Section I: Firm Assessment & Planning Review the Firm’s Key Products and/or Services – When going global, questions should be asked such as, “What products and/or services do we offer? And “Of these products and/or services, which are the most profitable?”. However, it is also a good idea to identify any products and/or services that may not be profitable or slowing in sales volume in the home market. Such items may be key to entering host markets. For example, products and/or services that the firm finds obsolete or antiquated may still be of marketable value in host markets, thus extending the Product Life Cycle of such products (Example: Older Volkswagen Beetle model in Mexico). Review Differentiation and “Universality” – It is important to audit the firm to identify differentiation points in relation to domestic competitors. Such differentiation points may be useful in competing globally with both competitors in the home and host markets including local competitors in the host market. Develop a “Global” Plan – It is important to develop a plan as to what steps will be taken in order to “Go Global”. Included in this plan should be steps that will be necessary to prepare the firm to launch global activities, actions that must be taken once global activities have commenced, and operation plans for host markets including contingency plans in order to maintain flexibility in host markets in a much similar fashion to flexibility in local markets. Review Production Standards and Capital Requirements – It is important to review the production standards and capital (Human, Mechanical, and Financial) requirements associated with the products and/or services a firm wishes to take global. By doing so, a firm could increase its understanding of the resource availability in a host market when making production, distribution, and pricing decisions. Assess SWOT and BCG Analyses – Many firms conduct a SWOT Analysis in order to create strategy maps for domestic operations. Such maps pair internal Strengths and Weaknesses with external Opportunities and Threats to allow the firm to more effectively compete in the domestic market. A similar analysis should be completed with special focus on the host market(s) in which a firm plans to enter to provide a preliminary sense of the means by which a firm may compete in these host markets. Both domestic and global analyses could be compared to ascertain as to if there are parallels between the analyses which may used to the firm’s advantage. The Boston Consulting Group (BCG) Matrix is another good tool for determining where a firm’s offerings are positioned in relation to the market. This analysis may be valuable when determining which offerings to take global. Find Reliable Sources of Information – When conducting research, it is important to find reliable and legitimate sources. Examples of such resources include the U.S. Bureau of Labor Statistics (BLS), The Economic Intelligence Unit (EIU), The CIA World Factbook, and the U.S Census Bureau just to name a few. Also, college and university research libraries are good sources to find journals and periodicals. Websites such as Hoover’s Online and the Business and Company Resource Center may also be of use as these sites provide profiles and dossiers of companies in a variety of industries.
Section II: Geopolitical Factors of Global Business Review the Legal System and Structure in Host Markets – It is important to review the legal system and structure when considering global activities. The strength of the legal system, penal code, business laws, ICJ (International Court of Justice) jurisdiction should all be reviewed when considering potential host markets. A firm’s senior management should also consider the ability of law enforcement in a host market to enforce laws. Legal codes may be strong on paper, but may lack the enforcement and support that such codes require to be effective (Example: Federales in Mexico). Review Business Laws in a Prospective Host Market – Business Law is a very important issue when considering host markets. A key component to consider is the Foreign Corrupt Practices Act, which DEFINE. Also, business laws in a prospective host market may greatly affect the operational capacity of a firm participating in the market (Example: Coca-Cola in India and “Thumbs Up”, Japanese Automakers and Tariffs/U.S. retaliation). Review the Political Climate in a Particular Host Market – Political stability is very important to a firm’s potential success in host markets. If the government and infrastructure are unsteady and/or outright volatile, this may lead to significant problems for operations. (Examples: Iran Contra and EDS and Collapse of the Soviet Union). It is also important to examine a prospective host market in terms of national relations with neighboring nations and with the international community (U.N., WTO, ICJ, World Bank, IMF, etc.).
Sector III: Economic Factors of Global Business Consider International Trade Conditions – It is highly recommended that a firm’s senior management examine prospective host markets with particular attention to the regional and multinational trade agreements in which the host nation participates (Example: NAFTA, FTAA, EU, ASEAN, MERCUSOR, etc.) Consider Currency Fluctuations, Inflation, Banking Institutions, and Economic Volatility – The lifeblood of commerce lies in the degree of faith citizens place in the value of currency. This is often referred to as “Fiat Confidence”. This confidence in currency value is a key component of strong and steady economic growth. Rapid changes in prices brought on by inflation or in some nations “Hyper” inflation may cause significant problems. Further, the ease with which a firm is able to transact business, transfer funds, and pay creditors is key to competitiveness and profitability in host markets (Example: Hyperinflation in Serbia). Some nations attempt to control currency values (such as in communist nations) and in other nations, in order to stave off inflation or other monetary policy issues, the government presses for currency “pegging” in which the nation’s currency is tied to or “pegged” to another nation’s currency (Example: Chinese currency being pegged to the U.S. dollar). Review the Economic System and Tax Rates and Collection Conditions – It is vital to understand the type of economic system in which a host nation operates (Free-Market, Central Planning, Religious, Mixed, etc.) when making decisions related to global activities. The economic system of a host nation can and often do directly affect general attitudes that the national government takes toward Direct Foreign Investment (DFI), employment practices (ease of transition and/or lifetime employment), and the general scope of operations. Another strong issue to consider is the tax collection issue. Some national economic systems (such as Sweden and France) have high marginal taxes, which certainly affect financial report standards for firms conducting business on a global scale (Example: Russian Tax Collection). Furthermore, in nations with high marginal taxes, the workforce has experienced a downturn in recent years as in these nations, national subsidies compensate an unemployed person up to 80% of his/her salary that would be made from working. That being the case, the motivation and desire to work and be employed has decreased as well. Consider Purchasing Power Parity (PPP), Income Distributions, Balance of Trade, and Gini Index – Another group of indicators to consider are Purchasing Power Parity (PPP), which is a measure of per capita income. This indicator will allow a firm’s senior management to determine if the products and/or services that the firm wishes to take global can be afforded by consumers in the host market. (Example: U.S. vs. Mexico PPP). The Gini Index measures how income is distributed throughout a geographic area (nation, region, etc.) and may provide a better conceptual prospective of the average income level in a particular market. (Example: US. Gini Index vs. India Gini Index). This is important because if after reviewing the Gini Index for a host market senior management finds that there is a high concentration of low-income wage earners in the prospective host market, it would not make sense to attempt to enter the market with a high end product. With regard to Balance of Trade, this indicator is equal to the difference between import and exports of a nation or “Net Exports”. If a nation exports more than it imports, then the nation is said to have a “Trade Surplus” and if a nation exports less than it imports, then the nation is said to have a “Trade Deficit”. It is important to pay close attention to the Balance of Trade because this indicator may indicate the degree of willingness a host nation’s government may have in terms of receptiveness to imports of foreign goods and/or increased DFI in the market.
Sector III: Economic Factors of Global Business (Continued) Review the Economic Mix – The economic mix within a nation or host market is the breakdown of the nation’s economy into three general categories, Agriculture, Production, and Services. For the most part, nations with higher concentrations of services in the economic mix tend to be more receptive to new technological products entering the market whereas nations with high concentrations of agriculture in the economic mix tend to be more receptive to more basic life essential products (such as foodstuffs, cotton, and fertilizer) entering into the market. Understanding the Ease of Removing Foreign-Based Earnings – It is important that senior management understand how the national government of the host market views the earnings of foreign owned firms when the earnings are earned in the host market. Many countries require that a percentage or all of the earnings that a foreign owned corporation acquires in the host market be reinvested in the host market or the earnings be used to purchase host market based products and/or services (Example: Required reinvestment in Russia). Maintaining control over transition of earnings out of a host market allows the government in the host market to practice a more aggressive fiscal ad monetary policy in order to hedge against inflation. Review Debt Financing Conditions in Potential Host Markets – In many nations, either due to government restrictions or due to religious beliefs, debt financing and the concept of credit may not be welcome. Further, loaning money, what is often called “Usury” is not permitted in some nations. (Example: Islamic Republics). Review Logistics and Infrastructure in Potential Host Markets – It is vital to review the infrastructure within a potential host market (Telecommunications Network, Sea Ports, Road System, Airports, Information Management and Transport Capability, etc.) prior to selecting host markets for which to enter. If logistics are inadequate or if the telecommunications network is not sufficient to support rapid and reliable communication, a firm may find itself in a very difficult situation when attempting to conduct and transact business in a host market with poor infrastructure.
Section IV: Socio-Cultural Factors of Global Business Review the Host Market’s Hofstede Dimensions – When comparing and contrasting the culture of the home (domestic) and host (foreign) markets, it is important to understand the cultural difference between the two markets. The Hofstede Dimensions assist with this comparison. Hofstede’s Dimensions cover 5 broad areas: Hofstede criteria include: Uncertainty Avoidance, Power Distance, Masculinity vs. Femininity, Long-Term vs. Short-Term Orientation, and Individualism vs. Collectivism. Review Local Customs and Norms – When reviewing potential host markets for products/services, the firm’s senior management should also examine the local customs and norms of a host market. These customs and norms reveal more information about the Values System in the host market as well as the social norms or socially accepted behaviors of everyday life. (Example: Bowing in Japan) Review Symbols and Historical Events – The firm’s senior management should understand symbolism and history when reviewing potential host markets. This is especially important when desiring not to insult or offend consumers in the prospective host market. (Example: Given cresantimums in Europe or giving white colored items in Japan). Assess the Typical Uses for Products – Understanding how products may be perceived in prospective markets not only reveals more information as to how new products may be received, but it also allows a firm’s senior management to adjust marketing strategies in potential host markets to focus more intensely on consumer needs in such markets (Example: Washing Machines in India). Review Channels of Marketing and Advertising – When assessing culture, it is recommended that a firm’s senior management and the firm’s Marketing Department understand how marketing is carried out in a particular host market. Questions such as “Is television widely watched in this market? And “Would print advertising be effective?” should be answered in this phase. (Example: Telephone surveys in the Middle East).
Section V: Finding A Partner Develop Risk Comfort Level – When going global, the firm’s senior management must determine and clarify the firm’s comfort level with risk as the risk comfort level may influence the mode of entry that senior management decides to pursue (Import Export, Licensing/Franchising, Joint Ventures, and Wholly-Owned Subsidiary). Cost Effectiveness and government regulations are also important to consider when assessing risk (Example: Chinese Government and Joint Ventures). Review Potential Partners’ Management Style – It is important to understand how potential partners in prospective host markets manage their firm(s). Such management styles may fit well with the home firm’s management style in which case, operation facilitation and management transition and assimilation should be less difficult. On the other hand, management styles may clash and may result in the home firm being forced to find an alternative partner in the host market (Example: Japanese vs. U.S. management). Determine Worth of a Potential Partner – Determining the worth or reputation of potential partners is highly beneficial to a firm that wishes to go global. A firm’s senior management will want to develop entry avenues into potential host markets with strong and socially well-liked franchise or joint venture partners. Doing so could prove to be very profitable for both the home firm and its host partners
Section VI: Facilitating Operations Assess Logistics in the Host Market – Logistics systems are highly important in facilitating global operations. When selecting a potential host market, it is important that when reviewing the infrastructure, that senior management also focuses on the various logistical functions within the market including Shipping, Trucking, Air, and Multi-Modal means of transportation. Along with business partners in the host market, it would be wise for the firm’s senior management to develop logistical partnerships as well in order to better facilitate operations. Develop International Professionals – It is always a good idea for a firm to develop a core of professionals that are knowledgeable in the area of international business and particularly in the host markets in which a firm plans to enter. One way to develop the group of professionals is to select personnel to be sent to these host markets in order to manage operations. These managers are referred to as “expatriates” (or “expats”) and are often given training in culture, language, and other social areas of the host culture before departing the U.S. Also, training is extended to the expatriate manager’s family as well to assist family members in adjusting to the new culture. For some expatriate managers who re-enter the U.S. after an extended international assignment, repatriation into the social culture sometimes becomes difficult but necessary. Design Foreign Accounting Systems – Often, accounting practices in other nations are sometimes similar but not exactly the same as in the U.S. That being the case, it is important for the firm’s senior management in conjunction with the firm’s Finance Department to develop appropriate accounting practices and bookkeeping procedures to account for such differences as often the differences in accounting practices do not necessarily comply or are compatible with Generally Accepted Accounting Principles (GAAP). Design Contingency Plans – Many firms in the U.S. maintain contingency plans to make necessary adjustments in the event that the day-to-day flow of operations is interrupted by such issues as natural disasters, data loss, and system downtime. On the same token, it is important for a firm’s senior management to develop and deploy similar comprehensive plans for a firm’s global operations as well. It is also key to take into account that when conducting global operations, the locus of control that is present in the home country operations will be altered somewhat in terms of global operations. Develop Local Resource/Service Provider Agreements – When conducting global operations, it is often in the best interests of the home firm to develop agreements with local resource providers in the host market. Doing so could make acquisition of key resources more readily available than if the resources were acquired in the home market and then sent to the host market for deployment. Further, developing agreements with local providers may allow the home firm to take advantage of cost differentials and favorable conditions in the host market (Example: McDonald’s agreements with local farmers in Russia to supply vegetables). Maintain Proper Business Ethics and Social Responsibility – In recent years, issues have come to light regarding human rights violations and other ethically sketchy behavior by firms operating globally (as well as domestically). It is of the utmost importance that a firm complies with proper ethical conduct and social responsibility when conducting global operations (Example: Nike in Asia). Such compliance includes accounting guidelines, legal compliance, and disciplinary action policies for offenders of pre-established corporate Codes of Ethics.
“ Going Global” A Review of Managing in the Global Business Environment Presented By: Justin Gates, MBA Thursday, January 25, 2007
Introduction <ul><li>Many times, firms of various sizes desire to </li></ul><ul><li>expand their service footprint and to move into the </li></ul><ul><li>global marketplace. However, this desire is </li></ul><ul><li>sometimes hampered by senior management’s </li></ul><ul><li>lack of foresight and/or planning in terms of </li></ul><ul><li>developing an effective global strategy. The </li></ul><ul><li>purpose of this seminar is to highlight some of the </li></ul><ul><li>major issues associated with global expansion that </li></ul><ul><li>every firm, regardless of size or offering, should be </li></ul><ul><li>aware of when considering “Going Global”. </li></ul>
Home vs. Host Market <ul><li>Home/Domestic Market (Nation, Country) – The country of origin for a firm or the nation from which foreign interest and/or investment originates. </li></ul><ul><li>Host/Foreign Market (Nation, Country) – The country in which a firm desires to invest, often in the form of Direct Foreign Investment (DFI). </li></ul>
Section I: Firm Assessment and Planning <ul><li>Review the Firm’s Key Products and/or Services </li></ul><ul><li>Review Differentiation and “Universality” </li></ul><ul><li>Develop a “Global” Plan </li></ul><ul><li>Review Production Standards and Capital Requirements </li></ul><ul><li>Assess SWOT and BCG Analyses </li></ul><ul><li>Find Reliable Sources of Information </li></ul>
Section II: Geopolitical Factors of Global Business <ul><li>Review the Legal System and Structure in Host Markets </li></ul><ul><li>Review Business Laws in a Prospective Host Market </li></ul><ul><li>Review the Political Climate in a Particular Host Market </li></ul>
Sector III: Economic Factors of Global Business <ul><li>Consider International Trade Conditions </li></ul><ul><li>Consider Currency Fluctuations, Inflation, Banking Institutions, and Economic Volatility </li></ul><ul><li>Review the Economic System and Tax Rates and Collection Conditions </li></ul><ul><li>Consider Purchasing Power Parity (PPP), Gini Index, and Balance of Trade </li></ul>
Sector III: Economic Factors of Global Business (Continued) <ul><li>Review the Economic Mix </li></ul><ul><li>Assess the Ease of Removing Foreign-Based Earnings </li></ul><ul><li>Review Debt Financing Conditions in Potential Host Markets </li></ul><ul><li>Review Logistics and Infrastructure in Potential Host Market </li></ul>
Section IV: Socio-Cultural Factors of Global Business <ul><li>Review Each Prospective Host Market’s Hofstede Dimensions </li></ul><ul><li>Review Local Customs and Norms </li></ul><ul><li>Review Symbols and Historical Events </li></ul><ul><li>Assess the Typical Uses for Products </li></ul><ul><li>Review Channels of Marketing and Advertising </li></ul>
Section V: Finding A Partner <ul><li>Develop Risk Comfort Level </li></ul><ul><li>Review Potential Partners’ Management Style </li></ul><ul><li>Determine the Worth of a Potential Partner </li></ul>
Section VI: Facilitating Operations <ul><li>Assess Logistics in Each Prospective Host Market </li></ul><ul><li>Develop International Professionals </li></ul><ul><li>Design and Deploy Foreign Accounting Systems </li></ul><ul><li>Design Contingency Plans </li></ul><ul><li>Develop Local Resource/Service Provider Agreements </li></ul><ul><li>Maintain Proper Business Ethics and Social Responsibility </li></ul>
Want More Information? <ul><li>The following websites provide additional </li></ul><ul><li>insight into the seminar material and on </li></ul><ul><li>international business. </li></ul><ul><li>Executive Planet – http://www.executiveplanet.com </li></ul><ul><li>U.S. Council for International Business – http://www.uscib.org </li></ul><ul><li>International Business Center – Michigan State University – http://ciber.msu.edu </li></ul><ul><li>The Economist – Country Briefings – http:// www.economist.com /countries </li></ul>
About the Presenter <ul><li>Justin Gates is serving as Special Projects Manager </li></ul><ul><li>for United Information Technologies (UIT), a </li></ul><ul><li>provider of Consulting, Staffing, and Training </li></ul><ul><li>services. He holds an MBA with a concentration in </li></ul><ul><li>Administrative (Strategic) Management along with a </li></ul><ul><li>Magna Cum Laude BBA with concentrations in both </li></ul><ul><li>International Business as well as Economics. Justin’s </li></ul><ul><li>research interests include Broadband Telecom, </li></ul><ul><li>International Trade, and Comparative Economic Systems. Justin is a </li></ul><ul><li>member of Omicron Delta Epsilon, a Certified Manager (CM), and he </li></ul><ul><li>has visited international operations sites forsome of the world’s most </li></ul><ul><li>well known companies including Volkswagen and Johnson Controls. </li></ul>