Welcome to the class - where would you like to go!
Welcome to the class, where would you like to go today? By the way, what are some of the most important issues facing global businesses? Why are they important. Try to write more than a few sentences and try to comment on others' posts too.
I think one of the most important issues facing global businesses is cultural understanding. In order to successfully conduct business in a global environment businesses have to be aware of and sensitive to the cultural differences from the outset. From developing a product that meets specific cultures needs, to conducting business meeting with cross cultural groups, to production of a product on the ground, businesses need to be aware of how different cultures approach these aspects of business in order to have a lucrative relationship.
We'll learn very quickly starting next week that culture may not be necessary or sufficient to understand these things alone. Culture, economics, language, governmental system, corruption, location of supply or distribution, competitive advantage... there's a lot. I'm going to throw culture out there, but I'm also going to say it isn't enough.
Understanding the culture of a foreign place of business I think is definately an important thing to know for those who are looking to conduct business in another country. I'm from another country, and being able to live here has helped me tremendously in understanding not only how people behave, but also how the think, feel, and react to different issues. This may not be the most important issue facing businesses today, but I think its definately important to be successful in global business.
I would agree. I think understanding culture is very important, but there are so many other factors companies must consider when doing business globally. For example, language, government regulations, taxation, labor conditions, wages, issues associated with varying time zones, etc. I work in the Information Technology world and often we deal with technical engineers and analysts from other parts of the world. We find ourselves facing the challenge of communication due to a language barrier. This barrier occurs on both sides of the communication line, there and here. This issue is a delicate and challenging one, but I have found in my experience if both sides work together, misinterpretation of information and miscommunication can be held at bay.
I think Dona made a good point about culture being a global business issue. The Pepsi/Asia misshape is the best example that I can think of that illustrates why understanding individual cultures is important when doing business. A few years back Pepsi lost market share in Southeast Asia when they changed their vending machines from deep blue to light blue. Pepsi at the time did not do their homework on understanding the culture in that area. If they did do their homework they would have known that light blue is the symbol of death in that area. The moral of this story is that cultures are different from place to place and you can’t always use a one size fits all model.
Another example of why culture is a global issue in business is the differences other cultures have with intellectual property rights. Intellectual property in the USA is viewed very differently in China. The Chinese believe that ounce a product resides it should be available to the entire community. You can definitely see that when you go to china. I remember going to the Silk Market in Beijing and being blown away that they were selling “knock-off” Apple Products (e.g. I-Pod, I-phone, I-Pad). Companies definitely need to think twice before offering their products globally.
I absolutely agree it is interesting to think about how cultures differ and the business impact. A company that comes to mind for me is Coca-Cola. They have a significant global presence but they are not uniform across the world. Have you ever had an Australian coke? It is nothing like the can you crack open in the US, not to mention it will run you about $3 US. How about a Mexican bottled coke? These are the best in my opinion they still use sugar cane instead of high fructose corn syrup like the US. I think this is a good example of what we look at as a simple product that would translate across the world can be viewed so differently.
Going Global though is where you want to take your products and business. You want people around the world to experience what you have to offer. Also the point of a business is to make money and expand your footprint, if you are scared to go global then you will not be a successful business in a global economy.
With the rise in technology trends are no longer lasting 20 years (the CD etc) they are lasting months or even days and they are getting cheaper due to global access. I remember reading an article about shrinking costs as trend demand consumption goes up and up prices come down. Since 2007 housing crisis, are demanding more for every penny that they spend and can expect that due to global access to information
One of the main issues of business that has been argued for decades is the theory of Corporate social responsibility. It has been debated by many that corporations should and must exercise social responsibility, while others such as Milton Friedman, have argued that so long as a business is abiding by governmental regulations, there is no other corporate responsibility except to make profits for those invested in the business. In just about everything I read, I see this issue surface on a daily basis. A few examples: the ever-popular "going green" trend and environmental responsibility of corporations, or the questioning of who Apple uses to manufacture their parts in Asia and how employees in those factories are treated, or debate about drilling gas and oil in America and whether that is better or worse than purchasing it from the untrustworthy OPEC nations. These are ever important issues as the impact of these decisions affect so many lives in so many ways both for good and for bad and unfortunately, it seems that easy answers are always elusive. Oh, and where do I want to go today? I would love to go to Hawaii and hang out in the surf, but it's not gonna happen :(
The "Going Green" trend is an interesting phenomenon in global business strategy. There are those who lead the trend based on a moral compass and those who follow the trend based on moral pressure. To a select few companies, they are leading the trend because of a personal or corporate responsibility felt to sustainability and impact. The rest of the movement is made up of followers looking to capitalize on and market focused on a new trend. Most of their socially responsible expenditures and efforts are itemized under the marketing budget. Ultimately a business is sustained only by their customers, not by their level of social responsibility. Social responsibility of business may be important but the business must have a product that creates value and a customer. Many social entrepreneurship ventures fail from not being able to create a sustained customer base. The Social responsibility of business seems (with rare exception)to only go as far as society is willing to pay. The customer must feel enough of their own social responsibility to pay a premium for the product. So far, most of society likes the idea of sustainability but is not willing to pay a premium for it.
I like your take on the Going Green trend. Thanks for sharing. As I was thinking about what you have said, it made me think of Sun Chips and their totally compostable bags that were louder than your dishwasher. Enough consumers complained that they had to pull the idea off the shelf and go back to the old bag. According to WSJ, they are still committed to finding a compostable bag that is much quieter, but haven't yet discovered it yet. Here's the link. http://online.wsj.com/article/SB10001424052748703843804575534182403878708.html
Corporations do have a social responsiblity, but their bigger responsibility is to their investors. I know going green was a huge marketing plore and seemed to be temporary as we do not hear muich about it today. Are buniesses even focused on being green any longer or are they back to focusing on the bottom line? Going green is not a cheap way to operate and cuts deep into the pockets of investors. This may be why we have seen a huge push to outsource manufacturing to other countries. Being green there does not matter.
I feel Rich makes an interesting point at the end of his statement where he references the social responsibility of the consumer. I would like to think that organizations want to do the right thing by “going green” or treating their employee’s right, however I understand their fear of losing an advantage by doing just that. Consumers are always looking for the cheapest products rather than how ethical the organization is that put the product on the shelf at the cheapest cost to the consumer. Consumer purchasing behavior is the lifeblood of the organization and it won’t be until consumers become more responsible buyers that corporations will be incentivized to be more socially responsible.
Hawaii would be good... rethink your Friedman for he isn't as conservative wing as he gets blamed for. The issues you see are good ones. But how about these? There's a growing lack of trust in business, globalization seems to be flattening out, the influence of China is going a different way than we thought, our resources continue to feel strain, there's very likely to be a bigger international role for government, our views of management as a science are trending to management as a chaotic endeavor, there are shifting consumption patterns to emerging nations, and domestic industries are taking new shape from the corporate manufacturing to the service and intellectual property-innovation one. Add into that that price stability is coming into question with some inflation, but some deflation especially in the consumer products and electronics markets. What's going on here and where would you like to go to find out?
I think one of the current issues facing global businesses is global economic stability and ensuring that the state of the economy can support continued demand for a company's product. There has been quite a shift in recent years in the distribution of wealth. Business models that once worked may not be such a sure thing anymore. Pete, above, touched upon shifting consumption patterns.
An example of this is China. The business strategy has been to manufacture goods cheaply in China and sell the products to the affluent Americans. However, with the down economy in the US and the squeeze on the middle class, consumption by Americans has been affected; while the middle class in China has been growing and consumption has increased. Labor in the US has also become cheaper while labor costs in China has been increasing. I read an article a few days ago that there is a slow trickle of companies moving their manufacturing processes back to the US because it is no longer cost effective to manufacture overseas.
I think in the long term, as we move towards a more global economy, there will be a smoothing effect between consumption and wages of individual countries. So the question is how does this affect the long term strategy of a business? How does a firm determine if the current cheap labor costs in one country will sustain for a long enough period to recover the capital investments made in that country? What investments should a company be making in a country where it sells its products to ensure that the economy remains stable enough to support continued demand for its product?
I like the main thesis you're posing. How to outside events affect a firm's strategy.... The independent variable of outside events and dependent variable of strategy is at the heart of things. To use a visual metaphor however, I would like to create the image of a fish flopping about on the shore - open to its environment and vulnerable. Firms are not these fish. In reading Verbeke through 5 I think there are identification of firm specific advantages that assist the corporation and SME in dealing with uncertainties and with environmental conditions. These are the mediating adn moderation variables that prevent great variance in performance and accentuation of value chain activities that produce margin (and value). Yes, there's a global economy, pretty well developed already. Will there be a smoothing effect? Perhaps not as the conditions within each subject are vastly different according to culture, economy, geography, government, and corruption.
Dawn and Pete - redistribution of wealth was mentioned. I have seen numbers that indicate the middle class, world wide, are slowing dividing into upper or lower class. Especially within the US, the middle class, which supports the poor and works for the rich, is the shrinking fast. T
If this trend is fact, then combine it with the tendency for every revolution to be perpetrated by unemployed/unmarried men between the ages of 16 and 30. These two factors indicate to me that we will see more and more international instability. This instability is a key issue facing international firms today.
I do appreciate what you write. The economic environment, or state of it, does predict a degree of instability in terms of political activity, either peaceful or violent. I wonder whether it's a leap of faith to indicate the widening split of the middle class on a worldwide basis, especially since governments and larger organizations like the UN and the World Trade Organization are trying to help nations build middle class taxpaying groups. I saw the WTO Generalized System of Preference for trade as having a priority for developing a managerial or industrial or entrepreneurial class just for the purpose of nation building. On the other hand The Economist indicated the shrinking middle class was a concern esp since the middles consume large proportions of consumer goods. Without that consumption, economies would tend to slow and the reaction would come. Let's take two examples: first the US: recently, unemployment in the economy has slowed consumer confidence and purchasing. I believe this led to a condition of deflation where goods are sold continuously closer to variable cost, if not below. This also leads to unemployment since manufacturers cannot produce at this price without cutting costs and labor. The second issue is this: I'm not sure that the unemployed unmarried male 16-30 demographic is the only demographic to blame. To be fair, they contribute. The years of unemployment and economic deprivation, especially in sight of shopping malls and consumer goods, has built a sense of learned helplessness and over time a reaction of fanaticism. There was a lecture in the Fall here by a former ambassador who tried to give a speech warning of increasing Islamic fundamentalism in sub-Saharan Africa and the beginning of what we've been seeing in the middle east and with Al-Qaeda (sp?). The dependent variable, of fanaticism affecting business firms is real. The time frame for reaction is short and chaotic. This is an area where I think business education falls short - and we should ask Dr. Peterson about this as he's lived in Muslim countries. Is business as linear as an event - then a reaction? Or are there multiple players and interests surrounding the issue, each of which requires engagement. Another question is whether there's an algorithm for engaging multiple players at one time when the environment is chaotic and not stable. Interesting, no?
Instability in general is an important concern to international business. Many things can cause instability. Besides the widening of the gap between the rich and the poor, natural disasters and limited resources can cause instability. Natural disasters aren’t predicable but we can see consistently how limited resources play a key part in instability around the world, shortages of food and water, health care, oil access and shortage, etc.
It’s important to consider the limited resources when choosing a particular business to go into or deciding to open a business in a location or do business with a particular country. For example, does an input to your product have a risk of limited resources or the location/group you want to do business with involved in or suffering from limited resources, and how does your business plan need to be adjusted to accommodate that. Business can also help alleviate limited resources by creating and offering products to those previously unable to have access or afford a particular product, and make a profit (Prahalad).
Max, don't be confused. It is me. I was trying to spark the curiosity of the class to become natural and curious questioners asking questions that pertain to the class and to themselves.
I think that there are many issues in global busineses today, such as economic issues, infrastructures, cultural, and so on. However, I think that one of the most important is in the rapidly changing environment of businesses all over the world due to this globalization.
Business are in constant preasure to keep changing and adapting, as well as innovating in order to keep ahead. Companies no longer have the luxury of offer the same product of service for years to come. Now they must keep ahead of competiton and even themselves. Many companies now will release new products even if it means that they will cannabilize their own. No wonder Apple constantly releases new versions of their products even though the current version is still selling like hot cupcakes.
I understand what you write and pretty well what your thoughts are in this issue. Globalizations has already happened. The horse is out of the barn, speaking in an idiomatic phrase. The second paragraph is the one I wonder about at this stage. My thoughts are that businesses are not as fragile as some writers would assert. FSAs are developed for just that purpose - to gain a large foothold in the operational field so that adaptability is a more realistic thing in the short run. I would like to pose a thought as a way to think about the rest - yes, there is a pressure to manage organizations to be fast, flexible global, diverse and networked, but I'm not sure that means that one keeps ahead of everyone else including themselves... that sounds like time travel. The issue and this is the important point here, is in managing the organization to be stable and adaptable, setting up the processes to be able to address competition, the market, and all stakeholders in an effective manner. When Apple releases a new 'pod or 'pad it doesn't mean that everyone needs to go get a new one... it only means that Apple perceives there are some who would buy interim releases because they represent unmet market demand. In this case, Apple is using the advantages of the firm to find additional markets through continuous introduction. THere are some who will replace operating system and product with each new release, and of course, Apple is very to have that audience too.
It seems as if this is an issue in global business that can effect businesses all over the world. This is because businesses must not only follow acceptable business practices themselves, but they also must be aware of whom they are doing business with and the image of their business can be effect by other businesses such as a supplier or even a client. Labor force issues in less economically stable countries have always been an issue for many companies. One example is Nike who has been constantly criticized about their business practices due to some suppliers who used illegal labor practices in order to make their products and cut costs to keep prices low. Even though many companies are not aware of the problem in some of their suppliers, consumers are now holding these companies in a much higher level accountability. Now, I’m not sure if this type of temp labor force issue will have any significant impact on global businesses, but I think companies also must be aware and prepared for a possible problem.
OK, think of these things as dependent variables to international practices, whatever those are. Nike had a great deal of fallout, even though they ostensibly got their act together in terms of labor practices. IKEA had troubles with child labor; Hilton had troubles with the sex trade/sex slavery. Would it be fair to say that it was due to lax practices? Or would it be fair to indicate that organizational processes, set for international and domestic operations got beyond the stages of good intentions? Now, how about the issue of contingent labor in China? Is this an issue of variations in demand for Chinese products or is it an issue of workers being price takers, operating in a purely competitive marketplace? If organizations in China can push labor costs dowm more through a contingent workforce, does it have an impact on quality, price, or usefulness. That depends.. on what? How about this - China has a factor endowment of labor. When there's plenty of labor, the capitalist is prescribed to establish mechanistic processes that are the same, no matter who's doing it. In other words, one set of hands is the same as the other and both are producing goods.
Yes I can see your point, and I do realize that there can be many factor that can contribute to the demand in work force. How about the consumer themselves? How much of this issues do you think it would be contributed to the result of us as consumers demanding better products at lower prices? Can we be a driving force for this? Preasuring companies to satisfy our demands. Everyone always wants cheaper prices.
Think about this there are people standing out the doors of those factories wanting to take the jobs of others who are tired of what they are doing in the factory. We may drive down the cost of labor, but there are people waiting to take the jobs happily just to get by in the world
A considerable challenge in global business is the ability of corporations and independent nations to monitor corporate compliance with legal restrictions. A considerable amount of time is spent by corporations to make sure they are in line with laws and regulations of each country to operate in. Despite the efforts of trustworthy corporations there are companies that try to take advantage of the shear size of the global marketplace and the difficulty to monitor every business in every part of the world. There was an article recently that reported on an old world war II tanker that is floating in international waters north of England. The inhabitant of the ship has declared its sovereignty and considers itself an independent nation. The ship houses computer severs that store corporate data for several corporations in Europe. Data is transmitted remotely through a radio transmitter between the ship and England. One of the companies that was using the servers on the ship was Megaupload.com. Megaupload.com and its founder Kim Dotcom (yes, his last name is Dotcom) are currently being charged with international business fraud and copywrite infringement for allowing users to download copywrite protected information inlcuding music and movies. The company made millions of dollars. Kim Dotcom was arrested in New Zealand at his "Dotcom" mansion. This case is particularly interesting because the company's data is stored on a floating ship. As global business continues to evolve it will become increasingly difficult to monitor and regulate.
That's really interesting. I didn't know about that one at all. I suppose if a ship is outside the 200 nautical mile boundary most nations set as sovereign waters it does become tricky. One would probably have to find a crime within the criminal codes the ship sailed within or recipients of products or services from illegal activities. Copyright infringement is usually monitored and enforced by Interpol and they work to have jurisdiction through international treaties. Really interesting stories though... I gotta go look that one up!
I think that the subject raised of legalities and corporate protections is interesting. As my company develops new products we jump through expensive hoops to protect our IP. The global infringement of IP is a huge issue and has broad reaching effects.
This issue and the most daring offenders is not as elusive as it was even a few years ago but major corporations deal with infringement and counterfeit product being distributed around the world.
Preliminary issues/considerations for businesses in the global market, or those businesses considering entering the global market should start by assessing whether initiating operations will violate the laws of their prospective host countries. Problems may exist if there are insurmountable barriers to entry, severe restrictions on foreign business operations, or substantial limitations on the repatriation of profits. Barriers to entry exist in all industries. New entrants must raise capital, develop supply and distribution systems, and build customer loyalty. From a legal perspective, the barrier to entry that prospective industry participants must be concerned with is the government-granted monopoly. These monopolies exist when governments prohibit competition in certain industries or require market participants to obtain government approval that is not actually available. Common government-granted monopolies include postal systems, railroad, and public utilities. Some governments also monopolize industries that are frequently privatized, such as alcohol sales. Companies should verify that they can legally participate in their desired industries before engaging in business abroad. While all countries require US companies doing business within their borders to comply with generally applicable domestic laws, some impose additional restrictions unique to foreigners. Alien business laws place limitations on foreign business operations that do not apply to domestic companies. China’s alien business laws are a particularly stringent example. US companies may only conduct business in China through special foreign investment entities. Foreign involvement must be approved by multiple government agencies, each with their own review processes. In many other countries, alien business laws are less restrictive and may only target foreign involvement in certain industries. Companies that fail to comply with alien business laws may face criminal penalties(Guide to Doing Business). US companies often earn profits abroad with the intention of sending these funds back home. Historically, many countries limited the repatriation of profits. Though most countries have eliminated their repatriation laws, some restrictions remain. For example, Taiwan requires companies to channel ten percent of each year’s profits into a special reserve(Guide to Doing Business). These funds cannot be sent out of the country. Understanding any repatriation laws before beginning business abroad is essential to ensuring compliance from the first dollar earned.
I read an article today on cnn.com which was discussing how the United States, the European Union and Japan were filing a challenge with the WTO against China and the export restrictions they have placed on valuable and materials needed for high tech devices. The article mentions that according to the EU, China produces 97% of all these rare earth materials. These materials are used to produce flat screen TVs, hybrid car batteries, wind turbines, Phones, etc...The basis of the argument is that China has some sort of "monopoly" on the production of these goods because of the plentiful natural resources available to them. The United States wishes to lift the export restrictions on these materials so more goods can be produced in the United States. It will be very interesting to see if China will be willing to make such a compromise. The article can be found at the following link: http://edition.cnn.com/2012/03/13/world/asia/china-rare-earths-case/index.html?iid=HP_LN
I saw this. It will be very interesting to see how it comes out. The US, Japan, and the EU are the biggest filing areas in the world by far. In fact, it isn't even close. What they would be complaining about in this case (and in any case whatsoever on any thing) is that China has made governmental policy favoring the control of rare earth minerals that deprives the rest of the world. The WTO General Systems of Preferences indicates that no nation shall create hegemonic power over minerals like these. China agreed to the GSP when they joined the WTO in the late '90s and then lobbied hard to become a US most favored nation in terms of trade. They haven't been very forthcoming about this and since China makes policy within a 1 party system tat isn't terribly transparent it would be hard to make the case stick.
Fundamentally, a business is trying to create value for the customer, regardless of the country, culture, economics, etc, etc that are involved. There has been a lot of comments about all the independent variables that can affect the global business environment. It may be a bit too simplistic or idealistic, but I think that the focus should be on how to fulfill the needs of the customer (within the variables of whatever environement). Fulfilling a need creates demand. If different global market environments have different needs, then the company delivers a different product to fulfill it.
An example of this is the automobile industry. that is a global market with vastly different market variables around the globe. Yet the manufacturer are able to deliver specialized products to fit the specific markets and create value. You will find country/region specific car models that are only marketed to those areas.
Perhaps the area where the independent variables become more influential is when trying to predict the long term needs of the market so that the business can always deliver a product that creates demand.
We agree and disagree in part. There should absolutely be a “need” for whatever product/service an organization is attempting to offer or what would be the point of going through the great lengths that an organization must stumble through to become global. Identifying a “need” is first and foremost the primary factor to be considered, but following “need” there are a slew of factor to be taken into account. With that said, sometimes the “need” doesn’t outweigh the complex process of doing business abroad when an organization is boggled down with issues such as establishing its business presence abroad (legal requirements for different kinds of business presences, mergers and acquisitions involving companies in other countries); shipping goods across national borders (US import and export regulations); Employing persons in other countries (determining whom to employ abroad, setting the terms of employment, and managing its workforce in other countries); abiding by anti-corruption laws; complying with industry-specific regulations; other corporate compliance issues, economics, etc…. Identifying customer needs is of great importance, but any one of these factors listed can break a company just as easy, if not more, than identifying a need/service. Going global is a tricky business, especially in these economic times. So I guess the question becomes, is it worth it?
Interesting facts discovered while researching and reviewing articles regarding this weeks question. Oganizations MUST be in the know.
Did you know?
• Mexico: in certain parts of the country, foreigners may only acquire and hold real estate through a trust. (Mexico, supra note x, at 6).
• Canada: commercial documentation used nationwide must be available in both English and French. Regulated materials include product labels, warranty certificates, and directions for use. (Canada, Quebec: Guide to Doing Business, 42. Lex Mundi, 2011).
• Germany: management of companies with more than twenty employees must consult workers’ representatives before making decisions about lay-offs, restructuring, and other measures that affect the staff. (Germany, supra note xlvi, at 11.)
• European Union: the mere fact of a merger or acquisition itself is not permissible grounds for termination. (European Union Council Directive 2001/23/EC, Art. 4(1)2001.)
• Brazil: non-residents may not manage or own more than thirty percent of media and broadcasting companies. (Guide to Doing Business, 16. Lex Mundi 2011).
• India: foreigners may not import or export local currency. (Guide to Doing Business, 30. Lex Mundi 2011).
So, why are these things in effect? What is the political or economic or cultural or administrative reasoning that makes it sensical for those concerned. Then, how do firms arbitrage those differences for gains, and adapt to work into the equation for ROI?
I think I've broken at least one, and maybe more, of these rules. I think the rules are in effect to give the local/national firms a stronger position. This, in turn, returns more money to the people of that country.
Perhaps the end impact is to provide money to the population, and I see your point here. But across nations, look at the Ghemawat this week "differences", and I think there will be more than that at stake. Remember, national trade representatives come to the bargaining rounds at WTO, formerly GATT to settle differences in trading preferences into a generalized system of preferences that are supposed to bind the 180 or so countries that are either members or observers. Every nation has its own political economy to champion and while that is generally to promote trade either for a nation or for a group within a nation it is far from true that all member or observer nations all have their populace in their hearts. Check out the transparency index to see those that are better at transferring wealth, and those that are not.
That post reminded me of how business works in a lot of Asian companies. From what I understand, companies will buy up real estate and offer it their employees to live in their "housing". It's an interesting strategy. Many companies today feel the pressure of covering their employees with health insurance. Imagine trying to deal with managing their real estate on top of that.
This is an informative discussion as it illustrates different laws and regulations across different geographies. This could have some implications on WL Gore as it provides such a wide portfolio of products across a diverse range of industries and geographies. Take, for instance, environmental regulations and how they likely differ in strictness from country to country. One of the main materials Gore uses is fluoropolymer which has a byproduct of perfluoro-octanoic acid (PFOA). There is currently an industry wide effort to decrease the volumes of PFOA. Now I don’t know if this regulation is going to have a global standard but imagine if it doesn’t and Gore invests capital into R&D to reduce PFOA to US and European standards but is out of compliance with Asian standards. This could present various problems to a company as it could invest a lot of capital into making its products safe for one region only to be fined and penalized by another region. You have the potential to be spending and losing a lot of money and having your margins decreased. This is currently a significant threat to Gore and its competitors.
I think that some issues faced by global companies can be as many as shortage of skilled workforce for modern operations in their respective countries of investments, the pressure to reduce operations cost in face of business uncertainty over seas, intense scrutiny of Supply Chain Management function within mist organizations, further globalization of supply chains and explosion of global connectivity, continued shifting of balance of power to outsourced services providers, centralization versus decentralization, information overwhelm and activity overload, demanding customers always expecting more all the time, reduction in inventory, time, and working capital. I guess these are issues that can be faced local as well, but I thing that they are by all means enlarged in the global setting of a corporation.
I find it interesting to think about how different our world is now compared to a century ago. Our world is so much more globalized so that it is possible for two remote areas of the world, that a few years ago didn't know each other existed, to now be partners in business. I see several challenges involved in doing business in the new "globalized" world. The challenge that Dona brought up earlier is the cultural learning curves that occur. I work in marketing, and I have found that my most important tool is understanding my customers. I would be lost marketing my company's services to anywhere outside of the United States because I lack any cultural understanding outside my own culture. It can be developed, but do I or does my company have the time and ability to overcome this learning curve? I can see how a company may press through it and make some unfortunate decisions due to their lack of understanding.
On the other hand, how much more of an advantage would I or my company have if we had a superior understanding of how a culture works? I'm not sure if you can put a price tag on that type of knowledge, but if you could I am sure it would be fairly lucrative!
I think that one of the biggest issues facing global business today is human rights issues. In many countries where there is a limitless supply of cheap labor, basic human rights do not exist. I'm talking about things like access to education, equal rights for women, basic health care and child labor laws. Corporations need to be aware of the human rights issues in these countries, and I believe chose either not to do business in the countries who don't meet UN Human Rights standards or employee strict hiring and employment guidelines that ensure that employees are being treated fairly. The only way things will change is if global companies refuse to do business in countries where human rights are not upheld.
I think it’s important to bring up the importance of understanding other cultures’ language when doing business globally. I do realize that there are a lot of other issues, but this one is definitely one that can hurt a business if companies don’t pay attention to it. A classic example of this is the Chevrolet Nova that sold very poorly in the Spanish speaking market, until Chevrolet later found out that Nova meant “doesn’t go” in Spanish
It is very interesting to me that while green energy was discussed the overarching impact of global energy was missed. Energy is probably the biggest factor in global business today and thus far we aren’t doing a very good job of managing it. The US continues to put the EPA standards on the back burner. While there are other countries who take this more seriously there are others who are worse offenders in terms of per capita than we are. If we don’t start thinking about energy globally and the impact are problems in the future are going to be far worse than today. While oil seems to drive every major, government and business decision today at some point this won’t be the case
I agree that the “Green Initiative” is an issue in the world today, but it’s not one of the major ones. The reason being is that a lot of the sustainability processes are not yet cost efficient. The underdeveloped countries are having a hard time initiating the sustainability processes because of cost restraints. It’s definitely becoming more mainstream in the United States and is becoming increasingly more cost efficient due to government buy-in and incentives.
Another challenge to consider is cooperation between different governments when it comes to importing and exporting. Take, for instance, the recent trade spat over cars between Brazil and Mexico. In an article from the WSJ on 3/16/2012, Brazil was on the verge of pulling out of a trade pact with Mexico unless Mexico agreed to a put a cap on the number of cars it was exporting to Brazil. This was in part to growing unease in Brazil about the strength of the local currency. Mexico’s car exports to Brazil had increased from 53,000 units in 2009 to 134,000 units in 2011. If Brazil would have pulled out of the pact then Mexico likely would have retaliated and free trade between the 2 countries would have suffered. Fortunately, Mexico agreed to cap its exports into Brazil over the next 3 years at $1.45 billion, $1.55 billion, and $1.64 billion respectively. This would affect you greatly if you were an automobile exporter from Mexico.
An interesting article was written by Krishna Porkharel in the WSJ today that underscores the importance (and potential challenges) that governments play in international business. In summary, a Chinese company named China Three Gorges is considering shelving a $1.6 billion hydroelectric-power project in Nepal in the midst of the Nepal parliament’s investigation of whether or not the license was awarded fairly. This has huge ramifications for both countries in that China will continue to face setbacks in the region and Nepal will continue to not be able to harness huge untapped hydroelectric power from its Himalayan rivers and streams. http://online.wsj.com/article/SB10001424052702304724404577291311760939638.html?mod=googlenews_wsj
http://online.wsj.com/article/SB10001424052702304636404577290733756605886.html I thought this was an interesting article to juxtaposition with our Nokia/Finland discussion the other week. Apparently the company of Myanmar is looking into passing a new law that would allow large foreign investors to bid on telecommunications licenses in an effort to bolster the underdeveloped economy. Up to this point the Myanmar mobile phone market has been dominated by the state and local companies.
There is new kindling for this fire!! A new topic? OK, we've done great things in getting into international relations. This is important I think for it shows the important nature of international events and the possibility of the firm to be prepared for its reaction. There's not much we can do to control international events, after all. There are two topics in the course material coming into play here. First, is the CAGE test and next is the RATs test. The CAGE is that we consider relative distance culturally, administratively, geographically, and economically in determining opportunity. In the case of Iran or others I suppose we'd try to find things that were CAGE appropriate or at least not so distant as to cost too much to approach. In terms of RATs.. a topic or market should be relevant, appropriable, and transferable to our business model (or our business model is the other way - relevant, appropriable and transferable to the topic or market). How would you go about creating a schematic or metric to match CAGE and RATS to models or markets in a market for Shimano or in a country specific area like Iran?
I just want to add a few more comments in this section before moving on. Another important issue facing global businesses is the hard reality of global expansion and working from large distances. It seems to not be so much of a problem this day and age with the use of technology, but it still exists. For example, Geographic distances can be an issue facing global businesses. You have to look into the physical distance between countries, the ease of transportation, and ease of access into the country.
When looking at distance as a global business issue, economic distance needs to be mentioned as well. This represents the differences in consumer wealth, income level and distribution, infrastructure characteristics. Economic distances include cost and quality of natural, financial and human resources.
I too feel that culture plays a big role in doing business globally. As Rodrigo said "I'm from another country, and being able to live here has helped me tremendously in understanding not only how people behave, but also how the think, feel, and react to different issues." Countries react and respond differently to culture and for a business to be successful accross borders they need to be aware of those differences.
On the road towards capitalism... I read an article on the economist today which discussed how Cuba is emerging towards a capitalistic market. If this happens, it will have a big impact on the United States. For example, "As well as employing others, Cubans can now buy and sell houses and cars, even as the number of mobile phones and computers on the island is rising fast. This looks like a turning point similar to Deng Xiaoping’s revolution in China." The article can be found at: http://www.economist.com/node/21551047
I feel one of the major hurdles in conducting business globally is the ability to incorporate best practices across different locations. Looking at Gore as an example, I would think that while they operate within smaller groups to foster a creative environment there is a serious need to effectively communicate best practices and discoveries. If you have multiple people across the organization trying to solve similar problems it can causes major inefficiencies. Does Gore have a system in place that allows them to effectively communicate globally or do they purposefully keep information from each other to stay innovative?
I agree until economies of scale enter into the 'green' realm, companies cannot be truly competitive in the traditional C corp. It seems more like the trendy thing to do for major corporations than a true care for sustainability. There are companies out there like Gore who have looked to alternative corporate structures in states that allow B or benefit corporate registrations. This allows them the flexibility of pursuing sustainability without being the traditional slave to the bottom line. With this said I still think it is a global issue that businesses must not ignore.
I think one of the most important issues facing global businesses is cultural understanding. In order to successfully conduct business in a global environment businesses have to be aware of and sensitive to the cultural differences from the outset. From developing a product that meets specific cultures needs, to conducting business meeting with cross cultural groups, to production of a product on the ground, businesses need to be aware of how different cultures approach these aspects of business in order to have a lucrative relationship.
ReplyDeleteWe'll learn very quickly starting next week that culture may not be necessary or sufficient to understand these things alone. Culture, economics, language, governmental system, corruption, location of supply or distribution, competitive advantage... there's a lot. I'm going to throw culture out there, but I'm also going to say it isn't enough.
DeleteUnderstanding the culture of a foreign place of business I think is definately an important thing to know for those who are looking to conduct business in another country. I'm from another country, and being able to live here has helped me tremendously in understanding not only how people behave, but also how the think, feel, and react to different issues. This may not be the most important issue facing businesses today, but I think its definately important to be successful in global business.
DeleteI would agree. I think understanding culture is very important, but there are so many other factors companies must consider when doing business globally. For example, language, government regulations, taxation, labor conditions, wages, issues associated with varying time zones, etc. I work in the Information Technology world and often we deal with technical engineers and analysts from other parts of the world. We find ourselves facing the challenge of communication due to a language barrier. This barrier occurs on both sides of the communication line, there and here. This issue is a delicate and challenging one, but I have found in my experience if both sides work together, misinterpretation of information and miscommunication can be held at bay.
DeleteI think Dona made a good point about culture being a global business issue. The Pepsi/Asia misshape is the best example that I can think of that illustrates why understanding individual cultures is important when doing business. A few years back Pepsi lost market share in Southeast Asia when they changed their vending machines from deep blue to light blue. Pepsi at the time did not do their homework on understanding the culture in that area. If they did do their homework they would have known that light blue is the symbol of death in that area. The moral of this story is that cultures are different from place to place and you can’t always use a one size fits all model.
DeleteAnother example of why culture is a global issue in business is the differences other cultures have with intellectual property rights. Intellectual property in the USA is viewed very differently in China. The Chinese believe that ounce a product resides it should be available to the entire community. You can definitely see that when you go to china. I remember going to the Silk Market in Beijing and being blown away that they were selling “knock-off” Apple Products (e.g. I-Pod, I-phone, I-Pad). Companies definitely need to think twice before offering their products globally.
DeleteI absolutely agree it is interesting to think about how cultures differ and the business impact. A company that comes to mind for me is Coca-Cola. They have a significant global presence but they are not uniform across the world. Have you ever had an Australian coke? It is nothing like the can you crack open in the US, not to mention it will run you about $3 US. How about a Mexican bottled coke? These are the best in my opinion they still use sugar cane instead of high fructose corn syrup like the US. I think this is a good example of what we look at as a simple product that would translate across the world can be viewed so differently.
DeleteGoing Global though is where you want to take your products and business. You want people around the world to experience what you have to offer. Also the point of a business is to make money and expand your footprint, if you are scared to go global then you will not be a successful business in a global economy.
DeleteWith the rise in technology trends are no longer lasting 20 years (the CD etc) they are lasting months or even days and they are getting cheaper due to global access. I remember reading an article about shrinking costs as trend demand consumption goes up and up prices come down. Since 2007 housing crisis, are demanding more for every penny that they spend and can expect that due to global access to information
DeleteOne of the main issues of business that has been argued for decades is the theory of Corporate social responsibility. It has been debated by many that corporations should and must exercise social responsibility, while others such as Milton Friedman, have argued that so long as a business is abiding by governmental regulations, there is no other corporate responsibility except to make profits for those invested in the business.
ReplyDeleteIn just about everything I read, I see this issue surface on a daily basis. A few examples: the ever-popular "going green" trend and environmental responsibility of corporations, or the questioning of who Apple uses to manufacture their parts in Asia and how employees in those factories are treated, or debate about drilling gas and oil in America and whether that is better or worse than purchasing it from the untrustworthy OPEC nations.
These are ever important issues as the impact of these decisions affect so many lives in so many ways both for good and for bad and unfortunately, it seems that easy answers are always elusive.
Oh, and where do I want to go today? I would love to go to Hawaii and hang out in the surf, but it's not gonna happen :(
The "Going Green" trend is an interesting phenomenon in global business strategy. There are those who lead the trend based on a moral compass and those who follow the trend based on moral pressure. To a select few companies, they are leading the trend because of a personal or corporate responsibility felt to sustainability and impact. The rest of the movement is made up of followers looking to capitalize on and market focused on a new trend. Most of their socially responsible expenditures and efforts are itemized under the marketing budget. Ultimately a business is sustained only by their customers, not by their level of social responsibility. Social responsibility of business may be important but the business must have a product that creates value and a customer. Many social entrepreneurship ventures fail from not being able to create a sustained customer base. The Social responsibility of business seems (with rare exception)to only go as far as society is willing to pay. The customer must feel enough of their own social responsibility to pay a premium for the product. So far, most of society likes the idea of sustainability but is not willing to pay a premium for it.
DeleteRich,
DeleteI like your take on the Going Green trend. Thanks for sharing. As I was thinking about what you have said, it made me think of Sun Chips and their totally compostable bags that were louder than your dishwasher. Enough consumers complained that they had to pull the idea off the shelf and go back to the old bag. According to WSJ, they are still committed to finding a compostable bag that is much quieter, but haven't yet discovered it yet. Here's the link. http://online.wsj.com/article/SB10001424052748703843804575534182403878708.html
Corporations do have a social responsiblity, but their bigger responsibility is to their investors. I know going green was a huge marketing plore and seemed to be temporary as we do not hear muich about it today. Are buniesses even focused on being green any longer or are they back to focusing on the bottom line? Going green is not a cheap way to operate and cuts deep into the pockets of investors. This may be why we have seen a huge push to outsource manufacturing to other countries. Being green there does not matter.
DeleteI feel Rich makes an interesting point at the end of his statement where he references the social responsibility of the consumer. I would like to think that organizations want to do the right thing by “going green” or treating their employee’s right, however I understand their fear of losing an advantage by doing just that. Consumers are always looking for the cheapest products rather than how ethical the organization is that put the product on the shelf at the cheapest cost to the consumer. Consumer purchasing behavior is the lifeblood of the organization and it won’t be until consumers become more responsible buyers that corporations will be incentivized to be more socially responsible.
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DeleteHawaii would be good... rethink your Friedman for he isn't as conservative wing as he gets blamed for. The issues you see are good ones. But how about these? There's a growing lack of trust in business, globalization seems to be flattening out, the influence of China is going a different way than we thought, our resources continue to feel strain, there's very likely to be a bigger international role for government, our views of management as a science are trending to management as a chaotic endeavor, there are shifting consumption patterns to emerging nations, and domestic industries are taking new shape from the corporate manufacturing to the service and intellectual property-innovation one. Add into that that price stability is coming into question with some inflation, but some deflation especially in the consumer products and electronics markets. What's going on here and where would you like to go to find out?
ReplyDeleteI think one of the current issues facing global businesses is global economic stability and ensuring that the state of the economy can support continued demand for a company's product. There has been quite a shift in recent years in the distribution of wealth. Business models that once worked may not be such a sure thing anymore. Pete, above, touched upon shifting consumption patterns.
ReplyDeleteAn example of this is China. The business strategy has been to manufacture goods cheaply in China and sell the products to the affluent Americans. However, with the down economy in the US and the squeeze on the middle class, consumption by Americans has been affected; while the middle class in China has been growing and consumption has increased. Labor in the US has also become cheaper while labor costs in China has been increasing. I read an article a few days ago that there is a slow trickle of companies moving their manufacturing processes back to the US because it is no longer cost effective to manufacture overseas.
I think in the long term, as we move towards a more global economy, there will be a smoothing effect between consumption and wages of individual countries. So the question is how does this affect the long term strategy of a business? How does a firm determine if the current cheap labor costs in one country will sustain for a long enough period to recover the capital investments made in that country? What investments should a company be making in a country where it sells its products to ensure that the economy remains stable enough to support continued demand for its product?
I like the main thesis you're posing. How to outside events affect a firm's strategy.... The independent variable of outside events and dependent variable of strategy is at the heart of things. To use a visual metaphor however, I would like to create the image of a fish flopping about on the shore - open to its environment and vulnerable. Firms are not these fish. In reading Verbeke through 5 I think there are identification of firm specific advantages that assist the corporation and SME in dealing with uncertainties and with environmental conditions. These are the mediating adn moderation variables that prevent great variance in performance and accentuation of value chain activities that produce margin (and value). Yes, there's a global economy, pretty well developed already. Will there be a smoothing effect? Perhaps not as the conditions within each subject are vastly different according to culture, economy, geography, government, and corruption.
DeleteDawn and Pete - redistribution of wealth was mentioned. I have seen numbers that indicate the middle class, world wide, are slowing dividing into upper or lower class. Especially within the US, the middle class, which supports the poor and works for the rich, is the shrinking fast. T
DeleteIf this trend is fact, then combine it with the tendency for every revolution to be perpetrated by unemployed/unmarried men between the ages of 16 and 30. These two factors indicate to me that we will see more and more international instability. This instability is a key issue facing international firms today.
I do appreciate what you write. The economic environment, or state of it, does predict a degree of instability in terms of political activity, either peaceful or violent. I wonder whether it's a leap of faith to indicate the widening split of the middle class on a worldwide basis, especially since governments and larger organizations like the UN and the World Trade Organization are trying to help nations build middle class taxpaying groups. I saw the WTO Generalized System of Preference for trade as having a priority for developing a managerial or industrial or entrepreneurial class just for the purpose of nation building. On the other hand The Economist indicated the shrinking middle class was a concern esp since the middles consume large proportions of consumer goods. Without that consumption, economies would tend to slow and the reaction would come. Let's take two examples: first the US: recently, unemployment in the economy has slowed consumer confidence and purchasing. I believe this led to a condition of deflation where goods are sold continuously closer to variable cost, if not below. This also leads to unemployment since manufacturers cannot produce at this price without cutting costs and labor.
DeleteThe second issue is this: I'm not sure that the unemployed unmarried male 16-30 demographic is the only demographic to blame. To be fair, they contribute. The years of unemployment and economic deprivation, especially in sight of shopping malls and consumer goods, has built a sense of learned helplessness and over time a reaction of fanaticism. There was a lecture in the Fall here by a former ambassador who tried to give a speech warning of increasing Islamic fundamentalism in sub-Saharan Africa and the beginning of what we've been seeing in the middle east and with Al-Qaeda (sp?). The dependent variable, of fanaticism affecting business firms is real. The time frame for reaction is short and chaotic. This is an area where I think business education falls short - and we should ask Dr. Peterson about this as he's lived in Muslim countries. Is business as linear as an event - then a reaction? Or are there multiple players and interests surrounding the issue, each of which requires engagement. Another question is whether there's an algorithm for engaging multiple players at one time when the environment is chaotic and not stable. Interesting, no?
Instability in general is an important concern to international business. Many things can cause instability. Besides the widening of the gap between the rich and the poor, natural disasters and limited resources can cause instability. Natural disasters aren’t predicable but we can see consistently how limited resources play a key part in instability around the world, shortages of food and water, health care, oil access and shortage, etc.
DeleteIt’s important to consider the limited resources when choosing a particular business to go into or deciding to open a business in a location or do business with a particular country. For example, does an input to your product have a risk of limited resources or the location/group you want to do business with involved in or suffering from limited resources, and how does your business plan need to be adjusted to accommodate that. Business can also help alleviate limited resources by creating and offering products to those previously unable to have access or afford a particular product, and make a profit (Prahalad).
What do you mean by, "we should ask Dr. Peterson?" Are you not the Dr. Peterson of which you speak? Max is confused.
DeleteMax, don't be confused. It is me. I was trying to spark the curiosity of the class to become natural and curious questioners asking questions that pertain to the class and to themselves.
DeleteI think that there are many issues in global busineses today, such as economic issues, infrastructures, cultural, and so on. However, I think that one of the most important is in the rapidly changing environment of businesses all over the world due to this globalization.
ReplyDeleteBusiness are in constant preasure to keep changing and adapting, as well as innovating in order to keep ahead. Companies no longer have the luxury of offer the same product of service for years to come. Now they must keep ahead of competiton and even themselves. Many companies now will release new products even if it means that they will cannabilize their own. No wonder Apple constantly releases new versions of their products even though the current version is still selling like hot cupcakes.
I understand what you write and pretty well what your thoughts are in this issue. Globalizations has already happened. The horse is out of the barn, speaking in an idiomatic phrase. The second paragraph is the one I wonder about at this stage. My thoughts are that businesses are not as fragile as some writers would assert. FSAs are developed for just that purpose - to gain a large foothold in the operational field so that adaptability is a more realistic thing in the short run. I would like to pose a thought as a way to think about the rest - yes, there is a pressure to manage organizations to be fast, flexible global, diverse and networked, but I'm not sure that means that one keeps ahead of everyone else including themselves... that sounds like time travel. The issue and this is the important point here, is in managing the organization to be stable and adaptable, setting up the processes to be able to address competition, the market, and all stakeholders in an effective manner. When Apple releases a new 'pod or 'pad it doesn't mean that everyone needs to go get a new one... it only means that Apple perceives there are some who would buy interim releases because they represent unmet market demand. In this case, Apple is using the advantages of the firm to find additional markets through continuous introduction. THere are some who will replace operating system and product with each new release, and of course, Apple is very to have that audience too.
DeleteI might sound ignorant asking this, but I am wondering what an FSA is.
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DeleteI am also looking for the appropriate definition of an FSA. I'm pretty sure he didn't mean Farm Subsidy Alliance or Flexible Spending Account.
DeleteIf you look on page 4 of the Alain Verbeke book you'll find the description. It stands for firm-specific advantages.
DeleteFirm-Specific Advantages (Verbeke, p. 4)
DeleteTake a quick look at this article:
ReplyDeletehttp://origin-www.businessweek.com/articles/2012-03-08/why-chinas-factories-are-turning-to-temp-workers
It seems as if this is an issue in global business that can effect businesses all over the world. This is because businesses must not only follow acceptable business practices themselves, but they also must be aware of whom they are doing business with and the image of their business can be effect by other businesses such as a supplier or even a client.
Labor force issues in less economically stable countries have always been an issue for many companies. One example is Nike who has been constantly criticized about their business practices due to some suppliers who used illegal labor practices in order to make their products and cut costs to keep prices low. Even though many companies are not aware of the problem in some of their suppliers, consumers are now holding these companies in a much higher level accountability. Now, I’m not sure if this type of temp labor force issue will have any significant impact on global businesses, but I think companies also must be aware and prepared for a possible problem.
OK, think of these things as dependent variables to international practices, whatever those are. Nike had a great deal of fallout, even though they ostensibly got their act together in terms of labor practices. IKEA had troubles with child labor; Hilton had troubles with the sex trade/sex slavery. Would it be fair to say that it was due to lax practices? Or would it be fair to indicate that organizational processes, set for international and domestic operations got beyond the stages of good intentions? Now, how about the issue of contingent labor in China? Is this an issue of variations in demand for Chinese products or is it an issue of workers being price takers, operating in a purely competitive marketplace? If organizations in China can push labor costs dowm more through a contingent workforce, does it have an impact on quality, price, or usefulness. That depends.. on what? How about this - China has a factor endowment of labor. When there's plenty of labor, the capitalist is prescribed to establish mechanistic processes that are the same, no matter who's doing it. In other words, one set of hands is the same as the other and both are producing goods.
ReplyDeleteYes I can see your point, and I do realize that there can be many factor that can contribute to the demand in work force. How about the consumer themselves? How much of this issues do you think it would be contributed to the result of us as consumers demanding better products at lower prices? Can we be a driving force for this? Preasuring companies to satisfy our demands. Everyone always wants cheaper prices.
DeleteThink about this there are people standing out the doors of those factories wanting to take the jobs of others who are tired of what they are doing in the factory. We may drive down the cost of labor, but there are people waiting to take the jobs happily just to get by in the world
DeleteA considerable challenge in global business is the ability of corporations and independent nations to monitor corporate compliance with legal restrictions. A considerable amount of time is spent by corporations to make sure they are in line with laws and regulations of each country to operate in. Despite the efforts of trustworthy corporations there are companies that try to take advantage of the shear size of the global marketplace and the difficulty to monitor every business in every part of the world. There was an article recently that reported on an old world war II tanker that is floating in international waters north of England. The inhabitant of the ship has declared its sovereignty and considers itself an independent nation. The ship houses computer severs that store corporate data for several corporations in Europe. Data is transmitted remotely through a radio transmitter between the ship and England. One of the companies that was using the servers on the ship was Megaupload.com. Megaupload.com and its founder Kim Dotcom (yes, his last name is Dotcom) are currently being charged with international business fraud and copywrite infringement for allowing users to download copywrite protected information inlcuding music and movies. The company made millions of dollars. Kim Dotcom was arrested in New Zealand at his "Dotcom" mansion. This case is particularly interesting because the company's data is stored on a floating ship. As global business continues to evolve it will become increasingly difficult to monitor and regulate.
ReplyDeleteThat's really interesting. I didn't know about that one at all. I suppose if a ship is outside the 200 nautical mile boundary most nations set as sovereign waters it does become tricky. One would probably have to find a crime within the criminal codes the ship sailed within or recipients of products or services from illegal activities. Copyright infringement is usually monitored and enforced by Interpol and they work to have jurisdiction through international treaties. Really interesting stories though... I gotta go look that one up!
DeleteI think that the subject raised of legalities and corporate protections is interesting. As my company develops new products we jump through expensive hoops to protect our IP. The global infringement of IP is a huge issue and has broad reaching effects.
DeleteThis issue and the most daring offenders is not as elusive as it was even a few years ago but major corporations deal with infringement and counterfeit product being distributed around the world.
Preliminary issues/considerations for businesses in the global market, or those businesses considering entering the global market should start by assessing whether initiating operations will violate the laws of their prospective host countries. Problems may exist if there are insurmountable barriers to entry, severe restrictions on foreign business operations, or substantial limitations on the repatriation of profits.
ReplyDeleteBarriers to entry exist in all industries. New entrants must raise capital, develop supply and distribution systems, and build customer loyalty. From a legal perspective, the barrier to entry that prospective industry participants must be concerned with is the government-granted monopoly. These monopolies exist when governments prohibit competition in certain industries or require market participants to obtain government approval that is not actually available. Common government-granted monopolies include postal systems, railroad, and public utilities. Some governments also monopolize industries that are frequently privatized, such as alcohol sales. Companies should verify that they can legally participate in their desired industries before engaging in business abroad.
While all countries require US companies doing business within their borders to comply with generally applicable domestic laws, some impose additional restrictions unique to foreigners. Alien business laws place limitations on foreign business operations that do not apply to domestic companies. China’s alien business laws are a particularly stringent example. US companies may only conduct business in China through special foreign investment entities. Foreign involvement must be approved by multiple government agencies, each with their own review processes. In many other countries, alien business laws are less restrictive and may only target foreign involvement in certain industries. Companies that fail to comply with alien business laws may face criminal penalties(Guide to Doing Business).
US companies often earn profits abroad with the intention of sending these funds back home. Historically, many countries limited the repatriation of profits. Though most countries have eliminated their repatriation laws, some restrictions remain. For example, Taiwan requires companies to channel ten percent of each year’s profits into a special reserve(Guide to Doing Business).
These funds cannot be sent out of the country. Understanding any repatriation laws before beginning business abroad is essential to ensuring compliance from the first dollar earned.
So I guess our answer in short is compliance.
Team: J. Ames & L. Hannig
I read an article today on cnn.com which was discussing how the United States, the European Union and Japan were filing a challenge with the WTO against China and the export restrictions they have placed on valuable and materials needed for high tech devices. The article mentions that according to the EU, China produces 97% of all these rare earth materials. These materials are used to produce flat screen TVs, hybrid car batteries, wind turbines, Phones, etc...The basis of the argument is that China has some sort of "monopoly" on the production of these goods because of the plentiful natural resources available to them. The United States wishes to lift the export restrictions on these materials so more goods can be produced in the United States. It will be very interesting to see if China will be willing to make such a compromise. The article can be found at the following link: http://edition.cnn.com/2012/03/13/world/asia/china-rare-earths-case/index.html?iid=HP_LN
ReplyDeleteI saw this. It will be very interesting to see how it comes out. The US, Japan, and the EU are the biggest filing areas in the world by far. In fact, it isn't even close. What they would be complaining about in this case (and in any case whatsoever on any thing) is that China has made governmental policy favoring the control of rare earth minerals that deprives the rest of the world. The WTO General Systems of Preferences indicates that no nation shall create hegemonic power over minerals like these. China agreed to the GSP when they joined the WTO in the late '90s and then lobbied hard to become a US most favored nation in terms of trade. They haven't been very forthcoming about this and since China makes policy within a 1 party system tat isn't terribly transparent it would be hard to make the case stick.
DeleteFundamentally, a business is trying to create value for the customer, regardless of the country, culture, economics, etc, etc that are involved. There has been a lot of comments about all the independent variables that can affect the global business environment. It may be a bit too simplistic or idealistic, but I think that the focus should be on how to fulfill the needs of the customer (within the variables of whatever environement). Fulfilling a need creates demand. If different global market environments have different needs, then the company delivers a different product to fulfill it.
ReplyDeleteAn example of this is the automobile industry. that is a global market with vastly different market variables around the globe. Yet the manufacturer are able to deliver specialized products to fit the specific markets and create value. You will find country/region specific car models that are only marketed to those areas.
Perhaps the area where the independent variables become more influential is when trying to predict the long term needs of the market so that the business can always deliver a product that creates demand.
We agree and disagree in part. There should absolutely be a “need” for whatever product/service an organization is attempting to offer or what would be the point of going through the great lengths that an organization must stumble through to become global. Identifying a “need” is first and foremost the primary factor to be considered, but following “need” there are a slew of factor to be taken into account. With that said, sometimes the “need” doesn’t outweigh the complex process of doing business abroad when an organization is boggled down with issues such as establishing its business presence abroad (legal requirements for different kinds of business presences, mergers and acquisitions involving companies in other countries); shipping goods across national borders (US import and export regulations); Employing persons in other countries (determining whom to employ abroad, setting the terms of employment, and managing its workforce in other countries); abiding by anti-corruption laws; complying with industry-specific regulations; other corporate compliance issues, economics, etc…. Identifying customer needs is of great importance, but any one of these factors listed can break a company just as easy, if not more, than identifying a need/service. Going global is a tricky business, especially in these economic times. So I guess the question becomes, is it worth it?
DeleteInteresting facts discovered while researching and reviewing articles regarding this weeks question. Oganizations MUST be in the know.
ReplyDeleteDid you know?
• Mexico: in certain parts of the country, foreigners may only acquire and hold real estate through a trust. (Mexico, supra note x, at 6).
• Canada: commercial documentation used nationwide must be available in both English and French. Regulated materials include product labels, warranty certificates, and directions for use. (Canada, Quebec: Guide to Doing Business, 42. Lex Mundi, 2011).
• Germany: management of companies with more than twenty employees must consult workers’ representatives before making decisions about lay-offs, restructuring, and other measures that affect the staff. (Germany, supra note xlvi, at 11.)
• European Union: the mere fact of a merger or acquisition itself is not permissible grounds for termination. (European Union Council Directive 2001/23/EC, Art. 4(1)2001.)
• Brazil: non-residents may not manage or own more than thirty percent of media and broadcasting companies. (Guide to Doing Business, 16. Lex Mundi 2011).
• India: foreigners may not import or export local currency. (Guide to Doing Business, 30. Lex Mundi 2011).
So, why are these things in effect? What is the political or economic or cultural or administrative reasoning that makes it sensical for those concerned. Then, how do firms arbitrage those differences for gains, and adapt to work into the equation for ROI?
DeleteI think I've broken at least one, and maybe more, of these rules. I think the rules are in effect to give the local/national firms a stronger position. This, in turn, returns more money to the people of that country.
DeletePerhaps the end impact is to provide money to the population, and I see your point here. But across nations, look at the Ghemawat this week "differences", and I think there will be more than that at stake. Remember, national trade representatives come to the bargaining rounds at WTO, formerly GATT to settle differences in trading preferences into a generalized system of preferences that are supposed to bind the 180 or so countries that are either members or observers. Every nation has its own political economy to champion and while that is generally to promote trade either for a nation or for a group within a nation it is far from true that all member or observer nations all have their populace in their hearts. Check out the transparency index to see those that are better at transferring wealth, and those that are not.
DeleteThat post reminded me of how business works in a lot of Asian companies. From what I understand, companies will buy up real estate and offer it their employees to live in their "housing". It's an interesting strategy. Many companies today feel the pressure of covering their employees with health insurance. Imagine trying to deal with managing their real estate on top of that.
DeleteThis is an informative discussion as it illustrates different laws and regulations across different geographies. This could have some implications on WL Gore as it provides such a wide portfolio of products across a diverse range of industries and geographies. Take, for instance, environmental regulations and how they likely differ in strictness from country to country. One of the main materials Gore uses is fluoropolymer which has a byproduct of perfluoro-octanoic acid (PFOA). There is currently an industry wide effort to decrease the volumes of PFOA. Now I don’t know if this regulation is going to have a global standard but imagine if it doesn’t and Gore invests capital into R&D to reduce PFOA to US and European standards but is out of compliance with Asian standards. This could present various problems to a company as it could invest a lot of capital into making its products safe for one region only to be fined and penalized by another region. You have the potential to be spending and losing a lot of money and having your margins decreased. This is currently a significant threat to Gore and its competitors.
DeleteI think that some issues faced by global companies can be as many as shortage of skilled workforce for modern operations in their respective countries of investments, the pressure to reduce operations cost in face of business uncertainty over seas, intense scrutiny of Supply Chain Management function within mist organizations, further globalization of supply chains and explosion of global connectivity, continued shifting of balance of power to outsourced services providers, centralization versus decentralization, information overwhelm and activity overload, demanding customers always expecting more all the time, reduction in inventory, time, and working capital. I guess these are issues that can be faced local as well, but I thing that they are by all means enlarged in the global setting of a corporation.
ReplyDeleteI find it interesting to think about how different our world is now compared to a century ago. Our world is so much more globalized so that it is possible for two remote areas of the world, that a few years ago didn't know each other existed, to now be partners in business. I see several challenges involved in doing business in the new "globalized" world. The challenge that Dona brought up earlier is the cultural learning curves that occur. I work in marketing, and I have found that my most important tool is understanding my customers. I would be lost marketing my company's services to anywhere outside of the United States because I lack any cultural understanding outside my own culture. It can be developed, but do I or does my company have the time and ability to overcome this learning curve? I can see how a company may press through it and make some unfortunate decisions due to their lack of understanding.
ReplyDeleteOn the other hand, how much more of an advantage would I or my company have if we had a superior understanding of how a culture works? I'm not sure if you can put a price tag on that type of knowledge, but if you could I am sure it would be fairly lucrative!
I think that one of the biggest issues facing global business today is human rights issues. In many countries where there is a limitless supply of cheap labor, basic human rights do not exist. I'm talking about things like access to education, equal rights for women, basic health care and child labor laws. Corporations need to be aware of the human rights issues in these countries, and I believe chose either not to do business in the countries who don't meet UN Human Rights standards or employee strict hiring and employment guidelines that ensure that employees are being treated fairly. The only way things will change is if global companies refuse to do business in countries where human rights are not upheld.
ReplyDeleteOk Lindsey, we're using your comment in class to make a point that posting is a very difficult process........Dr. Doug (give me credit for the post!)
DeleteI think it’s important to bring up the importance of understanding other cultures’ language when doing business globally. I do realize that there are a lot of other issues, but this one is definitely one that can hurt a business if companies don’t pay attention to it. A classic example of this is the Chevrolet Nova that sold very poorly in the Spanish speaking market, until Chevrolet later found out that Nova meant “doesn’t go” in Spanish
ReplyDeleteIt is very interesting to me that while green energy was discussed the overarching impact of global energy was missed. Energy is probably the biggest factor in global business today and thus far we aren’t doing a very good job of managing it. The US continues to put the EPA standards on the back burner. While there are other countries who take this more seriously there are others who are worse offenders in terms of per capita than we are. If we don’t start thinking about energy globally and the impact are problems in the future are going to be far worse than today. While oil seems to drive every major, government and business decision today at some point this won’t be the case
ReplyDeleteI agree that the “Green Initiative” is an issue in the world today, but it’s not one of the major ones. The reason being is that a lot of the sustainability processes are not yet cost efficient. The underdeveloped countries are having a hard time initiating the sustainability processes because of cost restraints. It’s definitely becoming more mainstream in the United States and is becoming increasingly more cost efficient due to government buy-in and incentives.
ReplyDeleteAnother challenge to consider is cooperation between different governments when it comes to importing and exporting. Take, for instance, the recent trade spat over cars between Brazil and Mexico. In an article from the WSJ on 3/16/2012, Brazil was on the verge of pulling out of a trade pact with Mexico unless Mexico agreed to a put a cap on the number of cars it was exporting to Brazil. This was in part to growing unease in Brazil about the strength of the local currency. Mexico’s car exports to Brazil had increased from 53,000 units in 2009 to 134,000 units in 2011. If Brazil would have pulled out of the pact then Mexico likely would have retaliated and free trade between the 2 countries would have suffered. Fortunately, Mexico agreed to cap its exports into Brazil over the next 3 years at $1.45 billion, $1.55 billion, and $1.64 billion respectively. This would affect you greatly if you were an automobile exporter from Mexico.
ReplyDeleteAn interesting article was written by Krishna Porkharel in the WSJ today that underscores the importance (and potential challenges) that governments play in international business. In summary, a Chinese company named China Three Gorges is considering shelving a $1.6 billion hydroelectric-power project in Nepal in the midst of the Nepal parliament’s investigation of whether or not the license was awarded fairly. This has huge ramifications for both countries in that China will continue to face setbacks in the region and Nepal will continue to not be able to harness huge untapped hydroelectric power from its Himalayan rivers and streams.
Deletehttp://online.wsj.com/article/SB10001424052702304724404577291311760939638.html?mod=googlenews_wsj
http://online.wsj.com/article/SB10001424052702304636404577290733756605886.html
ReplyDeleteI thought this was an interesting article to juxtaposition with our Nokia/Finland discussion the other week. Apparently the company of Myanmar is looking into passing a new law that would allow large foreign investors to bid on telecommunications licenses in an effort to bolster the underdeveloped economy. Up to this point the Myanmar mobile phone market has been dominated by the state and local companies.
Is there another piece of kindling for this fire of a blog? Does anyone have something interesting to say about Shimano?
ReplyDeleteThere is new kindling for this fire!! A new topic?
ReplyDeleteOK, we've done great things in getting into international relations. This is important I think for it shows the important nature of international events and the possibility of the firm to be prepared for its reaction. There's not much we can do to control international events, after all. There are two topics in the course material coming into play here. First, is the CAGE test and next is the RATs test. The CAGE is that we consider relative distance culturally, administratively, geographically, and economically in determining opportunity. In the case of Iran or others I suppose we'd try to find things that were CAGE appropriate or at least not so distant as to cost too much to approach. In terms of RATs.. a topic or market should be relevant, appropriable, and transferable to our business model (or our business model is the other way - relevant, appropriable and transferable to the topic or market). How would you go about creating a schematic or metric to match CAGE and RATS to models or markets in a market for Shimano or in a country specific area like Iran?
I just want to add a few more comments in this section before moving on. Another important issue facing global businesses is the hard reality of global expansion and working from large distances. It seems to not be so much of a problem this day and age with the use of technology, but it still exists. For example, Geographic distances can be an issue facing global businesses. You have to look into the physical distance between countries, the ease of transportation, and ease of access into the country.
ReplyDeleteWhen looking at distance as a global business issue, economic distance needs to be mentioned as well. This represents the differences in consumer wealth, income level and distribution, infrastructure characteristics. Economic distances include cost and quality of natural, financial and human resources.
ReplyDeleteI too feel that culture plays a big role in doing business globally. As Rodrigo said "I'm from another country, and being able to live here has helped me tremendously in understanding not only how people behave, but also how the think, feel, and react to different issues." Countries react and respond differently to culture and for a business to be successful accross borders they need to be aware of those differences.
ReplyDeleteOn the road towards capitalism...
ReplyDeleteI read an article on the economist today which discussed how Cuba is emerging towards a capitalistic market. If this happens, it will have a big impact on the United States. For example, "As well as employing others, Cubans can now buy and sell houses and cars, even as the number of mobile phones and computers on the island is rising fast. This looks like a turning point similar to Deng Xiaoping’s revolution in China." The article can be found at: http://www.economist.com/node/21551047
I feel one of the major hurdles in conducting business globally is the ability to incorporate best practices across different locations. Looking at Gore as an example, I would think that while they operate within smaller groups to foster a creative environment there is a serious need to effectively communicate best practices and discoveries. If you have multiple people across the organization trying to solve similar problems it can causes major inefficiencies. Does Gore have a system in place that allows them to effectively communicate globally or do they purposefully keep information from each other to stay innovative?
ReplyDeleteI agree until economies of scale enter into the 'green' realm, companies cannot be truly competitive in the traditional C corp. It seems more like the trendy thing to do for major corporations than a true care for sustainability. There are companies out there like Gore who have looked to alternative corporate structures in states that allow B or benefit corporate registrations. This allows them the flexibility of pursuing sustainability without being the traditional slave to the bottom line. With this said I still think it is a global issue that businesses must not ignore.
ReplyDelete