the global business environment doc

International Strategy Formulation– diversify sources of sales and supplies • different business cycles between countries • may avoid impact of price swings or shortages – avoid tariffs.

The Global Business Environment

International Strategy Formulation

– diversify sources of sales and supplies

• different business cycles between countries

• may avoid impact of price swings or shortages

– avoid tariffs

The Changing Global Environment

• In the past, managers have viewed the global sector as

closed

– Each country or market was assumed to be isolated from others

– Firms did not consider global competition, exports

• Today’s business environment is very different

– Managers need to view it as an open market

– Organizations buy and sell around the world

– Managers need to learn to compete globally

Barriers to Free Trade

Free Trade BarriersTariffs

Economic

Communities

Export Restraints

Buy National

Campaigns

Quotas

Local Ownership Requirements

Distance

Cultural Differences

Barriers to International Trade

• Trade Controls - governmental influences usually aimed at reducing the competitiveness of imported products or services

– Tariffs: taxes levied on goods shipped

internationally

– Subsidies: direct payments to domestic producers

– Quotas: legal restrictions on the import of goods

• Free trade doctrine - predicts that if each country

agrees to specialize in the production of goods that it can produce most efficiently, it will

– make the best use of global resources

– result in lower prices

Distance and Cultural Barriers

• Distance and Cultural barriers also “closed” the global environment

– Distance closed the markets as far as some managers were concerned

– Communications could be difficult

– Languages and cultures were different

• During the last 50 years, communications and

transportation technology has dramatically improved

– Jet aircraft, fiber optics, satellites have provided fast,

secure communications and transportation

– These have also reduced cultural differences

Effects of Free Trade on Managers

• Declining barriers have opened great opportunities for managers

– Managers can not only sell goods and services but also buy resources and components globally

• Managers now face a more dynamic and exciting job due

to global competition

Global Task Environment

Suppliers

Distributor s

Customers

Competitors Forces Yielding Opportunities

and Threats

Suppliers & Distributors

• Managers buy products from global suppliers or make items abroad and supply themselves

– Key is to keep quality high and costs low

• Global outsourcing: firms buy inputs from throughout the world

– GM might build engines in Mexico, transmissions in Korea, and seats in the U.S

– Finished goods become global products

• Distributors: each country often has a unique system of distribution

– Managers must identify all the issues

Customers & Competitors

• Formerly distinct national markets are merging into a

huge global market

– True for both consumer and business goods

– Creates large opportunities

• Still, managers often must customize products to fit

the culture

– McDonald's sells a local soft drink in Brazil

• Global competitors present new threats

– Increases competition abroad as well as at home

Forces in the Global General Environment

Political &

Legal Systems

Economic system

Sociocultural

System

Forces yielding Opportunities and threats

Political/Legal Environment

• Different legal systems: common law or civil law

– Representative democracies: such as the U.S., Britain, and

Canada

• Citizens elect leaders who make decision for electorate.

• Usually has a number of safeguards such as freedom of expression, a fair court system, regular elections, and limited terms for officials

• Well-defined legal system and economic freedom

– Totalitarian regimes: a single political party or person monopolize power in a country

• Typically do not recognize or permit opposition

• Do not have most safeguards found in a democracy

• Difficult to do business with given the lack of economic freedom

• Human rights issues also cause managers to avoid dealing with these countries

– investment opportunities for individuals

– social welfare, consumer-directed,

administratively guided

– certain economic sectors controlled by private

business, while others are government controlled

– many mixed countries are moving toward a free

enterprise system

• Key Economic Issues (and indicators)

– economic growth, inflation, quality of life, GDP

– exchange rates

International Strategy FormulationHow Do Organizations Globalize?

Importing: firm makes products and sells abroad Exporting: to foreign countries

Hiring foreign representation

Contracting with foreign manufacturers

Licensing/Franchising

Foreign Direct Investment (FDI)

- Joint Ventures

- Foreign Subsidiary

International Strategy Formulation

• Exporting: selling abroad, either directly to target customers or indirectly by retaining foreign sales agents and distributors

• Importing: selling other countries products in the home country, either directly to target customers or indirectly

Adv: quick and relatively inexpensive

test the waters and learn about customers

Disadv: high transportation costs

tariffs and quotasdanger of poor intermediary selection

International Strategy Formulation

• Licensing: an arrangement where a firm (licensor)

grants a foreign firm the right to use intangible

(“intellectual”) property such as patents, copyrights, manufacturing processes, or trade names for a

specified period of time, usually in return for a

percentage of the earnings, called royalty

Adv: small or insignificant investment

Disadv: loss of control

International Strategy Formulation

• Franchising: an arrangement where a parent

company (franchisor) grants a foreign firm

(franchisee) the right to do business in a

prescribed manner Usually involves a longer time commitment by both parties than required under

licensing agreements

Adv: small or insignificant investment

Disadv: loss of quality control

International Strategy Formulation

• Foreign Direct Investment:

operations in one country that are controlled by

entities in a foreign countries

– acquiring control by owning more than 50 percent

of the operation

– turns a firm into a multinational enterprise

Foreign Direct Investment

– the participation of two or more companies jointly

in an enterprise in which each party contributes assets, owns the entity to some degree, and

shares risk

• Wholly Owned Foreign Subsidiaries

– provide for tightest controls by foreign firms

– very costly but can yield high returns

needed by a global organization