A day in the life of the interdependent global economy.

Transcription

1 Helen McGrath

2 A day in the life of the interdependent global economy. A person might drive to work in a car Designed in Germany Assembled in Mexico Components made in the US and Japan Which were made from Korean steel & Malaysian rubber Diesel may be brought by BP Pumped off the coast of Africa by a French company Transported to the US by a Greek shipping line On the way to work the person might Talk on her Nokia phone Designed in Finland and assembled in Texas Chip sets produced in Taiwan Designed by Indian engineers Turn on her radio Made in Malaysia by Japanese firm Song composed by a Suede but sung by a Danish group Hired a French record company to promote their EP in America Drinking her Starbucks! the news reader talks about a recession, which started in America, and has ricocheted around the world

3 Our globalised world where.. $4 trillion in foreign exchange transactions daily Leaders are calling for even lower barrier to crossborder trade and investment Symbols of power and material culture are global: Coca-Cola, Starbucks, Sony PlayStation. Products made from inputs from all over the world A recession in one country has an impact on another Protests against globalisation: who is blamed for unemployment/ environmental degradation and the Americanisation of the world

4 Opportunities for businesses Economic trends since the fall of communism has favoured the free market Barriers to doing business in foreign nations have come down Expand revenues Reduce costs? Producing in nations where key inputs are cheap

5 Threats for businesses Foreign companies have brought increasing competition Unsettling jobs in the developed world Car industry in US: General Motors market share declined from 50 to 20% Japan s Toyota has surpassed GM to be largest automobile company in the world Service industry also under threat Health care industry/ accounting Enterprising individuals in all areas of the world now have the same opportunities

6 What Is Globalisation? Globalisation refers to the shift toward a more integrated and interdependent world economy, including two facets: Globalisation of markets Globalisation of production

7 Globalisation of Markets Globalisation of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace Instead, there is the global market falling trade barriers make it easier to sell globally consumers tastes and preferences are converging firms promote (and benefit from) the trend by offering the same basic products worldwide (Coca-Cola, Ikea, Sony PlayStation etc.) Important to note that you do not have to be a large corporation to be Global: in Germany 98% of small and mid-sized companies have exposure to international markets Despite this Standardisation significant differences still exist among national markets forcing companies to customise certain elements Most Global markets are not consumer products but industrial goods and materials: aluminium, oil, microprocessors

8 Globalisation of Production Globalisation of production refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production like land, labour, and capital Companies can lower their overall cost structure improve the quality or functionality of their product offering Boeing 787: 65% of build outsourced: Rationale: Can get the best in the world May get some contracts in that part of the world India is working while America is sleeping Software companies, radiographers etc., call centres, administration work

9 Recent Importance of IM Every state is sovereign and independent from other countries, yet: No country can completely isolate its internal affairs from external forces Most inward regimes recognise the limitations of own resources and benefits of opening up borders Change in orientation of these regimes led to enormous amount of activity in the international marketplace Russia : viewed as one of the most self-sufficient countries in the world still as imports to the tune of $324B 2014 Global boom of 1990 s opened up markets across the world Result: businesses today deeply involved in and affected by global developments Political turmoil and economic crisis of 1 st decade of this century swept throughout the world and affected almost every country

10 Yesterday s World Today s World National economies selfcontained Barriers to cross-border trade and investment Distance, time zones, language, government regulation, culture, business systems National economies merging to interdependent, integrated global economic system Barriers declining Distances shrinking: advances in transportation and telecommunications Material culture looks similar

11 Powerful economic, technological, industrial, political and demographic forces are converging to form the foundation of a new global economic order on which the structure of a world economic and market system will be built.

12 IM far reaching Whether company wants to participate in IB it cannot escape the effects of IB Domestic firms exporting/importing/manufacturing abroad Foreign-based companies in domestic market Growth of world markets Every company is International, at least to the extent that its business performance is conditioned in part by events that occur abroad Companies who do not operate in the international arena are affected to come degree by economic changes in other countries

13 Trends affecting global business 1. The interdependence of the world economies and globalisation of production and consumption 2. The rapid growth of regional free-trade areas : EU, NAFTA, ASEAN, APEC 3. The increase in wealth and growth in most parts of the world, causing enhanced purchasing power as well as volatility in financial markets 4. The evolution of large emerging markets: Brazil, China, India, Russia, Indonesia, Turkey 5. Availability of advanced methods of communication and transportation

14 World has become smaller. These 5 trends have led to a dramatic growth in international trade and perception of the world as small and more interdependent.

15 Claims to have products in every country in the world: factories in more than 80 countries

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18 What nationality is Nike? Does not own any manufacturing facility Mainly manufactured in China but the factory is owned by a Taiwanese A Nike shoe is Made up of 52 different components, coming from 5 different countries (Japan, India ) Will be touched by 120 pairs of hands Leather from South Korea: put together by Chinese Production system is a network of logistics: not only do all the materials have to come together, but at the right time Yes, Nike is American!! Design and Marketing come from America Phil Knight: American founder in 1964

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22 IM Defined International marketing is the performance of business activities that direct the flow of a company s goods and services to consumers or users in more than one nation for a profit. The only difference in the definitions of domestic marketing and international marketing is that the marketing activities take place in more than one country.

23 So, what is the difference between doing business on a domestic level and internationally?

24 Difference does not lie in applying difference strategies but in acknowledging the different environments within which the business is taking place Uncontrollables: competition, legal constraints, government controls, weather, consumer behaviour, religion can affect the profitable outcome of any business plan Can not be controlled but business must adjust or adapt for a successful outcome Business principles and concepts are universally applicable, the environment within which the business takes place can change dramatically from country to country

25 Basic business models remain the same but must be adapted for every new environment

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27 International Business deals with: Controllables Domestic uncontrollables Foreign uncontrollables International businesses must deal with at least two levels of uncontrollable uncertainty Each foreign country in which a company operates adds its own unique set of uncontrollables

28 Marketing (controllable) Price Product Promotion Channels of distribution

29 Domestic environment (uncontrollable) Political/ legal forces Marketing (controllable) Price Product Competitive structure Promotion Channels of distribution Economic climate

30 Domestic Uncontrollables Elements that can have a direct effect on the success of a foreign venture Changes in foreign policy US restrictions of trade with countries like Libya, Iraq and South Africa, due to so called support to terrorists in Libya and Iraq and due to apartheid policies in South Africa. When South Africa abolished apartheid, many opportunities were created for US companies Economic Climate: if in difficulty restrictions may be placed on foreign investment

31 Political/legal forces Foreign environment (uncontrollable) Domestic environment (uncontrollable) Economic forces Cultural forces Political/ legal forces Marketing (controllable) Price Product Competitive structure Competitive Forces Promotion Channels of distribution Environmental uncontrollables country market A Geography and Infrastructure Economic climate Level of Technology Environmental uncontrollables country market B Structure of distribution Environmental uncontrollables country market C

32 Foreign Uncontrollables Added source of uncertainty and involves substantial doses of cultural, political and economic understanding to come to sound business decisions If operating in more than one country there may be polar extremes in political, culture and economic climates: dramatically changing business decisions

33 Significant uncontrollables Political /legal forces Economic forces Competitive forces

34 Significant uncontrollables Level of technology Structure of distribution Geography and infrastructure Cultural forces EmUc

35 Environmental Adaptations To successfully conduct business in a foreign market the business must be able to interpret effectively the influence and impact of each of the uncontrollables Must be able to recognise the possible difficulties in the different cultures (something we do automatically in our own societies as we are culturally responsive to our environments) Businesses can and do fail because of unconscious responses based on frames of reference acceptable in home culture but not in target country

36 Cultural Conditioning We are not aware of nine-tenths of it To conduct business successfully in a foreign climate we must be sure not to access uncontrollables shq against the fixed values and assumptions of home culture Must take specific steps to be aware of the foreign cultural reference for analyses and decision making

37 Self-reference criterion Unconscious reference to one s own cultural values, experiences and knowledge as a basis for decisions. Impedes the ability to assess a foreign market in its true light Faced with a problem in another culture tendency is to react instinctively referring to our SRC for a solution Therefore the SRC impedes the ability to assess a foreign country in its true light Ethnocentric: using SRC for evaluating situations There will be many similarities but the undetected difference can create a failure Therefore: we must be aware to the differences and ask questions

38 When it goes wrong.. wtn4 w0i8 WKT0

39 Levels of Internationalisation International companies are importers and exporters, they have no investment outside of their home country. Kraft? HD sold in 67 countries Multinational companies have investment in other countries, but do not have coordinated product offerings in each country. More focused on adapting their products and service to each individual local market. Global companies have invested and are present in many countries. They market their products through the use of the same coordinated image/brand in all markets. Generally one corporate office that is responsible for global strategy. Emphasis on volume, cost management and efficiency. Transnational companies are much more complex organizations. They have invested in foreign operations, have a central corporate facility but give decision-making, R&D and marketing powers to each individual foreign market. International Multinational Global Transnational

40 International Orientations & EPRG Schema Domestic Extension Orientation Multi-Domestic Orientation Global / Transnational Orientation Ethnocentric Polycentric Regiocentric/ Geocentric

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42 Domestic Extension Orientation Company seeks extension of products into foreign markets Domestic business is priority and foreign sales (even if vigorously pursued) are seen as profitable extension of domestic operations Minimal effort to adapt to foreign market: chooses markets/cultures similar to own where domestic product will be acceptable: Standardisation Ethnocentric in philosophy

43 Multi-domestic Orientation Company has a strong sense that country markets are vastly different and an independent programme is required for each country Business plans and objectives are independent of each other Products are adapted for each market : as are pricing/ advertisement etc. Company does not look for similarities but rather aims for adaptation to local markets Control usually decentralised to reflect belief that uniqueness of each market requires local input Polycentric in philosophy Adapting Toyoto

44 Global / Transnational Orientation Company strives for efficiencies of scale by developing a product, to be sold at a reasonable price to a global market Premise that world markets are being driven towards a converging commonality Constitute significant market segments with similar demands for the same basic product the world over Standardisation as much as possible where it is culturally and cost effective Some decisions worldwide : others require consideration of local influences Pricing, advertising or distribution channels may differ: Ipad/Playstation Wherever Cultural uniqueness dictates the need for adaptation it is accommodated Regiocentric or geocentric in philosophy Coca cola? Ikea? Nike?

45 Developing a global awareness To be globally aware is to be: Objective In assessing opportunities, evaluating potential and responding to problesm ebay fails in china Tolerant toward different cultures: No culture is right or wrong Need to understand differences to work and relate effectively Knowledgeable about cultures, history, global markets,

46 The global corporation sells the same thing in the same way everywhere Segmenting markets and customising products is not cost effective The company of the future will be a global company that views the world as one market to which it sells a global product Criticism: While the influence of mass communications on consumer wants and needs cannot be denies the need for cultural adaptation exists in most markets and for most products. Levi Strauss, Apple, Starbuk, McDonald s, Coca-Cola etc. sell a relatively standardised product: however, there is adaptation in some areas