1MultinationalManagementInaChangingWorldLearningObjectivesDefinemultinationalmanagement.Understandthecharacteristicsofamultinationalcompany.Understandthenatureoftheglobaleconomyandthekeyforcesthatdriveglobalization.Knowthebasicclassificationoftheworld’seconomies.Identifythecharacteristicsofthenextgenerationofmultinationalmanagers.TheDefinitionof

MultinationalManagementTheformulationofstrategiesandmanagementsystemstotakeadvantageofinternationalopportunitiesandrespondtointernationalthreatsTheNatureofTheMultinationalCompanyAmultinationalcompanyisanycompanythatengagesinbusinessfunctionsbeyonditsdomesticborders.Suchcompaniesmaybelargeorsmall.Mostmultinationalcompanies(MNCs)aremultinationalcorporations.ThelargestMNCsareallpubliccorporations.Exhibit1.1:

LargestCompaniesintheWorldExhibit1.2:

Locationsof

Global500CompaniesTheGlobalizingEconomyGlobalization:theworld’seconomiesarebecomingborderlessandinterlinked.Companiesarenolongerlimitedbytheirdomesticboundaries,andmayconductanykindofbusinessactivityanywhereintheworld.Globalizationcreatesachanging,butnotuniform,andnotalwaysstable,environmentforbusiness.NegativesofGlobalizationNotalleconomiesoftheworldarebenefitingequallyorparticipatingequallyintheprocess.Terrorism,wars,andaworldwideeconomicstagnationhavelimitedorreversedsomeaspectsofglobalization.Globalizationproducesascarcityofnaturalresources,environmentalpollution,negativesocialimpacts,andincreasedinterdependenceoftheworld’seconomies.Globalizationmaybewideningthegapbetweenrichandpoorcountries.TheBenefitsofGlobalizationGlobalizationresultsinlowerpricesinmanycountries,asmultinationalsbecomemoreefficient.GlobalizationbenefitsmanyemergingmarketssuchasIndiaandChina,asthesecountriesenjoygreateravailabilityofjobsandbetteraccesstotechnology.GlobalizationisthemajorreasonwhymanynewcompaniesfromMexico,Brazil,China,India,andSouthKoreaarethenewdominantglobalcompetitors.TheGlobalizingEconomy:

7KeyTrendsFalling,disintegratingbordersGrowingcross-bordertradeandinvestmentTheriseofglobalproductsandglobalcustomersTheinternetandinformationtechnology(IT)Privatizationsofformerlygovernment-ownedfirmsNewcompetitorsintheworldmarketTheriseofglobalstandardsforqualityandproductionCountriesoftheWorld:

TheArrived,TheComing,

andTheStruggling(1of4)DevelopedCountries(theArrived)havematureeconomieswithsubstantialpercapitaGrossDomesticProduct(GDP),internationaltradeandinvestments.E.g.,theUnitedStatesofAmerica,Britain,Japan,Germany,andmanyothersCountriesoftheWorld:

TheArrived,TheComing,

andTheStruggling(2of4)DevelopingCountries/Regions(theComing)haveeconomiesthathavegrownextensivelyoverpasttwodecades.E.g.,HongKong,Singapore,Taiwan,Malaysia,Indonesia,Thailand.CountriesoftheWorld:

TheArrived,TheComing,

andTheStruggling(3of4)Transitioneconomies(theComing)arecountriesthathavechangedfrommostlycommunistsystemstomarket/capitalisticsystems.E.g.,theCzechRepublic,Hungary,Poland,RussiaCountriesoftheWorld:

TheArrived,TheComing,

andTheStruggling(4of4)EmergingMarkets(theComing)arethosecountrieswhoseeconomiesaregrowingrapidly.E.g.,Brazil,Russia,India,&China(BRIC)Exhibit1.3:

SelectedWorldEconomiesExhibit1.4:

TheGlobalizingEconomyBordersareDisintegrating:TheWorldTradeOrganization(WTO)In1947,nationsmettoreducetariffsfrom45%tolessthan7%;thesenegotiationsresultedintheGeneralAgreementonTariffsandTrade(GATT).In1986,negotiationsbeganinUruguaytocontinuereducingtariffs.TheWorldTradeOrganization(WTO)succeededGATT.WTOprovidesstructureforcontinuednegotiationsandsettlingtradedisputesamongnations.WorldTradeOrganizationIn1997,WTOcountriesagreedtoendtariffsonsoftware,computersandrelatedproducts;hi-techexportstoEuropefromAsiaandtheUSdoubled.SinceGATT,worldtradehasgrownatmorethanfourtimestheoutputoftheworld’sGDP.SomesayWTOfavorsdevelopednations,encouragesenvironmentaldamage,andmovesjobsfromhigher-savecountriestolower-wagecountries.RegionalTradeAgreements

(1of2)RegionalTradeAgreementsareagreementsamongnationstoreducetariffsanddevelopsimilartechnicalandeconomicstandards.Thethreelargestaccountforhalftheworld’strade:theEuropeanUnion(EU)theNorthAmericanFreeTradeAssociation(NAFTA),andtheAsia-PacificEconomicCooperation(APEC)RegionalTradeAgreements

(2of2)TheEuropeanUnion(27Europeannations,andgrowing)allowsfreemovementofgoodsandservicesandacommoncurrency(EMU).TheNorthAmericanFreeTradeAgreement(NAFTA)linkingtheUS,Canada,andMexico,allowsthefreerexchangeofgoodsandservices.TheAsia-Pacific-EconomicCooperation(12Asiannations)withgoalsforfreetradeby2020.

Exhibit1.5:

MajorRegionalTradeAgreements

Exhibit1.5:

MajorRegionalTradeAgreements

SellAnywhere,LocateAnywhere:TradeGrowing,butSetbacksWorldtradegrewanaverageof6.5%peryearbetween1990and2000,slowedto4%in2004,grewagainto6%in2005andto8.5%in2006.WTOreportstheglobaleconomyissufferingfromaverysevereslowdown.EUcountriesaresufferingtheworstdebtcrisistheyhaveeverfaced.Changeinimports&exportshigherfordevelopingandemergingeconomiesthanfordevelopedeconomies.Exhibit1.6:

ChangeinExports&ImportsSellAnywhere,LocateAnywhere:ForeignDirectInvestment(FDI)ForeignDirectInvestment(FDI)occurswhenamultinationalcompanyfromonecountryhasanownershippositioninanorganizationalunitlocatedinanothercountry.FDIincreasedbymorethan36%from1996-2000.Since2001,therehasbeenadeclineinFDI,butwillprobablyresumeitssteadygrowth.EmergingmarketswillcontinuetoattractFDI.ForeignDirectInvestmentDevelopingcountriesprovideopportunitiesandrisks.MNCsshouldconsidertwotypesofrisk:Economicrisk:includesallfactorsofanation’seconomicclimatethatmayaffectaforeigninvestor.Politicalrisk:anythingagovernmentmightdoornotdothatmightadverselyaffectacompany.TheInternetandInformationTechnology(1of2)Emailandtheinternetallowmultinationalstocommunicatewithcompanysitesthroughouttheworld.Textandgraphicinformationcanflowtoanypartoftheworldalmostinstantaneously.Headquarters,R&D,manufacturingcanbelocatedanywhereintheworld.Informationtechnologyisspurringaborderlessfinancialmarket.TheInternetandInformationTechnology(2of2)Informationtechnologiesmakeavailablemanynewtoolsthatfacilitatebusinessoperations:WorldwidecommunicationusingVoice-Over-InternetProtocol(VOIP)systemssuchasSkype,MSNMessengerandAOLiscost-effective.CollaborativenetworkscanbeprovidedbyWIKIfirmsatverylowcost.InformationcanbeobtainedbyincreasinglysophisticatedsearchengineslikeGoogle.TheRiseofGlobalProductsandGlobalCustomersTheneedsofcustomersformanyproductsandservicesaregrowingmoresimilarE.g.,McDonald’s,Boeing,Toyota.Globalcustomerssearchtheworldfortheirsupplieswithoutregardfornationalboundaries.Thesefactorslinkeconomiesbecausecompaniescanproduceoneproductforeveryone,andanyonecanbuyanythingfromanywhere.NewCompetitors(1of2)Freemarketreformsarecreatingapotentialgroupofnewcompetitors.Thesecompanieshavesurvivedbrutalcompetitioninlocalmarkets,andareabletodealwithcompetitionfromwesternMNCs.Theyhavedevelopedstrategiestogenerateprofitsatverylowprices.NewCompetitors(2of2)Globaltradehastwoimportanteffectsindevelopingnewcompetitors:Whendevelopingcountriesareusedaslow-wageplatformsforhigh-techassembly,multinationalsfacilitatethetransferoftechnology.Assemblersmaybecomebuildersandcreatorsoftechnology.Aggressivemultinationalsfromemergingmarketsarealsoexpandingbeyondtheirownborders.TheRiseofGlobalStandards(1of2)Whenaproductstandardisacceptedgloballyorregionally,companiescanmakeoneoronlyafewversionsofaproductfortheworldmarketratherthanhundreds.Productsaredevelopedtoaccommodatedifferentregionalstandards,suchaselectricalcurrents&plugs.Thecompanythatcanestablishitsstandardasdominanthasatremendousstrategicadvantage.TheRiseofGlobalStandards(2of2)ThedriveforconsistencyinqualityledtotheInternationalorganizationforstandardization(ISO)inGeneva,Switzerland.ISOdevelopedtechnicalstandardsknownasISO9001:2000,adoptedbylawinEurope.ManylargeEuropeanMNCsnowrequireISOcertification.CorporateSocialResponsibilityandBusinessEthics(1of2)Despitetheirsizeandclout,MNCsfaceincreasedpressuretobesociallyresponsiblefromboththemediaandthepublic.Mindfulofrankingsonethics,proactiveMNCspaycloseattentiontotheseissues,andtakeappropriateaction.CorporateSocialResponsibilityandBusinessEthics(2of2)SomeMNCsarebecomingmoreproactiveinrespondingtosocialandethicalissuesthatarisefromtheiroverseasoperations.Someissuesare:ClimatechangeEnvironmentaldegradationandpollutionSweatshopconditionsforlaborBriberyExhibit1.7:

RankingtheWorld’s

MostEthicalCompaniesTheNextGenerationofMultinationalManagers(1of2)ThesuccessfulMultinationalManagerneedsthesecharacteristics:AglobalmindsetEmotionalintelligenceAlong-rangeperspectiveThetalenttomotivateallemployeestoachieveexcellenceTheNextGenerationofMultinationalManagers(2of2)CharacteristicsofthesuccessfulMultinationalManager(continued):AccomplishednegotiationskillsAwillingnesstoseekoverseasassignmentsAnunderstandingofnationalculturesMultinationalManagement