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Chapter 03 - Doing Business in Global Markets
3-16
test
prep
PPT 3-23
Test Prep
TEST PREP
3-23
• What are two of the main arguments favoring the
expansion of U.S. businesses into global
markets?
• What’s comparative advantage, and what are
some examples of this concept at work in the
United States?
• How are a nation’s balance of trade and balance
of payments determined?
• What’s meant by dumping in global trade?
PPT 3-24
Key Strategies for Reaching Global
Markets
TEXT FIGURE 3.4
Strategies for Reaching Global Markets
Least Amount of commitment, control, risk and profit potential Most
Licensing Exporting Franchising Contract
Manufacturing
International
joint ventures
and strategic
alliances
Foreign
direct
investment
KEY STRATEGIES for REACHING
GLOBAL MARKETS
3-24
LO 3-3
PPT 3-25
Licensing
LICENSING
3-25
LO 3-3
• Licensing -- When a firm (licensor) provides the
right to manufacture its product or use its trademark to
a foreign company (licensee) for a fee (royalty).
• Licensing can benefit a firm by:
- Gaining revenues it wouldn’t have otherwise
generated.
- Spending little or no money to produce or market
their products.
Chapter 03 - Doing Business in Global Markets
3-17
c. If the foreign licensee learns the technology,
it may break the agreement and begin to
produce a similar product on its own.
C. EXPORTING
1. The Department of Commerce created EXPORT
ASSISTANCE CENTERS (EACs) to provide
hands-on exporting assistance and trade-
finance support for small and medium-sized
businesses.
2. An EAC network exists in more than 100 U.S.
cities and 80 countries.
3. To overcome small firms’ reluctance, EXPORT-
TRADING COMPANIES can match buyers and
sellers from different countries.
4. An export-trading company is a good place to
get career training in global trade.
D. FRANCHISING
1. FRANCHISING is a contractual arrangement
whereby someone with a good idea for a busi-
ness sells the rights to use the business name.
2. Franchising is popular both domestically and in
global markets.
3. Examples: Subway, Holiday Inn, and Dunkin’
Donuts.
4. Franchisers must adapt in the countries they
serve.
5. Domino’s Pizza found that Japanese people en-
joyed squid and sweet mayonnaise pizza.
E. CONTRACT MANUFACTURING
1. CONTRACT MANUFACTURING involves a for-
Chapter 03 - Doing Business in Global Markets
3-18
PPT 3-26
Export Assistance Centers and Ex-
port Trading Centers
EXPORT ASSISTANCE CENTERS
and EXPORT TRADING CENTERS
3-26
LO 3-3
• EACs provide hands-on exporting assistance and
trade-finance support for small and medium-sized
businesses that wish to directly export goods and
services.
• ETCs help companies engage in indirect
exporting by:
- Matching buyers and sellers.
- Dealing with foreign customs offices,
documentation, and conversions.
PPT 3-27
Franchising
FRANCHISING
3-27
LO 3-3
• Franchising -- A contractual agreement whereby
someone with a good idea for a business sells others
the rights to use the name and sell a product/service
in a given area.
• Franchisors need to be careful to adapt their
product to the countries they serve.
• Yum! Brands, home of KFC, Taco Bell and
Pizza Hut, learned that food preferences differ all
around the world.
lecture enhancer 3-3
CHIPOTLE STRUGGLES IN THE UK
While Mexican food is far from foreign with young English
citizens, Chipotle isn’t faring as well as other restaurants.
(See the complete lecture enhancer on page 3.78 of this manu-
al.)
PPT 3-28
Time to Make the Donuts . . .
Source:WorldFeaturesSyndicate.
TIME to MAKE the DONUTS…
Dunkin’ Donuts Flavors in Taiwan
3-28
PhotoCredit:DennisYang
LO 3-3
• Sweet Potato
• Honeydew Melon
• Green Apple
• Kiwi Fruit
• Mango
• Pineapple
• Strawberry
• Corn Crumb Soft Rice Cake
Chapter 03 - Doing Business in Global Markets
3-19
eign country’s production of private-label goods
to which a domestic company then attaches its
brand name or trademark; also called outsourc-
ing (text examples: Dell, Xerox, and IBM).
2. By using contract manufacturing a company can
often experiment in a new market WITHOUT
HEAVY START-UP COSTS.
3. A firm can also use contract manufacturing tem-
porarily to MEET AN UNEXPECTED IN-
CREASE IN ORDERS.
4. Also, labor costs are low.
F. INTERNATIONAL JOINT VENTURES AND STRA-
TEGIC ALLIANCES
1. A JOINT VENTURE is a partnership in which
two or more companies (often from different
countries) join to undertake a major project.
2. The text offers the example of the joint venture
between Disney and Shanghai Shendi Group.
3. A unique joint venture is that between University
of Pittsburgh and the government of Italy to build
a medical transplant center in Sicily.
4. The BENEFITS of joint venture:
a. Shared technology and risk
b. Shared marketing and management exper-
tise
c. Entry into markets where foreign companies
are not allowed unless their goods are pro-
duced locally
5. The DRAWBACKS:
Chapter 03 - Doing Business in Global Markets
3-20
REACHING BEYOND
our
borders
PPT 3-29
McDonald’s: Over
100 Cultures Served
• McDonald’s has more than 34,000 restaurants in
over 118 countries.
• Maintains varying menus around the world due to
the different preferences of its customers.
MCDONALD’S:
OVER 100 CULTURES SERVED
3-29
• Attracts top-level college
graduates to be trained
for management spots.
• Only 8 of every 1,000
applicants actually makes
it into the program!
PPT 3-30
That’s at McDonald’s?
Source:McDonalds,www.mcdonalds.com,accessedNovember2014.
THAT’S at MCDONALD’S?
3-30
• Malaysia: Bubur Ayam McD – Chicken strips in porridge
with onions, ginger, and shallots.
• Egypt: Mcarabia – Grilled chicken with tehina sauces,
lettuce, tomato and onion on Arabic bread.
• Japan: Teritama – Teriyaki burger topped with an egg.
• Germany: Want a beer with your burger? You can order
one in the German stores.
• Israel: Operates using Kosher kitchens.
PPT 3-31
Contract Manufacturing
CONTRACT MANUFACTURING
3-31
LO 3-3
• Contract Manufacturing -- A foreign company
produces private-label goods to which a domestic
company then attaches its own brand name or
trademark. A form of outsourcing.
• Contract manufacturing can be used to:
- Allow a company to experiment in a new market without
incurring heavy start-up costs such as bu ilding a
manufacturing plant.
- Temporarily meet an unexpected increase in orders.
PPT 3-32
Joint Ventures
JOINT VENTURES
3-32
LO 3-3
• Joint Venture -- A partnership in which two or more
companies join to undertake a major project.
• The benefits of joint ventures:
- Shared technology and risk.
- Shared marketing and management expertise.
- Entry into markets where foreign companies are often not
allowed unless goods are produced locally.
Chapter 03 - Doing Business in Global Markets
3-21
a. One partner can learn the technology and
practices of the other and LEAVE TO BE-
COME A COMPETITOR.
b. A shared technology may become OBSO-
LETE.
c. The partnership may be TOO LARGE TO
BE AS FLEXIBLE as needed.
6. A STRATEGIC ALLIANCE is a long-term part-
nership between two or more companies estab-
lished to help each company build competitive
market advantages.
a. Alliances can provide access to markets,
capital, and technical expertise.
b. Strategic alliances are FLEXIBLE and can
be effective between firms of different sizes.
c. The text uses the example of Hewlett-
Packard’s strategic alliances with Hitachi
and Samsung.
G. FOREIGN DIRECT INVESTMENT
1. FOREIGN DIRECT INVESTMENT is buying
permanent property and business in foreign na-
tions.
2. A FOREIGN SUBSIDIARY is a company owned
in a foreign country by another company (PAR-
ENT COMPANY).
a. THE LEGAL REQUIREMENTS of both the
PARENT (HOME) and the FOREIGN
(HOST) COUNTRIES must be observed.
b. The ADVANTAGE of foreign subsidiaries is
Chapter 03 - Doing Business in Global Markets
3-22
PPT 3-33
Strategic Alliances
• Strategic Alliance -- A long-term partnership
between two or more companies established to help
each company build competitive market advantages.
STRATEGIC ALLIANCES
3-33
LO 3-3
• They don’t typically
share costs, risks,
management or profits.
• Strategic alliances
provide broad access to
markets, capital and
technical expertise.
PPT 3-34
Foreign Direct Investment
FOREIGN DIRECT INVESTMENT
3-34
LO 3-3
• Foreign Direct Investment (FDI) -- The buying of
permanent property and businesses in foreign nations.
• Foreign Subsidiary -- A company owned in a foreign
country by another company called the parent company.
The most common form of FDI.
- Primary Advantage: Parent
company maintains complete
control over its technology or
expertise.
- Primary Disadvantage: Must
commit funds and technology
within foreign boundaries.
PPT 3-35
Buy American?
BUYING AMERICAN?
3-35
LO 3-3
Model State(s)
manufacturing
% of American
parts
Toyota Camry Kentucky & Indiana 75%
Honda Accord Ohio 70%
Chevrolet Malibu Kansas & Michigan 66%
Nissan Altima Tennessee 60%
Ford Fusion Michigan 30%
Chapter 03 - Doing Business in Global Markets
3-23
that the COMPANY MAINTAINS COM-
PLETE CONTROL over any technology or
expertise it may possess.
c. The major SHORTCOMING is that the firm’s
assets could be EXPROPRIATED, taken
over by the foreign government, if relations
with the host country fail.
d. As an example of a company with many for-
eign subsidiaries, the text uses the example
of consumer giant Nestlé.
3. MULTINATIONAL CORPORATIONS
a. A MULTINATIONAL CORPORATION is an
organization that manufactures and markets
products in many different countries and has
multinational stock ownership and multina-
tional management.
b. Only firms that have manufacturing capacity
or other physical presence in different na-
tions can truly be called multinational.
4. SOVEREIGN-WEALTH FUNDS (SWFs)
a. One of the fastest-growing forms of foreign
direct investment is the use of sovereign
wealth funds (SWFs).
b. SWFs are investment funds controlled by
governments holding large stakes in foreign
companies.
c. SWFs from the UAE, Singapore, and China
have purchased significant portions of U.S.
companies.
Chapter 03 - Doing Business in Global Markets
3-24
critical thinking
exercise 3-2
EVALUATING GLOBAL EXPANSION
One company is faced with the decision of whether or not to
enter a joint venture with a Latin American country. (See the
complete exercise on page 3.84 of this manual.)
PPT 3-36
Multinational Corporations
MULTINATIONAL CORPORATIONS
3-36
LO 3-3
• Multinational Corporation -- A company that
manufactures and markets products in many different
countries and has multinational stock ownership and
management.
• Not all large global businesses are multinational.
• Only firms that have manufacturing capacity or
some other physical presence in different nations
can truly be multinational.
PPT 3-37
Largest Multinational Corporations
TEXT FIGURE 3.5
The Largest Multinational
Corporation in the World
LARGEST MULTINATIONAL
CORPORATIONS
3-37
LO 3-3
Company Home Country
1Royal Dutch Shell Netherlands
2Walmart StoresUnited States
3ExxonMobil United States
4Sinopec Group China
5China National Petroleum China
6BP United Kingdom
7State GridChina
8Toyota Motor Japan
9Japan Post Holdings Japan
10 Chevron United States
lecture enhancer 3-4
THE WORLD CUP’S BIGGEST COR-
PORATE MATCHUP
The World Cup is just as big of a deal for its sponsors as it is
for the fans. Companies like Nike and Adidas duke it out for
dominance. (See the complete lecture enhancer on page 3.79
of this manual.)
PPT 3-38
Sovereign Wealth Funds
SOVEREIGN WEALTH FUNDS
3-38
LO 3-3
• Sovereign Wealth Funds (SWFs) -- Funds
controlled by governments holding investment stakes
in foreign companies.
• The size of the funds and the fact that they are
government-owned make some fear they might
be used for:
- Geopolitical objectives.
- Gaining control of strategic natural resources.
- Obtaining sensitive technologies.
- Undermining the management of the companies in which they
invest.
lecture enhancer 3-5
WHO DOES THE U.S. OWE MONEY
TO?
China may be the biggest lender to the U.S. but others aren’t
too far behind. (See the complete lecture enhancer on page
3.79 of this manual.)
Chapter 03 - Doing Business in Global Markets
3-25
d. There is concern that the size and govern-
ment ownership of these funds could be
used for achieving geopolitical objectives.
5. Different strategies reflect different levels of
ownership, financial commitment, and risk.
learning objective 4
Evaluate the forces that affect trading in world markets.
V. FORCES AFFECTING TRADING IN GLOBAL
MARKETS
A. Succeeding in any business takes work and effort
with many challenges.
B. SOCIOCULTURAL FORCES
1. The term CULTURE refers to the set of values,
beliefs, rules, and institutions held by a specific
group of people.
2. Culture can include social structures, religion,
manners and customs, values and attitudes,
language, and personal communication.
3. American businesspeople are notoriously bad at
adapting to cultural differences among nations.
a. Some have been accused of ETHNOCEN-
TRICITY, an attitude that our culture is supe-
rior to all others.
b. In contrast, foreign businesspeople are very
good at adapting to U.S. culture.
c. Example: German, Japanese, and Korean
carmakers have adapted to the U.S. market,
but U.S. carmakers have not been as suc-
cessful adapting their products to other cul-
Chapter 03 - Doing Business in Global Markets
3-26
test
prep
PPT 3-39
Test Prep
TEST PREP
3-39
• What are the advantages of using licensing as a
method of entry in global markets? What are the
disadvantages?
• What services are usually provided by an export-
trading company?
• What is the key difference between a joint venture
and a strategic alliance?
• What makes a company a multinational
corporation?
PPT 3-40
Forces Affecting Global Trade
FORCES AFFECTING
GLOBAL TRADE
3-40
LO 3-4
• Sociocultural
• Economic and
Financial
• Legal and
Regulatory
• Physical and
Environmental
lecture enhancer 3-6
FOREIGN ETIQUETTE TIPS
The author of Business Etiquette for Dummies gives tips for
avoiding embarrassing cultural gaffes. (See the complete lec-
ture enhancer on page 3.80 of this manual.)
PPT 3-41
Cultural Differences
CULTURAL DIFFERENCES
3-41
LO 3-4
• To be involved in global trade, you must be aware
of the cultural differences among nations
including:
- Social Structures
- Religion
- Manners
- Values
- Language
- Personal Communication
PPT 3-42
Lost in Translation
LOST in TRANSLATION
Advertisements Gone Wrong
3-42
LO 3-4
• Braniff Airlines’ slogan "Fly in leather”
translated in Spanish as "Fly naked.”
• Siri, Apple’s digital assistant on iPhone, is a
common slang term for “butt” in Japanese.
• In Italy, Schweppes Tonic Water was mistaken
as Schweppes Toilet Water.
• Nokia’s line of Lumia phones is Spanish for
“prostitute.”
SPOTLIGHT ON
small
business
PPT 3-43
From Setting Picks to Picking
Grapes
FROM SETTING PICKS to
PICKING GRAPES
3-43
• When Yao Ming was facing
retirement, he moved on to
other ventures.
• Yao has set himself apart
from others by opening
high-end winery.
• His cheapest bottles go for
about $87!
Chapter 03 - Doing Business in Global Markets
3-27
tures.
4. RELIGION is an important part of any society’s
culture and can have a significant impact on
business operations (example: misunderstand-
ings about Muslim culture).
5. SOCIOCULTURAL DIFFERENCES can also
impact business decisions involving human re-
source management.
6. Learning about sociocultural perspectives re-
garding time, change, competition, natural re-
sources, achievement, and even work itself can
help.
7. A sound global philosophy is never assume
what works in one country will work in another.
C. ECONOMIC AND FINANCIAL FORCES
1. Due to economic conditions, global opportunities
may not be viable opportunities at all.
a. Global financial markets do not have a
worldwide currency.
b. The U.S. DOLLAR is a dominant and stable
currency.
2. The EXCHANGE RATE is the value of one na-
tion’s currency relative to the currencies of other
countries.
a. A HIGH VALUE OF THE DOLLAR means
the products of foreign producers would be
cheaper, but U.S.-produced goods would be
more expensive.
b. A LOW VALUE OF THE DOLLAR means
Chapter 03 - Doing Business in Global Markets
3-28
PPT 3-44
Ready to Travel Abroad?
READY to TRAVEL ABROAD?
Know Your Cultural Differences
3-44
LO 3-4
• In Turkey, it’s rude to cross your arms while facing
someone.
• In many Middle Eastern countries, you shouldn’t eat
or shake hands with the left hand because it is
considered unclean.
• In India, you should never pat anyone’s head. It’s
where one’s soul is kept.
• In Brazil, your meeting may not start on time because
punctuality isn’t important to the culture.
TEXT FIGURE 3.6
Oops, Did We Say That?
This text figure shows some classic blunders in translating
advertising campaigns for global markets.
PPT 3-45
Do as the Germans . . .
DO as the GERMANS…
How to Not Embarrass Yourself in Germany
3-45
LO 3-4
• Always use titles like Doctor, Frau, or Herr.
• Always provide food and drinks for your birthday.
• Don’t remove your jacket until your host does.
• Wear conservative business attire, anything else is
considered sloppy.
• Never jaywalk.
• Always keep your hands on the table when eating.
PPT 3-46
Exchange Rates
EXCHANGE RATES
3-46
LO 3-4
• Exchange Rate -- The value of one nation’s
currency relative to the currencies of other countries.
• High value of the dollar – Dollar is trading for more
foreign currency; foreign goods are less expensive.
• Low value of the dollar – Dollar is trading for less
foreign currency; foreign goods are more expensive.
• Currencies float in value depending on the supply and
demand for them in the global market.
Chapter 03 - Doing Business in Global Markets
3-29
foreign goods become more expensive be-
cause it takes more dollars to buy them.
3. Global financial markets operate under a system
of FLOATING EXCHANGE RATES in which
currencies “float” according to supply and de-
mand in the global market for currency.
a. Changes in currency values impact global
commerce in numerous ways.
b. Currency fluctuations can be especially
tough for developing economies.
c. These changes cause other problems; labor
costs can vary as currency values shift.
4. DEVALUATION is lowering the value of a na-
tion’s currency relative to other currencies.
a. In many developing nations the only trade
possible is BARTERING, trading merchan-
dise for merchandise with no money in-
volved.
b. COUNTERTRADING is a complex form of
bartering in which several nations may be
involved, each trading goods for goods or
services for services.
c. Approximately 20% of the global exchanges
involve countertrading.
d. The text uses the example of the Ford Motor
Company trading vehicles to Jamaica for
bauxite.
D. LEGAL AND REGULATORY FORCES
1. In global markets, several groups of laws and
Chapter 03 - Doing Business in Global Markets
3-30
critical thinking
exercise 3-3
CURRENCY SHIFTS
This exercise asks students to track the exchange rates for six
currencies for 30 days. (See the complete exercise on page
3.84 of this manual.)
PPT 3-47
Devaluation and Countertrading
DEVALUATION and
COUNTERTRADING
3-47
LO 3-4
• Devaluation -- Lowers
the value of a nation’s
currency relative to others.
• Countertrading --
Complex form of bartering
in which several countries
each trade goods or
services for other goods or
services.
