strategic Alliances
Strategic Alliance An agreement in which companies combine key
resources, costs, risk, technology, and people Joint Venture A
strategic alliance in which two existing companies collaborate to
form a third, independent company 3.3
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 27 Joint Ventures Help
companies avoid tariff and nontariff barriers to entry
Participating companies bear only part of the costs and risks
Advantageous to smaller local partners Help companies avoid tariff
and nontariff barriers to entry Participating companies bear only
part of the costs and risks Advantageous to smaller local partners
Advantages 3.3
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 28 Joint Ventures Companies
must share profits Joint venture represent a merging of four
cultures With equal ownership, power struggles and a lack of
leadership may occur Companies must share profits Joint venture
represent a merging of four cultures With equal ownership, power
struggles and a lack of leadership may occur Disadvantages 3.3
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 29 Wholly Owned Affiliates
(Build or Buy) Parent company receives all of the profits and has
complete control Advantages Expense of building new operations or
buying existing business Losses can be immense if the venture fails
Expense of building new operations or buying existing business
Losses can be immense if the venture fails Disadvantages 3.4
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 30 Global New Ventures Quick,
reliable air travel Low-cost communication technologies Critical
mass of experienced businesspeople 3.5
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 31 Common Factors of Global
New Ventures Global vision is developed and communicated Several
foreign markets are entered at the same time 3.5
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 32 Finding the Best Business
Climate Access to Growing Markets Location to Build Location to
Build Minimal Political Risk 4 4
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 33 Growing Markets 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 4.1
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 34 Choosing an
Office/Manufacturing Location Qualitative factors work force
quality company strategy Quantitative factors kind of facility
tariff and nontariff barriers exchange rates transportation and
labor costs 4.2
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 35 Choosing an
Office/Manufacturing Location 4.2 Exhibit 8.6
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 36 Worlds Best Cities for
Business United States 1. New York City 2. Chicago 3. Toronto 4.
Atlanta 5. Los Angeles Latin America 1. Santiago 2. Miami 3. Sao
Paulo 4. Monterrey 5. Mexico City Asia Pacific 1. Shanghai 2.
Beijing 3. New Delhi 4. Hong Kong 5. Mumbai Europe 1. London 2.
Paris 3. Frankfurt 4. Brussels 5. Amsterdam Adapted from Exhibit
8.7 4.2
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 37 Minimizing Political Risk
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 4.3
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 38 Long-Term Political Risk
in the Middle East Adapted from Exhibit 8.8 4.3
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 39 Becoming Aware of Cultural
Differences 5 5 National Culture The set of shared values and
beliefs that affects the perceptions, decisions, and behavior of
the people from a particular country.
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 40 Becoming Aware of Cultural
Differences In Saudi Arabia, store mannequin s must not have heads
or limbs that would indicate gender. 5 5
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 41 Becoming Aware of Cultural
Differences Cultural Dimensions (Geert Hofstede) Power distance
Individualism Masculinity and femininity Uncertainty avoidance
Short-term/long-term orientation 5 5
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 42 Hofstedes Five Cultural
Dimensions 5 5
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 43 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 companys culture 5 5
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 44 Preparing for an
International Assignment 6 6 Expatriate Someone who lives and works
outside his or her native country.
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 45 Preparing for an
International Assignment Language and Cross-Cultural Training
Consideration of Spouse, Family, and Dual-Career Issues 6 6
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 46 Language and
Cross-Cultural Training Documentary Training Cultural Simulation
Field Experiences 6.1
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Chapter 8 Copyright 2007 by South-Western, a division of
Thomson Learning. All rights reserved 47 Spouse, Family, and
Dual-Career Issues Adaptability Screening Intercultural Training
6.2