Cross cultural management 5e by cullen CH01

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Learning Objectives

• Define multinational management

• Understand the characteristics of a multinational

company

• Understand the nature of the global economy and the key forces that drive globalization

• Know the basic classification of the world’s economies

• Identify the characteristics of the next generation of

multinational managers

• Define multinational management

• Understand the characteristics of a multinational

company

• Understand the nature of the global economy and the

key forces that drive globalization

• Know the basic classification of the world’s economies

• Identify the characteristics of the next generation of

multinational managers

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Multinational Management

• Formulation of strategies and management systems to take advantage of international opportunities and

respond to international threats

• Formulation of strategies and management systems to take advantage of international opportunities and

respond to international threats

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The Nature of The Multinational Company

• Any company that engages in business functions

beyond its domestic borders

• Includes both large and small companies

• Any company that engages in business functions

beyond its domestic borders

• Includes both large and small companies

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Exhibit 1.1 – The Largest

Companies in the World

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Exhibit 1.2 – Locations of

Global 500 Companies

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The Globalizing Economy

• Globalization: the worldwide trend of the economies of the world becoming borderless and interlinked.

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• Widening the gap between rich and poor countries.

• Not all economies of the world are benefiting equally or participating equally in the process.

• Terrorism, wars, and a worldwide economic stagnation have limited or reversed some aspects of globalization.

• Producing negative effects such as scarcity of natural

resources, environmental pollution, negative social

impacts, and increased interdependence of the world’s economies.

• Widening the gap between rich and poor countries.

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The Benefits of Globalization

• Resulting in lower prices in many countries as

multinationals are becoming more efficient.

• Benefiting many emerging markets such as India and China as these countries enjoy greater availability of

jobs and better access to technology.

• Major reason why many new companies from Mexico, Brazil, China, India, and South Korea are the new

dominant global competitors.

• Resulting in lower prices in many countries as

multinationals are becoming more efficient.

• Benefiting many emerging markets such as India and

China as these countries enjoy greater availability of

jobs and better access to technology.

• Major reason why many new companies from Mexico, Brazil, China, India, and South Korea are the new

dominant global competitors.

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The Globalizing Economy:

7 Key Trends

• Disintegrating borders

• Growing cross-border trade and investment

• The rise of global products and global customers

• The internet and information technology

• Privatizations

• New competitors in the world market

• The rise of global standards of quality and production

• Disintegrating borders

• Growing cross-border trade and investment

• The rise of global products and global customers

• The internet and information technology

• Privatizations

• New competitors in the world market

• The rise of global standards of quality and production

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Countries of the World: The Arrived, The Coming, and The Struggling

• Developed countries: mature economies with

substantial per capita Gross Domestic Product,

international trade and investments.

• Developing countries: economies that have grown

extensively over past two decades

• E.g., Hong Kong, Singapore, South Korea.

• Developed countries: mature economies with

substantial per capita Gross Domestic Product,

international trade and investments.

• Developing countries: economies that have grown

extensively over past two decades

• E.g., Hong Kong, Singapore, South Korea.

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Countries of the World: The Arrived, The Coming, and The Struggling

• Transition economies: countries that have changed

from mostly communist systems to market/capitalistic systems

• E.g., Czech Republic, Hungary, Poland.

• Emerging markets: those countries that are currently

between developed and developing countries and are rapidly growing

• E.g., India, China, Brazil, and Russia.

• Transition economies: countries that have changed

from mostly communist systems to market/capitalistic

systems

• E.g., Czech Republic, Hungary, Poland.

• Emerging markets: those countries that are currently

between developed and developing countries and are rapidly growing

• E.g., India, China, Brazil, and Russia.

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Countries of the World: The Arrived, The Coming, and the Struggling

• Less developed countries (LDCs) have yet to show

much progress in the global economy

• Most are located in Central and South America and Africa.

• Less developed countries (LDCs) have yet to show

much progress in the global economy

• Most are located in Central and South America and Africa.

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Exhibit 1.3: Divisions of the

World’s Economies

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Exhibit 1.4: Forces Driving

Globalization

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Borders are Disintegrating: The World Trade Organization (WTO)

• 1947 Nations met to reduce tariffs from 45% to less than 7% - resulted in the General Agreement on

Tariffs and Trade (GATT).

• 1986 Negotiations began in Uruguay to continue

reducing tariffs Established WTO to succeed GATT.

WTO provides structure for continued negotiations and settling trade disputes among nations.

• 1947 Nations met to reduce tariffs from 45% to less than 7% - resulted in the General Agreement on

Tariffs and Trade (GATT).

• 1986 Negotiations began in Uruguay to continue

reducing tariffs Established WTO to succeed GATT WTO provides structure for continued negotiations and settling trade disputes among nations.

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World Trade Organization

• 1997 – Trade ministers from countries representing

92 % of world trade agreed to eliminate tariffs on

software, computer chips, telecommunication

equipment, and computers.

• WTO has some critics such as environmentalists, poor countries, and labor unions.

• Not all countries are participating equally in WTO.

• 1997 – Trade ministers from countries representing

92 % of world trade agreed to eliminate tariffs on

software, computer chips, telecommunication

equipment, and computers.

• WTO has some critics such as environmentalists, poor countries, and labor unions.

• Not all countries are participating equally in WTO.

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Regional Trade Agreements

• Regional Trade Agreements - agreements among

nations to reduce tariffs and develop similar technical

and economic standards.

• 3 largest agreements account for nearly half the world’s trade – EU, NAFTA, APEC

• European Union (EU) - includes 27 European countries, with additional countries being considered

• Allows free movement of goods and services and a common currency (EMU).

• Regional Trade Agreements - agreements among

nations to reduce tariffs and develop similar technical

and economic standards.

• 3 largest agreements account for nearly half the world’s trade – EU, NAFTA, APEC

• European Union (EU) - includes 27 European countries, with additional countries being considered

• Allows free movement of goods and services and a

common currency (EMU).

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Regional Trade Agreements

• The North American Free Trade Agreement (NAFTA): links United States, Canada, and Mexico in an

economic bloc

• Allows freer exchange of goods and services

• The Asia-Pacific-Economic Cooperation (APEC):

looser confederation of 19 Asian nations with less

specific agreements on trade facilitation.

• The North American Free Trade Agreement (NAFTA):

links United States, Canada, and Mexico in an

economic bloc

• Allows freer exchange of goods and services

• The Asia-Pacific-Economic Cooperation (APEC):

looser confederation of 19 Asian nations with less

specific agreements on trade facilitation.

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Sell Anywhere, Locate Anywhere

• World trade growth: average of 6.5% per year between

1990 and 2000 Slowed to 4% in 2004, and grew again

to 6% in 2005 and 8.5% in 2006 Latest trends show a slowdown due to effects of economic recession.

• Nearly half of the over $5 trillion in world trade is

among the European Union, the U.S., and Japan – the TRIAD.

• World trade growth: average of 6.5% per year between

1990 and 2000 Slowed to 4% in 2004, and grew again

to 6% in 2005 and 8.5% in 2006 Latest trends show a slowdown due to effects of economic recession.

• Nearly half of the over $5 trillion in world trade is

among the European Union, the U.S., and Japan – the TRIAD.

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Exhibit 1.6a – World’s Leading

Exporters and Importers

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Exhibit 1.6b – World’s Leading

Exporters and Importers

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Sell Anywhere, Locate Anywhere

• Foreign Direct Investment (FDI): occurs when a

multinational company from one country has an

ownership position located in another country.

• FDI increased by more than 36% between 1996 and

2000.

• Since 2001, there has been a decline in FDI.

• Nevertheless, it remains a significant factor.

• Foreign Direct Investment (FDI): occurs when a

multinational company from one country has an

ownership position located in another country.

• FDI increased by more than 36% between 1996 and

2000.

• Since 2001, there has been a decline in FDI.

• Nevertheless, it remains a significant factor.

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Exhibit 1.7: Recent Changes in

the Growth/Decline of FDI in

Selected Countries

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Foreign Direct Investment

• Developed countries get the bulk of FDI (69%) while

developing countries get around 30%.

• Least developed countries get minimal FDI.

• Emerging markets will continue to attract FDI.

• Developing countries provide opportunities and risks.

• Implications for managers - significant opportunities

around the world.

• Multinational managers should look at risk rating of

countries.

• Developed countries get the bulk of FDI (69%) while

developing countries get around 30%.

• Least developed countries get minimal FDI.

• Emerging markets will continue to attract FDI.

• Developing countries provide opportunities and risks.

• Implications for managers - significant opportunities

around the world.

• Multinational managers should look at risk rating of

countries.

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Two Types of Risks

• Economic risk: considers all factors of a nation’s

economic climate that may affect a foreign investor.

• Political risk: anything a government might do or not do that might adversely affect a company.

• Economic risk: considers all factors of a nation’s

economic climate that may affect a foreign investor.

• Political risk: anything a government might do or not do that might adversely affect a company.

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Factors Outside of The Control of The Multinational

• War and increases in oil prices have the potential to

slow down global trade

• Natural disasters

• International terrorism

• War and increases in oil prices have the potential to

slow down global trade

• Natural disasters

• International terrorism

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The Internet and Information Technology

• Electronic Communication - E-mail, World Wide Web,

• Expands global reach of organizations.

• Information technology is spurring a borderless financial market.

• Electronic Communication - E-mail, World Wide Web,

• Expands global reach of organizations.

• Information technology is spurring a borderless financial market.

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The Internet and Information Technology

• Information technologies make available many new

tools that facilitate business operations

• E.g., Voice-Over-Internet Protocol (VOIP) such as

Skype, MSN Messenger and AOL, WIKIs, Google

• Information technologies make available many new

tools that facilitate business operations

• E.g., Voice-Over-Internet Protocol (VOIP) such as

Skype, MSN Messenger and AOL, WIKIs, Google

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The Rise of Global Products and Global Customers

• The needs of customers for many products and

services are growing more similar

• E.g., McDonald’s, Boeing, Toyota.

• Global customers search the world for their supplies

without regard for national boundaries.

• The needs of customers for many products and

services are growing more similar

• E.g., McDonald’s, Boeing, Toyota.

• Global customers search the world for their supplies

without regard for national boundaries.

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• Develop strategies to compete with very low prices.

• Free market reforms are creating a potential group of

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New Competitors are Emerging

• Global trade has two important effects in developing

new competitors:

• When developing countries are used as low-wage

platforms for high-tech assembly, multinationals

facilitate the transfer of technology Assemblers may become builders and creators of technology.

• Aggressive multinationals from emerging markets

are also expanding beyond their own borders.