Chapter 1

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Chapter 1

  1. 1. Chapter 1Multinational Management in aChanging World Copyright© 2007 Thomson Learning All rights reserved
  2. 2. Learning Objectives•• Define multinational management Define multinational management•• Understand the characteristics of a multinational Understand the characteristics of a multinational company company•• Understand the nature of the global economy and the Understand the nature of the global economy and the key forces that drive globalization key forces that drive globalization•• Know the basic classification of the world’s economies Know the basic classification of the world’s economies•• Identify the characteristics of the next generation of Identify the characteristics of the next generation of multinational managers multinational managers Copyright© 2007 South-Western/Thomson Learning All rights reserved
  3. 3. Multinational Management•• Formulation of strategies and management systems to Formulation of strategies and management systems to take advantage of international opportunities and take advantage of international opportunities and respond to international threats respond to international threats Copyright© 2007 South-Western/Thomson Learning All rights reserved
  4. 4. The Nature of The Multinational Company•• Any company that engages in business functions Any company that engages in business functions beyond its domestic borders beyond its domestic borders•• Includes both large and small companies Includes both large and small companies Copyright© 2007 South-Western/Thomson Learning All rights reserved
  5. 5. Exhibit 1.1 – The LargestCompanies in the World Copyright© 2007 South-Western/Thomson Learning All rights reserved
  6. 6. Exhibit 1.2 – The 15 cities WithThe Most Fortune Global 500Companies Copyright© 2007 South-Western/Thomson Learning All rights reserved
  7. 7. The Globalizing Economy•• Globalization: the worldwide trend of the economies of Globalization: the worldwide trend of the economies of the world becoming borderless and interlinked. the world becoming borderless and interlinked. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  8. 8. Negatives of Globalization•• Not all economies of the world are benefiting equally or Not all economies of the world are benefiting equally or participating equally in the process. participating equally in the process.•• Terrorism, wars, and a worldwide economic stagnation Terrorism, wars, and a worldwide economic stagnation have limited or reversed some aspects of globalization. have limited or reversed some aspects of globalization.•• Producing negative effects such as scarcity of natural Producing negative effects such as scarcity of natural resources, environmental pollution, negative social resources, environmental pollution, negative social impacts, and increased interdependence of the world’s impacts, and increased interdependence of the world’s economies. economies.•• Widening the gap between rich and poor countries Widening the gap between rich and poor countries Copyright© 2007 South-Western/Thomson Learning All rights reserved
  9. 9. The Benefits of Globalization•• Resulting in lower prices in many countries as Resulting in lower prices in many countries as multinationals are becoming more efficient. multinationals are becoming more efficient.•• Benefiting many emerging markets such as India and Benefiting many emerging markets such as India and China as these countries enjoy greater availability of China as these countries enjoy greater availability of jobs and better access to technology. jobs and better access to technology.•• Major reason why many new companies from Mexico, Major reason why many new companies from Mexico, Brazil, China, India, and South Korea are the new Brazil, China, India, and South Korea are the new dominant global competitors. dominant global competitors. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  10. 10. The Globalizing Economy: 7 Key Trends•• Disintegrating borders Disintegrating borders•• Growing cross-border trade and investment Growing cross-border trade and investment•• The rise of global products and global customers The rise of global products and global customers•• The internet and information technology The internet and information technology•• Privatizations Privatizations•• New competitors in the world market New competitors in the world market•• The rise of global standards of quality and production The rise of global standards of quality and production Copyright© 2007 South-Western/Thomson Learning All rights reserved
  11. 11. Countries of the World: The Arrived, The Coming, and The Struggling•• Developed countries: mature economies with Developed countries: mature economies with substantial per capita Gross Domestic Product, substantial per capita Gross Domestic Product, international trade and investments. international trade and investments.•• Developing countries: economies that have grown Developing countries: economies that have grown extensively over past two decades extensively over past two decades •• E.g., Hong Kong, Singapore, South Korea. E.g., Hong Kong, Singapore, South Korea. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  12. 12. Countries of the World: The Arrived, The Coming, and The Struggling•• Transition economies: countries that have changed Transition economies: countries that have changed from mostly communist systems to from mostly communist systems to market/capitalistic systems market/capitalistic systems •• E.g., Czech republic, Hungary, Poland. E.g., Czech republic, Hungary, Poland.•• Emerging markets: those countries that are currently Emerging markets: those countries that are currently between developed and developing countries and between developed and developing countries and are rapidly growing are rapidly growing •• E.g., India, China, Brazil, and Russia. E.g., India, China, Brazil, and Russia. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  13. 13. Countries of the World: The Arrived, The Coming, and the Struggling•• Less developed countries: have yet to show much Less developed countries: have yet to show much progress in the global economy progress in the global economy •• Most are located in Central and South America and Most are located in Central and South America and Africa. Africa. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  14. 14. Exhibit 1.3: Divisions of theWorld’s Economies Copyright© 2007 South-Western/Thomson Learning All rights reserved
  15. 15. Exhibit 1.4: Forces DrivingGlobalization Copyright© 2007 South-Western/Thomson Learning All rights reserved
  16. 16. Borders are Disintegrating: The World Trade Organization•• Formal structure for continued negotiations and for Formal structure for continued negotiations and for settling trade disputes among nations. settling trade disputes among nations. •• 1947 Nations met to reduce tariffs from 45% to less 1947 Nations met to reduce tariffs from 45% to less than 7% -- resulted in the General Agreement on than 7% resulted in the General Agreement on Tariffs and Trade (GATT). Tariffs and Trade (GATT). •• 1986 Negotiations began in Uruguay to continue 1986 Negotiations began in Uruguay to continue reducing tariffs. reducing tariffs. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  17. 17. World Trade Organization•• 1997 – Trade ministers from countries representing 92 1997 – Trade ministers from countries representing 92 % of world trade agreed to eliminate tariffs on % of world trade agreed to eliminate tariffs on software, computer chips, telecommunication software, computer chips, telecommunication equipment and computers. equipment and computers.•• WTO has some critics. WTO has some critics.•• Not all countries are participating equally in WTO. Not all countries are participating equally in WTO. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  18. 18. Regional Trade Agreements•• Regional Trade Agreements -- agreements among Regional Trade Agreements agreements among nations to reduce tariffs and develop similar technical nations to reduce tariffs and develop similar technical and economic standards. and economic standards.•• European Union (EU) -- includes a large number of European Union (EU) includes a large number of European countries. European countries. •• Allows free movement of goods and services and a Allows free movement of goods and services and a common currency. common currency. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  19. 19. Regional Trade Agreements•• The North American Free Trade Agreement (NAFTA): The North American Free Trade Agreement (NAFTA): links United States, Canada, and Mexico in an links United States, Canada, and Mexico in an economic bloc. economic bloc. •• Allows freer exchange of goods and services Allows freer exchange of goods and services•• The Asia-Pacific-Economic Cooperation (APEC): The Asia-Pacific-Economic Cooperation (APEC): looser confederation of 19 Asian nations with less looser confederation of 19 Asian nations with less specific agreements on trade facilitation. specific agreements on trade facilitation. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  20. 20. Sell Anywhere, Locate Anywhere•• World trade growth: average of 6.5% per year between World trade growth: average of 6.5% per year between 1990 and 2000. 1990 and 2000.•• Nearly half of the over $5 trillion in world trade is Nearly half of the over $5 trillion in world trade is among the European union, the U.S., and Japan – the among the European union, the U.S., and Japan – the TRIAD. TRIAD. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  21. 21. Exhibit 1.6 – Leading Exportingand Importing Countries Copyright© 2007 South-Western/Thomson Learning All rights reserved
  22. 22. Sell Anywhere, Locate Anywhere•• Foreign Direct Investment (FDI) :: occurs when a Foreign Direct Investment (FDI) occurs when a multinational company from one country has an multinational company from one country has an ownership position located in another country. ownership position located in another country.•• FDI increased by more that 36% between 1996 and FDI increased by more that 36% between 1996 and 2000. 2000.•• Post 9/11 has seen a decline in FDI. Post 9/11 has seen a decline in FDI.•• Nevertheless, it remains a significant factor. Nevertheless, it remains a significant factor. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  23. 23. Exhibit 1.7: The Growth of FDI in aFew Emerging Markets andSelected Developed Countries Copyright© 2007 South-Western/Thomson Learning All rights reserved
  24. 24. Foreign Direct Investment•• Developed countries get the bulk of FDI (69%) while Developed countries get the bulk of FDI (69%) while developing countries get around 30%. developing countries get around 30%.•• Least developed countries get minimal FDI. Least developed countries get minimal FDI.•• Implications for managers -- significant opportunities Implications for managers significant opportunities around the world. around the world.•• Multinational managers should look at risk rating of Multinational managers should look at risk rating of countries. countries. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  25. 25. Two Types of Risks•• Economic risk: considers all factors of a nation’s Economic risk: considers all factors of a nation’s economic climate that may affect a foreign investor. economic climate that may affect a foreign investor.•• Political risk: anything a government might do or not do Political risk: anything a government might do or not do that might adversely affect a company. that might adversely affect a company. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  26. 26. Factors Outside of The Control of The Multinational•• The recent increases in oil prices have the potential to The recent increases in oil prices have the potential to slow down global trade slow down global trade•• Natural disasters Natural disasters•• International terrorism International terrorism Copyright© 2007 South-Western/Thomson Learning All rights reserved
  27. 27. The Internet and Information Technology•• Electronic Communication -- E-mail, World Wide Electronic Communication E-mail, World Wide Web,etc. Web,etc. •• Allows multinationals to communicate with company Allows multinationals to communicate with company locations throughout the world. locations throughout the world. •• Multinationals can also monitor worldwide Multinationals can also monitor worldwide operations. operations.•• Information technology is spurring a borderless Information technology is spurring a borderless financial market. financial market. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  28. 28. The Internet and Information Technology•• Information technologies make available many new Information technologies make available many new tools that facilitate business operations tools that facilitate business operations •• E.g., Voice-Over-Internet Protocol (VOIP) such as E.g., Voice-Over-Internet Protocol (VOIP) such as Skype, MSN Messenger and AOL, WIKIs Skype, MSN Messenger and AOL, WIKIs Copyright© 2007 South-Western/Thomson Learning All rights reserved
  29. 29. The Rise of Global Products and Global Customers•• The needs of customers for many products and The needs of customers for many products and services are growing more similar services are growing more similar •• E.g., McDonald’s, Boeing, Toyota. E.g., McDonald’s, Boeing, Toyota.•• Global customers search the world for their supplies Global customers search the world for their supplies without regard for national boundaries. without regard for national boundaries. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  30. 30. Privatization•• Sale of government-owned businesses to private Sale of government-owned businesses to private investors, investors, •• usually through stock or direct sale to other usually through stock or direct sale to other companies. companies.•• Two types of privatization contribute to the global Two types of privatization contribute to the global economy – the developed world and the developing economy – the developed world and the developing world. world. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  31. 31. Privatization - Types•• The Developed Countries The Developed Countries •• Use privatization to make formerly government- Use privatization to make formerly government- controlled enterprises more competitive in the global controlled enterprises more competitive in the global economy. economy.•• The Developing Countries The Developing Countries •• Use privatization to jump-start their economies or to Use privatization to jump-start their economies or to speed the transition from a communist to a capitalist speed the transition from a communist to a capitalist system. system. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  32. 32. New Competitors•• Free market reforms are creating a potential group of Free market reforms are creating a potential group of new competitors. new competitors.•• Korean, Russian, Taiwanese, and Mexican companies Korean, Russian, Taiwanese, and Mexican companies are all emerging. are all emerging.•• Chinese companies are also on the move. Chinese companies are also on the move. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  33. 33. Exhibit 1.9: Top 25 EmergingMarket Economies Copyright© 2007 South-Western/Thomson Learning All rights reserved
  34. 34. New Competitors are Emerging•• Global trade has two important effects in developing Global trade has two important effects in developing new competitors: new competitors: •• When developing countries are used as low-wage When developing countries are used as low-wage platforms for high-tech assembly, multinationals platforms for high-tech assembly, multinationals facilitate the transfer of technology. facilitate the transfer of technology. •• Aggressive multinationals are also expanding Aggressive multinationals are also expanding beyond their own borders. beyond their own borders. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  35. 35. The Rise of Global Standards•• Companies can make 1 or only a few versions of Companies can make 1 or only a few versions of product for the world market. product for the world market.•• This is cheaper than making different versions for This is cheaper than making different versions for different countries. different countries.•• Drive to develop common standards to save money. Drive to develop common standards to save money. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  36. 36. Global Standards•• Consistency in quality also an important requirement of Consistency in quality also an important requirement of doing business in many countries. doing business in many countries.•• International organization for standardization (ISO) in International organization for standardization (ISO) in Geneva, Switzerland Geneva, Switzerland •• Developed a set of technical standards (ISO Developed a set of technical standards (ISO 9001:2000 series). 9001:2000 series). Copyright© 2007 South-Western/Thomson Learning All rights reserved
  37. 37. Next Generation of Multinational Managers: Characteristics•• Global mindset Global mindset•• Ability to work with people from diverse backgrounds Ability to work with people from diverse backgrounds•• Long-range perspective Long-range perspective•• Ability to manage change and transition Ability to manage change and transition•• Ability to create systems for learning and changing Ability to create systems for learning and changing organizations organizations Copyright© 2007 South-Western/Thomson Learning All rights reserved
  38. 38. Next Generation of Multinational Managers: Characteristics•• Talent to motivate all employees to achieve excellence Talent to motivate all employees to achieve excellence•• Accomplished negotiation skills Accomplished negotiation skills•• Willingness to seek overseas assignments Willingness to seek overseas assignments•• Understanding of national cultures Understanding of national cultures Copyright© 2007 South-Western/Thomson Learning All rights reserved
  39. 39. Multinational Management: A Strategic Approach•• Considers how managers formulate and implement Considers how managers formulate and implement strategies to compete successfully in the global strategies to compete successfully in the global economy. economy.•• Strategies are the maneuvers or activities used to Strategies are the maneuvers or activities used to increase and sustain organizational performance. increase and sustain organizational performance.•• Multinational strategies must include maneuvers that Multinational strategies must include maneuvers that deal with operating in more than one country and deal with operating in more than one country and culture. culture. Copyright© 2007 South-Western/Thomson Learning All rights reserved
  40. 40. Trends Shaping Future Business Environment•• Blurring of industry boundaries Blurring of industry boundaries•• Flexibility matters more than size Flexibility matters more than size•• Focusing on niche Focusing on niche•• Hyper-competition Hyper-competition•• Emphasis on innovation and the learning organization Emphasis on innovation and the learning organization Copyright© 2007 South-Western/Thomson Learning All rights reserved
  41. 41. Conclusion•• Chapter provides key background information to Chapter provides key background information to support study of multinational management support study of multinational management•• Chapter also provides the foundation to understand the Chapter also provides the foundation to understand the latest challenges and practices of multinational latest challenges and practices of multinational management management•• Field is dynamic and learning never stops Field is dynamic and learning never stops Copyright© 2007 South-Western/Thomson Learning All rights reserved

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