chapter 01: multinational management in a changing world
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Multinational Management: A Strategic Approach4th EditionAuthors: John B. Cullen, K. Praveen ParboteeahTRANSCRIPT
Chapter
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1Multinational Management in a Changing World
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Learning Objectives
• Define multinational management• Understand the characteristics of a multinational
company• Understand the nature of the global economy and the
key forces that drive globalization• Know the basic classification of the world’s economies
• Define multinational management• Understand the characteristics of a multinational
company• Understand the nature of the global economy and the
key forces that drive globalization• Know the basic classification of the world’s economies
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Learning Objectives
• Identify the characteristics of the next generation of multinational managers
• Identify the characteristics of the next generation of multinational managers
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Multinational Management
• Formulation of strategies and management systems to take advantage of international opportunities and respond to international threats
• Formulation of strategies and management systems to take advantage of international opportunities and respond to international threats
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The Nature of the Multinational Company
• Any company that engages in business functions beyond its domestic borders
• Includes both large and small companies
• Any company that engages in business functions beyond its domestic borders
• Includes both large and small companies
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Exhibit 1.1 – The Largest Companies in the World
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Globalization
• Worldwide trend of the economies of the world becoming borderless and interlinked.
• Not all economies are participating or benefiting equally in the process.
• Important forces are driving globalization.• It is also important to look at classifications of the
world’s economies.
• Worldwide trend of the economies of the world becoming borderless and interlinked.
• Not all economies are participating or benefiting equally in the process.
• Important forces are driving globalization.• It is also important to look at classifications of the
world’s economies.
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Countries of the World: The Arrived, the Coming, and the Struggling
• Developed countries: mature economies with substantial per capita Gross Domestic Product, international trade, and investments.
• Developing countries: economies that have grown extensively over past two decades, e.g., Hong Kong, Singapore, South Korea.
• Developed countries: mature economies with substantial per capita Gross Domestic Product, international trade, and investments.
• Developing countries: economies that have grown extensively over past two decades, e.g., Hong Kong, Singapore, South Korea.
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Countries of the World: The Arrived, the Coming, and the Struggling
• Transition economies: countries that have changed from mostly communist systems to market/capitalistic systems, • e.g., Czech republic, Hungary, Poland.
• Less developed countries: have yet to show much progress in the global economy• most are located in Central and South America and
Africa.
• Transition economies: countries that have changed from mostly communist systems to market/capitalistic systems, • e.g., Czech republic, Hungary, Poland.
• Less developed countries: have yet to show much progress in the global economy• most are located in Central and South America and
Africa.
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Exhibit 1.2: Selected Economies of the World
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The Globalizing Economy: Seven Key Trends
• Disintegrating borders• Growing cross-border trade and investment• The rise of global products and global customers• Privatizations
• Disintegrating borders• Growing cross-border trade and investment• The rise of global products and global customers• Privatizations
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The Globalizing Economy: 7 Key Trends
• New competitors in the world market• The rise of global standards of quality and production• The Internet and information technology
• New competitors in the world market• The rise of global standards of quality and production• The Internet and information technology
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Exhibit 1.3: The Globalizing Economy
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Borders Are Disintegrating: The World Trade Organization
• Formal structure for continued negotiations and for settling trade disputes among nations.• 1947: Nations met to reduce tariffs from 45% to
less than 5%—resulted in the General Agreement on Tariffs and Trade (GATT).
• 1986: Negotiations began in Uruguay to continue reducing tariffs.
• Formal structure for continued negotiations and for settling trade disputes among nations.• 1947: Nations met to reduce tariffs from 45% to
less than 5%—resulted in the General Agreement on Tariffs and Trade (GATT).
• 1986: Negotiations began in Uruguay to continue reducing tariffs.
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World Trade Organization
• 1997: Trade ministers from countries representing 92% of world trade agreed to eliminate tariffs on software, computer chips, telecommunication equipment, and computers.
• WTO has, nevertheless, some critics.• Not all countries are participating equally in WTO.
• 1997: Trade ministers from countries representing 92% of world trade agreed to eliminate tariffs on software, computer chips, telecommunication equipment, and computers.
• WTO has, nevertheless, some critics.• Not all countries are participating equally in WTO.
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Regional Trade Agreements
• Regional Trade Agreements—agreements among nations to reduce tariffs and develop similar technical and economic standards.• European Union: includes a large number of
European countries. • Allows free movement of goods and services and
a common currency.
• Regional Trade Agreements—agreements among nations to reduce tariffs and develop similar technical and economic standards.• European Union: includes a large number of
European countries. • Allows free movement of goods and services and
a common currency.
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Regional Trade Agreements
• The North American Free Trade Agreement (NAFTA): links United States, Canada, and Mexico in an economic bloc. • Allows freer exchange of goods and services
• The Asia-Pacific-Economic Cooperation (APEC): looser confederation of 19 Asian nations with less specific agreements on trade facilitation.
• The North American Free Trade Agreement (NAFTA): links United States, Canada, and Mexico in an economic bloc. • Allows freer exchange of goods and services
• The Asia-Pacific-Economic Cooperation (APEC): looser confederation of 19 Asian nations with less specific agreements on trade facilitation.
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Sell Anywhere, Locate Anywhere
• World trade growth: average of 6.5% per year between 1990 and 2000.
• Nearly half of the over $5 trillion in world trade is among the European union, the U.S., and Japan—the TRIAD.
• World trade growth: average of 6.5% per year between 1990 and 2000.
• Nearly half of the over $5 trillion in world trade is among the European union, the U.S., and Japan—the TRIAD.
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Exhibit 1.5 – Leading Exporting and Importing Countries
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Exhibit 1.5 – Leading Exporting and Importing Countries, continued
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Exhibit 1.6: Recent Growth/Decline for Leading Importers and Exporters
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Exhibit 1.6: Recent Growth/Decline for Leading Importers and Exporters
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Sell Anywhere, Locate Anywhere
• Foreign Direct Investment (FDI) occurs when a multinational company from one country has an ownership position located in another country.
• FDI increased by more that 36% between 1996 and 2000.
• Post 9/11 has seen a decline in FDI.• Nevertheless, it remains a significant factor.
• Foreign Direct Investment (FDI) occurs when a multinational company from one country has an ownership position located in another country.
• FDI increased by more that 36% between 1996 and 2000.
• Post 9/11 has seen a decline in FDI.• Nevertheless, it remains a significant factor.
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Exhibit 1.7 – Top 25 Companies by Foreign Asset Ownership
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Foreign Direct Investment
• Developed countries get the bulk of FDI (69%) while developing countries get around 30%.
• Least developed countries get minimal FDI.• Implications for managers—significant opportunities
around the world.• Multinational managers should look at risk rating of
countries.
• Developed countries get the bulk of FDI (69%) while developing countries get around 30%.
• Least developed countries get minimal FDI.• Implications for managers—significant opportunities
around the world.• Multinational managers should look at risk rating of
countries.
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Exhibit 1.8: Risk Ratings of Selected Countries
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The Internet and Information Technology
• Electronic Communication — E-mail, World Wide Web, etc. • Allows multinationals to communicate with company
locations throughout the world.• Multinationals can also monitor worldwide
operations. • Information technology is spurring a borderless
financial market.
• Electronic Communication — E-mail, World Wide Web, etc. • Allows multinationals to communicate with company
locations throughout the world.• Multinationals can also monitor worldwide
operations. • Information technology is spurring a borderless
financial market.
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The Rise of Global Products and Global Customers
• The needs of customers for many products and services are growing more similar,• e.g., McDonald’s, Boeing, Toyota.
• Global customers search the world for their supplies without regard for national boundaries.
• The needs of customers for many products and services are growing more similar,• e.g., McDonald’s, Boeing, Toyota.
• Global customers search the world for their supplies without regard for national boundaries.
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Privatization
• Sale of government-owned businesses to private investors, • usually through stock or direct sale to other
companies.• Two types of privatization contribute to the global
economy — the developed world and the developing world.
• Sale of government-owned businesses to private investors, • usually through stock or direct sale to other
companies.• Two types of privatization contribute to the global
economy — the developed world and the developing world.
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Privatization—Types
• The Developed Countries • Use privatization to make formerly government-
controlled enterprises more competitive in the global economy.
• The Developing Countries • Use privatization to jump-start their economies or to
speed the transition from a communist to a capitalist system.
• The Developed Countries • Use privatization to make formerly government-
controlled enterprises more competitive in the global economy.
• The Developing Countries • Use privatization to jump-start their economies or to
speed the transition from a communist to a capitalist system.
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New Competitors
• Free market reforms are creating a potential group of new competitors.
• Korean, Russian, Taiwanese, and Mexican companies are all emerging.
• Chinese companies are also on the move.
• Free market reforms are creating a potential group of new competitors.
• Korean, Russian, Taiwanese, and Mexican companies are all emerging.
• Chinese companies are also on the move.
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Exhibit 1.9: Top 25 Emerging Market Economies
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New Competitors are Emerging
• Global trade has two important effects in developing new competitors:• When developing countries are used as low-wage
platforms for high-tech assembly, multinationals facilitate the transfer of technology.
• Aggressive multinationals are also expanding beyond their own borders.
• Global trade has two important effects in developing new competitors:• When developing countries are used as low-wage
platforms for high-tech assembly, multinationals facilitate the transfer of technology.
• Aggressive multinationals are also expanding beyond their own borders.
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The Rise of Global Standards
• Companies can make one or only a few versions of product for the world market.
• This is cheaper than making different versions for different countries.
• Drive to develop common standards to save money.
• Companies can make one or only a few versions of product for the world market.
• This is cheaper than making different versions for different countries.
• Drive to develop common standards to save money.
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Global Standards
• Consistency in quality also an important requirement of doing business in many countries.
• International organization for standardization (ISO) in Geneva, Switzerland • Developed a set of technical standards (ISO
9001:2000 series).
• Consistency in quality also an important requirement of doing business in many countries.
• International organization for standardization (ISO) in Geneva, Switzerland • Developed a set of technical standards (ISO
9001:2000 series).
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Next Generation of Multinational Managers: Characteristics
• Global mindset • Ability to work with people from diverse backgrounds• Long-range perspective• Ability to manage change and transition• Ability to create systems for learning and changing
organizations
• Global mindset • Ability to work with people from diverse backgrounds• Long-range perspective• Ability to manage change and transition• Ability to create systems for learning and changing
organizations
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Next Generation of Multinational Managers: Characteristics
• Talent to motivate all employees to achieve excellence• Accomplished negotiation skills• Willingness to seek overseas assignments• Understanding of national cultures
• Talent to motivate all employees to achieve excellence• Accomplished negotiation skills• Willingness to seek overseas assignments• Understanding of national cultures
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Multinational Management: A Strategic Approach
• Considers how managers formulate and implement strategies to compete successfully in the global economy.
• Strategies are the maneuvers or activities used to increase and sustain organizational performance.
• Multinational strategies must include maneuvers that deal with operating in more than one country and culture.
• Considers how managers formulate and implement strategies to compete successfully in the global economy.
• Strategies are the maneuvers or activities used to increase and sustain organizational performance.
• Multinational strategies must include maneuvers that deal with operating in more than one country and culture.