Global Business Exam 3

Environmental Sustainability

State in which the demands placed upon the environment by people and commerce can be met without reducing the capacity of the environment to provide for future generations.

Brundtland Commission

The Brundtland Commission, formally the World Commission on Environment and Development, was a United Nations sub-organization established in 1983 to address environmental and development issues, culminating in the 1987 "Our Common Future" report, which defined sustainable development as "meeting the needs of the present without compromising the ability of future generations to meet their own needs".

• Definition of sustainable development

Definition of sustainable development:

“It meets the needs of the present without compromising the ability of future generations to meet their needs.”

Life Cycle Assessment

An evaluation of the environmental aspects of a product or service throughout its life cycle.

Assesses the cumulative impact of product.

Can lead to reductions of environmental footprint, cost structure, and potential carcinogens in inputs, processes, and wastes.

Emerging “product stewardship” shows companies accepting responsibility for impact of their activities.

Cradle-to-Cradle Design

Suggests that products and services should be designed to completely close the production loop, so that all resources needed to produce them are recycled and reused rather than discarded or left to pollute.

Identifies two components:

Technical nutrients.

Biological nutrients.

United Nations Global Compact

A voluntary reporting scheme for businesses that covers critical areas affecting the conduct of international business—human rights, labor, the environment, and anticorruption efforts.

Global Reporting Initiative

Sustainability reporting framework developed among stakeholders.

Carbon Disclosure Project

Organization that provides reporting frameworks for greenhouse gas emissions and water use.

Carbon Footprint

A measure of the volume of greenhouse gas emissions caused by a product’s manufacture and use.

Water Footprint

A measure of the amount of water used in a product’s manufacture and use.

Limits as Part of the Sustainability Context

Limits address the reality that environmental resources are exhaustible.

To recognize the limits of the earth’s atmosphere to absorb emissions, and to incorporate this recognition into the way the business operates, is an ecologically responsible decision that supports sustainability.

Interdependence as Part of the Sustainability Context

The complex relationships that sustainable practices create among ecological, social, and economic systems, in which actions in one of these systems may affect the other two, often in ways that are not easily predicted.

Equity Distribution as Part of the Sustainability Context

For system interdependence to work, there cannot be vast differences in the distributions of gains.

Example: Fair Trade movement.

Global world demands increasing transparency.

Backward integration to gain control over supply chain.

Stakeholder Theory

An understanding of how business operates that takes into account all identifiable interest holders.

Managers should consider the network of tensions caused by competing internal and external demands that surrounds the business.

Gives all stakeholders a voice.

Triple-bottom-line accounting (3BL)

Measures the firm’s social and environmental performance in addition to its economic performance.

Does not allow for comparisons across companies because measurements, especially social and environmental areas are not standardized.

Natural Capital

Natural resources such as air, land, and water that provide us with the goods and services on which our survival depends.

Location: Political and Trade Relationships

Location can contribute to country’s competitive advantage.

Obvious to trade with neighbors.

Austria’s political neutrality made it a good location during Cold War.

Geographic proximity affects formation of trading groups.

Topography: Mountains

Separate people, impede exchange and interaction.

Results in language and culture differences.

Create regional markets, often with altitude adjustments.

Topography: Deserts and Tropical Forests

Separate markets.

Increase cost of transportation.

Create population concentrations.

Topography: Bodies of Water

Attract people.

Facilitate transportation.

Inland waterways provide access to interior markets.

Climate

Meteorological conditions, including temperature, precipitation, and wind that prevail in a region.

North-South divide: greater economic and intellectual development has occurred in temperate climates of Northern Europe and U.S.

Natural Resources

Anything supplied by nature on which people depend.

Renewable Energy

Energy that comes from sources that are naturally replenished, such as sunlight, wind, and water flow.

Nonrenewable Energy

Energy that comes from sources that cannot be replenished, such as the fossil fuels—petroleum, coal, and natural gas—and nuclear power.

Nonrenewable Energy Sources: Petroleum

How long will supplies last?

Oil shale has remained underdeveloped due to environmental issues.

Heavy oil does not flow easily, produced from oil sands and oil-bearing shale.

Fracking has opened new reserves.

Nonrenewable Energy Sources: Nuclear Power

Data suggests many countries expanding nuclear capacity.

Main issue is safety.

Nonrenewable Energy Sources: Coal

Projected to decline as energy source.

Emissions from burning coal responsible for global warming.

Nonrenewable Energy Sources: Natural Gas

Cleanest burning fossil fuel.

Renewable Energy Sources

Predicted to be a shift toward renewable energy sources because either price of nonrenewable sources will become prohibitive or nonrenewable sources will become unavailable.

Wind power

Biomass

Solar Photovoltaic Power (PV)

Concentrating Solar Thermal Power (CSP)

Geothermal Power

Ocean Energy

Hydropower

Wind power

Now a mainstream source for electricity.

Biomass

Energy source is photosynthesis.

Solar Photovoltaic Power (PV)

Power comes from voltage crated when certain materials are exposed to light.

Concentrating Solar Thermal Power (CSP)

Mirrors or lenses collect sunlight to heat water.

Geothermal Power

Power from heat stored in the earth.

Ocean Energy

Power from sun’s heat on the water and mechanical energy of tides and waves.

Hydropower

Draws on energy of moving water.

Nonfuel Minerals

Rare earths are 17 nonfuel mineral elements used in defense applications and in all areas of modern manufacturing.

Insufficient concentrations prevent them from being commercially viable to mine.

China produces more than 80 percent of output.

International Strategy

A plan that guides the way firms make choices about developing and deploying scarce resources to achieve their international objectives.

Must be consistent throughout company to be a success.

Competitive Advantage

Ability of a company to achieve and maintain a unique and valuable competitive position both within a nation and globally, generating higher rates of profit than its competitors.

To achieve competitive advantage, a company must develop competencies that:

Create value for which customers are willing to pay.

Are rare.

Are difficult to imitate or substitute for.

Allow the firm to be organized to fully exploit the competitive potential of these competencies.

Why Plan Globally?

Strategic planning is the process by which an organization determines where it is going in the future, how it will get there, and how it will assess whether and to what extent it has achieved its goals.

Provides a way to identify opportunities and threats.

Gives decision makes a common understanding of business, strategy, assumptions, and direction.

Strategic planning is a formal structure with the following steps:

Analyze the company’s external environments.

Analyze the company’s internal environment.

Define the company’s business and mission.

Set corporate objectives.

Quantify goals.

Formulate strategies.

Make tactical plans.

Step 1: Analyze Domestic, International, and Foreign Environments

Managers must know what the present force values are and where they appear to be going, and to develop and implement appropriate responses to any changes in key environmental forces.

Environmental, social, and business trends are more critical to strategy than in the past, but few act on it.

Step 2: Analyze Corporate Controllable Variables

Value chain is the set of interlinked activities that add value to the final product or service.

Value chain analysis assesses where and to what extent value is added to the final product or service.

Who are the company’s target customers?

What value does the company want to deliver to these customers?

How will this customer value be created?

Knowledge as a controllable corporate resource.

Knowledge management is the practice organizations use for identifying, creating, acquiring, developing, dispersing, and exploiting competitively valuable knowledge.

Tacit knowledge is difficult for an individual to express clearly in words, pictures, or formulas and is therefore difficult to transmit to others.

Explicit knowledge is easy to communicate to others via words, pictures, formulas, or other means.

Step 3: Define the Corporate Mission, Vision, and Values Statements

Mission statement defines the organization’s purpose and scope.

Google: to organize the world’s information and make it universally accessible and useful.

Vision statement describes the desired future position if organization can acquire the necessary competencies and successfully implement its strategy.

Values statement is a clear, concise description of the fundamental values, beliefs, and priorities expected of the organization’s members, reflecting how they are to behave with each other and with the company’s customers, suppliers, and other members of the global community.

Kiva: We envision a world where all people hold the power to create opportunity for themselves and others.

Step 4: Set Corporate Objectives

Objectives direct the firm’s course of action, maintain it within the boundaries of the stated mission, and ensure its continuing existence.

Intel: (1) defend and extend the core PC and server businesses; (2) expand into profitable, related adjacencies; (3) selectively disrupt markets and adapt Intel formula; and (4) continue to develop Go Big opportunities.

Step 5: Quantify the Objectives

While quantifying objectives is preferred, companies frequently do not have these.

Organizations often have non-quantifiable or directional goals.

Objectives tend to become more quantifiable as they get to the operational level.

Step 6: Formulate the Competitive Strategies

Competitive strategies are action plans that help organizations reach their objectives.

Two opposing forces in international market:

Reduction of costs.

Adaptation to local market.

Home replication strategy centralizes product development functions in home country.

Multidomestic strategy effective when pressure to adapt products or services for local markets is strong.

Global strategy works when a company faces strong pressures for cost reduction and limited pressure to adapt to local markets.

Transnational strategy effective when pressures for both cost reduction and local adaptation.

Regional Strategies for Competing Globally

Standardization common in research and development and manufacturing.

But not effective in strategy formulation.

Due to uncontrollable variables, increasing use of scenarios in planning process.

Scenarios are multiple, plausible stories about the future.

Companies must prepare for best- and worst-case scenarios.

Contingency plans prepare for these critical events that could have a severe impact on the firm.

Steps to Successful Scenario Planning

Determine the area, scope, and timing of the decisions with greatest relevance to or impact on your organization.

Research existing conditions and trends in a wide variety of areas (including those areas you might not typically consider).

Examine the drivers or key factors that will likely determine the outcome of the stories you are beginning to build.

Construct multiple stories of what could happen next.

Play out what the impact of each of these possible futures might be for your business or organization.

Examine your answers and look for those actions or decisions you’d make that were common to all two or three of the stories you built.

Monitor what does develop so as to trigger your early response system.

Step 7: Prepare Tactical Plans

Spell out in detail how the objectives will be reached.

Also called operational plans.

Sales Forecasts and Budgets

Sales forecast is a prediction of future sales performance.

Budget is an itemized projection of revenues and expenses for a future time period.

Facilitation Tools for Implementing Strategic Plans

Policies are broad guidelines issued by upper management to assist lower-level managers in handling recurring issues or problems.

Procedures specify ways of carrying out a particular task or activity.

Performance Measures

Three ways to measure if a strategy is proceeding successfully or needs modification:

Success in obtaining and applying required resources.

Effectiveness of company’s personnel performance.

Progress toward achieving mission, vision, and objectives in a manner consistent with the company’s stated values.

Time Horizon

Little agreement on definition of short, medium, and long-term plans.

Level in the Organization

Each organizational level will have its own plan.

Methods of Planning

Top-down begins at highest level and continues downward.

Bottom-up begins at lowest level and continues upward.

Iterative is repetition of bottom-up or top-down process until all differences have been reconciled.

Strategic Management Approach

Replacing the old strategic planning process.

Combines strategic thinking, strategic planning, and strategic implementation.

Increasingly recognized as a fundamental task of line management, rather than the job of specialized planners in staff positions.

Who Does Strategic Planning?

New approach often includes interaction with such parties as important customers, distributors, suppliers, and alliance partners, in order to gain firsthand experience with the firm’s markets.

Governments and activists also relevant influences.

How Strategic Planning Is Done

Top management generally accepts that a good strategic planning process must allow ideas to surface from anywhere and at any time.

Format has become less structured with shorter documentation.

Contents of the Plan

Concerned with issues, strategies, and implementation.

Incorporates creative, forward-looking ideas essential to competitive success within changing and uncertain international environment.

Organizational Design

A process that determines how a company should be organized to ensure its worldwide business activities are integrated in an efficient and effective manner.

Management faces two concerns:

Finding most effective way to take advantage of specialization of labor.

Coordinating a firm’s activities to enable it to meet its overall objectives.

Four elements to consider when designing structure:

Product and technical expertise.

Geographic expertise.

Customer expertise.

Functional expertise.

International Division Structure

International division is at the same level as the domestic division and is responsible for all non-home-country activities.

As overseas operations grow, companies often eliminate international divisions in favor of worldwide organizational structures based on:

Product.

Region.

Function.

Customer class.

International Product Structure

Domestic product division is given responsibility for global line and staff operations.

Product divisions then responsible for worldwide operations.

Avoids duplication of product experts but creates a duplication of area experts.

Geographic Region Structure

Geographic area managers responsible for all activities and report directly to CEO.

Simplifies task of directing worldwide operations—every country under control of someone in contact with headquarters.

Popular with companies that manufacture products with a low or stable technological content.

Global Functional Structure

Few international companies organized by function at top level.

Functional form used by companies with narrow and highly integrated product mix such as oil companies.

Hybrid Organizational Structures

Hybrid organizations use a mixture of organizational forms at the top level.

Such combinations are often the result of a regionally organized company introducing a new and different product line that management believes is best handled by a worldwide product division.

Matrix Organizations

An organizational structure composed of one or more superimposed organizational structures to mesh product, regional, functional, and other expertise.

Disadvantages of the matrix form and its multiple reporting relationships have kept most worldwide companies from adopting it.

Matrix Overlay

An organization in which top-level divisions are required to heed input from a staff composed of experts of another organizational dimension to avoid the double-reporting difficulty of a matrix organization but still mesh two or more dimensions.

Strategic Business Units

A self-contained business entity with a clearly defined market, specific competitors, the ability to carry out its business mission, and a size appropriate for control by a single manager.

Current Organizational Trends

Reengineering involves redesigning organizational structure, hierarchy, business systems, and processes in order to improve organizational efficiency.

Virtual corporation coordinates economic activity to deliver value to customers using resources outside the traditional boundaries of the organization.

Horizontal corporations characterized by lateral decision processes, horizontal networks, and a strong corporate-wide business philosophy.

Has been characterized as anti-organization.

In the future, greater use of dynamic network structure.

Breaks down the major functions into smaller, more agile companies coordinated by a downsized headquarters organization.

Subsidiaries

Companies controlled by other companies (known as parent companies) through ownership of enough voting stock to elect a majority of the voting members on the company’s board of directors.

Affiliates

Companies controlled by other companies, but less-than majority owners may exercise control by a variety of means, both those involving stock ownership and those involving non-ownership mechanisms.

Standardization of the Company’s Products and Equipment

Affiliates must follow the standardization of products.

After production process stabilizes, adaptations can be made if local management feels they are necessary.

Operations managers typically want to standardize products in as many overseas plants at possible.

Competence of Subsidiary Management and Headquarters’ Reliance on It

Moving subsidiary managers into parent operations or into other subsidiaries widens the executives’ knowledge of the system and knowledge of each other.

Headquarters relies on subsidiary knowledge of conditions in host country, including culture.

Size and Age of the IC

The longer a company has been an IC, the more likely it will have numerous experienced executives who will have served abroad and will have knowledge of company policies and will have developed confidence with international activities.

In older, larger ICs, more decisions are made at headquarters.

Headquarters’ Willingness to Benefit the Enterprise at the Subsidiary’s Expense

HQ may move production factors from one country to another to gain financial or competitive advantage; subsidiary management is not thrilled with loss of control.

If one market is too small for economies of scale, HQ may have specific countries make a single component(s) that all other markets can use; this demands greater HQ coordination and control.

HQ decides price and profit allocation to the subsidiary that contributes most to overall IC profitability.

Transfer pricing established for transactions between members of the same enterprise.

The Subsidiary’s Frustration with Its Limited Power

HQ wants management of subsidiaries to be motivated and loyal.

Managers can lose incentive if HQ makes all decisions.

HQ should delegate as many decisions as reasonably possible to subsidiary.

Loss of Freedom and Flexibility

If shareholders outside the IC control the affiliate, they can block efforts of IC headquarters to move production factors away, fill an export order from another affiliate or subsidiary, etc.

Control Can be Had Even with Limited or No Ownership

With less than 50 percent of the voting stock and even with no voting stock, an IC can have control through:

A management contract.

Retaining control of finances.

Retaining control of technology.

Putting people from IC in important executive positions.

Types of Reporting

Financial reporting.

Technological reporting.

Reporting about market opportunities.

Political and economic reporting.