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Mgmt. 308
Chapter 1
Change of Global Business
Globalization
It is trend away from distinct national
economic units and toward one
huge global market.
It is the international integration of
goods, technology, labor, and
capital; that is, firms implement
strategies that link and coordinate
their international activities on a
worldwide basis.
As a result of globalization;
1)
2)
3)
40% of the world output is produced by
500 largest companies in the world.
Only 22 nations have GNP greater than
the total annual sales of Mitsubishi.
Total money spent on Wal-Mart in the
world is greater than the sums of GNPs
of 161 nations.
Global firm’s management;
1. Searches the world for;
(a) Market opportunities,
(b) Threats from competitors,
(c) Sources of products, raw materials, knowledge,
innovation, and financing,
(d) Personnel,
2. Seeks to maintain a presence in key markets,
3. Looks for similarities, not differences, among
markets.
Multidomestic company
It is an organization with multicountry
affiliates, each of which formulates its
own business strategy based on
perceived market differences.
Global company
It is an organization that attemps
to standardize and integrate
operations worldwide in all
functional areas.
Functional areas
They are economic activities that can be
separated from each other; such as
advertising, research and development,
production, asemblying, procurement, etc.
Example of a global company:
Procter and Gamble→
• Sells to 5 billion people around the world,
• Operates in more than 70 countries,
• Sells its products to more than 140
countries,
• Employs 103,000 people around the
globe.
A brief history of international
business
International business existed since very early
days. Phoenicians were famous tradespeople.
Marco Polo was the first man who went to China
and came back. Britain established East India
Company in 1600 AC.
Ford Motor Company (1920), Singer Sewing
Machine Company (1868), General Motors
(1920), Chrysler (1920), General Electric (1919)
were established around hundred years ago.
Globalization forces:
•
•
•
•
•
Political forces,
Technological forces,
Market forces,
Cost pressures,
Competitive forces.
Political forces:
1. Trend towards formation of economic blocks,
such as NAFTA, EU, ASEAN.
2. Trend towards global integration. This is
encouraged by;
(a) agreements like GATT,
(b) reduction of barriers to trade and foreign
investment by governments,
(c) privatization of many state enterprises,
even in ex-communist countries.
Technological forces:
Advances in computers, communication,
transportation, mass production
techniques made globalization easier.
Market forces:
Customers are becoming more international.
Customer lifestyles, tastes, preferences
are becoming similar.
This way the market for global companies
are expanding.
Cost pressures
Economies of scale reduce the unit costs
which is one of the management goals.
Also the firm can place the production
wherever cost of production is lowest.
Competitive forces:
There is very tough global competition
among the global firms. Firms stemming
from the newly industrialized countries are
producing low-cost, high-quality products
with which firms from industrial countries
must compete.
Also firms should protect their home
markets. Thus they have to be very
efficient.
Recent developments
• There is an increase in foreign direct investment (FDI)
until 2000, and then it started decreasing.
FDI is direct investments into equipment, structures, and
organizations in a foreign country at a level that is
sufficient to obtain significant management control. It
does not include investments in the stock markets of
other countries (portfolio investment)
Management control can be achieved through;
golden share,
more than 50% ownership, and/or
appointing ther management team.
Recent developments
FDI Data:
1980
Inflows
$ 55
Outflows
54
Inward stock 699
Outward stock 564
1990
209
242
1,954
1,763
2000
1,393
1,201
6,147
5,992
2002
651
647
7,122
6,866
Recent developments
• There is an increase in the total assets of
the foreign affiliates:
Foreign affiliate data:
value
1996
Sales
$ 9,372
Total assets 11,246
Exports
1,841
Emp.
30,941
(000s)
2002
17,685
26,543
2,613
53.094
annual growth rate
1996-2000 2002
10.9% 7.4%
19.2
8.3
9.6
4.2
14.2
5.7
Recent developments
• After the Second World War, most of the
global companies were American, and
some European.
• In 1996, out of 100 largest companies, 57
are American, 24 European, and 13
Japanese.
• In 2009, the trend continues and American
share in global business is going down.
Mini-multinationals (mini-globals, or
micro-multinationals)
There are some small and medium size enterprises
becoming global companies. Their characteristics are:
1. Their annual sales are around $600 million, and they
grow very fast, like 20% a year.
2. International sales are 40-50% of their total sales.
3. Their product is often unique because of their
technology, design, cost, etc.
4. Their target customers are sharply focused.
5. They can take decisions very fastly. They have smaller
beurocracy and small number of manufacturing
locations.
6. They underline research.
7. They use foreigners in foreign operations and at the
headquarters.
Prof. Bartlett:
“Newcomers have the huge advantage of
starting fresh. They can develop much
more flexible structures.”
International firms are under the
influence of two forces:
• Uncontrollable forces: They are external
forces over which management has no
direct control, but sometimes they can
exert an influence.
• Controllable forces: They are internal
forces that management administers to
adapt to changes.
Uncontrollable forces
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Competitive – kinds and numbers of competitors, their locations, their
activities.
Distributive – national and international agencies available for distributing
goods and services.
Economic – variables such as GNP, unit labor costs, personal
consumption expenditures that influence a firm’s ability to do business.
Socioeconomic – characteristics and distribution of the human
population.
Financial – variables like interest rates, inflatin rates, tax rates.
Legal – foreign and domestic laws by which international firms must
operate.
Physical – elements of nature such as climate, topography, natural
resources.
Political – nationalism, forms of government, international organizations.
Sociocultural – elements of culture, such as, attitudes, beliefs, opinions.
Labor – composition, skills, attitudes of labor.
Technological – the technical skills and equipment that affect how
resources are converted into products.