Chapter 6 Management PDF

Dhruv Chaudhari 09/26/2024 Managing a Global Overview 6.1 Managing a Global Business Overview Managing a business globally is different from doing it in one home country: ○ You are already competing against organizations from outside their borders in the new place...

Dhruv Chaudhari 09/26/2024 Managing a Global Overview 6.1 Managing a Global Business Overview Managing a business globally is different from doing it in one home country: ○ You are already competing against organizations from outside their borders in the new place ○ You can also be sourcing labor, materials, or parts of production from another country ○ Requires careful analysis of the company that you will do business with Including political policies, economic wealth, stability, and legal protections ○ An organization must look at either standardizing products or conforming to the new location to introduce new products Including what entry strategy to use, either exporting or a joint venture ○ It is one of many ways to grow a business and can have great benefits 6.2 Globalization Markets Globalization: Trend towards a more integrated and interdependent global economy. Why is Globalization occurring Faster? 4 Factors ○ Declining Trade barrier: reduced tariffs (models show overall advantages of free trade markets even though they negatively affect industries in the home country) ○ Technology Enablement: air travel, communications, and access to the internet are a big factor ○ Rise of Multinational Enterprises(MNEs): increase in the number of organizations successfully conducting business globally ○ Formation of Global Institutions: The World Trade Organization and the World Bank provide governing mechanisms 6.3 Political Economy Political Economy: It consists of the political climate, the economic conditions, and the legal system that exists ○ Evaluation of Political economy Is free trade in good health under the government How many of the companies are owned or subsidized by the government High tariffs discouraging trade with foreign entities Civil unrest Ownership rules that make a company have to give a share of their business to the citizens of that company  ○ Economic Conditions Sound stable economy with sufficient wealth to make business there beneficial Some countries have several people in borderline poverty which makes business there hard to achieve There are currency conversion rates and some countries try to tax for converting currency ○ Evaluation of the Legal System Laws could make business hard for an entity There could be laws that favor citizens' rights over a foreign entity Limited law enforcement help when a crime happens against the company Law enforcement is not good at helping with limiting crime and enforcing laws Culture is the norms, beliefs, attitudes, more, and values that are commonly shared by a large number of the residents of a country ○ A country can have multiple cultures ○ Some cultures may not be supportive of foreign cultures and companies ○ Languages also bring challenges ○ Overall, if a business management does not understand the cultures then it could cause the business to get heavy loses 6.4 Key Strategies For Conducting Business in International Markets Determine whether to modify products or services to better conform with local preferences ○ Businesses doing business globally should know if they will conform to the local populous by changing the product There could also be legal requirements 3 options to consider for modifications Global standard ○ All products are unchanged in all markets: like Coca-Cola using the same formula for their coke branded drinks Local customization ○ Modifications to meet local populous preferences Combination strategy ○ Customized for some countries that differ a lot, and potential demand is large Why Choose some of the strategies ○ Global standard: business is looking to optimize costs by not having to produce multiple products ○ Local: when customers' preferences differ dramatically and the demand is high. Disadvantage increase production costs  Conversely, it is not hard to modify products nowadays ○ Combination: some markets are not large enough and ones that are and they differ, then this strategy works Limits increased production costs, while possibly increasing sales Determine the Entry Strategy that will be used for conducting business in a country ○ Export: either ship products from another country to a foreign country or be a distributor ○ License: sell the rights to a third party to make and/or sell the business's products and services ○ Franchise: Authorize a business partner to use trademarks and brands to provide business in a foreign country ○ Joint Venture: set up formal arrangements to collaborate with business partners for conducting business within a specific country. ○ Strategic Alliance: less formal arrangement for two businesses to cooperate ○ Do It Yourself: The entry strategy is implemented by either the business establishing a new business from inception in the target country or acquiring majority ownership of an existing business Preferred entry strategies for businesses depend on several aspects: ○ Management preferences for maintaining more or less control over business activities ○ Availability of suitable business partners for licensing, franchising, joint ventures, or strategic alliance ○ Legal requirements, restrictions, and protections related to the option ○ Nature of the product and its suitability for a particular entry strategy ○ Availability of suitable and desirable acquisition targets and the legal restrictions ○ Time required and challenges involved in undertaking the development of business from inception Some businesses also tend to manufacture and produce products in a foreign company, and it is not just limited to a company selling products in a given company