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Mgmt6 6Th Edition Chuck Williams Solutions Manual Full Chapter PDF
Mgmt6 6Th Edition Chuck Williams Solutions Manual Full Chapter PDF
Solutions Manual
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MGMT6
Chapter 8: Global Management
Pedagogy Map
This chapter begins with the learning outcome summaries and terms covered in the chapter, followed by a
set of lesson plans for you to use to deliver the content in Chapter 8.
Learning Objectives
8.1 Discuss the impact of global business and the trade rules and agreements that govern it.
Today, there are 79,000 multinational corporations worldwide; just 3.1 percent are based in the United
States. Global business affects the United States in two ways: through direct foreign investment in the
United States by foreign companies, and through U.S. companies’ investment in businesses in other
countries. U.S. direct foreign investment throughout the world amounts to more than $2.8 trillion per
year, whereas direct foreign investment by foreign companies in the United States amounts to more than
$2.1 trillion per year. Historically, tariffs and nontariff trade barriers such as quotas, voluntary export
restraints, government import standards, government subsidies, and customs classifications have made
buying foreign goods much harder or more expensive than buying domestically produced products. In
recent years, however, worldwide trade agreements such as GATT and the WTO, along with regional
trading agreements like the Maastricht Treaty of Europe, NAFTA, CAFTA-DR, UNASUR, ASEAN, and
APEC have substantially reduced tariff and nontariff barriers to international trade. Companies have
responded by investing in growing markets in Asia, Eastern Europe, and Latin America. Consumers have
responded by purchasing products based on value rather than geography.
8.2 Explain why companies choose to standardize or adapt their business procedures.
Global business requires a balance between global consistency and local adaptation. Global consistency
means using the same rules, guidelines, policies, and procedures in each location. Managers at company
headquarters like global consistency because it simplifies decisions. Local adaptation means adapting
standard procedures to differences in markets. Local managers prefer a policy of local adaptation because
it gives them more control. Not all businesses need the same combination of global consistency and local
adaptation. Some thrive by emphasizing global consistency and ignoring local adaptation. Others succeed
by ignoring global consistency and emphasizing local adaptation.
8.3 Explain the different ways that companies can organize to do business globally.
The phase model of globalization says that, as companies move from a domestic to a global orientation,
they use these organizational forms in sequence: exporting, cooperative contracts (licensing and
franchising), strategic alliances, and wholly owned affiliates. Yet not all companies follow the phase
model. For example, global new ventures are global from their inception.
The first step in deciding where to take your company global is finding an attractive business climate. Be
sure to look for a growing market where consumers have strong purchasing power and foreign
competitors are weak. When locating an office or manufacturing facility, consider both qualitative and
quantitative factors. In assessing political risk, be sure to examine political uncertainty and policy
uncertainty. If the location you choose has considerable political risk, you can avoid it, try to control the
risk, or use a cooperation strategy.
National culture is the set of shared values and beliefs that affects the perceptions, decisions, and behavior
of the people from a particular country. The first step in dealing with culture is to recognize meaningful
differences such as power distance, individualism, masculinity, uncertainty avoidance, and short-
Many expatriates return prematurely from international assignments because of poor performance. This is
much less likely to happen if employees receive linguistic and cross-cultural training, such as
documentary training, cultural simulations, or field experiences, before going on assignment. Adjustment
of expatriates’ spouses and families, which is the most important determinant of success in international
assignments, can be improved through adaptability screening and language and cross-cultural training.
Terms
Asia-Pacific Economic Cooperation (APEC) Multinational corporation
Association of Southeast Asian Nations National culture
(ASEAN) Nontariff barriers
Central America Free Trade Agreement North American Free Trade Agreement
(CAFTA-DR) (NAFTA)
Cooperative contract Policy uncertainty
Customs classification Political uncertainty
Direct foreign investment Protectionism
Expatriate Purchasing power
Exporting Quota
Franchise Regional trading zones
General Agreement on Tariffs and Trade Strategic alliance
(GATT) Subsidies
Global business Tariff
Global consistency Trade barriers
Global new ventures Union of South American Nations
Government import standard (UNASUR)
Joint venture Voluntary export restraints
Licensing Wholly owned affiliates
Local adaptation World Trade Organization (WTO)
Maastricht Treaty of Europe
Warm Up Begin Chapter 8 by asking your students the following series of questions:
• “Without looking, which of you knows (or is confident that you know) where
your backpack was made? Where?” [Students can shout out answers.]
• “Ok, who thinks they know where their backpack was made? Where?” [Students
can shout out answers.]
• “Who cares where their backpack was made?” [For students who raise their hand
Content Lecture slides: Make note of where you stop so you can pick up at the next class
Delivery meeting. Slides have teaching notes on them to help you as you lecture.
8.4 Finding the Best 17: Growing Markets If you have an electronic
Business Climate 18: How Consumption classroom, consider doing
8.4a Growing Markets of Coca-Cola Varies a free geography game
8.4b Choosing an Office with Purchasing Power offered by Sheppard’s
or Manufacturing around the World software at
Location 19: Choosing a Sheppardssoftware.com
8.4c Minimizing Location Have students shout out
Political Risk 20: World’s Best answers that you enter into
Cities for Business the map. Games have time
21: Minimizing limits of a couple of
Political Risk minutes. You’ll get a
22: Strategies for collective score for your
Dealing with Political class.
Risk
23: Overview of
Political Risk in the
Chapter 8: Global Management 182
Middle East
Reel to Real Videos 28: Holden Outerwear Launch the video in slide
28. Questions on the slide
can guide discussion.
Adjust the lecture to include the activities in the right column. Some activities should be
done before introducing the concept, some after.
Special Spark a debate among your students by asking them to respond to the following
Items statement:
“If given a choice, Americans will buy American-made goods rather than foreign-
made goods.”
Content The first section of the chapter has a lot of content that you can use to spark debate
Delivery among students. For this reason, you may want to hold off lecturing on “Global
Business, Trade Rules, and Trade Agreements” until after you do the group activity
“World Trade and You.”
Segue into the next section by asking students, “So if we postulate that global business is
good for consumers and companies alike, what’s the best way to go global? Perhaps
before we can answer that, we should consider the choices a company has when going
global.”
Lecture on How to Go Global? (Sections 8.2 and 8.3) and Finding the Best Business
Climate (Section 8.4).
Introduce the sections on culture by asking if any of your students have ever lived,
worked, or studied abroad and where. If they have, ask them what they considered the
biggest difference between the host culture and the student’s culture of origin.
If time allows, consider showing the Biz Flix clip from Lost in Translation. Teaching
Conclusion Assignments:
and 1. To follow up on the discussion of where and how to go global, assign students to
Preview complete the Management Decision on dealing with cultural backlash issues in
India.
2. If you have finished covering Chapter 8, assign students to review Chapter 8 and
read the next chapter on your syllabus.
GROUPON
Chicago, Illinois
From 400 subscribers and 30 daily deals in 30 cities in December 2008 to 35 million subscribers
and 900 daily deals in 550 markets today, Groupon got to $1 billion in sales faster than any other
company. Starbucks CEO Howard Schultz, who was an eBay board member and is now a Groupon
investor and board member, said, “Starbucks and eBay were standing still compared to what is happening
with Groupon. I candidly haven’t witnessed anything quite like this. They have cracked the code on a
very significant opportunity.” Eric Lefkofsky, who chairs Groupon’s board said, “The numbers got crazy
a long time ago, and they keep getting crazier.” So, what is propelling Groupon’s astronomical growth?
How does it work?
Groupon sends a daily email to its 35 million subscribers offering a discount to a restaurant,
museum, store, or service provider in their city. This “coupon” becomes a “groupon” because the
company offering the discount specifies how many people (i.e., a group) must buy before the deal “tips.”
For example, a local restaurant may require 100 people to buy. If only 90 do, then no one gets the
discount. Daily deals go viral as those who buy send the discount to others who might be interested.
When the deal tips (and 95% do), the company and Groupon split the revenue.
Why would companies sign up, especially since half of the money goes to Groupon? Nearly all of
Groupon’s clients are local companies, which have few cost effective ways of advertising. Radio,
newspapers, and online advertising all require upfront payment (whether they work or not). By contrast,
local companies pay Groupon only after the daily deal attracts enough customers to be successful.
Another problem with traditional ads is that they are broadcast to a wide group of people, many of whom
have little interest in what’s being advertised. The viral nature of Groupon’s coupons, however, along
with tailoring deals based on subscribers’ ages, interests, and discretionary dollars, lets companies target
Groupon’s daily deals to customers who are more likely to buy. Groupon’s CEO, Andrew Mason, said,
“We think the Internet has the potential to change the way people discover and buy from local businesses.
Because there are few barriers to entry and the basic web platform is easy to copy, Groupon’s
record growth and 80 percent U.S. market share has attracted start-up competitors like Living Social,
Tippr, Bloomspot, Scoutmob, and BuyWithMe, along with offerings from Google, Facebook, and
Walmart. Globally, Groupon’s business has been copied in 50 countries. China alone has 1,000 Groupon-
type businesses, including one that has copied Groupon’s website down to the www.groupon.cn URL.
Likewise, Taobao, which is part of Alibaba Group Holdings, one of China’s largest Internet companies,
has a group buying service call “Ju Hua Suan,” which translates to “Group Bargain.”
So although Groupon has grown to $1 billion in sales faster than any other company, competitors
threaten to take much of that business, especially in international markets, which Groupon is just starting
to enter. As Groupon goes global, should it adapt its business to different cultures? For example, it relies
on a large Chicago-based sales force to build and retain business with merchants, and 70 comedy writers
Sources:
L. Chao, “Taobao to Launch Local Deals on Group-Buying Website,” Wall Street Journal, 23 February
2011, http://online.wsj.com/article/SB10001424052748703775704576161340839989996.html [accessed
15 May 2011]; B. Stone & D. MacMillan, “Groupon's $6 Billion Snub,” Bloomberg Businessweek, 13
December 2010, 6-7; B. Stone & D. MacMillan, “Are Four Words Worth $25 Billion?” Bloomberg
Businessweek, 21 March 2011, 70-75.
As Groupon goes global, should it adapt its business to different cultures? Or, is it likely to find that the
daily deals that are successful in the U.S. will be popular throughout the world? Also, since humor is a
key part of its advertising approach, should Groupon continue to rely on its 70 Chicago-based comedy
writers to write copy for ads in China, Chile, and Germany?
National culture is the set of shared values and beliefs that affects the perceptions, decisions, and
behavior of the people from a particular country. The first step in dealing with culture is to recognize
meaningful cultural differences, such as power distance, individualism, masculinity, uncertainty
avoidance, and short-term/long-term orientation.
After becoming aware of cultural differences, the second step is deciding how to adapt your company
to those differences. The biggest mistake that companies make at this point is not changing their products
or services or their management practices and procedures when they do business abroad. This is a
common mistake among global franchisors, 65% of which make absolutely no change in their business
for overseas franchisees when they first go global.
So, given that it just offers daily deals, can Groupon have a standard set of products or should they be
different in each market and culture? Not surprisingly, Groupon has found that people in different
countries and cultures don’t respond to the same offers. For example in India, the most popular daily
deals aren’t restaurants and beverages (which are popular in many global cities), but travelling, mobile
phones and wellness products. Ananya Bubna, managing director of Groupon India, said, “A beverage
deal that we thought would have huge takers didn't sell.” Furthermore, “We have realized that something
like balloon rides, which got massive response in the U.K., may not get the same reaction here. Product
Finally, in a nod to the importance of culture, especially with humor, which can differ tremendously
across cultures, Groupon now realizes that its 70 Chicago-based ad writers, some of whom have comedy
backgrounds linked to Chicago’s famous Second City comedy troupe, may not be able to write persuasive
ad copy for other parts of the world. A case in point (though Groupon employed an advertising agency
here) was Groupon’s Super Bowl commercial, which featured actor Timothy Hutton proclaiming, “The
people of Tibet are in trouble … but they still whip up an amazing fish curry. And since 200 of us bought
at Groupon.com, we're each getting $30 of Tibetan food for just $15.” The commercial was criticized
roundly, not just as ineffective, but insensitive.
Similarly, who should make key decisions, managers at headquarters or managers in each country?
Likewise, should Groupon continue to use its large Chicago-based sales force to build and retain
business with merchants, and In short, should Groupon run its business the same way all around the
world?
One of the key issues in global business is determining whether the way you run your business in one
country is the right way to run that business in another. In other words, how can you strike the right
balance between global consistency and local adaptation? Global consistency means that when a
company like Groupon has offices and facilities in different countries, it will use the same rules,
guidelines, policies, and procedures to run them all. Managers at company headquarters value global
consistency because it simplifies decisions. In contrast, a company with a local adaptation policy modifies
its standard operating procedures to adapt to differences in foreign customers, governments, and
regulatory agencies. Local adaptation is typically more important to local managers who are charged with
making the international business successful in their countries.
If companies focus too much on local adaptation, they run the risk of losing the cost efficiencies and
productivity that result from using standardized rules and procedures throughout the world. However, if
companies lean too much toward global consistency, they run the risk of their business being poorly
suited to particular countries’ markets, cultures, and employees (i.e., a lack of local adaptation).
Groupon has discovered that, in part, it must adapt is business at it does business around the world.
While the web side of its business works most places, that is, using email and text, web sites, and
smartphone apps to notify subscribers of daily deals, it doesn’t work everywhere. For example, in Indian,
groupon is adapting the way that it gets paid. Throughout much of the world, online credit cards facilitate
quick, easy, and trustworthy payment. But, in India, many customers are still reluctant to make online
purchases. Ananya Bubna, managing director of Groupon India says, “We are doing cash-on delivery in
India, which we don't do anywhere else. We have realized that reaching out to Indian customers online is
a big challenge. We have started personal concierge help, especially for Indian customers. A few
customers have given us feedback that while they liked our site, they could not make a purchase. Through
this service, one of our experts would handhold a buyer, helping them in registration and purchase on the
site. We also have our people calling customers informing them about various deals in their area of
interest.
In other ways, however, Groupon is balancing consistency with local adaptation. While it has local
managers (see more below) to run its businesses in 42 different countries, it brings all of them to Chicago
to learn how to run their offices the way that it’s done in the U.S. Then, it makes sure that those
managers stay current with its client companies by using Salesforce.com’s relationship management
software to track calls and make sure that its sales force follows up to address potential issues after every
daily deal is completed.
Another part of balancing consistency with local adaptation, at least for now, is maintaining a large call
center in Chicago. Unlike Facebook and Google, which hire software engineers to automate their web
sites, Groupon relies on call center-based sales force in Chicago to sell and maintain relationships with
client companies. Every time it opens in a new city, its sales force is charged with identifying and then
Joe Harrow, who manages Groupon’s Chicago call center, says that Groupon will have call centers in
Chicago and in key international locations. But, unlike many multinational companies who have moved
their call centers to lower cost locations like India, he says, “Maybe having a 1,000-person call center in
downtown Chicago is not smart. We haven't done the math yet. When we do, we'll ask how we can make
this economical without costing us our culture.”
How should Groupon expand internationally? Should it license its web services to businesses in each
area, form a strategic alliance with key foreign business partners (it rejected Google’s $6 billion offer in
the U.S.), or should it completely own and control each Groupon business throughout the world?
Determining how to organize your company for successful entry into foreign markets is a key
decision in going global. When companies produce products in their home countries and sell those
products to customers in foreign countries, they are exporting. When an organization wants to expand its
business globally without making a large financial commitment, it signs a cooperative contract with a
foreign business owner who pays the company a fee for the right to conduct that business in his or her
country. There are two kinds of cooperative contracts: licensing and franchising. Another method of
international organizing is for two companies to form a strategic alliance to combine key resources, costs,
risks, technology, and people. The most common strategic alliance is a joint venture, which occurs when
two existing companies collaborate to form a third company. Finally, one-third of multinational
companies enter foreign markets through wholly owned affiliates. Unlike licensing arrangements,
franchises, or joint ventures, wholly owned affiliates are 100 percent owned by the parent company.
As explained in the chapter, each of these methods of "going global" has specific advantages and
disadvantages. Moreover, a common method of going global is to use the phase model of international
expansion in which a company starts by exporting, and then as it grows, switches to cooperative contracts
(i.e., licensing and franchising right), followed by strategic alliances, and then wholly owned affiliates. As
the chapter makes clear, not all companies follow the steps of the phase model in this order.
The challenge for Groupon is that just 3 years after its startup, it may be the fastest growing startup
company of all time, but it also faces the most quickly established set of global competitors ever
established. So unlike other companies which might take a more measured, slow growth approach to
global expansion, the speed with which competitors and consumers have adopted Groupon’s business
model suggests that Groupon could find itself locked out of key international markets if it doesn’t move
quickly to establish itself as a multinational company. Groupon chief financial officer, Rob Solomon,
emphasized the need for speed, saying, “We think there will be lots of consolidation in a very short
amount of time, and we want to be the 8,000-pound gorilla in that space.”
Backed with several hundred million dollars in funding, Groupon used an approach in which it
combined strategic alliances and wholly-owned affiliates. In short, just as Google offered a $6 billion buy
out to Groupon, Groupon has offered to buy the market leaders that it has identified in 50 different
countries.
Groupon board member Kevin Efrusy says, “To see people copy you is difficult to adjust to. But
Groupon immediately looked at it as an opportunity. You could pick the best that's out there and save a
lot of time.” “The strategy,” he says, is to find the best local teams. Then give them the tools they need
to be successful.” One such acquisition was Berlin-based CityDeal. CityDeal, which was started by the
Samwer brothers, who, a decade before had founded eBay Europe, was just 6 months old when purchased
by Groupon. But, in that short time, it had 1 million subscribers, operated in 80 European cities, and had
600 employees. CityDeal co-founder Dan Glasner commented on being bought by Groupon, saying, “We
have exactly the same understanding of how we need to serve our end customers and partners. Thousands
of businesses out there are looking to attract new customers and are thrilled to leverage the Internet to do
Groupon repeated this acquisition strategy, buying similar companies in Chile, Russia, Japan, China and
other locations. One year, after deciding to go global, Groupon is in 42 different countries.
Self-Assessment
WORLDMINDEDNESS
In-Class Use
Have students go to cengagebrain.com to access the Self-Assessment activity. Use the Self-Assessment
PowerPoint slides and have students raise their hand as you read off the scoring ranges. Tell students to
keep their hand up until you have counted the responses for each item and entered the count into the
spreadsheet embedded in the PowerPoint presentation. Display the distribution to the class so students can
see where they fit.
Scoring
Students will want to know how their worldmindedness scores compare with their classmates and
with other college students. I typically have students report their scores and create a distribution on the
board for everyone to see how they compare with their classmates. The following data collected from
college students provide another point of comparison:
Except for undecided majors, Business majors have the lowest worldmindedness
scores.
Business majors who speak no foreign languages have the lowest worldmindedness scores,
whereas other majors who speak two or more languages have the highest worldmindedness
scores. Whatever major, speaking another language increases worldmindedness.
Male finance and accounting majors have the lowest worldmindedness scores. Female finance and
general majors have the highest worldmindedness scores. Except marketing majors, females have higher
worldmindedness scores than males.
Your worldmindedness score is not a fixed number. Several activities can help you improve your score,
but to do so, you’ll need to develop a plan, such as the one that follows.
Management Decision
Purpose
A company that is looking to do business overseas must cannot ignore cultural differences if it is to be
successful. This exercise asks students to consider how they would deal with critical differences between
cultures as their company seeks to branch out into overseas markets.
Setting It Up
You can introduce this case to students by creating a table that shows the various cultural differences
between the U.S. and a foreign country, ideally one that has been the site of much foreign investment
such as China, India, Brazil, or Russia. You can then ask students how a company should deal with these
differences in order to find success.
Source:
Mehul Srivastava, “Business Caught in Middle of India’s Culture War,” Bloomberg Businessweek,
February 18, 2009, accessed September 10, 2010, from
www.businessweek.com/globalbiz/content/feb2009/gb20090218_783926_page_2.htm.
Questions
1. How would you, as the manager of this company, deal with the risk associated with doing
business in countries that feel threatened by American culture?
Students are likely to respond in one of two ways – either the company must learn how to do deal
with the risk, or the company should cut its losses and terminate its business. In general, students
choosing the former answer should show awareness that it is critical for a company to learn as
much as it can about the foreign culture, so that it can adapt its business practices as necessary.
This may mean that the company hires more Indian staff, who can help train the rest of the staff
on how to be more culturally sensitive. It may also mean giving Western staff extensive cultural
and language training prior to working in India. Students, of course, may come up with other
ideas about how to raise cultural awareness within the company.
Students who choose to cut losses and leave the country should cite the tremendous cost, in terms
of money and time, of doing cross-cultural training.
2. How might your company use an alliance with local companies to adapt to local concerns about
American culture?
Companies that look to do business overseas often choose strategic alliances, most commonly in
the form of joint ventures. The advantage of joint ventures is that a domestic company combines
key resources, costs, risks, technology, and most importantly for this case, people, with a foreign
Chapter 8: Global Management 192
company to do business in a foreign market. In essence, a global joint venture involves a marriage
of four cultures: the country and the organizational cultures of the first partner, and the country
and the organizational cultures of the second partner. In other words, a joint venture gives the
domestic company access to the cultural expertise of the foreign company. Rather than creating
something new, the domestic company can simply rely on what its foreign partner already knows
about how to do business within a particular culture.
Sources:
I. Bodner, “Social Entrepreneurship,” Fast Company, June 2, 2009, accessed June 12, 2009, from
www.fastcompany.com/1723694/social-entrepreneurship-and-the-common-brand; K. Krippendorff, “A
Prescription For Doing Good—Pfizer’s New Ethonomic Treatment Plan,” Fast Company, June 34, 2009,
accessed June 12, 2008, from www.fastcompany.com/blog/kaihan-krippendorff/outthinker-mavericks-
out-innovate-competition/prescription-doing-good-pfize; S. Hamm, “Into Africa: Capitalism from the
Ground Up,” Businessweek, May 4, 2009, 60–61.
Questions
1. What are the advantages of social entrepreneurship as a way to approach doing business in
developing economies outside the United States? What are the disadvantages?
Social entrepreneurship presents both advantages and disadvantages to organizations. First, the
advantages: By showing that they care about social issues, organizations build customer loyalty by
showing that they care about the same social issues that the customer cares about. Additionally, this
type of identification can help attract and retain new customers who are concerned with an
Chapter 8: Global Management 193
organization’s social stance. An organization’s social actions also help establish a positive public
image and brand identity. Rather than being known just for good products, an organization that shows
concern for social ills presents itself as a responsible global citizen, one that cares for the people it
reaches. An organization’s social stance can also help educate its consumers. Through various
marketing and publicity campaigns, the organization can help the general population realize the need
to address a certain issue, be it homelessness or child illiteracy. And perhaps most importantly, a
company’s social entrepreneurial efforts help resolve significant societal problems. Businesses have
tremendous financial and political resources which they can marshal to improve the lives of people
around the world.
While social entrepreneurship has many advantages, it also presents disadvantages to companies.
First and foremost is the issue of cost. Whether it’s giving away drugs to the poor and homeless or
working with African coffee farmers, social actions require a considerable investment of
organizational resources. What is more, the net impact of social entrepreneurship on a company’s
bottom line is not at all clear, meaning that social actions, while good for the world, may be bad for
profit. Social entrepreneurship may also lead to a public relations nightmare for companies. For
example, a company may only claim to be engaged in social actions while not doing anything
substantive. Or, a company could be accused of adopting a social action perspective simply for the
sake of improving sales and profits (e.g., greenwashing). There are also considerable cultural and
political risks in social entrepreneurship. A company that enters a foreign country with grandiose
thoughts of healing the sick and enriching the poor may find itself the target of government officials.
What is more, the organization could be accused of trying to apply Western cultural standards to non-
Western countries. What the company might view as a social ill that needs to be addressed may be
viewed by locals as just the way life is.
2. How might you combine social entrepreneurship with traditional options for going global?
Traditional methods of doing global business include exporting, cooperative contracts and strategic
alliances. Exporting occurs when companies produce products at home and sell them abroad. The key
advantage to exporting is that it makes the organization less dependent on sales in its home country
and provides a high degree of control over research, design, and production decisions. A cooperative
contract allows an organization to enter a foreign market without a large financial commitment. Either
through licensing or franchising, a foreign company pays our organization for the right to produce
and sell products in that country. The biggest advantage of licensing is that it allows companies to
earn profits without additional investments. However, the company must also give up control over the
quality of the product that is sold in foreign markets. Franchising, meanwhile, is another way to enter
a foreign market quickly. For the price of an initial franchise fee plus royalties, franchisors provide
franchisees with training, assistance with marketing and advertising, and an exclusive right to conduct
business in a particular location. However, franchisors also risk a loss of control. Further, many
franchises cannot be generalized due to differences in lifestyle, values, and even infrastructure,
making franchises a risky proposition for going overseas.
3. Can establishing a multinational corporation or a joint venture serve the principles of social
entrepreneurship? Would some options lend themselves better to social entrepreneurship than others?
What might such a business venture look like?
Strategic alliances involve the combination of two organizations’ resources, costs, risks, technology,
and people. A strategic alliance can take the form of a joint venture, in which two existing companies
collaborate to form a third company. The two founding companies remain intact and unchanged,
except that together they now own the newly created joint venture. Joint ventures provide for a
relatively quick way of entering a foreign market without the pressure of tariffs. Further, they reduce
the risk of entry, since both companies have to bear the costs and risks of business. Finally, global
joint ventures can be especially advantageous to smaller local partners that link up with larger, more
experienced foreign firms that can bring advanced management, resources, and business skills to the
joint venture. However, the nature of a joint venture makes it necessary for the two companies to
share profits. Also, managing global joint ventures can be difficult because they represent a merging
HOMETOWN CULTURE
One of the major dilemmas in global management concerns the degree to which a multinational firm
should adapt its business practices to particular locations and cultures versus the degree to which it should
maintain consistency across all its operations. In general, firms prefer consistency because it streamlines
operations and may result in global economies of scale. At the same time, multinational firms cannot
gloss over differences without running the risk of losing a particular market to more responsive (local)
competition. In this exercise, you will interpret your “hometown” culture for a large multinational
company. Suppose that a large multinational equipment company (based outside your country of origin)
is planning to open a major production facility and retail dealership in your hometown. This company has
hired you as a consultant to help it successfully establish operations in your hometown.
Step 1: Describe your hometown. Write a brief sketch (one or two pages, using bullet points will
suffice) in which you describe the important cultural features of your hometown, including such aspects
as language, dress, courtesy/customs, and attitudes toward “foreignness” and newcomers. Try as much as
possible to capture aspects of the location and culture of your hometown that would be important for
newcomers to recognize and respect.
Step 2: Form a team. Your professor will assign you to small discussion groups of three to five students.
Step 3: Share your description. Take turns in your discussion groups introducing yourselves, identifying
your hometown, and sharing the highlights of your brief sketch of your hometown. Listen for similarities
and differences across your hometowns.
Step 6: Consider challenges. As a class discuss the challenges of entering global markets, particularly in
regard to achieving the appropriate mix of consistency and adaptation.
Preparation
Students should complete Step 1 (the 1–2-page paper on the major cultural features of their hometown)
prior to the in-class discussion of this exercise. It is important to remind all students that their audience
for these papers is the management of a company outside their own country of origin. For example, a
student whose hometown is Fayetteville, Arkansas, might write her paper to an audience of French
managers. A student whose hometown is Sao Paulo, Brazil, might write his paper to an audience of U.S.
managers. Students should assume that their audience has never been to their hometown and that they
have limited knowledge of their home culture (national/regional/local).
Managers with a wealth of global experience staff most multinational firms, and students may tend to
lean toward assumptions of familiarity. Reinforce that they should assume no familiarity whatsoever.
This will help students to fully engage in the process of communicating to a foreign newcomer. While
students may include a few aspects of national and regional culture, they should make sure that they give
primary attention to their particular hometown. For some students, this local “lens” may even zoom in at
the level of a neighborhood or section of a large city (e.g., the Bronx area of New York City).
You should decide in advance how you would like to group students for the in-class exercise.
Students will discuss their “hometown” papers and then work together to agree on some
recommendations for a multinational that plans to enter their hometowns (see Step 4—company entering
all hometowns simultaneously). One approach for forming groups is to cluster students who are likely to
represent a variety of places of origin.
In-Class Use
Students should be organized in small discussion groups (3–5 students). Each group should begin with
Step 3, taking turns to introduce themselves, identifying their hometown (and neighborhood/borough as
appropriate), and sharing some of the highlights from their “hometown” paper. Encourage students to
listen carefully for similarities and differences, ask questions, and make notes.
Once a group has completed Step 3, it should move on to Step 4 without waiting for a signal from the
instructor. Groups are likely to vary in the time required for Step 3, but none should rush through this
step.
Step 4 requires each group to make recommendations to the multinational equipment company on the
assumption that it is entering all of their hometowns simultaneously. This condition forces students to
directly consider similarities, differences, and patterns across their various hometowns.
Step 4 includes the following two questions:
1. “To what degree might the company use consistent (same) approach in entering your
hometowns?” (Exercise, Step 4)
2. “Is one of your hometowns likely to require a foreign multinational to make more particular
adaptations?” (Exercise, Step 4)
These questions should foster discussion around one of the central themes of global management—the
desire to achieve consistency across global markets (i.e., global economies of scale and scope) and the
need for adaptation to local differences (i.e., customer needs and desires that vary by location/culture).
Activities
1. Think of yourself as a member of a particular geographic cultural group. (In the United States, we are
conditioned to think of cultural groups based on ethnicity and race, but for this exercise, think in terms of
location.) What are the characteristics of this group?
2. Once you have an outline of your geographic culture, try to identify the group most opposite to your
own. For example, if you consider yourself a New Yorker, you may think of a Mississippian or a
Californian.
3. Research regional and local periodicals to learn about the norms in the other culture. You might also
talk with a friend who attends college in a different region or state to get a more personal understanding
of norms in other parts of the country. List some of the norms in the other location, and compare them
with the norms in your area of the country.
Summary:
Like so many other American brands, Holden apparel is made in China. While the company would like to
manufacture in the United States, government regulations, labor costs, and high corporate tax rates are too
heavy a burden. Availability of materials is another factor, as many of the pieces that Holden needs, like
buttons, snaps, and fabrics, would still have to be brought in from Asia even if the garment was made in
the U.S. In addition, garment making requires skilled laborers, and founder Mikey LeBlanc says that the
United States lacks a manufacturing base to do the job. For any company that sources materials and labor
overseas, shipping is a vital, ongoing concern. In the early years, LeBlanc used nearly a dozen shippers to
transport garments from China to the U.S. To increase efficiency and reduce costs, LeBlanc found a way
to coordinate shipping through a single distribution hub in China, so that just two companies now handle
all of Holden’s shipping.
The four stages of globalization include the domestic stage, the international stage, the
multinational stage, and the global (stateless) stage. Answers may vary, but Oregon-based
Holden lies mostly within the international stage of corporate international development. Factors
that mark the company as presently in the international stage of development include the firm’s
outsourced China manufacturing and significant international sales to Japan, Germany, Norway,
and Canada. Holden is a small company, and it does not own factories or fabric mills. To qualify
as a multinational business, Holden needs more than one-third of sales to take place outside of the
U.S., and its marketing and advertising strategies must be standardized and uniform across all
regions. Holden cannot be characterized as a domestic company or a global (stateless) company.
The domestic stage is characteristic of companies that make and sell goods solely within their
home countries; the global (stateless) stage is characteristic of firms that have ownership,
management, and manufacturing dispersed among many nationalities.
2. Identify Holden’s primary approach to entering the international market. What are the benefits of
this entry strategy?
For small businesses that want to “go global,” exporting, global outsourcing, and licensing
represent low-cost ways of conducting business internationally. To reach global consumers and
keep manufacturing costs low, Holden uses an outsourcing strategy. The manufacture of Holden
apparel takes place in factories in China. Owner Mikey LeBlanc states that this strategy slashes
the cost of his products in half. Outsourcing also provides a steady source of skilled labor and
textile materials. Large well-established firms tend to use more costly market entry strategies,
such as acquisitions and greenfield ventures. Although high cost market entry strategies involve
significant risk and resources, they offer maximum control over business processes and profits.
While the four management functions of planning, organizing, leading, and controlling are the
same whether a company operates domestically or internationally, managers experience greater
challenges and risks when performing functions in an international setting. In the video, Mikey
LeBlanc explains that to obtain the benefits of China’s low cost manufacturing, managers had to
carefully oversee 12 different shipping companies. The situation required extensive paperwork
and resources. In addition, garments with multiple components often failed to deliver together at
the same time, creating long delays. Though not discussed specifically in the video, Holden’s
Video Segment 1
Quiz Question 1 Which globalization hotspot has Holden selected to help produce its
Portland, Oregon-based snowboarding apparel?
Option a India
Option b Brazil
Option c China
Option d Mexico
Correct option c: China
Feedback for option a Incorrect. China is the location of Holden’s suppliers and contractors.
Feedback for option b Incorrect. China is the location of Holden’s suppliers and contractors.
Feedback for option c Correct. China is the location of Holden’s suppliers and contractors.
Feedback for option d Incorrect. China is the location of Holden’s suppliers and contractors.
Quiz Question 2 For Holden Outerwear, managing business internationally delivers all the
following advantages except:
Option a Low cost materials
Option b Culture and language differences
Option c Close contact with international fashion trends
Option d Dependable source of skilled labor
Correct option b. Culture and language differences
Feedback for option a Incorrect. Cultural and language differences are two significant
disadvantages to global business.
Feedback for option b Correct. Cultural and language differences are two significant
disadvantages to global business.
Feedback for option c Incorrect. Cultural and language differences are two significant
disadvantages to global business.
Feedback for option d Incorrect. Cultural and language differences are two significant
disadvantages to global business.
Quiz Question 3 The benefits Holden gains by outsourcing the manufacture of its garments
overseas must be weighed against:
Option a Legal and political risks
Option b Limited control over international manufacturing partners
Option c Cultural and communication barriers
Option d All of these
Correct option d: All of these
Chapter 8: Global Management 199
Feedback for option a Incorrect. All of the responses are factors that must be considered in doing
global business.
Feedback for option b Incorrect. All of the responses are factors that must be considered in doing
global business.
Feedback for option c Incorrect. All of the responses are factors that must be considered in doing
global business.
Feedback for option d Correct. All of the responses are factors that must be considered in doing
global business.
Video Segment 2
Quiz Question 1 Holden sells the same line of clothes in North America, Europe, Japan, and
Korea. This model of doing global business is known as:
Option a Local adaptation
Option b International commerce
Option c Global consistency
Option d Standard practices
Correct option Incorrect. Global consistency means that a company sells the same
products and operates with the same procedures in all of its locations.
Feedback for option a Incorrect. Global consistency means that a company sells the same
products and operates with the same procedures in all of its locations.
Feedback for option b Correct. Global consistency means that a company sells the same products
and operates with the same procedures in all of its locations.
Feedback for option c Incorrect. Global consistency means that a company sells the same
products and operates with the same procedures in all of its locations.
Feedback for option d
Quiz Question 2 Which of the following forms of global business should Holden not use if
it wants to maximize delivery speed?
Option a Exporting
Option b Cooperative contracts
Option c Franchise
Option d Joint venture
Correct option a: exporting
Feedback for option a Correct. A significant disadvantage of exporting is the cost and speed of
transportation.
Feedback for option b Incorrect. A significant disadvantage of exporting is the cost and speed of
transportation.
Feedback for option c Incorrect. A significant disadvantage of exporting is the cost and speed of
transportation.
Feedback for option d Incorrect. A significant disadvantage of exporting is the cost and speed of
transportation.
Quiz Question 3 Which of the following developments in global trade has the potential to
negatively impact Holden’s international business?
Option a North American Free Trade Agreement (NAFTA)
Chapter 8: Global Management 200
Option b European Union (EU)
Option c Protectionism
Option d Association of Southeast Asian Nations (ASEAN)
Correct option c: Protectionism
Feedback for option a Incorrect. Protectionism is the use of trade barriers to protect domestic
companies from foreign competition.
Feedback for option b Incorrect. Protectionism is the use of trade barriers to protect domestic
companies from foreign competition.
Feedback for option c Correct. Protectionism is the use of trade barriers to protect domestic
companies from foreign competition.
Feedback for option d Incorrect. Protectionism is the use of trade barriers to protect domestic
companies from foreign competition.
Video Segment 3
Quiz Question 1 The primary criterion for Holden’s decision to create a consolidated
shipping facility in China was:
Option a Availability of a quality work force
Option b Access to rare resources
Option c Government subsidies
Option d More efficiency in shipping
Correct option D: more efficiency in shipping
Feedback for option a Incorrect. Holden created the new shipping facility so that it could reduce
the number of ships it sent from China.
Feedback for option b Incorrect. Holden created the new shipping facility so that it could reduce
the number of ships it sent from China.
Feedback for option c Incorrect. Holden created the new shipping facility so that it could reduce
the number of ships it sent from China.
Feedback for option d Correct. Holden created the new shipping facility so that it could reduce
the number of ships it sent from China.
Quiz Question 2 Holden must deal with customs laws in several countries. Therefore, it
faces:
Option a Political uncertainty
Option b Policy uncertainty
Option c Regulatory uncertainty
Option d Commercial uncertainty
Correct option b: policy uncertainty
Feedback for option a Incorrect. Policy uncertainty refers to the risk associated with changes in
laws.
Feedback for option b Correct. Policy uncertainty refers to the risk associated with changes in
laws.
Feedback for option c Incorrect. Policy uncertainty refers to the risk associated with changes in
laws.
Feedback for option d Incorrect. Policy uncertainty refers to the risk associated with changes in
laws.
Chapter 8: Global Management 201
Quiz Question 3 If Holden needs maximum control over the manufacturing and shipping of
its China-produced garments, it must adopt the following international
strategy:
Option a Outsource to Chinese firms
Option b License Chinese firms to manufacture and sell Holden garments
Option c Partner with Chinese firms to manufacture and sell Holden garments
Option d Acquire Chinese firms to manufacture and sell Holden garments
Correct option d: Acquire Chinese firms to manufacture and sell Holden garments
Feedback for option a Incorrect. By acquiring a Chinese firm as a wholly-owned affiliate, a
company receives all of the profits and has complete control over the
foreign facilities.
Feedback for option b Incorrect. By acquiring a Chinese firm as a wholly-owned affiliate, a
company receives all of the profits and has complete control over the
foreign facilities.
Feedback for option c Incorrect. By acquiring a Chinese firm as a wholly-owned affiliate, a
company receives all of the profits and has complete control over the
foreign facilities.
Feedback for option d Correct. By acquiring a Chinese firm as a wholly-owned affiliate, a
company receives all of the profits and has complete control over the
foreign facilities.
Review Questions
1. What is global business?
Business is the buying and selling of goods or services. Buying this textbook was a business
transaction. So was selling your first car. So was getting paid for babysitting or for mowing lawns.
Global business is the buying and selling of goods and services by people from different countries.
Companies that own businesses in two or more countries are called multinational corporations
(MNCs). In 1970, more than half of the world’s MNCs were headquartered in the United States. In
subsequent decades, the economies of other nations grew stronger, such that MNCs can be found by
the thousands all over the world.
Global business affects the United States in two ways: through direct foreign investment in the United
States by foreign companies, and through U.S. companies’ investment in business in other countries.
Direct foreign investment throughout the world typically amounts to about $3.5 trillion per year.
Between 2003 and 2004, direct foreign investment in the United States and by the United States
soared.
A tariff is a direct tax on imported goods. It creates a trade barrier by making imported goods more
expensive than domestically produced goods. The five nontariff barriers are:
• Quotas: Limits on the number or volume of imported products.
• Voluntary export restraints: Voluntarily imposed limits on the number or volume of products
exported to a particular country.
• Government import standards: Standards imposed by a government to protect the health and
safety of citizens; in reality these are used to restrict trade.
GATT is the General Agreement on Tariffs and Trade that many countries signed to increase the ease
of selling products and services around the world. GATT promoted global trade by:
• Cutting tariffs worldwide by 40 percent by 2005,
• Eliminating tariffs in ten specific industries,
• Putting stricter limits on government subsidies,
• Protecting intellectual property rights, and
• Sending trade disputes to the arbitration panels of the World Trade Organization (WTO).
Starting with the signing of the Maastricht Treaty in 1992, the European Union has changed trade
tremendously among member nations. First, all tariffs and other nontariff barriers have been lifted,
making trade totally free. Second, all member nations have a common external trade policy so that
nonmember nations are trading with an entire bloc of countries rather than with separate countries.
Third, people, capital, and equipment can freely cross EU borders, saving money and time. Fourth,
most of the EU members belong to a single economy, run by a centralized European bank and
adopting a single currency, the Euro. The creation of the European Union has made Western Europe a
more powerful trading bloc.
NAFTA—the North American Free Trade Agreement—is the free trade area of Canada, Mexico,
and the United States. It has changed trade tremendously by eliminating most tariff and nontariff
barriers among the member nations (the last set of barriers were eliminated in 2003).
CAFTA—the Central American Free Trade Agreement—is a regional trade agreement between
Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the United
States.
ASEAN is the Association of Southeast Asian Nations and consists of the following Southeast
Asian countries: Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the
Philippines, Singapore, Thailand, and Vietnam. ASEAN will become a free trade area by 2015 for the
original six countries and 2018 for the remaining countries.
APEC is the Asia-Pacific Economic Cooperation that includes all ASEAN countries except
Cambodia, Lao PDR, and Myanmar, all NAFTA countries, and the following countries: Australia,
Chile, the People’s Republic of China, Hong Kong (China), Japan, New Zealand, Papua New Guinea,
Peru, Russia, South Korea, and Taiwan. It is, thus, a much larger trade agreement that includes the
three largest economies in the world: the United States, China, and Japan. By 2020, trade barriers will
be reduced in all member nations.
5. What are the tradeoffs between global consistency and local adaptation?
Global consistency and local adaptation are two optional strategies that companies can use when they
have worldwide operations. In global consistency, a company would run its offices, plants, and
facilities around the world based on the same universal rules, guidelines, policies, and procedures.
The advantages of global consistency are that it creates cost efficiencies and consistent product
imagery worldwide. In local adaptation strategy, the company would modify its standard operating
procedures to adapt to differences in foreign customers, governments, and regulatory agencies.
Advantages of this strategy are that it addresses specific local needs, such as different consumer tastes
and employee issues.
6. Identify the stages in the phase model of globalization and explain the level of risk inherent in each.
The phase model of globalization says that as companies move from a domestic to a global
orientation, they use these organizational forms in sequence: exporting, cooperative contracts
(licensing and franchising), strategic alliances, and wholly owned affiliates. At each step, the
7. What is the relationship between the phase model of globalization and global new ventures?
Evidence suggests, however, that some companies do not follow the phase model of globalization.
Some companies skip phases on their way to becoming more global and less domestic. Others don’t
follow the phase model at all. These are known as global new ventures, which are new companies
with sales, employees, and financing in different countries that are founded with an active global
strategy. In other words, global new ventures are global from their inception; they do not start as
exporters and evolve to global new ventures. They are global from the start-up stage.
8. What should companies consider when choosing a global location for doing business?
The first step in deciding where to take your company global is finding an attractive business climate.
Be sure to look for a growing market where consumers have strong purchasing power and foreign
competitors are weak.
When locating an office or manufacturing facility, consider both qualitative and quantitative
factors. Two key qualitative factors are work force quality and company strategy. Work force
quality is important because it is often difficult to find workers with the specific skills, abilities,
and experience that a company needs to run its business. A company’s strategy is also
important when choosing a location. For example, a company pursuing a low-cost strategy may
need plentiful raw materials, low-cost transportation, and low-cost labor. Quantitative factors
include the kind of facility being built, tariff and nontariff barriers, exchange rates, and
transportation and labor costs. Those factors should also be considered when choosing an office
and/or manufacturing location.
When conducting global business, companies should attempt to identify two types of
political risk: political uncertainty and policy uncertainty. Political uncertainty is associated with
the risk of major changes in political regimes that can result from war, revolution, death of
political leaders, social unrest, or other influential events. Policy uncertainty refers to the risk
associated with changes in laws and government policies that directly affect the way foreign
companies conduct business. Policy uncertainty is the most common form of political risk in
global business and perhaps the most frustrating.
If the location you choose has considerable political risk, you can avoid it, try to control the risk,
or use a cooperation strategy.
Companies can use this information in order to formulate strategies in many different areas, such as
how to compensate or motivate global workforces, whether or not to include lower-level employees
in decision-making, and how much direction to give employees.
10. How can companies prepare their managers to be successful expatriate managers?
Companies wanting to send their managers overseas should provide both language and cross-cultural
training to both the managers themselves and to their families (spouse and children). There are many
types of training programs. They are:
• Documentary training focuses on identifying the specific differences between the home
country and the host country, to which the manager will be sent.
• Cultural simulations provide the managers with an opportunity to practice their skills in a
simulated environment, such as a party in the host country.
• Field simulation training allows managers to spend a few hours or days in a neighborhood
with ethnic cultures similar to the ones that will be found in the host country.
In-Class Activity: “WTO Debate.” The WTO has been the subject of controversy in recent years,
inciting riots in cities such as Seattle. Divide the class into two groups (or four groups if the class is
especially large). One side should be pro-WTO and should carefully study the goals and issues
surrounding the organization. The other side should be anti-WTO and should study the negative effects of
globalization. The instructor should moderate the debates and debrief on the issues raised on both sides.
Supplement to “WTO Debate.” Go to the WTO’s website at http://www.wto.org. You will find the ten
benefits of the WTO trading system and ten common misunderstandings about the WTO. Read these and
answer the following questions: (1) Do you support the efforts of the WTO? Why or why not? (2) Why
should a country want to join the WTO? (3) What does it take for a country to be accepted into the WTO?
(4) Should China be admitted to the WTO? Why or why not?
“Passports and International Travel.” Poll your students to find out how many have a passport. Of
those who raise their hand, ask how many have traveled to a foreign country. For those students without
international travel experience, you will need to approach this activity as a fact-finding exercise. Instruct
students without passports to research what they would need to do to acquire one. Also have them
research restrictions (such as both parents need to be present to submit the passport application for
children under 18). If students already have a passport, have them approach the assignment as if they
were writing a guidebook entry for students who need to apply for a passport. Student work should detail
how and where to get a passport and what you need in order to apply for one. An Internet resource for this
exercise is http://travel.state.gov/passport.
“Money and International Travel.” As a companion exercise to “Passports and International Travel,”
ask students to think about and put together some recommendations related to money: “How would you
carry money on an international trip? Besides exchange rates, what other concerns about carrying money
Chapter 8: Global Management 205
in a foreign country can you think of? How would you handle your finances if you were on a long-term
stay in a foreign country—would you convert to the host country’s money system, or would you keep
converting to and from your home currency?” Again, for this portion, instruct students without
international travel experience to approach the activity as a fact-finding exercise, and students with
international travel experience to approach it as writing an entry in a travel guidebook like Fodor’s or
others by Rick Steves.
“Cross-Cultural Training.” Browse the Internet for different cross-cultural training packages that are
for sale. Select five good packages and provide a summary of what the training encompasses. Would you
buy this package for your company’s training program? Why or why not?
“Language Training.” Assign students to audit an introductory foreign language class on campus.
Instruct students to attend a class on a language they do not speak. You may need to create a note that
students can give to the language instructor asking permission to sit in for one or more class sessions as a
way to gain exposure to a new language. Ask students what difficulties they had in being in a foreign
language environment. What tools, resources, or training do they thing would be most helpful for
adapting to such situations?
———
*****
*****
*****
— Vai sinne, vai sinne asti pääsi, a mikäs oli päästessä, kun oli
laiva ja kaikki itsellä, senkun seilasi vaan!
— A mikäs oli levitellessä, pankki oli, makasiina oli, laiva oli — sillä
seilasi vielä karkuun. Mitähän tekee nyt Rasutovi? Missä sikoja
syöttelee, missä keitättää makkaroita? A vot en tiedä! Mutta hyvä oli
mies, Rasutovi.