the global business environment doc

The Global Business Environment The Global Business Environment International Strategy Formulation • Why Globalize? – expand sales • when domestic markets are saturated, should go overseas to increase sales and profits – acquire resources • resources may be more readily available and less costly in other countries – 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 • Global organizations – organizations that operate and compete in more than one country – are free to establish foreign subsidiaries to become strong world competitors Barriers to Free Trade Free Trade Barriers Tariffs 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 Sociocultural System Forces yielding Opportunities and threats Economic system 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... social welfare, consumer-directed, administratively guided Economic Environment Command Economy – government sets goals and determines the price and quantity of what is produced – most command economies are moving away from the command economic system • Mixed Economy – certain economic sectors controlled by private business, while others are government controlled – many mixed countries are moving toward... 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... 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 Economic Environment Economic Systems • Market Economy – production and prices are dictated by supply and demand – production of goods and services... 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: Disadv: small or insignificant investment loss of control International... Disadv: small or insignificant investment 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... acquiring control by owning more than 50 percent of the operation – turns a firm into a multinational enterprise Foreign Direct Investment • Strategic Alliance: – a cooperative agreement between potential or actual competitors – an agreement between firms that is of strategic importance to one or both firms; competitive viability • Joint Venture: – the participation of two or more companies jointly... 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 International Expansion Importing Exporting Low Licensing Franchising Joint Ventures Strat Alliances Whollyowned For Subsidiary Level of Foreign involvement and investment needed by a global organization High... moving toward a free enterprise system • Key Economic Issues (and indicators) – economic growth, inflation, quality of life, GDP – exchange rates International Strategy Formulation How Do Organizations Globalize? Stage One: Passive Response Importing: firm makes products and sells abroad Exporting: to foreign countries Stage Two: Initial (Overt) Entry Hiring foreign representation Contracting with foreign . The Global Business Environment The Global Business Environment International Strategy Formulation • Why Globalize? – expand sales • when. price swings or shortages – avoid tariffs The Changing Global Environment • In the past, managers have viewed the global sector as closed – Each country