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Global / International Issues

By : LUSIYANTISource :

Strategic Management Concept & Cases

Fred R. David

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Multinational Organizations

Organizations that conduct business operations across national borders are called international firms or multinational corporations.

Multinational corporations (MNCs) face unique & diverse risks, such as : Expropriation of assets Currency losses through exchange rate fluctuations Unfavorable foreign court interpretations of

contract or agreement Social/political disturbances Import/export restrictions, tariffs and trade barriers.

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Advantages of International Operations

1. Firms can gain new costumers for their product.2. Foreign operations can absorb excess capacity, reduce unit costs, and

spread economic risk over a wider number of markets.3. Foreign operations can allow firms to establish low-cost production

facilities location close to raw material and / or cheap labor.4. Competitors in foreign markets may not exist, or competition may be

less intense than in domestic markets.5. Foreign operations may result in reduced tariffs, lower taxes, and

favorable political treatment.6. Joint ventures can enable firms to learn technology, culture and

business practice of other people and to make contacts with potential customers, suppliers, creditors and distributors in foreign countries.

7. Economies of scale can be achieved from operation in global rather than solely domestic markets.

8. A firm’s power and prestige in domestic market may be significantly enhanced if the firm competes globally .

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Disadvantages of International Operations

1. Foreign operations could be seized by nationalistic factions.

2. Firms confront different and often little-understood social, cultural, demographic, environmental, political, governmental, legal, technological, economic, and competitive forces when doing business internationally.

3. Weaknesses of competitors in foreign lands are often overestimated, and strengths are often underestimated.

4. Language, culture and value systems differ among countries.

5. Gaining an understanding of regional organizations is difficult but is often required.

6. Dealing with two or more monetary systems can complicate international business operation.

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The Global Challenge

China- China has more than 1.3 billions residents and

dramatically growing middle class anxious to buy goods and services.

- Yum Brands – owner of KFC & Pizza Hut, reported in 2011 China division overtook the U.S. in profits generated.

- GM’s sales in China exceeded GM’s sales in US for the first time ever in 2010.

- Wynn & Las Vegas Sands report that their net revenue in China triple their U.S. properties.

- The fastest-growing market for pocket book maker Coach.- The second-largest market for Dell.

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Brazil- Business in Brazil is booming, with more than

7% growth in GDP in 2011.- Rio de Janeiro is making massive preparations

for the 2016 Summer Olympics.- $5 billion investment program to extend the

subway system, improve railroads and construct new highways.

- Petrobras become the world’s fourth-largest oil producer.

- Vale is the largest iron-ore mining company.

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The lineup of competitors in virtually all industries is global. General motor, Ford, Chrysler vs. Toyota &

Hyundai. General Electric, Westinghouse vs.

Siemens & Mitsubishi. Caterpillar & John Deere vs. Komatsu. Goodyear vs. Michelin,

Bridgestone/Firestone, & Pirelli. Boeing vs. Airbus.

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Globalization

Is a process of doing business worldwide, so strategic decision are made based on global profitability of the firm rather than just domestic considerations.

Monitoring globalization in one’s industry is an important strategic management activity.

Knowing how to use that information for one’s competitive advantage is even more important.

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Corporate Tax Rates Globally

Corporate tax rates vary considerably across countries and companies.

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United States versus Foreign Business Culture

To compete successfully in world markets, U.S. managers must obtain a better knowledge of historical, cultural, and religious forces that motivate & drive people in other countries.

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U.S. Managers have a low tolerance for silence, whereas Asian managers view extended periods of silence as important for organizing and evaluating one’s thoughts.

U.S. Managers rush to appointment, conference and meetings then feel productive but for many foreign managers, resting, listening, mediating, and thinking is considered productive.

Sitting in conference without talking is unproductive in U.S. but viewed as positive in Japan.

Marketing managers in Japan see making a sale as the beginning, therefore they strive to achieve “everlasting consumers” whereas many Americans strive to make a onetime sales.

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Some important cultural differences between U.S. and foreign managers (Rose Knotts) :1. U.S. managers more interested in business than

people.2. Personal touching and distance norms differ

around the world.3. Family roles and relationship is vary different

countries.4. Business and daily life in some societies are

governed by religious factors.5. Time spent with the family and the quality of

relationship are more important in some countries.

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6. Many cultures around the world value modesty, team spirit, collectivity, and patient much more than competitiveness and individualism.

7. Punctuality is a valued personal trait when conducting business in the U.S.

8. To prevent social blunders when meeting with managers from other lands, one must learn and respect the rules of etiquette of others.

9. Americans often do business with individual they do not know, but in Japan or Mexico, an amicable relationship is often mandatory before conducting business.

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Communication Differences Across Countries

Cultural Hints from Charis Intercultural Trainings provided by Forbes :1. Italian, Germans & French generally do not soften

up executive before they criticize. American do, so its seems manipulative to Europeans.

2. Israelis are accustomed to fast-paced meetings and have little patience for American informality and small talk.

3. British executives often complain that American executives chatter too much.

4. Europeans feel they are treated like children when asked to wear name tags.

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Communication Differences Across Countries

5. Executives in India are used to interrupting one another. Thus, when American executives listen without asking for clarification or posting questions, they are viewed by Indians as not paying attention.

6. When negotiating orally with Malaysian or Japanese executives, it is appropriate to allow periodically for a time of silence. However, no pause is needed in Israel.

7. Refrain from asking foreign managers questions such as “How was your weekend?” is intrusive for foreigners, who tend to regard their business and private lives as totally separated.

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Business Culture Across Countries Mexico

• Employers seek workers who are agreeable, respectful & obedient than innovative, creative & independent.

• Mexicans workers tend to be activity oriented than problem solvers.

• Mexican business stress collectivism, continuity, cooperation, belongingness, formality, and doing exactly what you’re told.

• Mexicans do not accept criticism and change easily, many find it humiliating to acknowledge having made a mistake.

• Mexican workers want to be closely supervised, cared for and corrected in civil manner.

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Business Culture Across Countries Mexico

• Mexicans often do not follow the rules.• If visiting a Mexican home bring flowers or sweets, except

Marigold as they symbolized as death or red flowers which have a negative connotation. Arrived 30 minutes late but definitely not early.

• If receive gift, open immediately and react enthusiastically.

• For business appointment, it is best to arrive on time, although Mexican counterparts may be up 30 minutes late.

• Mexicans are very status conscious, so business title and rank are important.

• Face-to-face meetings are preferred over telephone calls, letters, or e-mail.

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Business Culture Across Countries Japan

• All corporate activity in Japan encourage Wa among managers and employees.

• Wa requires that all members of group agree and cooperate.

• Entertaining is an important business activity in Japan because it strengthens Wa.

• Most Japanese Manager are reserved, quite, distant, introspective, and other oriented.

• In Japan, a person’s age and status are of paramount importance.

• Greetings in Japan are very formal and ritualized.• Wait to be introduced, even in a large gathering.

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• The traditional form of greeting is to bow, the deeper you bow, the more respect to show.

• In gifts, chocolates or small cakes are excellent, don’t give white flowers that are associated with funeral.

• Give items in odd numbers but avoid the number 9.• Gifts are not opened when received.• Japanese prefer to do business on the basis of

personal relationships than impersonally speaking over the phone or by written correspondence.

• We need to be a good correspondent to effectively do business with Japanese.

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• The Japanese are looking for a long-term relationship.

• Always give a small gift as a token of your appreciation and present it to the most senior person at the end of any meeting.

• The Japanese are nonconfrontational, in communicating with Japanese, phrase questions so that they can answer yes.

• Business cards are exchanged in Japan constantly and with excitement.

• Business cards are generally given and received with two hands and slight bow.

• Examine any business card you receive very carefully.

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Business Culture Across Countries Brazil

• If going to someone’s house in Brazil, bring hostess flowers or small gift, avoid purple or black, as these are mourning colors.

• Arrive 30 minutes late for dinner and up to an hour late for party or large gathering.

• Always err on the side over-dressing in Brazil rather than under-dressing.

• Avoid embarrassing a Brazilian by criticizing an individual publically.

• It is considered acceptable to interrupt someone who is speaking.

• Face-to-face, oral communication is preferred over written communication.

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Business Culture Across Countries Brazil

• As for business agreements, Brazilians insist on drawing up detailed legal contracts.

• Brazilians take their time when negotiating.• Appointment are commonly cancelled or changed in

last minute.• In Sao Paolo and Brasilia, arrive on time for meetings

but in Rio De Janeiro arrive a few minutes late.• Do not appear impatient if you are kept waiting.• Brazilians pride themselves on dressing well, so men

should wear conservative, dark colored business suits and women should wear suits or dresses that are elegant and feminine with good quality accessories and manicures are expected.

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Business Culture Across Countries Germany

• Business communication is very formal, only close friends and relatives are invited to their house.

• Consider that an honor if you get invited to their house and bring gift, such as chocolate or yellow roses or tea roses, but not red one which symbolize romantic intentions, also do not bring carnations, lilies, or chrysanthemums which symbolize mourning.

• Germans more interested in a businessperson’s academic credentials and their company’s credentials.

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Business Culture Across Countries Germany

• Appointments are mandatory and should be made one two weeks in advance.

• Punctuality is extremely important, if you are going to be delayed, telephone immediately and offer an explanation.

• It is very rude to cancel meeting in last minute and this could jeopardize your whole business relationship.

• German meetings adhere strict agendas, including starting and ending times.

• Germans maintain direct eye contact while speaking.• There is a strict protocol to follow in Germany when

entering room.• Business decision making is autocratic and held at the

top of the company.

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Business Culture Across Countries Egypt

• Greeting are based both social class and religion.• Handshakes are always given with a hearty smile

and direct eye contact.• If invited to Egyptians' home, don’t bring flowers,

which are usually reserved for wedding or the ill.• Egyptians prefer to do business with those they

know or respect, so expect to spend time cultivating a personal relationship before business is conducted.

• Always accept the beverage offered because declining is viewed as rejecting the person.

• Appearance is important, wear conservative clothes and present yourself well at all times.

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Business Culture Across Countries Egypt

• Direct eye contact is a sign of honesty.• Business meeting generally start after

prolonged inquiries about health, family, etc.• Personal relationships are necessary for long-

term business.• Business move in slow pace and society is

extremely bureaucratic.• They are tough negotiator and do not like

confrontation or having to say “no”

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Business Culture Across Countries China

• Chinese have an excellent sense of humor.• In terms of gift, a food basket makes an

excellent gift but do not give scissors, knives, or other cutting utensils, as these objects indicate severing relationship.

• Never give clocks, handkerchiefs, flowers, or straw sandals, as they are associated with funerals.

• Do not wrap gifts in white, blue, or black paper.• 4 is unlucky, don’t give four of anything, 8 is the

luckiest number, so giving 8 of something is great idea.

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Business Culture Across Countries China

• Your position on an organizational chart is extremely important in business relationships.

• Punctuality is very important in China. Arriving late to a meeting is an insult and could negatively affect your relationship.

• Never ask the Chinese to turn off their mobile phones during meetings as this cause you both to lose face.

• The Chinese are shrewd negotiators, so your initial offer or price should leave room for negotiation.

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Business Culture Across Countries India

• Gender disparities at Indian company grow more pronounced at higher level of management.

• Indians believe that giving gifts ease the transition into the next life.

• Gifts of cash are common but do not give frangipani or white flowers as they represent mourning.

• Indians generally do not trust the legal system, and someone’s word is often sufficient to reach an agreement.

• Titles are very important in India.

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Business Culture Across Countries Nigeria

• Endowed with vast quantities and natural resources and being 6th largest oil-producing country in the world, Nigeria has a well-educated and industrious people who are proud of their country.

• Extended families are still the backbone of social and business systems.

• Nigerians are generally outgoing and friendly, especially in southwest, where the Yoruba often use humor even during business meetings and serious discussions.

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Business Climate Across Countries / Continents African Countries

• By 2020, McKinsey & Co. predict that consumer spending in Africa will double to nearly $1.8 trillion, up from about $860 million in 2008.

• From 2000 to 2009, foreign direct investment in Africa increased 600% to $58,56 billion.

• Wal-Mart recently acquired South African retailer Massmart Holdings for $4.6 billion, providing the company with 290 stores in 13 African countries.

• Africa has the world’s largest deposits of platinum, chrome, and diamonds – and many Chinese companies in particular are investing there.

• From 2011 to 2014, yum Brands is doubling the number of KFC outlets in Africa to 1,200 and aims to double its revenue to $2 billion.

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Business Climate Across Countries / Continents African Countries

• Ghana recently became Africa’s newest oil producing nation when the 1.5-billion-barrel Jubilee field began pumping oil.

• Ethiopia is also doing very well economically. SABMiller PLC recently invested $20 million in a manufacturing plant in Ethiopia’s large city, Ambo.

• Nairobi, Kenya, is the center of several major telecom companies trying to gain market share in the rapidly growing African cellphone business.

• McKinsey & Co. estimates that within five years another 220 million Africans that today can meet only basic needs will join the middle class as consumers.

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Business Climate Across Countries / Continents CHINA

• China recently pass Japan to become world’s second largest economy with a GDP about $5.75 trillion annually, compared with Japan $5.4 trillion.

• However, China is still emerging economy, as indicated by a per-capita $4,000, compared to U.S. $47,000 and Japan $42,000.

• China’s economic growth of over 9% annually for several decades.

• Goldman Sach predicts that China will overtake the United states as the world’s largest economy in 2027.

• China rapid growth has created substantial pollution, extensive inequality, and deeply embedded corruption.

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Business Climate Across Countries / Continents CHINA

• China has become the biggest trading partner for Australia, Japan, Korea, India, Russia, and South Africa and has replaced The United States as the top export market for Brazil.

• China and India announce that they will double their bilateral trade in 2010 and 2015 to $100 million. This increase cooperation between China and India is good news for companies worldwide.

• From the table of Sampling of Asian Countries in terms of doing business rankings, China ranks 79th out of 183, for a variety reasons ranging from human rights issue to substantial disregard for copyright/patent/trademark.

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Business Climate Across Countries / Continents PHILIPPINES

• A highly educated, English speaking country, the Philippines overtook India in early 2011 in call-center jobs, employing 350,000 compared with India 330,000.

• Philippines president Benigno Aquino recently indicated that services outsourced to the Philippines from around the world will generate up to $100 billion in 2020, representing 20% of the global offshoring market share.

• Hundred of thousand Filipinos work outside the country.

• The television advertising market in Philippines is nearly $4 billion annually, larger than India’s and on par with Indonesia’s.

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Business Climate Across Countries / Continents TAIWAN

• Taiwan has a dynamic, capitalist, export driven economy with gradually decreasing state involvement in investment and foreign trade.

• Real annual growth in GDP has average 8% during the past 3 decades.

• Taiwan is rated 33rd among all countries in the world for doing business.

• Taiwan’s total trade in 2010 reached an all time high of $526 billion, according to Taiwan Ministry of Finance.

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Business Climate Across Countries / Continents INDIA

• India’s progress in just two decades is one of the most stunning achievement in human history.

• India’s rating is 134 out of 183 because that country still requires foreign firm to form a joint venture with an Indian firm in order to do business.

• India’s inflation is high and beureaucracy slow down all business.

• Various economic reports predict that by 2015, India will outpace China’s annual GDP growth of 8.5 – 9.5. Various trends as increasing of labor force, a high saving rate, massive structural reforms the government continues to undertake, and increase infrastructure spending, lead to this conclusion.

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Business Climate Across Countries / Continents GERMANY

• As Europe’s debt crisis has pushed the euro lower, German goods are more competitive abroad.

• German automobile producers have fallen behind rival in mass-producing electric cars.

• Germany now faces shortage of skilled labor and aggressive recruiting from abroad for country’s top engineering and scientific talent.

• Germany might need to follow the lead of Italy, which has the same problem but has enacted excellent new laws and incentives to both keep and attract young, highly educated professional.

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Business Climate Across Countries / Continents MEXICO

• More and more companies such as Electrolux and Whirlpool have recently reduce their capital expenditures in Mexico because of spiraling drug-related violence.

• Other crimes such as robbery, extortion, and kidnapping are climbing.

• The most violent city in Mexico is Ciudad Juarez.• As indicated in table, Mexico has fallen to 35th out

of 183 countries in term of doing business.

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