Chapter 4 - Part A

Chapter 4: Managing in a Global Environment

Manager’s Challenge

1. To expand business into other countries, language barriers & cultural resistance has to be overcome (eg.: war between Lenovo of China & Dell from US)

2. Dell is not able to go forward with direct sales because Chinese customers want to see and touch product before buying

3. Similarly Wal-Mart is facing difficulties in Germany even after 10 yrs, because of local tastes and tough labor laws

4. Even Internet-based companies face difficulties

5. International Business (business from other countries) forms a major chunk of many Fortune company’s Profits and Sales

Global

Necessity: Rapid advances in technology and communications have made the international dimension an increasingly important part of the external environment (we discussed the various attributes).

The various examples of companies like Nortel, Samsung who have shifted their operations to other countries for the ease, and to be competitive so that their products have the latest technology from around the world.

Borderless World

Random House said: “There is no German and American company. There are successful and unsuccessful companies”. Many companies feel that potential for significant growth lies oversees.

The process of globalization typically passes through 4 stages mentioned below:

	Domestic	International	Multinational	Global
Strategic Orientation	Domestically Oriented	Export Oriented, Multi-domestic	Multinational	Global
Stage of Development	Initial foreign Involvement	Competitive Positioning	Explosion of International Operations	Global
Cultural Sensitivity	Of Little Importance	Very Important	Somewhat Important	Critically important
Manager Assumption	“One Best Way”	“Many good ways”	“The least-cost way”	“Many Good Ways”

Most of the mangers at top levels are chosen based on their global exposure, more so managers at middle level are those who know 2-3 foreign languages.

Corporate Examples

1) Fred Hassan – Pakistan-born CEO of Schering Plough

2) Mexico-born Fernando Aguirre, CEO of Chiquita Brands

3) Indian born Indra Nooyi, CEO of Pepsi

Internationally: Getting started

1) Global Outsourcing - It means engaging in the international division of labor so that work activities can be done in countries with the cheapest sources of labor and supplies.

2) Exporting -The Corporation maintains its production facilities within the home nation and transfers its products for sale in foreign countries. It enables for marketing their products at modest resource cost and with limited risk. Exporting entails numerous problems associated with government; cultural differences etc but is less expensive than building plants in host countries.

3) Licensing - A corporation (the licensor) in one country makes certain resources available to companies in another country (the licensee).

4) Franchising - Special form of licensing that occurs when the franchises buys a complete package of materials and services. Licensing, a license generally keeps its own company name and operating systems; a franchise takes the name and system of the franchisor.

5) Direct Investing - The Company is involved in managing the productive assess, which distinguishes it from other entry strategies that permit managerial control. This can be done in three ways:

a. Joint Venture- A company shares costs and risks with another firm, typically in the host country, to develop new products, builds a manufacturing facility or set up a sales and distribution network

b. Greenfield Venture - Firm has complete control. Direct acquisition of an affiliate may provide cost savings by shortening distribution channels and reducing storage and transportation costs.

c. Wholly Owned Foreign Affiliate- Most risky and costly. Company builds a subsidiary from scratch in a foreign country. Advantage-Subsidiary is exactly what the company wants and has the potential to be highly profitable.

International Business Environment

International management

1) Management of business operations conducted in more than one country

2) Fundamental tasks such as financing, production, and distribution of product and services do not change in any substantive way when a firm is transacting business across international borders

What should mangers of emerging global companies look for to avoid obvious international mistakes?

1) The economic environment: represents the economic conditions in the country where international org operates. it includes factors such as:

a. Economic development

i. Differs widely across countries

ii. Developed countries or developing countries

iii. Per capita income: income generated by nation’s production of goods and services divided by total production

iv. Developing countries have low per capita income

v. Developed countries: North America

vi. Developing countries or Less developed countries(LDCs): Asia, Africa, and south America

vii. Most international headquartered in wealthier and economically advanced countries

b. Infrastructure

i. Physical activities that support economic activities such as airports, highways, railroads, etc.

ii. Companies in Ldcs must contend with lower levels of technology and perplexing logistical, distribution, and comm. Problems.

iii. Cellular phone companies have tremendous opportunities in LDCs where landlines are limited

c. Resource and Product Markets

i. When operating in another countries, managers should evaluate the demand

ii. If market demand is high, managers may choose to export products to that country.

iii. To develop plants however, resource markets for providing needed raw materials and labor must also be available

d. Exchange Rates

i. Rate at which one country’s currency is exchanged for another country’s

ii. Volatility is major concern in international business

iii. Changes in exchange rate can have major implications for the profitability of international operations

2) The Legal Political environment: major legal – political concerns affecting international business are :

a. Political Risk & Instability

i. Risk of loss of assets, earning power or managerial control due to politically based events or actions by host government.

ii. It also includes government takeovers of property and acts of violence directed against a forms’ properties or employees

iii. Some companies buy political risk insurance

iv. To reduce uncertainty, organizations sometimes also rely on the INDEX of ECONOMIC Freedom, which ranks countries according to the impact political intervention has on business decisions, and the Corruption Perception Index which assesses 91 countries according to the level of perceived corruption

v. Instability includes riots, revolutions, civil disorders and frequent changes in gov

vi. Middles East – Extreme instability as US pursues a difficult and protracted recons following the Iraqi war

b. Laws and Regulations

i. Gov laws differ from country to country

ii. International companies must learn these rules and regulations and abide by them