Concepts and Resources for Teaching Globalization (12May’05)
S. Tamer Cavusgil
The John W. Byington Endowed Chair in Global Marketing, and Executive Director, Center for International Business Education and
Research, Michigan State University
2005 International Business Institute
East Lansing, Michigan
15 May 2005
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Rationale for Internationalization
Faculty Professional development/enrichment; recognition
Students Liberating minds; informed citizens; appreciation of diversity develop cosmopolitan orientations
Business Become relevant; serve as resource and source of training
Your Create a total global culture; establish new traditions College and behavior; become a viable competitor
And… a goal common to all constituents:
Build global competence as a source of competitive advantage.
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What is Globalization?
At the macro level…
•Greater integration and interdependency of national economies
•Freer movement of goods, services, capital, and knowledge
•Prevalence of regional trading blocs
•Emergence of monetary unions
•Convergence of customer lifestyles, requirements, etc.
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What is Globalization?
For business enterprises…
•Foreign market entry and expansion
•Re-configuration and externalization of value chain
•Collaborative ventures with foreign partners
•Integration of operations on a global scale
•Building global capabilities and a global organization
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The Many Dimensions of Globalization
1. Value-adding activities2. Companies – The business enterprise3. Products and brands4. Economic assets5. Business risks6. Industries7. Countries, markets8. Regulations, laws, standards9. Cultural values, mindsets, consumer
behavior10.Business practices
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Phases of Globalization1st Phase: 1830, peaking around 1880
Aided by railroads, ocean transport, rise of manufacturing and trading companies
2nd Phase: 1900, peaking around 1930
Fueled by electricity and steel
3rd Phase: 1948, peaking around 1970
GATT, End of WWII, Marshall Plan…
4th Phase: 1980, peaking around 1997
Technological advances, Internet, Privatization…
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Perspectives on Globalization
Globalization can be studied as a …
•Process
•As a cause or driver
•Consequence
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Comprehensive Agenda for
Internationalization
CURRICULAR INITIATIVES ENRICHMENT OF
STUDENT EXPERIENCES(on campus and
abroad)
FACULTY MOTIVATION AND
DEVELOPMENT
CAPITALIZING ON INSTITUTIONAL STRENGTHS:
BUILDING CAMPUS ALLIANCES
COLLABORATION WITH BUSINESS
FOREIGNINSTITUTIONAL
LINKAGES
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Motivating the Student
•Companies face special challenges when operating in a broader, multi-country environment.
• The foreign country environment (political, legal, cultural, etc.) deserves special attention.
• Knowledge and practices developed at home may not be valid in other country contexts.
• Managers need to acquire new types of competence in order to compete in the global economy.
• The consequences of a global economy are felt daily around us.
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Three Dimensions of International Context
• International/Cross Border dimension (Functional specialist)
Cross-border management paradigm
• Comparative dimension (Country enthusiast)
Extension paradigm
• Cross-cultural dimension (Behaviorist)
Inter-cultural paradigm
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Layers of Knowledge in International Business
Cross-Cultural Knowledge
Country/Regional Knowledge
Cross-Border Transactions Knowledge
Domestic Business Knowledge
Layers of Knowledge in International Business
CulturalDifferences
NegotiationStyles
Ethical Values
Decision-making Styles
Language
OrganizationalFeatures
Cross-CulturalKnowledge
ProductAdaptation
CurrencyMarkets
InternationalSCM
LegalAgreements
Letters ofCredit
Payments
Cross-BorderTransactions Knowledge
CommercialInfrastructure
Contract Law
Market Access
ProductStandards
Trade/ DistributionChannels
Country/RegionalKnowledge
Domestic BusinessKnowledge
Attitudes towards IPR
Entry Barriers
Role of Government in Business
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Vital Components for Global Competence
CROSS-BORDER
TRANSACTIONSKNOWLEDGE
CROSSCULTURAL
KNOWLEDGE
COUNTRYMARKET
KNOWLEDGE
CROSS-BORDER
TRANSACTIONSKNOWLEDGE
CROSSCULTURAL
KNOWLEDGE
Human ResourceDevelopment
LanguageProficiency
Cross-CulturalSkills
Currency Risk/Pricing/Getting
Paid
OrganizationalReadiness
andStructure
Ethics andSocial
Responsibilityand
GovernmentRelations
Cross-Cultural
NegotiationSkills
InternationalLogistics
Standardsand
Regulations andProduct Liability
COUNTRYMARKET
KNOWLEDGE
Global MarketingOpportunityAssessment(Research
and Intelligence)
Subsidiary/ProjectManagement
Product Strategy(Adaptation/
Standardization)SupplyChain
ManagementBusinessPartnering
Configuration ofValue Adding
Activities in targetmarket/entry mode
Market EntryPlanning and
Strategy
Vital Components for Global Competence
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globalEDGE™A knowledge web-portal that connects international business professionals worldwide to a wealth of information, insights, and learning resources on global business activities. The site offers:
– Global Resources - more than 5,000 online resources – Country Insights - a wealth of information on all countries – Community - an interactive forum for business professionals – Knowledge Room - latest issues in international business – Academy - extensive research and teaching resources – Diagnostic Tools - decision-support tools for managers
globalEDGE™ - your source for global business knowledge
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• Comparative advantage; gains from trade
• Drivers of globalization
• Purchasing Power Parity
• Global Competitiveness Index
• Index of Economic Freedom
• Culture and IB
• International entrepreneurship
• Attitudes toward work and leisure
• Unionization; collective bargaining
Globalization Themes for Economics
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Globalization Drivers: Seven MacroTrends
1. Reduction of barriers to trade and investment
2. Regional trade agreements and economic blocs
3. Market liberalization and privatization
4. Industrialization, economic development and modernization
5. Integration of world financial markets
6. Transportation and communication technology
7. Information technology
The World Competitiveness Scoreboard 2004
Source: IMD World Competitiveness Yearbook 2004
Economic Freedom and Wealth
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The Economist’s Big Mac Index
The concept of Purchasing Power Parity refers to the notion that a dollar should buy the same bundle of goods in all countries.
Comparing actual exchange rates with PPP indicates whether a currency is under- or overvalued.
Big Mac CurrenciesMay 27th 2004 From The Economist print edition
The world economy looks very different once countries' output is adjusted for differences in prices
Source: World Bank. Figures are for 2003.
COUNTRY GNP per capitaUS $
Purchasing Power Parity adjusted GNP
per capita
Argentina 6,950 10,980
Brazil 2,850 7,250
Bulgaria 1,790 6,840
Canada 22,300 28,070
China 940 4,390
Hungary 5,280 12,810
South Korea 9,930 16,480
Mexico 5,910 8,540
Russian Fed 2,140 7,820
Turkey 2,500 6,120
Capturing the Purchasing Power
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• The Iceberg Principle of Culture
• Cultural stereotypes, idioms, metaphors
• Cultural Dimensions (High Context; Collectivism, Power distance, Uncertainty avoidance, Masculinity)
• Language as the expression of culture
• Self Reference Criterion
• Critical incidence analysis
• Negotiation patterns
Themes for Culture
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• Cultural empathy / Open-mindedness•Tolerance for ambiguity• Flexibility/Adaptability/Self reliance• Perceptiveness• Curiosity• Premium on personal relationships • Good sense of humor• Warmth in human relationships
Critical Skills for the Manager
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Is Globalization a Good Thing?The Critics
• Benefits of globalization are not evenly distributed
• Globalization causes dislocation of jobs
• Wages for unskilled labor are declining
• Manufacturing moves offshore to avoid workplace safety and health regulations
• MNCs fail to protect the environment
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• Power shifts to multinational corporations and supranational organizations; nations loose sovereignty
• Concentration of power by multinational corporations leads to monopoly
• International financial markets are inherently unstable
• Globalization results in loss of national cultural values and identity
Is Globalization a Good Thing?The Critics (cont.)
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• Market entry, expansion, segmentation
• Standardization /adaptation
• Global brand success
• Joint ventures/alliances/partnerships
• Product liability laws; retail regulations
• Global supply chain management
• Emerging Markets; Family Conglomerates
• Offshoring
Themes for General Business
Research & Development
Product Design
Manufacturing
Marketing
Distribution
Sales & Service
Stage in Value Chain
Strategic alliancesLicensing/cross licensing
Design contracting
Global procurementContract manufacturingEquity joint ventures (FDI)Agency agreementsLicensing
Exporting to distributors/ agentsFranchising
Exporting to end-usersBusiness format franchising
Agency/representative relationships
Types of Collaboration Company Examples
Telecoms, computers, drugs,aircraft, satellite communication systems… Dow, Pharmacia-Upjohn
Software, autos,fashion goods, shoes,furniture…
Automotive
Gerber (Novartis)
IKEA, Guardian Industries
Kmart, Manpower, Banks,Courier Services, Amway
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Pressures for Local Responsiveness
• Unique industry and product standards
• Local market requirements: customer need, competitive environment, distribution structure
• Cultural differences• Geographic separation• Nation states and protectionism• Tariffs and Non-Tariff trade barriers
Pressures for Global Integration
• Economic efficiency imperative
• Promoting cross-fertilization• Converging demand patterns• Acceptance of global brands• Harmonizing product
standards• Diffusion of uniform
technology• eBusiness integration• Availability of pan-regional
media• Integration of markets
through economic blocs• Spread of international
collaborative ventures• Need to monitor competitors
on a global basis
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• High-growth, high-potential developing countries
• Rapid transformation
• Liberalization, modernization, industrialization
• Rising middle class
• Unique Aspects: Family Conglomerates; large informal economy; institutional vacuum; high risks…
Emerging Markets
Market Potential Indicators for Emerging Markets
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• Exchange rates and trade
• Currency risk; Euro in the E.U.
• Harmonized accounting practices
• Transfer pricing; Taxation of foreign income
• Foreign Corrupt Practices Act
• Operating in: High-inflation countries; Free Trade Areas
• Listing in foreign stock markets
Themes for Accounting
Four Types of Risks
Commercial Risk
Types of Risksin International
Business
Country (Political and Legal) Risk
Cross-Cultural Risk
• Weak Partner• Operational Problems• Timing of entry• Competitive intensity• Poor execution of strategy
• Currency exposure• Asset valuation• Foreign taxation• Inflationary and transfer
pricing• Global sourcing
• Social/political unrest and instability• Economic mismanagement; inflation• Distribution of income; size of middle class• Government intervention, bureaucracy, red tape• Market access; barriers; profit repatriation• Legal safeguards for intellectual property right
Cultural distance Negotiation patterns Decision-making styles Ethical practices
Currency/Financial Risk
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• Internet and Information Technology as a driver of globalization
• eBusiness /On-line strategies
• Virtual interconnectedness in the multinational corporation
• Globalization of IT sector; India’s advantage in this area
• Globalization of related industries such as office furniture industry (Steelcase, Herman Miller, etc.)
Themes for Information Systems / Technology
Economist Intelligence Unit e-readiness rankings, 2003
2003 e-readiness ranking (of 60)
2002 ranking Country 2003 e-readiness
score (of 10) 2002 score
1 4 (tie) Sweden 8.67 8.32
2 7 Denmark 8.45 8.29
3 (tie) 2 Netherlands 8.43 8.40
3 (tie) 1 US 8.43 8.41
3 (tie) 3 UK 8.43 8.38
6 10 Finland 8.38 8.18
7 11 (tie) Norway 8.28 8.17
8 4 (tie) Switzerland 8.26 8.32
9 6 Australia 8.25 8.30
10 (tie) 9 Canada 8.20 8.23
10 (tie) 14 Hong Kong 8.20 8.13
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Organized by:
• Countries / Geographic regions
• Business functions
• Culture
• Exports
Online IB Course Modules on the globalEDGE
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Your company has developed a new product that is expected to achieve high penetration rates in all the countries where it is introduced, regardless of the average income status of the local population. Considering the costs of the product launch, the management team has decided to initially introduce the product only in countries that have a sizeable population base. You are required to prepare a preliminary report with the top ten countries of the world in terms of population size. Since growth opportunities are another major concern, the average population growth rates should be also listed for management’s consideration.
How to?– “Global Resources” on globalEDGE– Research: Statistical Data Sources– Search “Population”– Source: “World Population Data Sheet”
http://globalEDGE.msu.edu
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The Freedom in the World survey evaluates the state of political rights and civil liberties around the world. For a company location project, you need to provide a description of this survey and a ranking, in terms of “freedom” of the leaders and laggards of the world. What factors are taken into consideration in this survey when forming the rankings?
How to?– “Global Resources” on globalEDGE– Research: Multi-Country– Search: “Freedom”– Result: “Freedom House Surveys”
http://globalEDGE.msu.edu
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http://globalEDGE.msu.edu
For a country selection project, you need to know which markets/countries are the most attractive in the global marketplace. Accordingly, the ranking of the top 25 countries in terms of FDI attractiveness is a crucial ingredient for your report. You have heard about the “FDI Confidence Index” which is updated periodically. Find this index, and provide additional information regarding how the index is constructed.
How to?– “Global Resources on globalEDGE– Research: Rankings– Search: “FDI Confidence Index”– Result: “A.T. Kearney: FDI Confidence Index”
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• Handout
Web-Based Exercises and Projects for Internationalizing
Business Courses
Market and Country Research
•International Marketing Insight (IMI) Reports
•Multilateral Development Bank (MDB)
•Industry Sector Analysis Reports
•Best Market Reports
•Global Agriculture Information Network (GAIN) AgWorld Attaché reports
•Country Commercial Guides
S. Tamer Cavusgil/Michigan State University
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Company’s Overall Readiness to Export
OrganizationalReadiness
Product Readiness
Competitive Capabilities in
Domestic Market
Motivation for Going
InternationalCommitment of Owners and Top
Management
Skill, Knowledge and
Resources
Experience and Training
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Expertise SpecializationCommunicatio
n & Information
Responsiveness and
AttentionFinance
Efficiency and
Reliability
Geographical Specialization
Financial Position
Product/Service Specialization
Pricing
Freight Forwarder Overall
Qualifications
globalEDGE™ is a global business knowledge web-portal that connects international business professionals worldwide to a wealth of information, insights, and learning resources on global business activities. By serving as a gateway to specialized knowledge on countries, cross-border business transactions, and cross-cultural management, globalEDGE™ responds to a real interest expressed by an increasing number of global business professionals. It also creates a virtual community of both executives and academics with like interests.
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• Internationalizing Business Education: Issues and Recommendations by Leading Educators, (Cavusgil, Schechter, Yaprak), East Lansing, Michigan, MSU Press, March 1992 (28pp.).
• Internationalizing Business Education: Toward Meeting the Challenge, (Cavusgil), East Lansing, Michigan, MSU Press, 1993 (342pp.)
• Internationalizing the Business Curriculum, R.F. Scherer, S.T. Beaton, M.F. Ainina, Euclid, OH: Lakeshore Comm.
• “Expanding Horizons with E-Learning” in A Field Guide to Internationalizing Business Education, R. F. Scherer, S. T. Beaton, M.F. Ainina and J. F. Meyer (eds.), Second Edition, 2003, 183-194, Cavusgil, I. Kiyak and T. Kiyak.
• Study Abroad Programs in Business Schools, Issues and Recommendations by Leading Educators, East Lansing, MI, MSU Press, 2002.
• Doing Business in Emerging Markets, Cavusgil, P. Ghauri and M. Agarwal, Thousand Oaks, CA: Sage Publications, Inc., 2002.
Additional Resources