Chapter 1

Multinational Management in a
Changing World

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 Learning Objectives

•• Define
Define multinational
multinational management
management
•• Understand
Understand the the characteristics
characteristics ofof aa multinational
multinational
company
company
•• Understand
Understand the the nature
nature ofof the
the global
global economy
economy and
and the
the
key
key forces
forces that
that drive
drive globalization
globalization
•• Know
Know the
the basic
basic classification
classification ofof the
the world’s
world’s economies
economies
•• Identify
Identify the
the characteristics
characteristics ofof the
the next
next generation
generation of
of
multinational
multinational managers
managers
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 Multinational Management

•• Formulation
Formulation ofof strategies
strategies and
and management
management systems
systems toto
take
take advantage
advantage ofof international
international opportunities
opportunities and
and
respond
respond toto international
international threats
threats

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 The Nature of The
Multinational Company

•• Any
Any company
company that
that engages
engages inin business
business functions
functions
beyond
beyond its
its domestic
domestic borders
borders
•• Includes
Includes both
both large
large and
and small
small companies
companies

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Exhibit 1.1 – The Largest
Companies in the World

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Exhibit 1.2 – The 15 cities With
The Most Fortune Global 500
Companies

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 The Globalizing Economy

•• Globalization:
Globalization: the
the worldwide
worldwide trend
trend ofof the
the economies
economies ofof
the
the world
world becoming
becoming borderless
borderless and
and interlinked.
interlinked.

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 Negatives of Globalization

•• Not
Not all
all economies
economies ofof thethe world
world are
are benefiting
benefiting equally
equally oror
participating
participating equally
equally inin the
the process.
process.
•• Terrorism,
Terrorism, wars,
wars, and
and aa worldwide
worldwide economic
economic stagnation
stagnation
have
have limited
limited or
or reversed
reversed somesome aspects
aspects ofof globalization.
globalization.
•• Producing
Producing negative
negative effects
effects suchsuch asas scarcity
scarcity ofof natural
natural
resources,
resources, environmental
environmental pollution,
pollution, negative
negative social
social
impacts,
impacts, and
and increased
increased interdependence
interdependence ofof thethe world’s
world’s
economies.
economies.
•• Widening
Widening the
the gap
gap between
between rich rich and
and poor
poor countries
countries
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 The Benefits of Globalization

•• Resulting
Resulting inin lower
lower prices
prices inin many
many countries
countries asas
multinationals
multinationals are are becoming
becoming more more efficient.
efficient.
•• Benefiting
Benefiting many
many emerging
emerging markets
markets such
such as
as India
India and
and
China
China asas these
these countries
countries enjoy
enjoy greater
greater availability
availability ofof
jobs
jobs and
and better
better access
access toto technology.
technology.
•• Major
Major reason
reason why why many
many new
new companies
companies from
from Mexico,
Mexico,
Brazil,
Brazil, China,
China, India,
India, and
and South
South Korea
Korea are
are the
the new
new
dominant
dominant global
global competitors.
competitors.

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 The Globalizing Economy:
7 Key Trends

•• Disintegrating
Disintegrating borders
borders
•• Growing
Growing cross-border
cross-border trade
trade and
and investment
investment
•• The
The rise
rise ofof global
global products
products and
and global
global customers
customers
•• The
The internet
internet andand information
information technology
technology
•• Privatizations
Privatizations
•• New
New competitors
competitors inin the
the world
world market
market
•• The
The rise
rise ofof global
global standards
standards ofof quality
quality and
and production
production

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 Countries of the World: The
Arrived, The Coming, and The
Struggling
•• Developed
Developed countries:
countries: mature
mature economies
economies with
with
substantial
substantial per
per capita
capita Gross
Gross Domestic
Domestic Product,
Product,
international
international trade
trade and
and investments.
investments.
•• Developing
Developing countries:
countries: economies
economies that
that have
have grown
grown
extensively
extensively over
over past
past two
two decades
decades
•• E.g.,
E.g., Hong
Hong Kong,
Kong, Singapore,
Singapore, South
South Korea.
Korea.

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 Countries of the World: The
Arrived, The Coming, and The
Struggling
•• Transition
Transition economies:
economies: countries
countries that
that have
have changed
changed
from
from mostly
mostly communist
communist systems
systems toto
market/capitalistic
market/capitalistic systems
systems
•• E.g.,
E.g., Czech
Czech republic,
republic, Hungary,
Hungary, Poland.
Poland.
•• Emerging
Emerging markets:
markets: those
those countries
countries that
that are
are currently
currently
between
between developed
developed andand developing
developing countries
countries and
and
are
are rapidly
rapidly growing
growing
•• E.g.,
E.g., India,
India, China,
China, Brazil,
Brazil, and
and Russia.
Russia.
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 Countries of the World: The
Arrived, The Coming, and the
Struggling
•• Less
Less developed
developed countries:
countries: have
have yet
yet toto show
show much
much
progress
progress inin the
the global
global economy
economy
•• Most
Most are
are located
located inin Central
Central and
and South
South America
America and
and
Africa.
Africa.

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Exhibit 1.3: Divisions of the
World’s Economies

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Exhibit 1.4: Forces Driving
Globalization

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 Borders are Disintegrating:
The World Trade Organization

•• Formal
Formal structure
structure for
for continued
continued negotiations
negotiations andand for
for
settling
settling trade
trade disputes
disputes among
among nations.
nations.
•• 1947
1947 Nations
Nations met
met toto reduce
reduce tariffs
tariffs from
from 45%
45% toto less
less
than
than 7%
7% -- resulted
resulted inin the
the General
General Agreement
Agreement on on
Tariffs
Tariffs and
and Trade
Trade (GATT).
(GATT).
•• 1986
1986 Negotiations
Negotiations began
began inin Uruguay
Uruguay toto continue
continue
reducing
reducing tariffs.
tariffs.

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 World Trade Organization

•• 1997
1997 –– Trade
Trade ministers
ministers from
from countries
countries representing
representing 92
92
%
% ofof world
world trade
trade agreed
agreed toto eliminate
eliminate tariffs
tariffs on
on
software,
software, computer
computer chips,
chips, telecommunication
telecommunication
equipment
equipment and and computers.
computers.
•• WTO
WTO has has some
some critics.
critics.
•• Not
Not all
all countries
countries are
are participating
participating equally
equally inin WTO.
WTO.

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 Regional Trade Agreements

•• Regional
Regional Trade
Trade Agreements
Agreements -- agreements
agreements among
among
nations
nations toto reduce
reduce tariffs
tariffs and
and develop
develop similar
similar technical
technical
and
and economic
economic standards.
standards.
•• European
European UnionUnion (EU)
(EU) -- includes
includes aa large
large number
number ofof
European
European countries.
countries.
•• Allows
Allows free
free movement
movement ofof goods
goods andand services
services and
and aa
common
common currency.
currency.

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 Regional Trade Agreements

•• The
The North
North American
American Free
Free Trade
Trade Agreement
Agreement (NAFTA):
(NAFTA):
links
links United
United States,
States, Canada,
Canada, and and Mexico
Mexico inin an
an
economic
economic bloc.
bloc.
•• Allows
Allows freer
freer exchange
exchange ofof goods
goods andand services
services
•• The
The Asia-Pacific-Economic
Asia-Pacific-Economic Cooperation
Cooperation (APEC):
(APEC):
looser
looser confederation
confederation ofof 19
19 Asian
Asian nations
nations with
with less
less
specific
specific agreements
agreements on on trade
trade facilitation.
facilitation.

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 Sell Anywhere, Locate
Anywhere

•• World
World trade
trade growth:
growth: average
average ofof 6.5%
6.5% perper year
year between
between
1990
1990 and
and 2000.
2000.
•• Nearly
Nearly half
half ofof the
the over
over $5
$5 trillion
trillion inin world
world trade
trade isis
among
among thethe European
European union,union, thethe U.S.,
U.S., and
and Japan
Japan –– the
the
TRIAD.
TRIAD.

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Exhibit 1.6 – Leading Exporting
and Importing Countries

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 Sell Anywhere, Locate
Anywhere

•• Foreign
Foreign Direct
Direct Investment
Investment (FDI)
(FDI) :: occurs
occurs when
when aa
multinational
multinational company
company fromfrom one
one country
country has
has an
an
ownership
ownership position
position located
located inin another
another country.
country.
•• FDI
FDI increased
increased byby more
more that
that 36%
36% between
between 1996
1996 and
and
2000.
2000.
•• Post
Post 9/11
9/11 has
has seen
seen aa decline
decline inin FDI.
FDI.
•• Nevertheless,
Nevertheless, itit remains
remains aa significant
significant factor.
factor.

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Exhibit 1.7: The Growth of FDI in a
Few Emerging Markets and
Selected Developed Countries

Copyright© 2007 South-Western/Thomson Learning All rights reserved

 Foreign Direct Investment

•• Developed
Developed countries
countries get
get the
the bulk
bulk ofof FDI
FDI (69%)
(69%) while
while
developing
developing countries
countries get
get around
around 30%.
30%.
•• Least
Least developed
developed countries
countries get
get minimal
minimal FDI.FDI.
•• Implications
Implications for
for managers
managers -- significant
significant opportunities
opportunities
around
around the
the world.
world.
•• Multinational
Multinational managers
managers should
should look
look atat risk
risk rating
rating ofof
countries.
countries.

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 Two Types of Risks

•• Economic
Economic risk:risk: considers
considers all
all factors
factors ofof aa nation’s
nation’s
economic
economic climate
climate that
that may
may affect
affect aa foreign
foreign investor.
investor.
•• Political
Political risk:
risk: anything
anything aa government
government might might dodo or
or not
not do
do
that
that might
might adversely
adversely affect
affect aa company.
company.

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 Factors Outside of The
Control of The Multinational

•• The
The recent
recent increases
increases inin oil
oil prices
prices have
have the
the potential
potential toto
slow
slow down
down global
global trade
trade
•• Natural
Natural disasters
disasters
•• International
International terrorism
terrorism

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 The Internet and Information
Technology

•• Electronic
Electronic Communication
Communication -- E-mail,
E-mail, World
World Wide
Wide
Web,etc.
Web,etc.
•• Allows
Allows multinationals
multinationals toto communicate
communicate with
with company
company
locations
locations throughout
throughout the
the world.
world.
•• Multinationals
Multinationals can
can also
also monitor
monitor worldwide
worldwide
operations.
operations.
•• Information
Information technology
technology isis spurring
spurring aa borderless
borderless
financial
financial market.
market.
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 The Internet and Information
Technology

•• Information
Information technologies
technologies make
make available
available many
many new
new
tools
tools that
that facilitate
facilitate business
business operations
operations
•• E.g.,
E.g., Voice-Over-Internet
Voice-Over-Internet Protocol
Protocol (VOIP)
(VOIP) such
such as
as
Skype,
Skype, MSN MSN Messenger
Messenger and
and AOL,
AOL, WIKIs
WIKIs

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 The Rise of Global Products
and Global Customers

•• The
The needs
needs ofof customers
customers forfor many
many products
products andand
services
services areare growing
growing more
more similar
similar
•• E.g.,
E.g., McDonald’s,
McDonald’s, Boeing,
Boeing, Toyota.
Toyota.
•• Global
Global customers
customers search
search the
the world
world for
for their
their supplies
supplies
without
without regard
regard for
for national
national boundaries.
boundaries.

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 Privatization

•• Sale
Sale ofof government-owned
government-owned businesses
businesses toto private
private
investors,
investors,
•• usually
usually through
through stock
stock or
or direct
direct sale
sale toto other
other
companies.
companies.
•• Two
Two types
types ofof privatization
privatization contribute
contribute toto the
the global
global
economy
economy –– the the developed
developed world
world and
and the
the developing
developing
world.
world.

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 Privatization - Types

•• The
The Developed
Developed Countries
Countries
•• Use
Use privatization
privatization toto make
make formerly
formerly government-
government-
controlled
controlled enterprises
enterprises more
more competitive
competitive inin the
the global
global
economy.
economy.
•• The
The Developing
Developing Countries
Countries
•• Use
Use privatization
privatization toto jump-start
jump-start their
their economies
economies or or toto
speed
speed the
the transition
transition from
from aa communist
communist toto aa capitalist
capitalist
system.
system.
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 New Competitors

•• Free
Free market
market reforms
reforms are
are creating
creating aa potential
potential group
group ofof
new
new competitors.
competitors.
•• Korean,
Korean, Russian,
Russian, Taiwanese,
Taiwanese, and
and Mexican
Mexican companies
companies
are
are all
all emerging.
emerging.
•• Chinese
Chinese companies
companies are
are also
also on
on the
the move.
move.

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Exhibit 1.9: Top 25 Emerging
Market Economies

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 New Competitors are
Emerging

•• Global
Global trade
trade has
has two
two important
important effects
effects inin developing
developing
new
new competitors:
competitors:
•• When
When developing
developing countries
countries are are used
used as as low-wage
low-wage
platforms
platforms forfor high-tech
high-tech assembly,
assembly, multinationals
multinationals
facilitate
facilitate the
the transfer
transfer ofof technology.
technology.
•• Aggressive
Aggressive multinationals
multinationals are are also
also expanding
expanding
beyond
beyond their
their own
own borders.
borders.

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 The Rise of Global Standards

•• Companies
Companies can can make
make 11 or
or only
only aa few
few versions
versions of
of
product
product forfor the
the world
world market.
market.
•• This
This isis cheaper
cheaper than
than making
making different
different versions
versions for
for
different
different countries.
countries.
•• Drive
Drive toto develop
develop common
common standards
standards toto save
save money.
money.

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 Global Standards

•• Consistency
Consistency inin quality
quality alsoalso an
an important
important requirement
requirement ofof
doing
doing business
business inin many
many countries.
countries.
•• International
International organization
organization for for standardization
standardization (ISO)
(ISO) inin
Geneva,
Geneva, Switzerland
Switzerland
•• Developed
Developed aa set
set ofof technical
technical standards
standards (ISO
(ISO
9001:2000
9001:2000 series).
series).

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 Next Generation of
Multinational Managers:
Characteristics
•• Global
Global mindset
mindset
•• Ability
Ability toto work
work with
with people
people from
from diverse
diverse backgrounds
backgrounds
•• Long-range
Long-range perspective
perspective
•• Ability
Ability toto manage
manage change
change and
and transition
transition
•• Ability
Ability toto create
create systems
systems for
for learning
learning and
and changing
changing
organizations
organizations

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 Next Generation of
Multinational Managers:
Characteristics
•• Talent
Talent toto motivate
motivate all
all employees
employees toto achieve
achieve excellence
excellence
•• Accomplished
Accomplished negotiation
negotiation skills
skills
•• Willingness
Willingness toto seek
seek overseas
overseas assignments
assignments
•• Understanding
Understanding ofof national
national cultures
cultures

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 Multinational Management: A
Strategic Approach

•• Considers
Considers how how managers
managers formulate
formulate and and implement
implement
strategies
strategies toto compete
compete successfully
successfully inin the
the global
global
economy.
economy.
•• Strategies
Strategies areare the
the maneuvers
maneuvers oror activities
activities used
used toto
increase
increase and
and sustain
sustain organizational
organizational performance.
performance.
•• Multinational
Multinational strategies
strategies must
must include
include maneuvers
maneuvers that that
deal
deal with
with operating
operating inin more
more than
than one
one country
country and
and
culture.
culture.

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 Trends Shaping Future
Business Environment

•• Blurring
Blurring ofof industry
industry boundaries
boundaries
•• Flexibility
Flexibility matters
matters more
more than
than size
size
•• Focusing
Focusing on on niche
niche
•• Hyper-competition
Hyper-competition
•• Emphasis
Emphasis on on innovation
innovation and
and the
the learning
learning organization
organization

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 Conclusion

•• Chapter
Chapter provides
provides keykey background
background information
information toto
support
support study
study ofof multinational
multinational management
management
•• Chapter
Chapter alsoalso provides
provides the the foundation
foundation toto understand
understand the
the
latest
latest challenges
challenges and and practices
practices ofof multinational
multinational
management
management
•• Field
Field isis dynamic
dynamic and and learning
learning never
never stops
stops

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