Direct foreign investment
A method of investment in which a company builds a new business or buys an existing business in a foreign country
direct tax on imported goods. Like the U.S. government's 93% duty on fireworks imported from China, tariffs increase the cost of imported goods relative to that of domestic goods.
Trade Barriers and Protectionism
Historically, governments have actively used trade barriers to make it much more difficult or expensive (or sometimes impossible) for you to buy imported goods. Protectionism is the use of trade barriers to protect local companies and their workers from foreign competition.
non-tax method of increasing cost or reducing volume of import goods
quotas-specific limits on the number or volume of imported products
voluntary export restraints-are similar to quotas in that there is a limit on how much of a product can be imported annually. The difference is that the exporting country rather than the importing country imposes the limit. However, the "voluntary" offer to limit imports usually occurs because of the implicit threat of forced trade quotas by the importing country ex: to protect south africa textile manuf. from cheap chinese textile, south african gov. convinced china to "voluntary" restrict textiles
government import standards-est. to protect health and safety of citizens, stds are often used to restrict or ban imported goods
government subsidies-as long-term, low-interest loans, cash grants, and tax deferments, to develop and protect companies in special industries. European and Japanese governments have invested billions of dollars to develop airplane manufacturers and steel companies, while the U.S. government has provided subsidies for manufacturers of computer chips. Not surprisingly, businesses complain about unfair trade practices when other companies receive government subsidies.
customs valuation/classification-cutoms agents decide which categories they should classify a product, Imp bc classification assigned to imported products by government officials that affects the size of a tariff and the imposition of import goods.
World Trade Organization
replaced GATT in 1995, only international org. dealing with the global rules of trade between nations, main function is to ensure trade flows as smoothly, predictably and freely as possible
Location: Geneva, Switzerland
Created by: Uruguay Round negotiations
Membership: 150 countries
Head: Pascal Lamy
-administering WTO trade agreement
-providing a forum for trade negotiations
-handling trade disputes
-monitoring national trade policies
-providing technical assistance and training for developing countries
-cooperating with other international org.
Why do American consumers get more for their moneythan most other consumers in the world?
-The U.S. marketplace is easiest for foreign companies to enter: Some U.S. industries, such as textiles, have been heavily protected from foreign competition through many trade barriers. But, for the most part, American consumers (and businesses) have had plentiful choices among American-made and foreign-made products.
-Competitive market between domestic and foreign companies keeps prices low: is precisely this lack of choice, and the low level of competition, that keeps prices higher in countries that have not been as open to foreign companies and products.
Why do trade barriers and free trade agreements matter to consumers?
Decrease price of:food,clothing,necessities,luxuries
t when a multinational company has offices, manufacturing plants, and distribution facilities in different countries, it will run those offices, plants, and facilities based on the same rules, guidelines, policies, and procedures. Managers at company headquarters value global consistency, because it simplifies decisions.
company policy to modify its standard operating procedures to adapt to differences in foreign customers, governments, and regulatory agencies. Local adaptation is typically more important to local managers who are charged with making the international business successful in their countries.
Balance between consistency and adaptation
Multinational companies struggle to find the correct balance between global consistency and local adaptation. If they lean too much toward global consistency, they run the risk of using management procedures poorly-suited to particular countries' markets, cultures, and employees. However, if companies focus too much on local adaptation, they run the risk of losing the cost efficiencies and productivity that result from using standardized rules and procedures throughout the world.
Forms of Global Business
compnay makes transition from domestic to global in these sequential phases:
exporting--cooperative contracts--strategic alliances--wholly owned affiliates
each step company gets larger and less dependent on home country sales
those who do not follow the phase model are known as global new ventures
produce products in their home country and sell products to customers in foreign
-adv: company less dependent on sales in its home market and greater degree of control over research, design, production decisions
-dis: tariff and non-tariff barriers that increase cost to consumer, also transportation cost increase cost to consumer, depend on foreign importers for product distribution
When an organization decides to expand its business globally, but does not want to make large financial commitments to do so, it will sign a cooperative contract with a foreign business owner, who pays the company a fee for the right to conduct that business in his or her country. There are two kinds of cooperative contracts: licensing and franchising.
a domestic company, the licensor, receives royalty payments for allowing another company, the licensee, to produce its product, sell its service, or use its brand name in a particular foreign market
-Murjani Group and Tommy Hilfiger and Calvin Klein partner instead of alone b/c expansion into India is challenging bc not a lot of high end fashion stores, Murjani provides faster entry into India
adv: allows companies to earn additional profits w/o investing more money, foreign sales increase/ royalties paid to the licensor by the foreign licensee increase. Avoids tariff and nontariff barriers
dis: licensor gives up control over quality of product sold by foreign licensee, also licensee can become competitors
Licensing- if want a tcu logo on something, we have to pay for the logo but can do what we want with it
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. largest franchise in world is McDonalds
adv: fast way into market, gives franchisor add cash flows from franchisee fees and royalties, franchising can be a good strategy when a company domestic sales have slowed
dis: loss of control when they sell businesses to franchisees who are miles away, franchisee could be shortening the cash register, also culture differences ( ex: Chinese didnt like subway b/c tuna didnt have tail on it)
Franchise- u have to cook it a certain way, still have rules. Have to manage what ppl do with it
Strategic alliances and Joint Venture
combine key resources, costs, risks, technology, and people. The most common strategic alliance is a joint venture, which occurs when two existing companies collaborate to form a third company. The two founding companies remain intact and unchanged, except that, together, they now own the newly created joint venture
adv: avoid tariff and nontariff barriers, bear only part of the cost and risk
dis: share profit , diff b/c merging of diff cultures
Wholly owned affiliates (build or buy)
100 percent owned by the parent company. However, three trends have combined to allow companies to skip the phase model when going global. 3
Global New Ventures
With sales, employees, and financing in different countries, global new ventures are new companies founded with an active global strategy.
-Although there are several kinds of global new ventures, all share two common factors. First, the company founders successfully develop and communicate the company's global vision. Second, rather than going global one country at a time, new global ventures bring a product or service to market in several foreign markets at the same time.
Less dependence on home market sales
Greater degree of control over research, design, and production decisions
Many exports are subject to tariff and nontariff barriers
Transportation costs can increase price
Companies may depend on foreignimporters for product distribution
Allows companies to earn profits withoutinvesting more money
The licensor invests in production equipment and facilities
Helps companies avoid tariff and nontariff barriers
Licensor gives up control over quality of the product or service sold by the foreign licensee
Licensees can eventually become competitors
Fast way to enter foreign markets
Good strategy when a company'sdomestic sales have slowed
Joint Venture adv:
Help companies avoid tariff and nontariff barriers to entry
Participating companies bear only partof the costs and risks
Advantageous to smaller local partners
Joint Venture dis:
Companies must share profits
Joint venture represent a
merging of four cultures
With equal ownership, power struggles and a lack of leadership may occur
wholly owned adv: & dis:
adv: Parent company receives all of the profits and has complete control
dis: Expense of building new operationsor buying existing business
Losses can be immense if the venture fails
Finding the best climate
When going global, companies try to find countries or regions with promising business climates. An attractive global business climate positions the company for easy access to growing markets, is an effective but cost-efficient place to build an office or manufacturing site, and minimizes the political risk to the company.
-access to growing market
-location to build
-min political risk
2 factors help companies determine growth potential of foreign market:
purchasing power-comparison of a standard set of goods and services in different countries,
more means greater growth potential ex: Coke 98 cents in china.. US 50 cents.. American have more power than chinese
foreign competitors- is determined by the number and quality of companies that already compete in foreign markets.
Minimize potential risk
strategy: avoid, control, cooperate
-Several strategies can be used to minimize or adapt to the political risk inherent to global business. An avoidance strategy is used when the political risks associated with a foreign country or region are viewed as too great. If firms are already invested in high-risk areas, they may divest or sell their businesses. If they have not yet invested, they will likely postpone their investment until the risk shrinks. Control is an active strategy to prevent or reduce political risks. Firms using a control strategy will lobby foreign governments or international trade agencies to change laws, regulations, or trade barriers that hurt their business in that country.
Another method for dealing with political risk is cooperation, which makes use of joint ventures and collaborative contracts, such as franchising and licensing. Although cooperation does not eliminate political risk of doing business in a country, it does limit the risk associated with foreign ownership of a business.
risk of major changes in political regimes that can result from war, revolution, death of political leaders, social unrest, or other influential events
risk associated with changes in laws and government policies that directly affect the way foreign companies conduct business. This is the most common form of political risk in global business and perhaps the most frustrating.
The set of shared values and beliefs that affects the perceptions, decisions, and behavior of the people from a particular country. 1st step is to realize there are meaningful differences
Power distance- extent to which ppl in a country accept that power in distributed unequally in society and org. ex: in Denmark, employees don't like org or boss to have power and tell them what to do
Individualism-employees put loyalty to themselves first and loyalty to their company and work second
Masculinity and femininity- m empahsize assertivness, competition, material success. f emphasize imp. of relationships, modesty, caring for weak
Uncertainty avoidance - degree of ppl in country are uncomfortable with unstructured, ambiguous, unpredictable situations. strong uncertainly avoidance like Greece, ppl tend to be aggressive and emotional and seek security rather than uncertainty
Short-term/long-term orientation- whether cultures are oriented to the present and seek immediate gratification or to the future and defer gratification. Country with ST are consumer driven, LT are saving driven
USA- low LT orientation, medium uncertainty avoid, high masculinity, very high individualism, med power distance
Preparation for international assignment
chances for success in an international assignment can be increased through language and cross-cultural training and consideration of spouse, family, and dual-career issues.
-pre-departure language and cross cultural training is helpful. 3 methods: documentary training( critical diff between cultures ex: don't look person in eye), cultural simulations ( practice adapting cultural differences), field simulation ( places trainees in ethnic neighborhoods for 3 to 4 hrs to talk to residents)
-adaptability screening is used to assess how well managers and their families are likely to adjust to foreign cultures
The vertical and horizontal configuration of departments, authority, and jobs within a company.
The collection of activities that transform inputs into outputs that customers value.
a method of subdividing work and workers into separate organizational units that take responsibility for completing particular tasks.
The most common organizational structure is functional departmentalization. Companies tend to use this structure when they are small or just starting out. Functional departmentalization organizes work and workers into separate units responsible for particular business functions or areas of expertise. For example, a common set of functions would consist of accounting, sales, marketing, production, and human resources departments.
Functional Adv & Dis
-Work done by highly skilled specialists
-Lowers costs through reduced duplication
-Communication and coordination problems are lessened
-Cross-department coordination can be difficult
-May lead to slower decision making
-Produces managers with narrow experiences
Functional departmentalization has some advantages. First, it allows work to be done by highly qualified specialists. While the accountants in the accounting department take responsibility for producing accurate revenue and expense figures, the engineers in research and development can focus their efforts on designing a product that is reliable and simple to manufacture. Second, it lowers costs by reducing duplication. When the engineers in research and development come up with that fantastic new product, they don't have to worry about creating an aggressive advertising campaign to sell it. That task belongs to the advertising experts and sales representatives in marketing. Third, with everyone in the same department having similar work experience or training, communication and coordination are less problematic for departmental managers.
However, functional departmentalization has a number of disadvantages, too. To start, cross-department coordination can be difficult. Managers and employees are often more interested in doing what's right for their function than in doing what's right for the entire organization. A good example is the traditional conflict between marketing and manufacturing. Marketing typically pushes for spending more money to make more products with more accessories and capabilities to meet customer needs. By contrast, manufacturing pushes for fewer products with simpler designs, so that manufacturing facilities can ship finished products on time and keep costs within expense budgets. As companies grow, functional departmentalization may also lead to slower decision-making, and produce managers and workers with narrow experience and expertise.
organizes work and workers into separate units responsible for producing particular products or services
org by different product lines: carrier, otis
Product Adv & Dis
-Managers specialize, but have broader experiences
-Easier to assess work-unit performance
-Decision-making is faster
-Duplication of activities
-Difficult to coordinate across departments
One of the advantages of product departmentalization is that, like functional departmentalization, it allows managers and workers to specialize in one area of expertise. However, unlike the narrow expertise and experiences in functional departmentalization, managers and workers develop a broader set of experiences and expertise related to an entire product line. Likewise, product departmentalization makes it easier for top managers to assess work-unit performance. Finally, because managers and workers are responsible for the entire product line rather than for separate functional departments, decision-making should be faster, because there are fewer conflicts (compared to functional departmentalization).
The primary disadvantage of product departmentalization is duplication. For example, you can see in Figure 9.4 that the Otis Elevators and Pratt & Whitney Divisions both have duplication of departments, such as customer service, engineering, human resource, etc. Duplication like this often results in higher costs.
A second disadvantage is that it can be difficult to achieve coordination across the different product departments. For example, United Technologies would probably have difficulty standardizing its policies and procedures in product departments as different as the Carrier and Sikorsky divisions.
organizes work and workers into separate units responsible for particular kinds of customers.
can separate into types of customer: residential, small sized business.. etc
ex: company seperates jobs by gov, business and focus on clients needs of household, etc.
Customer Adv & Dis
-organizes work and workers into separate units -responsible for particular kinds of customers.
-Duplication of resources
-Difficult to coordinate across departments
-Efforts to please customers may hurt the company
The primary advantage to customer departmentalization is that it focuses the organization on customer needs rather than on products or business functions. Furthermore, creating separate departments to serve specific kinds of customers allows companies to specialize and adapt their products and services to customer needs and problems.
The primary disadvantage of customer departmentalization is that, like product departmentalization, it leads to duplication of resources. Furthermore, like product departmentalization, it can be difficult to achieve coordination across different customer departments. Finally, the emphasis on meeting customers' needs may lead workers to make decisions that please customers but hurt the business.
hybrid structure in which 2 or more forms of departmentalization are used together.. most common is product and functional
matrix adv & Dis
-Efficiently manage large, complex tasks
-Pool of available resources
-Requires high levels of coordination
-Conflict between bosses
-Requires high levels of management skills
violates unity of command
The primary advantage of matrix departmentalization is that it allows companies to efficiently manage large, complex tasks like researching, developing, and marketing pharmaceuticals. Efficiency comes from avoiding duplication. For example, rather than having an entire marketing function for each project, the company simply assigns and reassigns workers from the marketing department as they are needed at various stages of product completion. More specifically, an employee from a department may simultaneously be part of five different ongoing projects, but may only be actively completing work on a few projects at a time. Another advantage is the ability to carry out large, complex tasks. Because of the ability to quickly pull in expert help from all the functional areas of the company, matrix project managers have a much more diverse set of expertise and experience at their disposal than do managers in the other forms of departmentalization.
The primary disadvantage of matrix departmentalization is the high level of coordination required to manage the complexity involved with running large, ongoing projects at various levels of completion. Matrix structures are notorious for confusion and conflict between project bosses, or between project and functional bosses. Disagreements or misunderstanding about project schedules, budgets, available resources, and the availability of employees with particular functional expertise are common. Another disadvantage is that matrix structures require much more management skill than the other forms of departmentalization.
Because of these problems, many matrix structures evolve from the simple matrix, in which project and functional managers negotiate conflicts and resources, to the complex matrix, in which specialized matrix managers and departments are added to the organizational structure. In the complex matrix, project and functional managers report to the same matrix manager, who helps them sort out conflicts and problems.
the right to give commands, take action, and make decisions to achieve organizational objectives.
Traditionally, organizational authority has been characterized by the following dimensions:
chain of command
line versus staff authority
delegation of authority
degree of centralization.
chain of command
vertical line of authority that clarifies who reports to whom throughout the organization. People higher in the chain of command have the right, if they so choose, to give commands, take action, and make decisions concerning activities occurring anywhere below them in the chain.
unity of command
workers should report to just one boss. In practical terms, this means that only one person can be in charge at a time. Matrix organizations, in which employees have two bosses, automatically violate this principle. This is one of the primary reasons that matrix organizations are difficult to manage. The purpose of unity of command is to prevent the confusion that might arise when an employee receives conflicting commands from two different bosses.
delegation of authority
Managers can exercise their authority directly by completing the tasks themselves, or they can choose to pass on some of their authority to subordinates. Delegation of authority is the assignment of direct authority and responsibility to a subordinate to complete tasks for which the manager is normally responsible.
-When a manager delegates work, three transfers occur. First, the manager transfers full responsibility for the assignment to the subordinate. Indeed, most managers have way too much to do. So, from a practical perspective, they can't assume new responsibilities that come with change and growth until they fully delegate old ones.
-manager gives subordinate responsibility and authority and in return u have accountability
Another problem is that managers often fear that the task won't be done as well if they don't do it themselves. Second, delegation transfers to the subordinate full authority over the budget, resources, and personnel needed to do the job. To do the job effectively, subordinates must have the same tools and information at their disposal that managers had when they were responsible for the same task. The third transfer that occurs with delegation is the transfer of accountability. The subordinate now has the authority and responsibility to do the job, and is then accountable for getting the job done. In other words, managers give subordinates their managerial authority and responsibility in exchange for results.
Trust your staff to be a good job
Avoid seeing perfection
Give effective job instructions
Know your true interests
Follow up on progress.
Praise the efforts of your staff.
Don't wait to the last minute to delegate.
Ask questions, expect answers, assist employees.
Provide the resources you would provide if doing the assignment yourself.
Delegate to the lowest possible level.
-outsource non core activities
outsource all remaining business activities to outside companies, suppliers, specialists. Modular is used bc the business activities purchased from outside companies can be added and dropped as needed
-Exhibit 9.13 depicts a modular organization in which the company has chosen to keep training, human resources, sales, etc., as core business activities, but it has outsourced the noncore activities of product distribution, Web page design, advertising, etc.
-adv: pay for outsourcing labor, expertise etc only when needed so cost less ex: apple had audio chip made in texas
- dis: loss of control that occurs when key business activities are outsourced
companies share skills, costs, capabilities, markets, and customers with each other
-99% of org. is outsourced, u dont do ur own purchasing, advertising, product design etc. ex: nike.. they dont own any factories or do their own advertising etc.
- unlike modular, in which outside org are tightly linked to one central company, virtual work with some companies in the network alliances, but now with all. like potluck dinner, bring finest food dish but eat only what they want
- modular tend to be stable and longer lasting than virtual