Exploring management 3rd ch17

Exploring Management Chapter 17 Globalization and International Business Chapter 17 • • How does globalization affect international business? What are global corporations and how they work? 17.1 Globalization • • • • • Globalization involves the growing interdependence of the world’s economies Globalization creates a variety of international business opportunities International business is done by global sourcing, import/export, licensing and franchising Internal business is done by joint ventures and wholly owned subsidiaries International business is complicated by different legal and political systems GLOBALIZATION World Economies • Global economy – Resources, markets and competition are worldwide in scope • Globalization – Process of growing interdependence of global economies GLOBALIZATION World Economies • Insourcing – Domestic jobs are created by foreign employers • Outsourcing – Jobs are shifted to foreign locations to take advantage of lower wages, infrastructure, educated workforce or government support GLOBALIZATION International Opportunities • International Business – Conducts transaction across international boundaries • Reasons to “go international” Profits Customers Suppliers Capital Labor Risk GLOBALIZATION International Opportunities Market Entry Strategies Global Sourcing Exporting materials, components or selling locally made services are purchased products in foreign worldwide markets Importing Licensing Franchising buying foreign-made foreign firm pays for foreign firm buys rights to products and selling rights to make or sell another’s name and them in domestic another company’s operating method in its markets products home country GLOBALIZATION International Opportunities Direct Investment Strategies Joint Venture co-ownership arrangement in which the foreign and local business jointly operate the new business Global Strategic Alliance Cooperative partnership to achieve task that would be difficult for partners alone Foreign Subsidiary Greenfield Venture operation completely owned subsidiary established after firm and controlled by a foreign firm has experience in joint ventures GLOBALIZATION Legal and Political Issues • International business is complicated by different legal and political systems – Health and safety – Equal employment – Sexual harassment – Incorporation and ownership – Foreign currency exchange – Intellectual property GLOBALIZATION Legal and Political Issues • Tariffs – Taxes placed on imports • Protectionism – Tariffs, subsidies and other tactics that give advantages to domestic producers GLOBALIZATION Legal and Political Issues • World Trade Organization – Global institution to promote free trade and open markets around the world – Membership of around 153 countries – Most Favored Nation status – www.wto.org 17.2 Global Corporations • • Global corporations or MNCs substantial business in many countries The actions of global corporations can be controversial at home and abroad • Managers of global corporations face a variety of ethical challenges 17.2 CONTINUED Global Corporations • • • Planning and controlling are complicated in global corporations Organizing can be difficult in global corporations Leading is challenging in global corporations GLOBAL CORPORATIONS Global Corporations • Global corporations and also known as Multinational corporations (MNC) – Extensive foreign operations in more than one country • Transnational corporations – Operate without one national home GLOBAL CORPORATIONS Issues GLOBAL CORPORATIONS Ethical Challenges • Corruption – Illegal practices • Foreign Corrupt Practices Act – U.S legal standards apply to companies when operating in foreign countries – Prevents • Bribes, gifts to foreign officials in return for business favors GLOBAL CORPORATIONS Ethical Challenges • Sweatshops – Employees work long hours in poor or unsafe conditions • Child labor – Full-time employment of children GLOBAL CORPORATIONS Planning and Controlling Challenges • Currency Risk Scenario 1: Weak dollar Scenario 2: Strong dollar • 75 Euros = $US • 1.25 Euros = $US • Take home revenue = $133,00 • Take home revenue = $80,000 GLOBAL CORPORATIONS Planning and Controlling Challenges • Political risk • Political risk analysis • Currency risk – Risk of loss because of political instability in foreign country – Forecasts how political events may impact foreign investments – Possible loss because of fluctuating exchange rates GLOBAL CORPORATIONS Organizing Challenges GLOBAL CORPORATIONS Leading Challenges • Global managers – Competent in working in different cultures