Chapter 2 Application

Offshore Outsourcing As lower-level manufacturing became more simplified, U.S. companies outsourced manufacturing offshore. Today, increasing numbers of skilled, educated, middle income workers in service-sector jobs such as accounting, law, finance, risk management, health care, and information technology are seeing their jobs outsourced offshore. As technical talent grows around the globe, offshore outsourcing will increase. Offshore outsourcing should be viewed from three perspectives: the customer's perspective, the employee's perspective, and the company's perspective. Each perspective has its advantages and disadvantages. Less-strategic tasks can be outsourced globally so that companies can focus on areas in which they can excel and grow. Outsourced work allows companies to create efficiencies that in fact let them hire more workers. Consumers benefit from lower prices generated by effective use of global resources and developing nations grow, thus fueling global economic growth. Jobs are lost permanently and wages fall due to low-cost competition offshore. Offshore outsourcing reduces product quality and can therefore cause permanent damage to a company's reputation. Communication among company members, with suppliers, and with customers becomes much more difficult. A combination of factors such as pressures to reduce labor costs, save on operational costs, improve productivity and expand a labor force in other countries has caused companies to consider offshore outsourcing. When companies outsource, the idea is to save money to keep the prices of its product lower than the competition. This activity will help you identify the pros and cons of offshore outsourcing.

Customer Perspective Pro: lower prices con: poor quality Employee Perspective: Pro: efficiencies are realized that allow for more hiring. Con: some jobs lost permanently and wages fall Company Perspective: Pro: company focuses on core area con: communication becomes difficult

Offshore Outsourcing As lower-level manufacturing became more simplified, U.S. companies outsourced manufacturing offshore. Today, increasing numbers of skilled, educated, middle-income workers in service-sector jobs such as accounting, law, finance, risk management, health care, and information technology are seeing their jobs outsourced offshore. As technical talent grows around the globe, offshore outsourcing will increase. Offshore outsourcing should be viewed from three perspectives: the customer's perspective, the employee's perspective, and the company's perspective. Each perspective has its advantages and disadvantages. Less-strategic tasks can be outsourced globally so that companies can focus on areas in which they can excel and grow. A combination of factors such as pressures to reduce labor costs, save on operational costs, improve productivity, and expand a labor force in other countries has caused companies to consider offshore outsourcing. When companies outsource, the idea is to save money to keep the prices of its product lower than the competition. This activity will help you identify the pros and cons of offshore outsourcing. Match each outcome with the most appropriate stakeholder perspective, identifying each as an advantage or a disadvantage. Outcomes: 1. Communication become difficult. 2. Poor quality. 3. Some jobs are permanently lost and wages fall. 4. Company focuses on core area. 5. Lower prices. 6. Realized efficiencies allow for new hiring.

Employee perspective: Disadvantage. Answer: 3 Company perspective: advantage. Answer: 4 Customer perspective: advantage. Answer: 5 Company perspective: disadvantage. Answer: 1 Customer perspective: disadvantage. answer: 2 employee perspective: advantage. answer: 6.

Electra Bikes is an American brand with a global presence. Which of the following trade agreements allowed Electra Bikes to expand its business by opening a new market in Canada?

NAFTA

Forces That Affect Global Trade The hurdles are more complex in the global market than in the domestic market. This exercise requires you to identify the four forces affecting global trade and match those with examples of each of the forces. This activity is important because it identifies different examples of the four forces affecting global trade. Instructions: Match the forces affecting trade with the type of trade hurdle in the global market. Match the options with the items. Items: 1. Physical and Environmental Forces 2. Multicultural Forces 3. Legal and Regulatory Forces 4. Economic and Financial Forces 5. Sociocultural Forces Options: -Religion is an important part of any society's culture and can have a significant impact on business. -Labor costs for multinational corporations can vary as currency values shift. -The Foreign Corrupt Practices Act of 1978 can create a competitive disadvantage. -Developing countries have primitive transportation and storage systems, making distribution ineffective.

Religion is an important part of any society's culture and can have a significant impact on business. Answer: 5 Labor costs for multinational corporations can vary as currency values shift. Answer: 4 The Foreign Corrupt Practices Act of 1978 can create a competitive disadvantage. Answer: 3 Developing countries have primitive transportation and storage systems, making distribution ineffective. Answer: 1

Trade Protectionism Trade protectionism is the use of government regulations to limit the import of goods and services.This exercise requires you to identify the forms of protections the government uses and match those with examples of each of the protections. This activity is important because it identifies different examples of government trade protections. Instructions: Match the government regulation with the example that illustrates the regulation. 1. import quota 2. protective tariff 3. embargo 4. revenue tariff 5. dumping

The United Kingdom will not allow AirJet to sell fighter jets to any other country. Answer: 3 Canada levees a tax on imports from China to raise money for its government. Answer: 4 The United States limits the amount of sugar and peanuts that can be imported into the country. Answer: 1 The nation of Swanland puts a tax on rice to protect the domestic industry of rice. Answer: 2

The business relationship between Electra Bikes and Trek provides Electra with a competitive advantage. This business arrangement would be classified as

a joint venture.

Domino's Wild World of Pizza Domino's Pizza is the world's largest pizza delivery chain, with stores in over 80 countries worldwide and over half its sales outside the United States. In order to satisfy consumer preferences in that many markets, Domino's must understand its global customers and adjust its menu to meet local needs. The video describes Domino's marketing efforts in several countries. This activity is important because business people must understand how to approach global markets in order to successfully expand outside the home market. The goal of this exercise is to test your understanding of global market assessments, global entry strategies, and global marketing strategies. The video discusses menu adaptations for Asian countries where bread and cheese are less familiar ingredients. If Domino's didn't attempt to adapt the menu to the tastes of the Asian market, the company could be accused of being

ethnocentric

As a global company, Electra Bikes sells its products to other countries. This process is referred to as

exporting.

Doing Business in Global Markets with CH2M Hill CH2M Hill is an engineering company that works with governments and large business clients to create infrastructure that provides improved sanitation and cleanliness. Due to advances in technology, global trade has become a source of opportunity, and businesses are actively seeking to sell their products and services to those outside its borders. This video explains the mission of CH2M Hill and its challenges in engaging in business outside the borders of the United States. The theory of comparative advantage states that a country should sell to other countries those products that it produces most effectively and efficiently. This foundation for global trade leads many businesses to seek to engage in global trade in order to increase revenue and beat competitors. Global trade comes with many opportunities, but it is filled with obstacles that can often be difficult to overcome. A company that uses a strategy of selling its products to a distributor in another country would be using

exporting.

Strategies for Reaching Global Markets Businesses use different strategies to compete in global markets. Each provides different economic opportunities, along with specific commitments, control, risk, and profit potential. Instructions: With "1" being the least and "6" being the most, place the following strategies in order of magnitude from least to most regarding the level of commitment, amount of risk, the amount of control, and the profit potential.

least --> most foreign direct investment joint venture/strategic alliance contract manufacturing franchising exporting licensing

Based on the examples provided in the video, Domino's overall global product strategy is best described as

offering similar products worldwide, with minor adaptations for local tastes

In order to keep its manufacturing costs down, Electra manufactures its bikes in Taiwan because it is cheaper for the company than producing the bikes in the United States. The process of contracting the production of goods to an overseas company is called

outsourcing.

When Electra decided to produce its "pedal-assist" motor bike it had to adhere to speed regulations. The company found out, however, that safety regulations differ greatly among various countries and it opted to use the U.S. standard, which calls for a lower speed motor. This is an example of how _______ forces can affect global trade.

regulatory

Balance of Trade This brief video describes how nations achieve a trade surplus or trade deficit based on the levels of imports/exports. If the United States exports more goods/services than it imports, then the United States would have a(n)

trade surplus.

A trade deficit is also referred to as a(n)

unfavorable balance of trade