Chapter 8—Global Management

global business

the buying and selling of goods and services by people from different countries

multinational corporation

a corporation that owns businesses in two or more countries

direct foreign investment

a method of investment in which a company builds a new business or buys an existing business in a foreign country

trade barriers

government-imposed regulations that increase the cost and restrict the number of imported goods

protectionism

a government’s use of trade barriers to shield domestic companies and their workers from foreign competition

tariff

a direct tax on imported goods

nontariff barriers

nontax methods of increasing the cost or reducing the volume of imported goods

quotas

a limit on the number or volume of imported products

voluntary export restraints

voluntarily imposed limits on the number or volume of products exported to a particular country

government import standard

a standard ostensibly established to protect the health and safety of citizens but, in reality, is often used to restrict imports

subsidies

government loans, grants, and tax deferments given to domestic companies to protect them from foreign competition

customs classification

a classification assigned to imported products by government officials that affects the size of the tariff and the imposition of import quotas

General Agreement on Tariffs and Trade (GATT)

worldwide trade agreement that reduced and eliminated tariffs, limited government subsidies, and established protections for intellectual property

World Trade Organization (WTO)

the successor to GATT that isthe only international organization dealing with the global rules of trade between nations and its main function is to ensure that trade flows as smoothly, predictably, and freely as possible

NAFTA

NAFTA

European Union

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

Local adaptation

modifying rules, guidelines, policies, and procedures to adapt to differences in foreign customers, governments, and regulatory agencies

Exporting

Selling domestically produced products to customers in foreign countries

cooperative contract

Foreign business owner pays a company a fee for the right to conduct that business in their country

licensing

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 in a specified foreign market

franchise

a 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

strategic alliance

An agreement in which companies combine key resources, costs, risks, technology, and people

joint venture

a strategic alliance in which two existing companies collaborate to form a third, independent company or engage in a clearly defined business activity

wholly owned affiliates

foreign offices, facilities, and manufacturing plants that are 100 percent owned by the parent company

global new ventures

new companies that are founded with an active global strategy and have sales, employees, and financing in different countries

growing markets

the upwards direction of a market/economy

purchasing power

the relative cost of a standard set of goods and services in different countries

degree of global competition

the number and quality of companies that already compete in a foreign market

Political uncertainty

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

avoidance, control cooperation

strategies to minimize political risk

avoidance

Divesting or selling the business

Postponing investment until the risk shrinks

Control

Lobbying foreign governments or international trade agencies to change laws, regulations, or trade barriers

Cooperation

Using joint ventures and collaborative contracts

national culture

the set of shared values and beliefs that affects the perceptions, decisions, and behavior of the people from a particular country

Hofstede’s Six Cultural Dimensions

power distance, individualism vs. collectivism, masculinity vs. femininity, uncertainty avoidance, short-term vs. long-term orientation, indulgence vs. restraint

power distance

individuals’ perceptions of power distribution

individualism vs. collectivism

degree of belief in self-sufficiency

masculinity vs. femininity

assertive vs. nurturing cultures

uncertainty avoidance

comfort level with the unpredictable or unstructured

short-term vs. long-term orientation

preference for deferred or immediate gratification

indulgence vs. restraint

strictness of social norms

power distance

A junior employee in the Netherlands openly disagrees with their manager during a meeting. A visiting manager from Nigeria is shocked and thinks the employee is being disrespectful.

individualism vs. collectivism

An American employee wants to be rewarded for their personal performance. Their Japanese team expects bonuses to be shared equally

uncertainty avoidance

A French employee insists on having detailed procedures and clear rules before starting a project, while a Chinese colleague is comfortable adapting as they go.

short-term vs. long-term orientation

A U.S. firm wants quick financial results, while its Japanese partner prioritizes building a long-term relationship and slow, steady growth.

indulgence vs. restraint

Dutch employees expect flexible work hours and frequent celebrations, but Russian managers prefer strict discipline and minimal leisure during work hours.

expatriate

someone who lives and works outside their native country

language and cross-cultural training

help expatriates make faster adjustments to foreign cultures and perform better on their international assignments

documentary training

focuses on identifying specific critical differences between cultures

cultural simulations

trainees practice adapting to cultural differences

field simulation

trainees are placed in an ethnic neighborhood for three to four hours to talk to residents about cultural differences

family adjustment

significant factor in international assignment success

adaptability screening

assesses how well managers and their families are likely to adjust to foreign cultures

Intercultural training

helps families prepare for the cultural differences they will encounter

d.      Share costs and risks with partners

One advantage of joint ventures is that companies:

a.      Avoid sharing profits

b.      Eliminate cultural conflicts

c.      Maintain full operational control

d.      Share costs and risks with partners

b.      Exporting

Which form of global business involves producing goods in one country and selling them in another?

a.      Licensing

b.      Exporting

c.      Joint venture

d.      Franchising

d.      Lack of sensitivity to local markets and cultures

A major risk of emphasizing too much global consistency is:

a.      Increased operational complexity

b.      Reduced economies of scale

c.      Excessive management autonomy

d.      Lack of sensitivity to local markets and cultures

a.      Using standardized procedures worldwide

Global consistency refers to:

a.      Using standardized procedures worldwide

b.      Customizing products in every market

c.      Allowing local managers complete autonomy

d.      Developing different strategies for each country

b.      False

In countries with high power distance, employees usually expect equal decision-making authority with managers.

a.      True

b.      False

a.      Purchasing power

Which factor helps companies determine the growth potential of foreign markets?

a.      Purchasing power

b.      Political ideology

c.      Exchange rates only

d. Geographic location

c.      Using trade barriers to protect domestic industries

Protectionism refers to:

a.      Promoting international trade agreements

b.      Reducing tariffs on imported goods

c.      Using trade barriers to protect domestic industries

d.      Encouraging global free trade

b.      A limit on the quantity of imported goods

A quota is best defined as:

a.      A tax on imported products

b.      A limit on the quantity of imported goods

c.      A subsidy for domestic companies

d.      A voluntary restriction imposed by exporters

a.      True

Indulgent cultures allow relatively free gratification of desires related to enjoying life and having fun.

a.      True

b.      False

c.      Buys businesses in another country

Direct foreign investment occurs when a company:

a.      Ships goods to another country

b.      Purchases foreign products for resale

c.      Buys businesses in another country

d.      Outsources manufacturing to foreign suppliers