Global Management Flashcards
What is global business?
The buying and selling of goods and services by people from different countries
What are multinational corporations?
Corporations that own businesses in two or more countries
What is direct foreign investment?
A method of investment in which a company builds a new business or buys an existing business in a foreign country
What is protectionism?
A governments use of trade barriers to shield domestic companies and their workers from foreign competition
What are trade barriers and what kinds are there?
Government imposed regulations that increase the cost and restrict the number of imported goods
- Tariff
- Non-tariff barriers
What is a tariff?
A direct tax on imported goods
What are non tariff barriers?
Non-tax methods of increasing the cost or reducing the volume of imported goods
What are types of non tariff barriers?
- Quotas
- Voluntary export restraints
- Government import standards
- Government subsidies
- Customs valuation/classification
What are the two philosophies of going global?
- Global consistency
* Global adaption
What is 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
What is global adaption?
When a multinational company modifies its rules, guidelines, policies and procedures to adapt to differences in foreign customers, governments and regulatory agencies
What are the two methods of going global?
- Phase model of globalisation
* Global new ventures
What are the phases of the phase model of globalisation?
- Exporting
- Cooperative contracts
- Strategic alliances
- Wholly owned affiliates
What is exporting?
A phase of the phased model of globalisation: Selling domestically produced products to customers in foreign countries
What are co-operative contracts?
A phase of the phased model of globalisation: An agreement in which a foreign business owner pays a company a fee for the right to conduct that business in their country
What are the types of cooperative contracts?
- Licensing
* Franchising
What is licensing?
A type of cooperative contract: 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 specified foreign market
What are the pros/cons of licensing?
- Help companies avoid trade barriers
- Closely monitoring quality can be difficult
- Licensee can eventually become a competitor
What is franchising?
A type of cooperative contract: A collection of networked firms in which the manufacturer or marketer of a product or service, the franchisor, licenses the entire business to another organisation, the franchisee
For the price of an initial franchise fee plus royalties, franchisors provide franchisees with training, assistance with marketing and advertising and an exclusive right to conduct business in a particular location
What are the pros/cons of franchising?
- Avoids trade barriers
- Loss of control
What is a strategic alliance?
A phase of the phased model of globalisation: An agreement in which companies combine key resources, costs, risk, technology and people
What is the most common type of strategic alliance?
Joint venture
What is a join venture?
Two existing companies collaborate to form a third, independent company
What are the pros/cons of joint ventures?
- Avoid trade barriers
- Companies bear only part of the costs and risks of the business
- Must share profits
- Management can be difficult
- Rate of failure for global joint ventures is as high as 50%
What are wholly owned affiliates?
A phase of the phased model of globalisation: Foreign offices, facilities and manufacturing plants that are 100% owned by the parent company
What are the pros/cons of wholly owned affiliates?
- Complete control/profits
- Expensive
What is the global new venture method of going global?
New companies that are founded with an active global strategy and have sales, employees and financing in different countries
What aspects must a company consider when deciding where to go global?
- Growing Markets
- Company strategy
- Political risk
What is purchasing power?
- A comparison of the relative costs of a standard set of goods and services in different countries
- Countries with high and growing levels of purchasing power are good choices for companies looking for attractive global business
How can a company’s strategy affect it’s decision of where to go global?
- Low cost strategy - raw materials, low cost labour
- Differentiation strategy - high quality materials, highly skilled and educated labour
What are the aspects of political risk in deciding where to go global?
Political uncertainty/Policy uncertainty
What is 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
What is policy uncertainty?
The risk associated with changes in laws and government policies that directly affect the way foreign companies conduct business
How can companies manage political risk when deciding where to go global?
- Avoidance strategy
- Control
- Cooperation
What is a political risk strategy of control?
Lobbying, actively engaging politics of country
What is a political risk strategy of cooperation?
- Using joint ventures and collaborative contracts
- 51% ownership by domestic company exempts it from laws that apply to foreign owned businesses
What is a national culture?
The set of shared values and beliefs that affects the perceptions, decisions and behaviour of people from a particular country
What are the cultural dimensions?
- Power distance
- Individualism
- Masculinity/Feminitiy
- Uncertainty avoidance
- Short vs Long term orientation
What is power distance?
The extent to which people in a country accept that power is distributed unequally in society and organisations
What is the cultural dimension of individualism?
The degree to which societies believe that individuals should be self-sufficient
What is the cultural dimension of masculinity/femininity?
- Assertiveness, competition, material success & achievement
- Importance of relationships, modesty, compassion & quality of life
What is the cultural dimension of uncertainty avoidance?
The degree to which people in a country are uncomfortable with unstructured, ambiguous, unpredictable circumstances
What is the cultural dimension of short vs long term orientation?
- Immediate vs deferred gratification
- Consumer vs Savings driven
What is an expatriate?
Someone who lives and works outside their native country
What is adaptability screening?
Used to assess how well managers and their families are likely to adjust to foreign cultures
What are the two factors that help companies determine the growth potential of foreign markets?
Purchasing power
Foreign Competition
