POB lecture 7

1. Principles of Business
Global Business Models – Part 1

2. Overview
2
• Overview of the key trends of globalisation;
considering different FDI routes to market
• What are the factors and costs involved that drive
global business
• Describe the cultural factors that affect global
business (using Hofestede’s Cultural Framework)
• Critically evaluate different legal systems and the
implications on global business models
• Consider the role of trade barriers and
uncompetitive business practises across the world
• Detail the different forms of international business
activity

3. Learning Outcomes
3
• Explain the role of global business and effects of
culture and legal systems
• Critically evaluate why nations and companies
trade and describe how international trade is
measured
• Discuss the nature of conflicts in global business,
including free trade and government interventions
• Define the major forms of business activities
internationally

4. Global Competitiveness
View video: http://www.youtube.com/watch?v=-2547RlpEIM

5. Top Trading Countries
Source: World Economic Forum, 2013

6. Global Trade: Overview
Source: World Economic Forum, 2013

7. Global Inflows/Outflows
Source: World Economic Forum, 2013

8. Regional Trade
Source: Daniels et al,, 2013

9. Regional Trade
Source: World Economic Forum, 2013

10. Global Business Model to Market
Source: Daniels et al, 2013

11. Forms of International Business Activity
Importing
Purchasing goods
or services from
another country
and bringing them
into one’s own
country
Exporting
Selling and
shipping goods or
services to
another country
Licensing
Agreement to
produce and market
another company’s
product in exchange
for a royalty or fee
Foreign Direct
Investment
Investment of
money by foreign
companies in
domestic business
enterprises
Multinational
Corporations
Companies with
operations in
more than one
country

12. Global Organisation Structures
Source: Daniels, 2013

13. Geographic & Division Structure
Source: unc.edu

14. Matrix Structure at Unilever
Source: Emeraldinsight.com

15. • Problem areas that can hinder managers’ cultural
awareness…
– Subconscious reactions to circumstances
– The assumption that all societal subgroups are similar
• Managers that educate themselves about other cultures
have a greater chance of succeeding abroad
Culture and Global Business
• The nation is a useful definition of society because similarity
among people is a cause and an effect of national
boundaries
– laws apply primarily along national lines
– language and values are shared within borders
– rites and symbols are shared along national lines

16. Hofstede’s Cultural Dimensions
• Geert Hofstede
• Dutch management
researcher
• Gathered data from 100,000
IBM employees
• Wanted to determine values
on which cultures vary
• Surveyed workers from 50
countries and 3 regions
• Concluded that there are five
dimensions used to differentiate
and rate cultures
Geert Hofstede
Source: www.geerthofstede.com

17. Hofstede’s Cultural Dimensions
• How people define themselves
and their relationship to others
• Individualist
• Believe individual is most
important
• Stress independence over
dependence
• Collectivist
• Views, needs and goals of
group most important
• Obligation to the group is
the norm
• Self is defined in relation to
others
Individualism/Collectivism Uncertainty Avoidance
• People within a culture are
made nervous by situations
which they percieve as
unstructured, unclear and
unpredictable
• High Uncertainty Avoidance
• Avoid ambiguity
• Strict code of behavior
• Belief in absolute truths
• Low Uncertainty Avoidance
• Accept ambiguity and lack
of structure
• More inclined to take risks
• Rules are rejected or
ignored

18. Hofstede’s Cultural Dimensions
• Extent to which people view
inequality as normal
• High Power Distance
• Power is scarce resource
• Natural and inevitable
• Centralisation of power
• Low Power Distance
• Minimal power differences
• Power can be achieved
through work
• Superiority not rigid
Power Distance Masculinity-Femininity
• Relationship between gender
and sex-appropriate behaviour
• Masculinity
• Distinct roles
• Men are assertive,
ambitious and competitive
• Women are supportive and
nurturing
• Femininity
• Fewer rigid gender roles
• Men and women are more
equal
• Interpersonal relationships

19. Hofstede’s Cultural Dimensions
• Long-term orientation
• Savings
• Do anything to achieve a
goal
• “Eye on the prize”
• Short-term orientation
• Immediate gratification
• “Make money, spend
money”
• Less willing to sacrifice
Long-term/Short-terms

20. Managing Cultural Differences
• Do managers have to alter
their customary practices to
succeed in countries with
different cultures?
• Must consider
– Host society acceptance
– Degree of cultural
differences
• cultural distance
– Ability to adjust
• culture shock and
reverse culture shock
– Company and management
orientation
• Three company and
management orientations
– Polycentrism
• business units abroad
should act like local
companies
– Ethnocentrism
• home culture is
superior to local
culture
• overlook national
differences
– Geocentrism
• integrate home and
host practices

21. The Legal Environment
• The legal system is the mechanism for creating,
interpreting, and enforcing the laws in a specified
jurisdiction
Source: Daniels et al, 2013

22. Trends in Legal Systems
• What is the basis of rule in a country?
– The rule of man
• legal rights derive from the individual who
commands the power to impose them
• associated with a totalitarian system
– The rule of law
• systematic and objective laws applied by
public officials who are held accountable for
their administration
• associated with a democratic system

23. Trends in Legal Systems
The Worldwide Practice of the Rule of Law
Source: Daniels et al, 2013

24. Flow of Goods and Services Globally
Source: Daniels et al, 2013

25. Economic Rationales for Government
Intervention
• Why governments intervene in trade
– Economic rationales
• Fighting unemployment
• Protecting infant industries
• Promoting industrialization
• Improving comparative position
– Non-economic rationales
• Maintaining essential industries
• Promoting acceptable practices abroad
• Maintaining or extending spheres of influence
• Preserving national culture

26. Tariff and Non-Tariff Barriers
• Tariffs are also known as
duties
– refer to a government
levied tax on goods
shipped internationally
• Tariffs may be levied
– on goods entering,
leaving, or passing
through a country
– for protection or revenue
– on a per unit basis or a
value basis
• export tariffs
• transit tariffs
• import tariffs
• Subsidies
– direct assistance to
companies to make
them more competitive
• agricultural subsidies
• overcoming market
imperfections
• valuation problems
• Aid and loans
– tied
– untied
• Customs valuation
• Other direct-price
influences
– special fees and
requirements

27. Nontariff Barriers: Quantity Controls
• Quotas
– limit the quantity of a
product that can be
imported or exported
in a given time frame
• Voluntary export
restraint (VER)
• Embargoes
• “Buy local” legislation
• Standards and labels
• Specific permission
requirements
– import or export
license
• Administrative delays
• Reciprocal requirements
– Countertrade or
offsets
• Restrictions on services

28. Essential work for next week
• Please consult the OLE for details of:
– Essential readings*
– Seminar/workshop preparation work*
– Recommended further readings
– Any additional learning
* Essential readings and preparation work must always be completed in time
for the next session
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29. End of presentation
© Pearson College 2013