MGMT 3000 1st Edition Lecture17 Outline of Last Lecture I Global business II Trade barriers III Regional Trading zones IV Customer benefits from trade Current Lecture I Going Global II Being Aware of Cultural differences III Language and Cross cultural training Going Global 1 Consistency vs Adaptation Once a company has decided that it will go global it must decide how to go global Strategies include a Global consistency A multinational company has offices and plants and distribution facilities in different countries and uses the same rules guidelines procedures to run these operations b Local Adaptation A multinational company that modifies its standard operating procedures to adapt to differences in foreign customers governments and regulatory agencies i More important to local managers who are charged with making international business successful 2 Method of entering the foreign market a Phase model of globalization Companies make the transition from a domestic company to global company in the following phases At each step the firm grows larger some companies do not follow the phase model and some skip phases on their way to becoming more global i Exporting Selling domestically made products to foreign markets 1 Advantages Makes company less dependent on domestic sales and gives company more control These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute 2 Disadvantages Goods are subject to trade barriers and have to keep in mind transportation costs ii Cooperative contracts 1 Licensing Domestic company receives royalty payments for allowing another company to produce the product service a Advantages Earn money without investing more money and avoid trade barriers b Disadvantages Licensor gives up control over product quality and licensees can become competitors 2 Franchise A collection of networked firms in which manufacturer or marketer of product or service licenses entire business to another person a Advantages fast gives franchisor additional cash flow b Disadvantages loss of control Culture bound iii Strategic Alliances Companies combine key resources costs risks technology and people Most common is joint ventures 1 Advantages Avoid trade barriers Only bear part of the costs learn from partners 2 Disadvantages profits have to be shared merge of cultures iv Wholly Owned Affiliates Foreign offices facilities and manufacturing plants that are 100 owned by parent company 1 Advantages Parent company receives all of profits and retains control 2 Disadvantages losses can also be enormous b Getting your goods or services to global markets Global New Ventures Companies that are founded with an active global strategy Company founders develop an communicate the global vision of the company from inception Rather than being global one country at a time these firms bring a product service into several foreign markets at one time 3 Choosing the global markets to enter Deciding where to go global is at least as important as deciding how to go global a Easy Access to Growth opportunities Growth potential i Purchasing power The relative cost of standard set of goods and services in different countries ii Global Competition number and quality of companies that already compete in foreign markets iii Also look at porter s 5 forces b Effective but cost efficient place to build an office or manufacturing facility i Look at both qualitative and quantitative factors ii Qualitative factors workforce quality and company strategy iii Quantitative factors Facility being built trade barriers exchange rates transportation and labor costs c Minimizing political risk i 2 Types of political Risk 1 Political uncertainty Risk of major changes in political regimes that can result from war revolution death of leaders social unrest etc 2 Policy Uncertainty Risk associated with changes in laws and government policies that directly affects the way foreign companies conduct business a More common and more frustrating b Firm s cannot always protect against policy risk ii Strategies 1 Avoidance strategy used when political risks associated with the country are too great a If already invested in these countries firms might divest or sell the business b If not invested in these areas firms will likely postpone the investment 2 Control strategy Active Strategy to prevent or reduce political risks a Firms will lobby foreign governments to change laws regulations or trade barriers 3 Cooperation Strategy Uses joint ventures and collaborative contracts franchising licensing a Does not eliminate political risk but it does limit the risk associated with foreign ownership of business Being Aware of cultural Differences National culture set of shared values and beliefs that affect perceptions decisions and behavior of people from particular people First step is to recognize that there are meaningful differences in cultures Five cultural dimensions across countries 1 Power distance Extent to which people in a country accept that power is distributed unequally in society and organizations a Weak power distance countries include Denmark and Sweden and don t like organization or boss to have power over them 2 Individualism degree to which societies believe that individuals should be self sufficient 3 Masculinity and femininity capture difference between highly assertive and highly nurturing cultures 4 Uncertainty avoidance Degree to which people in a country are uncomfortable with unstructured and unpredictable situations 5 Short term Long term orientation Whether cultures are oriented to the present and seek immediate gratification or to the future and defer gratifications Language and Cross cultural Training Expatriate Someone who lives and works outside his or her native country Pre departure language and cross cultural training can reduce inappropriate behaviors and misunderstandings between expatriates and natives Strategies include 1 Documentary Training Identify specific critical differences between cultures 2 Cultural simulations Practice adapting to cultural differences 3 Field Simulation Training Places trainees in an ethnic neighborhood for 3 to 4 hours to talk to residents about cultural differences Adaptability Screening assesses how well manages and families are likely to adjust to foreign culture Language and cross cultural training is also important for the family