International Management SM122 Lecture Developed by F. Ryckebosch T.Chadwick.

International Management

SM122

Lecture Developed by F. Ryckebosch

T.Chadwick

Globalization is taking place

National economies merging at accelerated pace NAFTA EU

Barriers to trade being removed fast Tariffs taxes and regulations Foreign direct investment

State owned monopolies disappearing “Corporatization”

Geographical immobility is diminishing Geographical immobility is a situation where resources do not freely move from one

location to another. It is particularly a problem with labor as people are often reluctant to relocate for work, and it may therefore be a cause of unemployment.

Comparative Advantage and the Gains from Trade

All countries can participate in trade When each country specializes in what it does best,

the combined output is higher Because countries produce and consume more

using the same resources, economic efficiencies are achieved

Therefore the overall standard of living improves through trade

Globalization

In Theory: Intensity of competition increases

Boeing/Lockheed now Boeing/Airbus GE Lighting/Sylvania now GE/Philips/Siemens

Countries develop advantages in certain goods Cars? Computers? Wine? Oil?

Agreements on Rules of trade and investment GATT, WTO, NAFTA, EU

Movement of people : migration Immigration issues

Prosperity of citizens increases All citizens?

Companies globalize to

Expand revenues Broader consumer base larger product variety

Reduce costs Economies of scale Labor and material cost advantages Cost avoidance

Increase profits

Corporate Globalization Challenges

Business strategy/tactic adaptation required Market access alternatives Need for global / regional competitiveness Product customization HR practices Culture adaptation Logistics Politcal Environmental Social

Technological factor impact

Globalization forces companies to

Learn about foreign markets Learn how to manage people in foreign

environments Learn to manage foreign subsidiaries

Top Down Analysis

Environmental/Resource analysis Macro-economics Markets and Institutions (the “system”) Industry analysis (5 forces) Internal firm analysis (SWOT) Product/market analysis (segmentation,

positioning and 4 P’s)

Top-Down analysis

Macro Trend Analysis P: Political, legal, regulatory E: Economic: Growth, competition S: Social: demographic and cultural change T: Technology: Production, communication,

collaboration and convergence

Systemic change

Markets: labor, commodities, capital, currency, products, risk

New governments, new agreements: NAFTA, EU,

Institutions: WTO, WHO, World Bank, UN, IMF,

Mediators and Regulators: IASB, world court,

New Risk: “Systemic risk”

Some U.S. legal filters The Sherman Act (1890) - antitrust legislation. Federal Trade Commission Act (1915) - consumer protection. The Robinson-Patman Act (1936)- price discrimination. Labor Laws

National Labor Relations Act (1935) - freedom to unionize Civil Rights (Equal Opportunity) Act (1964) - employment

discrimination. Occupational Safety and Health Act (1970) (OSHA) - workplace

safety Environmental Protection (EPA)

Clear Air Act (1970) Clean Water Act (1972)

Securities Laws - insider trading (1933 SEC created) The 1977 Foreign Corrupt Practices Act amended iu 1998

anti-bribery legislation – prohibits US firms from bribing public or quasi public officials. Excepts regular business practices.

Porter’s 5 forces

Competitors … come from everywhere Intensity of rivalry is less predictable

Suppliers … can be located anywhere Supplier bargaining power is affected

Customers … are all over the globe Customer power varies from place to place

Substitutes … may be different Risk of substitution is location-specific

Potential entrants … lurking everywhere Cannot rely on “traditional” barriers to entry.

Industry ViewIndustry ViewIndustry ViewIndustry View

Globalization: So What? (The SWOT Grid Revisited)

Globalization results in: Possibility of developing unique strengths. Need to deal with unexpected weaknesses. Chance to benefit from global business opportunities. Need to react to global threats to business. Need to develop global business strategies:

Sourcing (globalization of procurement)

Producing (globalization of production)

Selling (globalization of markets)

Opportunities for global business careers

Functional analysis

Finance and accounting: new rules, new markets, new institutions

Marketing: new customers, new consumer attitudes, new channels, new substitutes:

Operations/IT/IS: integration issues HRM: new leadership, teamwork cultures

Product analysis

The 4 P’s Product development Pricing strategy Promotion strategy, Distribution strategy

Bottom Up analysis: Events and Issues

-Evaluate historical context for an event/issue

-Stakeholder analysis: priority, power and influence

-cost/benefit and risk/reward analysis for all parties

-Policy analysis, and negotiation models.

Integrative Approach

Strategic fit/alignment models Systems analysis Values/Mission/Cultural/leadership Dynamic feedback models Game theory

The Making of a Global Brand….

Over 500 US suppliers Over a 15-year cycle each Airbus wide

body generates more business for the US than a Boeing 727

88% of all maintenance items are US manufactured

Globalization of Production: Airbus, the “European” Aircraft Program

Globalization: IKEA in North America

Between 1985 and 1990 opened six stores in North America Problems:

beds measured in centimeters no matching bedroom suites kitchen cupboards too narrow for pizza plates glasses too small to hold ice drawers too shallow to store sweaters

Result: by 1990 operations in serious trouble Now: Very successful – opening stores at the rate of six-ten

per year in the US. http://www.ikea.com/ms/en_US/about_ikea/social_environmental/environment.html

Globalization: Euro Disney

Opened April 12, 1992 cost of construction USD 4.4 bln

Perceptions: “This is the most wonderful project we have ever done”

M. Eisner, CEO, The Walt Disney Co. “A horror made of cardboard, plastic, and appalling

colors; a construction of chewing gum and idiotic folklore”

Jean Cau, French critic Result: USD 60 M. loss during the first year of operations

The World is Flat

The challenges of the early 21st century:

Thomas Friedman, Pulitzer-prize winning foreign affairs correspondent for the NY times.

http://mitworld.mit.edu/video/266/