MGMT 2/22

Chapter 8

Importance of Global business

  • if you are not thinking international, you are not thinking business management

Strategies for entering international markets

  1. Exporting
  2. Global outsourcing
  3. Licensing
  4. Franchising
  5. Joint venture
  6. Acquisition
  7. Greenfield venture

Exporting

  • transferring its products for sale in foreign countries
  • maintaining products and factories (capital) domestically and sending some overseas
  • low cost because they do not need to build factories in other countries

Global Outsourcing (Offshoring)

  • engaging in the international division of labor
  • maintain the main part of the company within the country and outsource other less significant parts
  • take advantage of efficiencies
  • Efficiency = Output/Input … Input = labor+supply

Licensing

  • A company (licensor) in one country makes certain resources available to companies (licensee) in another country
  • Typical resources: management skill, patent, trademark rights, technology

Franchising

  • a special form of licensing
  • Franchisee buys a complete package of materials and services (fast food chains)
  • standardized operating system, technology, and company name

Joint Venture

  • most popular direct investment approach
  • a company shares costs and risks with another firm to build a manufacturing facility, develop new products, or set up a sales and distribution network
  • two companies sponsor to build a new company

Greenfield Venture

  • most risky and costly direct investment
  • a company builds a subsidiary from scratch in a foreign country

International Environment Factors

  • Economic
  • Legal-Political
  • Sociocultural

Economic Development

  • countries categorized as “developing” or “developed”
  • use the tool “per capita income” to find out whether developed
  • Developing countries: Asia, Africa, and South America
  • Developed countries: North America, Europe, and Japan
  • Driving global growth in Asia, Eastern Europe, and Latin America

Infrastructure

  • 3 categories: transportation facilities (subway, MARTA), energy-producing facilities(GA Power), communication facilities***(radio stations, cell phone providers)***
  • A country’s physical facilities that support economic activities

***2 types of markets

  • Product market: market demand
  • Resource market: develop plants

Exchange Rates

  • Rate at which one country’s currency is exchanged for another country’s
  • Lower exchange rate: decrease in foreign goods

Legal-Political Environment

  • Political risk: the risk of loss of assets, earning power, or managerial control due to politically based events or actions by host governments
  • Government takeovers of property and acts of violence
  • Political instability
  • Government laws and regulations

Becoming Aware of Cultural Differences (Sociocultural)

  1. Power Distance: if an organizations difference between employees and employers(lower #= higher power distance)
  2. Uncertainty avoidance: degree to which people are uncomfortable with uncertainties (lower #= higher uncertainty avoidance)
  3. Individualism: people prefer independence; look after themselves; personal goals and privacy (lower #= higher individualism)
  4. Masculinity vs. femininity: in countries with masculinity, there is a goal for material success/ femininity focuses on cooperation (Japan)
  5. Short-term/long-term orientation: short-term is when people look at the present and the past/ long-term orientation is when people look at the future (lower #= higher masculinity)(China)

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