Chapter 8 - Global Management

What two factors help companies determine the growth potential for foreign markets?

purchasing power and foreign competition

Global business

the buying and selling of goods and services by people from different countries

What are the two types of cooperative contracts?

licensing and franchising

Culture shock

the disorientation we might feel when experiencing an unfamiliar way of life due to a business trip to a new country, or to a move between social environments, if we got posted on an international assignment to a new, unfamiliar country

Power distance

the extent to which people in a country tolerate unequal distribution of power in society and organizations

Policy uncertainty

the risk associated with changes in law and government policies that directly affect the way foreign companies conduct business

What are Hofstede's five cultural dimensions?

1. Power distance 2. Individualism 3. Masculinity 4. Uncertainty avoidance 5. Short-term vs long-term orientation

What are the five types of nontariff barriers?

1. Quotas 2. Voluntary export restraints 3. Government import standards 4. Government subsidies 5. Customs valuation/classification

An attractive global business climate....

1. positions the company for easy access to growing markets 2. is an effective but cost-efficient place to build an office or manufacturing facility 3. minimizes the political risk to the company

What are three methods that can be used to minimize or adapt to the political risk inherent in global business?

1. Avoidance strategy 2. Control 3. Cooperation

What are three methods used for preparing workers for international assignments

1. Documentary training 2. Cultural simulations 3. Field experiences

The chances for a successful international assignment can be increased through...

1. Language and cross-cultural training 2. Considerations of spouse, family and dual-career issues

Strategic alliance

an agreement in which companies combine key resources, costs, risk, technology, and people

Customs classification

a classification assigned to imported products by government officials that affect the size of the tariff and the imposition of import quotas

Franchise

a collection of networked firms in which the manufacturer or marketer of a product or service, the franchisor, licenses the entire business to another person or organization, the franchisee

Purchasing power

a comparison of the relative cost of a standard set of goods and services in different countries

Multinational corporation

a corporation that owns businesses in two or more countries

Tarrif

a direct tax on imported goods

Protectionism

a government's use of trade barriers to shield domestic companies and their workers from foreign competion

Quota

a limit on the number or volume of imported products

Cooperation

a method for dealing with political risk which involves using joint ventures and collaborative contracts such as franchising and licensing.

Foreign direct investment

a method of investment in which a company builds a new business or buys existing business in a foreign country

Central America Free Trade Agreement (CAFTA-DR)

a regional free trade agreement between Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the USA (2005)

Union of South American Nations ( UNASUR)

a regional trade agreement between Argentina, Brazil, Paraguay, Uruguay, Venezuela, Bolivia, Columbia, Ecuador, Peru, Guyana, Suriname, and Chile (2008)

Asia-Pacific Economic Cooperation (APEC)

a regional trade agreement between Australia, Canada, Chile, the People's Republic of China, Hong Kong, Japan, Mexico, New Zealand, Papua New Guinea, Peru, Russia, South Korea, Tai Wan, USA, and all members of ASEAN, except Cambodia, Lao PDR, and Myanmar

Association of Southeast Asian Nations (ASEAN)

a regional trade agreement between Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam

Maastricht Treaty of Europe

a regional trade agreement between most european countries (1992)

North American Free Trade Agreement (NAFTA)

a regional trade agreement between the USA, Canada and Mexico (1994)

Government import standard

a standard ostensibly established to protect the health and safety of citizens but, in reality, often used to restrict imports

Joint venture

a strategic alliance in which two existing companies collaborate to form a third independent company

World Trade Organization (WTO)

a successor to the GATT, the only international organization dealing with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably, and freely as possible (1995)

General Agreement on Tariffs and Trade (GATT)

a worldwide trade agreement that reduced and eliminated tariffs, limited government subsidies, and established protections for intellectual property (included 124 countries, created in 1990's)

Short-term/long-term orientation

addresses whether cultures are oriented to the present and seek immediate gratification or to the future and defer gratification

Control

an active strategy to prevent or reduce political risks

Licensing

an agreement in which a domestic company, the licensor, receives royalty payments for allowing another company, the licensee, to produce the licensor's product, sell its service, or use its brand name in a specific foreign market

Cooperative contract

an agreement in which a foreign business owner pays a company fee for the right to conduct that business in his or her country

Regional trading zones

areas in which tariff and nontariff barriers on trade between countries are reduced or eliminated

What is Hofstede's work useful for avoiding?

charges of ethnocentricity and culture shock

Documentary training

focuses on identifying specific critical differences between cultures

Wholly owned affiliates

foreign offices, facilities, and manufacturing plants that are 100 percent owned by the patent company

Ethnocentricity

generally judging and interpreting people and mannerisms of another culture solely by the values and standards of our own culture

What factors indicate greater political risk?

government instability, poor socioeconomic conditions, internal or external conflict, military involvement in politics, religious or ethnic tensions, high foreign debt as a percentage of GDP, exchange rate instability, high inflation

Subsidies

government loans, grants, and tax deferments given to domestic companies to protect them from foreign competition

Trade barriers

government-imposed regulations that increase the cost and restrict the number of imported goods

Global new ventures

new companies that are founded with an active global strategy and have sales, employees, and financing in different countries

Nontariff

nontax methods of increasing the cost or reducing the volume of imported goods

What are the two types of political risk companies should consider when conducting global business?

political uncertainty and policy uncertainty

Exporting

selling domestically produced products to customers in foreign countries

Cultural simulations

simulations in which participants practise adapting to cultural differences

Field simulations (field experiences)

simulations that place trainees in an ethnic neighbourhood for three to four hours to talk to residents about cultural differences

Expatriate

someone who lives and works outside his or her native country

What are the two kinds of trade barriers?

tariff and nontariff barriers

Uncertainty avoidance

the degree to which people in a country are uncomfortable with unstructured, ambiguous, unpredictable situations

Individualism

the degree to which societies believe that individuals should be self-sufficient

Political uncertainty

the risk of major changes in political regimes that can result from war, revolution, death of political leaders, social unrest, or other influential events

National culture

the set of shared values and beliefs that affects the perceptions, decisions, and behaviour if the people from a particular country

Adaptability screening

used to asses how well managers and their families are likely to adjust to foreign cultures

Avoidance stratgey

used when the political risks associated with a foreign country or region are viewed as too great

Voluntary export restraints

voluntarily imposed limits on the number or volume of products exported to a particular country

Local adpation

when a company modifies its rules, guidelines, policies, and procedures to adapt to differences in foreign customers, governments, and regulatory agencies

Global consistency

when a multinational company has offices, manufacturing plants, and distribution facilities in different countries and runs them all using the same rules, guidelines, policies, and procedures

When choosing the location for an office/manufacturing plant, companies should consider both qualitative and quantitative factors. Two key qualitative factors are...

workforce quality and company strategy