Chapter 03 – Doing Business in Global Markets
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PPT 3-31
That’s at McDonalds?
Source:McDonalds,www.mcdonalds.com,accessedNovember2014.
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.
1. McDonald’s is a leader in franchising and the com-
pany operates in 117 different countries.
2. This slide gives students an insight into some of the
changes McDonald’s has made to its menu when
operating in the world market.
3. Ask students: Why does the leading provider of
American style fast-food adopt different menu
items? (Like all successful companies, McDonald’s
adapts its menu to meet the different needs of its
customers worldwide.)
PPT 3-32
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 building a
manufacturing plant.
– Temporarily meet an unexpected increase in orders.
The worldwide contract manufacturing business is estimat-
ed to be a $250 billion industry that’s expected to grow to
$325 billion by 2013.
PPT 3-33
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.
Joint ventures can also have drawbacks: (1) One partner
can learn the other’s practices and then use the knowledge
to its own advantage; (2) a shared technology may become
obsolete; and (3) the joint venture may become too large to
be as flexible as needed.
Chapter 03 – Doing Business in Global Markets
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PPT 3-34
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 3-35
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 3-36
Buying 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%
1. Not all American cars are “American” and not all
foreign cars are “foreign.”
2. Students may be surprised to find out in addition to
not using mostly American parts, the Ford Fusion
is also partly assembled in Mexico.
Chapter 03 – Doing Business in Global Markets
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PPT 3-37
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 3-38
Largest Multinational Corporations
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
PPT 3-39
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.
Chapter 03 – Doing Business in Global Markets
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PPT 3-40
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?
1. The key advantages of using licensing as a method
of entry into global markets are: (a) a firm can of-
ten gain revenues in a market it would not have
generated in its home market; (b) licensees must
purchase start-up supplies and consulting services
from the licensing firm; and c) licensors spend little
or no money to produce and market their products.
Disadvantages to licensing include: (a) if a product
is extremely successful in another market, the li-
censor does not receive the bulk of the revenues
and (b) if the foreign licensee learns the company’s
technology and product secrets, it may break the
agreement and begin producing similar products on
its own.
2. Export trading companies provide such services as
assistance in associating and establishing the de-
sired trading relationships, matching buyers and
sellers from different countries, and help dealing
with foreign customs offices, documentation, and
weights and measures.
3. A joint venture is a partnership between two or
more companies whereby they undertake a major
project. Joint ventures generally involve: (a) shar-
ing technology and risk; (b) sharing marketing and
management expertise; (c) entry into markets
where foreign companies are often not allowed un-
less goods are produced locally. In a strategic alli-
ance partners do not share costs, risks, manage-
ment, or even profits. The purpose is to gain ad-
vantages in building competitive market ad-
vantages.
4. A multinational corporation manufactures and
markets products in many different countries and
has multinational stock ownership and manage-
ment. Only firms that have manufacturing capacity
or other physical presence in other countries can be
called multinational.
Chapter 03 – Doing Business in Global Markets
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PPT 3-41
Forces Affecting Global Trade
FORCES AFFECTING
GLOBAL TRADE
3-40
LO 3-4
• Sociocultural
• Economic and
Financial
• Legal and
Regulatory
• Physical and
Environmental
What makes operating in the international environment
more complex than operating only in the domestic market
is the addition of new uncontrollable forces.
PPT 3-42
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
A lack of cultural understanding can create problems with
working in the international market; even the color or type
of flower can have a different meaning. One book that pro-
vides numerous examples to share with students is titled
Kiss, Bow or Shake Hands: How to Do Business in Sixty
Countries. Never assume what works in one country will
work in another.
PPT 3-43
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.”
1. Culture refers to the set of values, beliefs, rules,
and institutions held by a specific group of people.
2. One of the basic elements of culture is language
and language delineates cultures.
3. To operate successfully in the international mar-
ketplace, a company must never assume what
works in one country will work in another.
4. To avoid the funny and sometimes disastrous ad-
vertisements listed above, shrewd marketers must
use back translations. Back translation is a process
in which the first translation is made by a bilingual
native, after which the work will then be translated
back by a bilingual foreigner to see how it com-
pares with the original.
Chapter 03 – Doing Business in Global Markets
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PPT 3-44
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!
PPT 3-45
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.
1. Some fascinating cultural and social differences ex-
ist in other nations.
2. Discuss the following interesting points:
• A smile in Japan can mean that a person is
uncomfortable or sad.
• When traveling to Sweden, make appoint-
ments two weeks in advance.
• Lack of punctuality is a fact of life in Bra-
zil. Become accustomed to waiting.
3. Review the following helpful hints when dealing
globally:
▪ Be culturally savvy. Learn about the cul-
ture, language, and dress code.
▪ Recognize the importance of dealing with
cultural differences and consequences of
taking no action.
▪ Manage and learn to appreciate various
cultures.
• Build a database of information about each
country where you have business relation-
ships.
PPT 3-46
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.
Chapter 03 – Doing Business in Global Markets
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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.
The floating exchange rate system creates transaction risk.
If the U.S. dollar is trading for more foreign currency, it is
said to be getting stronger. When the U.S. dollar is trading
for less foreign currency, it is said to be getting weaker.
Since the breakdown of the Bretton Woods agreement in
1971, the value of the U.S. currency has generally trended
downward versus major world currencies.
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.
It’s estimated that countertrading accounts for over 20% of
all global exchanges, especially in developing countries.
One famous example of countertrading involved Pepsi and
Russian vodka. Pepsi received the right to market Russian
vodka in the United States as payment for Pepsi being sold
in Russia. More information on countertrading can be
found at www.londoncountertrade.org.
PPT 3-48
Legal and Regulatory Forces
LEGAL and
REGULATORY FORCES
3-48
LO 3-4
• There’s no global system of laws.
• Laws may be inconsistent.
• U.S. businesses must follow U.S. laws while
conducting global business.
• Organization for Economic Cooperation and
Development and Transparency International fight
to end corruption and bribery in foreign markets
and have had limited success.
Chapter 03 – Doing Business in Global Markets
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PPT 3-49
Environmental Forces
ENVIRONMENTAL FORCES
3-49
LO 3-4
• Developing countries have
transportation and storage
systems that make
international distribution
difficult or impossible.
• Often, technological
capabilities are far from
those in the U.S. which
make for a tough business
environment.
PPT 3-50
Test Prep
TEST PREP
3-50
• What are four major hurdles to successful global
trade?
• What does ethnocentricity mean and how can it
affect global success?
• How would a low value of the dollar affect U.S.
exports?
• What does the Foreign Corrupt Practices Act
prohibit?
1. Four major hurdles to successful global trade are
sociocultural forces, economic and financial forces,
legal and regulatory forces, and physical and envi-
ronmental forces.
2. Ethnocentricity is an attitude that your nation’s cul-
ture is superior to other cultures. It can affect glob-
al trade because all nations are proud of their cul-
tures and do not aspire to be like other countries.
Thus it’s easy to offend potential customers by be-
ing ethnocentric.
3. A low value of the dollar would make U.S. exports
cheaper in foreign markets and may lead to higher
demand for U.S. products.
4. The Foreign Corrupt Practices Act prohibits “ques-
tionable” or “dubious” payments to foreign offi-
cials to secure business contracts. Other nations do
not have to follow this law, causing some disad-
vantages for U.S. businesses.
Chapter 03 – Doing Business in Global Markets
3-69
PPT 3-51
Trade Protectionism
TRADE PROTECTIONISM
3-51
LO 3-5
• Trade Protectionism — The use of government
regulations to limit the import of goods and services.
• Advocates of protectionism believe it allows
domestic producers to survive, grow and produce
jobs.
The Great Depression was exacerbated by the passage of
the Glass-Steagall Act. The Glass-Steagall Act of 1933
raised the tariff rates on thousand of products imported into
the United States. This led to other nations enacting similar
protectionist measures effectively shutting down world
trade. Many fear that the economic contraction the world is
currently experiencing will lead to similar laws.
PPT 3-52
Tariffs
TARIFFS
3-52
LO 3-5
• Tariffs — Taxes on imports,
making imported goods more
expensive.
• Two kinds of tariffs:
– Protective – Raise the
retail price of imports so
domestic goods are
competitively priced.
– Revenue – Raise money
for governments.
While a tariff may end up raising revenue for the govern-
ment, it ultimately costs consumers more money in the long
run. Due to tariff rates on the importation of sugar, con-
sumers in the United States end up paying close to 50 per-
cent more for sugar than the rest of the world.
PPT 3-53
Import Quotas and Embargos
IMPORT QUOTAS and EMBARGOS
3-53
LO 3-5
• Import Quota — Limits the number of products in
certain categories a nation can import.
• Embargo — A complete ban on the import or export
of a certain product or the stopping of all trade with a
particular country.
• Political disagreements can lead to embargos, like
the U.S. embargos against Cuba, Iran and North
Korea.
Chapter 03 – Doing Business in Global Markets
3-70
PPT 3-54
World Trade Organization
WORLD TRADE ORGANIZATION
3-54
LO 3-5
• General Agreement on Tariffs and Trade
(GATT) —
A global forum for reducing trade restrictions on
goods, services, ideas and cultural problems.
• World Trade Organization (WTO) —
Headquartered in Geneva, the WTO is an
independent entity of 159 member nations whose
purpose is to oversee cross-border trade issues and
global business practices.
PPT 3-55
Common Markets
COMMON MARKETS
3-55
LO 3-5
• Common Market — A regional group of countries
with a common external tariff, no internal tariffs and
coordinated laws to facilitate exchange among
members.
• The European Union (EU), Mercosur, the ASEAN
and the COMESA are common markets.
PPT 3-56
EU Members
EU MEMBERS
3-56
LO 3-5
Chapter 03 – Doing Business in Global Markets
3-71
PPT 3-57
NAFTA and CAFTA
NAFTA and CAFTA
3-57
LO 3-5
• North American Free Trade Agreement —
Ratified in 1994, created a free-trade area among the
United States, Canada and Mexico.
• Central American Free Trade Agreement —
Passed in 2005, created a free-trade zone with Costa
Rica, Dominican Republic, El Salvador, Guatemala,
Honduras and Nicaragua.
PPT 3-56
NAFTA Objectives
NAFTA OBJECTIVES
3-58
LO 3-5
1) Eliminate trade barriers and facilitate cross-
border movement of goods and services.
2) Promote conditions of fair competition.
3) Increase investment opportunities.
4) Provide effective protection and enforcement of
intellectual property rights.
5) Establish a framework for further regional trade
cooperation.
6) Improve working conditions in North America.
PPT 3-59
New Free Trade Agreements
NEW FREE
TRADE AGREEMENTS
3-59
LO 3-5
• Today, free trade
agreements are being
negotiated Colombia
and Panama.
• The U.S. is considering
an agreement with a
nine-nation free trade
bloc called the Trans-
Pacific Partnership.
Chapter 03 – Doing Business in Global Markets
3-72
PPT 3-60
Test Prep
TEST PREP
3-60
• What are the advantages and disadvantages of
trade protectionism and of tariffs?
• What is the primary purpose of the WTO?
• What is the key objective of a common market like
the EU?
• Which three nations comprise NAFTA?
1. Trade protectionism is the use of government regu-
lations to limit the import of goods and services. It
can be a barrier to global trade. Trade protection-
ism often involves the use of tariffs or taxes on im-
ported goods that makes them more expensive to
buy. Protective tariffs can be an advantage to
workers in certain industries since it makes the
products they produce more cost competitive with
imported products. American labor unions have
sought certain protective tariffs. Revenue tariffs are
designed as a source of revenue for the govern-
ment. Most economists do not favor the use of tar-
iffs; instead they are in favor of free trade.
2. The World Trade Organization (WTO) was estab-
lished to mediate trade disputes among nations.
3. The purpose of a common market like the EU is to
have common external tariffs, no internal tariff,
and coordinated laws to facilitate exchange be-
tween member nations. This enables smaller na-
tions to compete as a group against large econo-
mies like the United States, China, and Japan.
4. NAFTA is comprised of the United States, Canada
and Mexico.
PPT 3-61
Future of Global Trade
FUTURE of GLOBAL TRADE
3-61
LO 3-6
• Brazil is expected to be one of the wealthier
economies by 2030.
• Russia is a large oil producing country with many
multinationals interested in developing there.
• India has seen huge growth in information
technology, pharmaceuticals and biotechnology.
• With over 1.3 billion people, China has
transformed the world economic map. Many
multinationals invest heavily in China.
BRIC has been an acronym for these countries. However,
BRIC nations are not the only areas of opportunity. Other
countries to look at include Indonesia, Thailand, Singapore,
the Philippines, South Korea, Malaysia, and Vietnam.
Chapter 03 – Doing Business in Global Markets
3-73
PPT 3-62
Outsourcing
OUTSOURCING
3-62
• With the growth of global
markets, companies have
been shifting to offshore
outsourcing – outsourcing
with other countries.
PhotoCredit:VitorLima
LO 3-6
• Outsourcing — Process by which a firm contracts
with other companies to do some or all of its
functions.
• U.S. firms have outsourced payroll functions,
accounting and manufacturing for years.
PPT 3-63
Offshore Outsourcing
OFFSHORE OUTSOURCING
3-63
LO 3-6
PPT 3-64
Plan for Your Global Career
PLAN for YOUR GLOBAL CAREER
3-64
LO 3-6
• Study foreign
languages.
• Learn about
foreign cultures.
• Take global
business courses.
Chapter 03 – Doing Business in Global Markets
3-74
PPT 3-65
Making Your Operation Your Vacation
MAKING YOUR OPERATION
YOUR VACATION
3-65
• Some insurance companies
encourage patients to seek
medical care in foreign
countries.
• Procedures are cheaper and
involve top-flight doctors at
state-of-the-art facilities.
• Would it be ethical to force
patients to travel to other
countries to save money?
PPT 3-66
Costs of Medical Procedure Abroad
Source:AARPMagazine,November2014.
COSTS of MEDICAL
PROCEDURES ABROAD
3-66
Angioplasty Gastric
Bypass
Heart
Bypass
Hip
Replacement
Nose
Job
Tummy
Tuck
United
States $47,000 $18,000 $88,000 $33,000 $6,200 $6,400
United
Kingdom $8,000 $16,500 $13,921 $23,500 $3,500 $4,810
Mexico $15,000 $13,800 $37,800 $11,500 $2,800 $3,000
India $11,000 $6,800 $14,400 $8,000 $2,800 $2,900
Costa
Rica $13,000 $11,200 $31,500 $14,500 $3,400 $5,300
PPT 3-67
Test Prep
TEST PREP
3-67
• What are the major threats to doing business in
global markets?
• What key challenges must India and Russia face
before becoming global economic leaders?
• What does the acronym BRIC stand for?
• What are the two primary concerns about offshore
outsourcing?
1. The major threats to doing business in global mar-
kets are terrorism, nuclear proliferation, rogue
states, and other issues.
2. India must relax its difficult trade laws and inflexi-
ble bureaucracy. Russia is plagued by political,
currency, corruption, and social problems.
3. BRIC stands for Brazil, Russia, India, and China.
4. The key concern surrounding offshore outsourcing
is the loss of jobs. Today such loss includes profes-
sional services as well as production jobs. Ques-
tions also linger about outsourcing sensitive prod-
ucts like airline maintenance and medical devices.
Consumers’ fears about quality and product safety
keep the issue center stage.
Chapter 03 – Doing Business in Global Markets
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