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Chapter 8

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Syracuse University
School of Management
SOM 122

Chapter 8- global management Global business- buying and selling of goods and services by people from different countries • Multinational corporations- corporations that own businesses in 2 or more countries • Direct foreign investment- when a company builds a new business or buys an existing business in a foreign country Buying domestically increases number of domestic businesses and workers • Trade barriers- government imposed regulations that increase the cost and restrict the number of imported goods o Make it difficult and expensive to purchase imported goods  Ex. Chinese government added 105% tariff to imported US chickens o Protectionism- use of trade barriers to shield domestic companies and their workers from foreign competition • 1. TARIFF- direct tax on imported goods • 2. NONTARIFF- nontax methods of increasing the cost or reducing the volume of imported goods o Quotas- specific limits on the number or volume of imported products  Ex. China allows 20 foreign films to be released in their country’s theaters each year o Voluntary export restraints- limit the amount of a product that can be imported annually  Import country convinces exporting country makes the restraints  Illegal o Government import standards- protect the health and safety of citizens  Ex. Taiwan restricts the age and type of beef imported from the US o Government subsidies- long term, low interest loans, cash grants, tax deferments to protect companies in special industries o Customs valuation/classification- classification assigned to imported goods by government officials that affects the size of the tariff and the imposition of import quotas GeneralAgreement on Tariffs and Trade (GATT)- worldwide trade agreement that reduced and eliminated tariffs, limited government subsidies and established protections for intellectual property (1947-1995) World Trade Organization (WTO)- successor of GATT, only international organization dealing with global rules of trade between nations • Functions to ensure that trade flows smoothly, predictably and freely • Headquartered in Geneva, Switzerland • Administers trade agreements • Provides a forum for negotiations • Handles trade disputes Chapter 8- global management • Monitors national trade policies • Technical assistance and training for developing countries Protection of intellectual property Countries no longer have veto power in WTO Regional trading zones- zones in which tariff and non-tariff barriers are reduced or eliminated for countries within the trading zone • Europe (Maastricht Treaty) o Purpose to transform their 12 different economies and 12 currencies into one common economic market called the European Union (euro) o Total membership 27 European countries o Before the treaty, at every border, trucks were stopped and inspected • North America (NAFTA) o US, Canada and New Mexico o Eliminate most product tariffs and prevent 3 countries from increasing existing tariffs or introducing new ones • CentralAmerica (CAFTA-DR) o US, DR, and other centralAmerican countries • South America (USAN) o Aims to create a unified SouthAmerica by permitting free movement between nations, creating a common infrastructure that includes an interoceanic highway and establishing the region as a single market by eliminating all tariffs by 2019 • Asia (ASEAN andAPEC) Americans can buy much more with their incomes than those in other countries • US Marketplace is the most competitive in the world and has been one of the easiest for foreign companies to enter • American consumers have plenty of choices amongAmerican-made and foreign- made products o High competition of foreign products forces prices to be low GLOBAL CONSISTENCY • When a multinational company with offices, manufacturing plants, distribution facilities in different countries uses the same rules, guidelines, policies and procedures to run all of those offices, plants and facilities o Simplifies decisions • Local adaptation- modifies its standard operating procedures to adapt to differences in foreign customers, governments, and regulatory agencies Chapter 8- global management o Preferred by local managers- charged with making international business successful in their countries Too much global consistency Too much on local adaptation Run the risk of using management Run the risk of losing the cost effectiveness procedures poorly suited to a particular and productivity that result from using countries’market, culture and employees standardized rules and procedures throughout the world Ex. H&M has all the same clothes in every store worldwide, clothing is made for Ex. Tupperware had to convince Indian climates like Sweden, MUST adapt to consumers that plastic containers were warmer climates in order to grow better than metal (traditionally used to store leftovers in India) EXPORTING- produces products in their home country and sells the products to customers in foreign countries • Advantages o Makes company less dependent on sales in its home market o Provides a greater degree of control over research, design and production decisions • Disadvantages o Many exported goods are subject to tariff and nontariff barriers (increase cost to consumers) o Transportation costs increase the price also Cooperative Contract • Acompany wants to expand its business globally without making a large financial commitment • Signed with a foreign business owner who pays the company a fee for the right to conduct that business in his or her country o Licensing Agreement  Adomestic country (licensor) receives royalty payments for allowing another country (licensee) to produce its product, sell its service or use its brand name in a particular foreign market  Allows companies to earn additional profits without investing more money • Foreign sales increase, royalties paid increases  Helps avoid tariff and nontariff barriers (licensee manufactures the product)  Disadvantage- licensor gives up control over the quality of the product and service sold by the foreign licensee • Unless specific regulations were made in the agreement  Disadvantage- licensees can eventually become competitors o FranchiseAgreement Chapter 8- global management  Collection of networked firms in which the manufac
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