Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Chapter 03 - Doing Business in Global Markets
3-76
Chapter 03 - Doing Business in Global Markets
3-77
lecture
enhancers
“The new electronic interdependence recreates the world in the image of a global
village.”
Marshall McLuhan
“We merely want to live in peace with all the world, to trade with them, to commune
with them, to learn from their culture as they may learn from ours, so that the prod-
ucts of our toil may be used for our schools and our roads and our churches and not
for guns and planes and tanks and ships of war.”
Dwight D. Eisenhower
lecture enhancer 3-1
FORD GOES GLOBAL WITH NEW SUBCOMPACT CAR
As emerging markets like India and Brazil continue to grow, more and more of their citizens will
enter the middle class. This relatively untapped consumer group presents plenty of lucrative opportunities
for companies across the globe. However, finding the right products to sell to this expanding class is not
so simple, even for companies operating in their home countries. For instance, Tata Motors launched its
ultra-cheap Nano model as an introductory vehicle for Indian consumers. But with a price tag of just
$2,000, the Nano appeared almost too inexpensive and failed to catch on.
With Tata’s mistakes in mind, Ford is attempting to break into the subcompact market with its
upcoming Ka model. The Detroit automaker discovered that while consumers certainly want an afforda-
ble car, they’re not interested in a bottom-market vehicle that’s only one step up from a scooter. Although
the Ka doesn’t have a price tag yet, Ford plans to sell the subcompact in India and South America for less
than $10,000. That’s cheap enough to fall within most people’s price range while still ensuring that costs
are covered for basic amenities. Unlike the Tata Nano, the Ka includes chrome detailing and a wider base.
The car also comes equipped with Sync, Ford’s system for pairing the vehicle with a mobile phone.
The company still hasn’t announced whether or not the Ka will have safety features like anti-lock
breaks, airbags or traction control. While these items are necessary to meet safety requirements in the
U.S. and Europe, the added cost and weight could increase the sticker price. Nevertheless, Ford expects
big things from this ultra-compact car. The company hopes the Ka will boost annual global sales from six
million to eight million units. Experts estimate that sales of cars in the Ka’s class will increase 35 percent
by 2017, driven primarily by consumers in Asia and South America. Meanwhile, Tata plans to meet this
growing demand by revamping the Nano with features like a stereo, hubcaps and chrome trim.i
lecture enhancer 3-2
PEPSI EXPANDS ITS RUSSIAN EMPIRE
Throughout Pepsico’s history, one thing has remained constant: the company’s flagship soft drink
has always played second fiddle to chief competitor Coca-Cola. Known by name by billions throughout
Chapter 03 - Doing Business in Global Markets
3-78
the world, Coke is not only the gold standard of soft drinks, but of branding in general. Although Pepsi
and its umbrella of products certainly command a fair market share, Coca-Cola’s continued worldwide
dominance is all but assured at this point.
Except in Russia, that is. Pepsi was one of the first big Western companies to do business in the
country, opening its first soda plant in 1974 on what was then Soviet soil. With $5 billion in annual reve-
nue, Russia accounts for Pepsi’s second-largest market after the U.S. But Pepsi isn’t satisfied with simply
selling soda in the region. Over the last few years the company has been snatching up local beverage and
food makers in order to take control of the former Soviet Bloc’s snack market. For instance, two years
ago Pepsi paid $4.2 billion for the Russian yogurt giant Wimm-Bill-Dann Foods. Before that, it acquired
Russia’s largest juice company for nearly $2 billion.
With sales in Europe stale and the Chinese market becoming increasingly competitive, the grow-
ing middle class of Russia and environs present Pepsi with their best opportunity for growth. But despite
the company’s established presence in the region, converting the populace into a legion of packaged-
snack patrons will be a challenge. Americans have no qualms with purchasing packaged snacks, consum-
ing as much as $34 billion worth per year. In Eastern Europe, however, people primarily make their own
snacks, such as homemade compote juice or crackers made from stale bread. Pepsi hopes to win over
these consumers by marketing “value-added” products like vitamin-enriched juice or drinkable yogurts.
Only time will tell if Russians elect to adapt to this Western manner of snacking or stick with their more
traditional ways.ii
lecture enhancer 3-3
CHIPOTLE STRUGGLES IN THE UK
Chipotle has become a runaway success thanks to its reliance on quality food and quick service.
That formula has been replicated across more than 1,450 locations, many of which consistently keep cus-
tomers lined up at peak hours. However, there is one notable misstep in Chipotle’s otherwise impressive
rise to the top. Underwhelming sales at the chain’s six stores in London have some accusing U.K. cus-
tomers of lacking awareness about the brand or Mexican food in general. But despite Chipotle’s slow
start, burritos have been booming in England otherwise.
For instance, a chain called Chilango regularly has snaking lines at its London financial hub loca-
tion. The company plans to expand its five stores with four further locations slated for construction next
year. Other English-owned fast-casual eateries, like Benito’s Hat and Tortilla, have enjoyed similar suc-
cess since appearing on the scene in 2007. Before then, eating Mexican food on the Isles was not advisa-
ble for those wanting to avoid an uncomfortable evening of indigestion. Now, though, young Brits see
burritos (or “Mexican wraps” as they’re sometimes called) as a cheap and delicious way to get full fast.
So why has Chipotle had such a hard time integrating into this vibrant market? First and fore-
most, Chipotle is noticeably more expensive than its rivals. The company also has had less time to appeal
to the public, arriving on British shores years after the first Chilango and Tortilla appeared. Still, that
didn’t stop Chipotle from quickly making an impression upon the American public, which had been en-
joying burritos for decades before founder Steve Ells opened his first restaurant. But whereas Chipotle
won the U.S. with taste, other burrito chains are winning the U.K. with atmosphere. At Chilango, colorful
wrestling masks and south-of-the-border ephemera decorate the walls while the bubbly, energetic staff
banter with customers. Chipotle, meanwhile, adorns its stores with the same dour industrial décor, giving
off a vibe that reads as more metallic than festive. Although Ells denies its restaurant design has harmed
sales, something has to change at the company’s U.K. locations if it is to continue expanding in the coun-
try.iii
Chapter 03 - Doing Business in Global Markets
3-79
lecture enhancer 3-4
THE WORLD CUP’S BIGGEST CORPORATE MATCHUP
In the summer of 2014, the FIFA World Cup treated millions to a feast of soccer (or football as it’s
known to most people). This massive event descends on an eager globe every four years and commands an
unprecedented audience each time. According to FIFA, soccer’s governing body, 300 million people play the
game and more than 1 billion watch it. During the 2010 World Cup, the organization estimates that half of
humanity watched at least a portion of a game at some point during the tournament.
With such immense reach, the World Cup is just as big for advertisers as it is for fans. Coca-Cola,
McDonald’s and other global brands engage in exclusive partnerships with FIFA to make sure their logos are
present at each game and event related to the tournament. But perhaps no other companies invest as much in
the World Cup as athletic apparel giants Nike and Adidas. While the two conglomerates control about 25 per-
cent of the global sportswear industry, their command of soccer gear accounts for more than 70 percent of the
market. That figure is even more remarkable given that Nike only moved into soccer in 1994, the year the
World Cup was held in the U.S. At the time Adidas dominated the market, prompting Nike CEO Phil Knight
to set his sights on the German company.
Today Nike earns nearly $2 billion annually on its line of soccer products. Experts estimate that
Adidas’ revenue could be as high as $2.4 billion. To maintain these market shares, though, each company
must spend an immense amount of money to obtain sponsorships for teams, players and even entire
leagues. The two companies spend nearly $400 million annually on team sponsorships alone. Adidas is
looking to offset these costs by increasing soccer revenues to $2.7 billion during 2014. And although Ni-
ke and Adidas dominate sponsorships for the national teams who play in the World Cup, American com-
panies like Under Armour and Warrior are pushing into the English Premier League and other domestic
competitions. These upstarts could upset the dominance of Nike and Adidas if the two sports wear giants
lose interest from both consumers and companies alike.iv
lecture enhancer 3-5
WHO DOES THE U.S. OWE MONEY TO?
In 2013, the U.S. once again came perilously close to defaulting on its debt. Already reeling from a
more than two-week government shutdown, lawmakers were able to come together at the eleventh hour to
raise the debt ceiling. If it had failed to do so, then for the first time in history the U.S. would have been unable
to pay the interest on Treasury bonds. This would have sent global markets into disarray while almost certainly
setting off another Great Recession.
But while much attention was paid to the broad chaotic consequences of this political squabble, less
consideration was granted to those parties the government actually owes money to. Some even suggested that
large stakeholders like China could afford to wait for their payday should the worst occur. However, in the
event of a default the chief victims would without a doubt be the U.S. itself. While China holds a staggering
$1.2 trillion in Treasury bonds, the entirety of Social Security’s $2.6 trillion war chest lies in bonds as required
by law. What’s more, federal retirement and disability benefits account for more than $1 trillion worth of
bonds while the Federal Reserve holds $2.1 trillion worth of them.
Private enterprises and individuals operating within the U.S. would be the next hardest hit. State
and local governments own billions of dollars in bonds, as do insurance companies, private pension funds
and mutual funds. An additional $1 trillion of U.S. debt belongs to individuals, brokers and various cor-
porations. Looking globally, China may be our biggest lender but with $1.1 trillion in bonds Japan is not
far behind. Other countries own approximately $2.6 trillion of American debt. With so many disparate
parties dependent on earning U.S. bond interest, its no wonder why extending the debt limit was such a
gigantic issue. Unfortunately, the problem is far from being solved. With the debt ceiling extension only
Chapter 03 - Doing Business in Global Markets
3-80
temporary, there’s a good chance that a divided Washington could once again descend into chaos in just a
few months.v
lecture enhancer 3-6
FOREIGN ETIQUETTE TIPS
As more businesses engage in global trade, cultural pitfalls increase. Every day business deals are
jeopardized or lost when foreign associates are offended by Americans unaware of other countries’ cus-
toms, culture, or manners. Sue Fox, the author of Business Etiquette for Dummies, provides the following
tips for avoiding embarrassing gaffes.
Argentina: It is rude to ask people what they do for a living. Wait until they offer the information.
Bahrain: Never show signs of impatience, because it is considered an insult. If tea is offered, always ac-
cept.
Cambodia: Never touch or pass something over the head of a Cambodian, because the head is considered
sacred.
China: As in most Asian culture, avoid waving or pointing chopsticks, putting them vertically in a rice
bowl, or tapping them on the bowl. These actions are considered extremely rude.
Dominican Republic: When speaking to someone, failure to maintain good eye contact may be interpret-
ed as losing interest in the conversation.
France: Always remain calm, polite, and courteous during business meetings. Never appear overly
friendly, because this could be construed as suspicious. Never ask personal questions.
Greece: If you need to signal a taxi, holding up five fingers is considered an offensive gesture if the palm
faces outward. Face your palm inward with closed fingers.
India: Avoid giving gifts made from leather, because many Hindus are vegetarian and consider cows sa-
cred. Also, keep this in mind when taking Indian clients to restaurants. Don’t wink, because it is
seen as a sexual gesture.
Japan: Never write on a business card or shove the card into your back pocket when you are with the
giver. This is considered disrespectful. Hold the card with both hands and read it carefully. It’s
considered polite to make frequent apologies in general conversation.
Malaysia: If you receive an invitation from a business associate from Malaysia, always respond in writ-
ing. Avoid using your left hand because it is considered unclean.
Mexico: If visiting a business associate’s home, do not bring up business unless the associate does.
Singapore: If you plan to give a gift, always give it to the company. A gift to one person is considered a
bribe.
Spain: Always request your check when dining out in Spain. It is considered rude for wait staff to bring
your bill beforehand.
Vietnam: Shake hands only with someone of the same sex who initiates it. Physical contact between men
and women in public is frowned upon.vi
Chapter 03 - Doing Business in Global Markets
3-81
critical
thinking exercises
Name: ___________________________
Date: ___________________________
critical thinking exercise 3-1
WHICH COUNTRY?
The Internet gives students access to endless information sources. One of the most surprising
sources is the online database maintained by the CIA. The agency’s World Factbook gives extensive data
about each country’s geography, government, economy, communications, and so on. Go to the CIA
Factbook website (www.cia.gov/cia/publications/factbook/index.html).vii (Sometimes the Web address for
a location changes. You might need to search to find the exact location mentioned.)
For this exercise, assume you are the owner of a small electronics firm based in the American
Midwest. Your research department has developed a cellular phone that translates conversations into any
of 24 languages. From conversations with business associates and friends, you have identified two espe-
cially attractive overseas markets—Brazil and Australia.
Use the CIA World Factbook to research these two countries.
1. What is the total population for each country? Which country’s population is growing the fastest?
What is the median age?
2. Compare the government types for each country. What type of legal system does each have?
3. Which country has the largest number of cellular phones in use? What percentage of the popula-
tion uses cellular phones?
4. Based on your research, which country, Brazil or Australia, would you choose to introduce your
product? Why?
Chapter 03 - Doing Business in Global Markets
3-82
Name: ___________________________
Date: ___________________________
critical thinking exercise 3-2
EVALUATING GLOBAL EXPANSION
Greenwich Industries entered the Latin American market in the 1950s by forming a joint venture
with Industro Viejes in Santo Ignezeto to manufacture bicycle parts. The joint venture flourished in the
1960s, and Greenwich eventually bought out 100% ownership. The company earned steady profits from
the Latin American subsidiary until a military junta overthrew the government in the late 1970s. The rul-
ing generals expropriated all foreign-owned companies, including the Santo Ignezeto bicycle parts plant.
Today Santo Ignezeto is ruled by a democratic government that has been in power for 10 years.
Industro Viejes has approached Greenwich about another joint venture. The government is offering an
attractive incentive package to attract foreign investment.
You have been assigned to travel to Santo Ignezeto and begin planning and staffing.
1. What are the potential problems that face the new venture?
2. What are the potential advantages of this venture for the company?
3. Would you recommend entering the joint venture? Why or why not?
4. If Greenwich Industries partners with Industro Viejes, would you recommend hiring local man-
agers or American managers for the top and middle management positions? Why?
Chapter 03 - Doing Business in Global Markets
3-83
notes for critical thinking exercise 3-2
1. What are the potential problems that face the new venture?
All of the risks of international commerce are here—currency shifts, cultural differences, infra-
2. What are the potential advantages of this venture for the company?
Locating a plant in a Latin American country will probably mean lower-cost labor, thus reducing
the cost of producing bicycle parts and lowering the prices to consumers. There is also the potential for
3. Would you recommend entering the joint venture? Why or why not?
4. If Greenwich Industries partners with Industro Viejes, would you recommend hiring local man-
agers or American managers for the top and middle management positions? Why?
Local managers would be more in touch with the area job market and local customs. In a new
Chapter 03 - Doing Business in Global Markets
3-84
Name: ___________________________
Date: ___________________________
critical thinking exercise 3-3
CURRENCY SHIFTS
As the text discusses, one of the hurdles of international trade is the constant shift in exchange
rates. Just how much do exchange rates change over a 30-day period? Let’s find out by choosing five
countries of interest to you and recording the exchange rate for their currency (Great Britain’s pound, Ja-
pan’s yen, Mexico’s peso, or the European euro) for 30 days. The rates are available daily in The Wall
Street Journal (in the “Currency Markets” chart in the “Money and Investing” section). They are also
available on many websites, such as Yahoo Finance (www.finance.yahoo.com) or CNNMoney
(http://money.cnn.com/markets/currencies/). The published chart shows the amount of foreign currency
per dollar. What effect would such currency shifts have on your business trade with each of these coun-
tries? (Sometimes the Web address for a location changes. You might need to search to find the exact lo-
cation mentioned.)
Country Country Country Country Country
(Currency) (Currency) (Currency) (Currency) (Currency)
___________ ___________ ___________ ___________ ___________
(__________) (__________) (__________) (__________) (__________)
1. ___________ ___________ ___________ ___________ ___________
2. ___________ ___________ ___________ ___________ ___________
3. ___________ ___________ ___________ ___________ ___________
4. ___________ ___________ ___________ ___________ ___________
5. ____________ ___________ ___________ ___________ ___________
6. ___________ ___________ ___________ ___________ ___________
7. ___________ ___________ ___________ ___________ ___________
8. ___________ ___________ ___________ ___________ ___________
9. ___________ ___________ ___________ ___________ ___________
10. ___________ ___________ ___________ ___________ ___________
11. ___________ ___________ ___________ ___________ ___________
12. ___________ ___________ ___________ ___________ __________
13. ___________ ___________ ___________ ___________ ___________
Chapter 03 - Doing Business in Global Markets
3-85
critical thinking exercise 3-3 (continued)
Country Country Country Country Country
(Currency) (Currency) (Currency) (Currency) (Currency)
___________ ___________ ___________ ___________ ___________
(__________) (__________) (__________) (__________) (__________)
14. ____________ ___________ ___________ ___________ ___________
15. ___________ ___________ ___________ ___________ ___________
16. ____________ ___________ ___________ ___________ ___________
17. ___________ ___________ ___________ ___________ ___________
18. ___________ ___________ ___________ ___________ ___________
19. ___________ ___________ ___________ ___________ ___________
20. ___________ ___________ ___________ ___________ ___________
21. ___________ ___________ ___________ ___________ ___________
22. ___________ ___________ ___________ ___________ ___________
23. ___________ ___________ ___________ ___________ ___________
24. ___________ ___________ ___________ ___________ ___________
25. ___________ ___________ ___________ ___________ ___________
26. ___________ ___________ ___________ ___________ ___________
27. ___________ ___________ ___________ ___________ ___________
29. ___________ ___________ ___________ ___________ ___________
30. ___________ ___________ ___________ ___________ ___________
Chapter 03 - Doing Business in Global Markets
3-86
notes for critical thinking exercise 3-3
What effect would such currency shifts have on your business trade with each of these countries?
The principle is this: If the currency of another country goes up, that means it can buy more U.S.
goods more cheaply, and that is good for exporters. If the value of its currency goes down, that means
goods and services from the United States are more expensive, and that would hurt your business.
Chapter 03 - Doing Business in Global Markets
3-87
bonus
case
bonus case 3-1
MAKING A MINT ON MAKE-BELIEVE
Chances are that when most Americans think of theme parks, they envision places like Disney World
where all the fun aspects of childhood are celebrated. However, at KidZania, a new brand of “edutainment”
theme parks headquartered in Mexico, role-playing activities based on all the trappings of adulthood attract
millions of patrons a year. The parks are kid-sized replicas of real cities where children role-play a variety of
careers such as firefighters, dentists, painters, and more than 100 other occupations.
Xavier Lopez Ancona got the idea for KidZania after a friend approached him about investing in a line
of day care centers focused on role-play. Ancona, a former private equity trader, soon realized that no one, not
even Disney, owned the market on children’s role-playing activities. In 1999 he opened the first KidZania in
Mexico City with tremendous success. The park exceeded all projections by a significant margin thanks to Ki-
dZania’s immersive atmosphere. At the box office parents purchase a “plane ticket” for their child’s passage
into the nation of KidZania. After receiving a check for 50 kidZos (the local currency), the visitors take a trip
to the career center. After a quiz determines their best-fitting pretend career paths, the children set off to earn
kidZos that can be used to buy goods and services. KidZanians can increase their earning potential by obtain-
ing degrees up to the doctoral level.
Seven years after its Mexico City location took off, KidZania opened up a new outpost in Tokyo, fol-
lowed shortly by locations in Dubai, Seoul, and several other cities. The company has 16 total, including an
American location in Santa Fe. In order to house a KidZania, a region must have a significant number of young
families as well as a few generous corporations. The company relies heavily on corporate sponsorship to pro-
vide funds for the high production values of their parks’ role-playing pavilions. Although the company makes
a third of its money from marketing deals, Ancona insists that the sponsorship is not a form of advertising. Co-
ca-Cola, for instance, sponsors a pretend bottling plant in five KidZanias and insists it is not targeting children
with marketing messages. On the other hand, at the Mexico City location, Procter & Gamble sponsors a sec-
tion where kids are encouraged to keep their hands clean by using the company’s Safeguard soap. A repre-
sentative from Procter & Gamble said she hopes the exposure turns children into lifelong customers of the
brand.viii
Chapter 03 - Doing Business in Global Markets
3-88
discussion questions for bonus case 3-1
1. Would “edutainment” parks like KidZania find success in the United States?
2. Is corporate sponsorship at KidZania intended only to build future customers?
notes on discussion questions for bonus case 3-1
1. Would “edutainment” parks like KidZania find success in the United States?
2. Is corporate sponsorship at KidZania intended only to build future customers?
As P&G’s representative states, it hopes to turn children into lifelong customers. There’s no
doubt that much of the corporate sponsorship relates to marketing efforts at KidZania. However, the same
Chapter 03 - Doing Business in Global Markets
3-89
endnotes
i Source: Mike Ramsey, “It’s Not a Car, It’s a Ford ‘Ka,’” The Wall Street Journal, November 14, 2013.
ii Sources: Duane Stanford, “PepsiCo’s Eastern European Snack Attack,” Bloomberg BusinessWeek, February 28,
2013.
iii Source: Matthew Boyle, “Chipotle Finds, for U.K. Burrito Fans, It’s Not All About the Food,” Bloomberg Busi-
nessWeek, May 9, 2013.
iv Source: Brendan Geeley, “World Cup Shootout: Can Nike Beat Adidas?” Bloomberg BusinessWeek, May 15,
2014.
v Source: Matthew Boyle, “Chipotle Finds, for U.K. Burrito Fans, It’s Not All About the Food,” Bloomberg Busi-
nessWeek, May 9, 2013.
vi Source: Gary Stoller, “Doing Business Abroad? Simple Faux Pas Can Sink You,” USA Today, August 24, 2007.
vii The Internet is a dynamic, changing information source. Web links noted of this manual were checked at the time
of publication, but content may change over time. Please review the website before recommending it to your stu-
dents.
viii Source: Dana Rubinstein, “Playing Grown-Up at KidZania,” Bloomberg Businessweek, May 19, 2011 and
Kidzania, www.kidzania.com, accessed December 2014.
