Chapter 1Multinational Management in a Changing World

Multinational Management & Globalization

• Strategies and management systems• take advantage of international opportunities and

respond to international threats• Multinational Company

• business functions beyond its domestic borders• Globalization

• trend of the economies of the world becoming borderless and interlinked

• Strategies and management systems• take advantage of international opportunities and

respond to international threats• Multinational Company

• business functions beyond its domestic borders• Globalization

• trend of the economies of the world becoming borderless and interlinked

Countries of the World

• 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.

• 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.

• 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.

• 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.

Seven Key Trends of the Globalizing Economy

1) Borders Are Disintegrating

• The World Trade Organization• Formal structure for continued negotiations and for settling trade

disputes among nations.• Historical Developments:

• GATT 1947: Nations met to reduce tariffs resulting in the General Agreement on Tariffs and Trade.

• WTO 1986/1993: Negotiations began in Uruguay to continue reducing tariffs and established the 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 some critics and not all countries are participating equally.

• The World Trade Organization• Formal structure for continued negotiations and for settling trade

disputes among nations.• Historical Developments:

• GATT 1947: Nations met to reduce tariffs resulting in the General Agreement on Tariffs and Trade.

• WTO 1986/1993: Negotiations began in Uruguay to continue reducing tariffs and established the 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 some critics and not all countries are participating equally.

Sell Anywhere, Locate Anywhere

• Regional Trade Agreements• European Union (EU)• North American Free Trade Agreement (NAFTA)• Asia-Pacific-Economic Cooperation (APEC)

• Nearly half of the over $5 trillion in world trade is among the European union, the U.S., and Japan—the TRIAD

• Regional Trade Agreements• European Union (EU)• North American Free Trade Agreement (NAFTA)• Asia-Pacific-Economic Cooperation (APEC)

• Nearly half of the over $5 trillion in world trade is among the European union, the U.S., and Japan—the TRIAD

2) Foreign Direct Investment

• 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.

• 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.

• 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.

• 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.

3) Internet and Information Technology

• Electronic Communication• E-mail, World Wide Web, teleconferencing, etc. • Allows multinationals to communicate with company

locations throughout the world.• Multinationals can monitor worldwide operations.

• Borderless financial market.

• Electronic Communication• E-mail, World Wide Web, teleconferencing, etc. • Allows multinationals to communicate with company

locations throughout the world.• Multinationals can monitor worldwide operations.

• Borderless financial market.

4) 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.

5) 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 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.

• 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 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.

6) New Competitors are Emerging

• 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.• Global trade has two important effects in developing new

competitors:1. Multinationals facilitate the transfer of technology when

developing countries are used as low-wage platforms for high-tech assembly

2. Aggressive multinationals from emerging markets are also expanding beyond their own borders.

• 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.• Global trade has two important effects in developing new

competitors:1. Multinationals facilitate the transfer of technology when

developing countries are used as low-wage platforms for high-tech assembly

2. Aggressive multinationals from emerging markets are also expanding beyond their own borders.

7) 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 since there is pressure to develop common standards to save money.

• 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).

• 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 since there is pressure to develop common standards to save money.

• 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).

Characteristics of Next Generation of Multinational Managers

• Global mindset – understand the world is changing rapidly• 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 (Meet needs of evolving strategies)• Talent to motivate all employees to achieve excellence

(Leadership)• Accomplished negotiation skills (Cross-cultural)• Willingness to seek overseas assignments• Understanding of national cultures

• Global mindset – understand the world is changing rapidly• 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 (Meet needs of evolving strategies)• Talent to motivate all employees to achieve excellence

(Leadership)• Accomplished negotiation skills (Cross-cultural)• Willingness to seek overseas assignments• Understanding of national cultures

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.

• Managers must understand more then the basics of national 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.

• Managers must understand more then the basics of national culture