CHAPTER 3

GLOBAL BUSINESS

OPERATIONS

ROUTES INTO

GLOBAL BUSINESS

Is Dell Computer

an American company?(Dell gets most of its computer parts from

Asian suppliers)

IS HONDA A JAPANESE CAR COMPANY?

1.Honda has made over 10M cars in USA in 8 U.S. plants costing over $7B

2.25,000 American employees3.Annual U.S. payroll of

$1.27B4.$12B in U.S. parts purchased5.580 U.S. suppliers

How do General

Motors and Toyota make

money off each

other?(Technology

licensing)

Why are there so many Asian

and European banks in San

Francisco, New York, Boston,

etc.?

(International financing of multination

al companies)

What is the quickest way

to expand internationally even without

knowing much about the cultures

involved?(Foreign retail

partners & freelance sales

brokers)

Why would an American

electronics company open a foreign

division in Japan, which

is loaded with strong

electronics competitors?

(To operate as an insider with Japanese companies who don’t do business with “outsiders”)

COPING WITH GLOBAL

BUSINESS RISK

At the grass roots level,

exporting can often

be a frustrating

game of cargo

delays, paperwork, & bribes

Shifting riskaway from

your business is the mating game of global

business logistics

THE RISKS OF:1.Insurance2.Currency exchange3.Title transfer of goods4.Warehouse security5.Weather6.Complying with mandatory

operating standards of the International Standards Organization (ISO)

7.Business corruption

What business

partners are typically

needed to move goods

across borders?

(Bankers, shippers,

warehousers, customs,

etc.)

Why would Plantation

(Cargill) Foods of Waco favor

signing a Free-Aboard-Ship contract (the exporter

pays all transportation costs) to ship

turkey meat to Japan?(To land a new customer)

What is the main cause of

demurrage (excess

unloading time for cargo carriers)

expenses?(Developing nations have

poor infrastructure:

dock space, cranes,

warehouses, etc.)

In what trading situation is a

customs broker (independent consultant) of

greatest value to an international

company?(In developing nations, where

business infrastructure is

limited)

What is the main

advantage of a

bonded warehouse to the seller &

the buyer?

Bonded warehouses are insured by the government in border areas to promote trade. They allow the seller of goods to sell them before tariffs have to be paid; and the buyer can also sell them to a customer before the goods have to be paid for. Thus, both buyer & seller can finance their transactions with sales rather than credit.

What are the

competitive

advantages of

operating in a free

trade zone

(FTZ)?

1. Free trade zones are small manufacturing facilities located in border areas that can be rented by entrepreneurial companies who need access to cheap labor & temp space.

2. Often used for “one-shot” assembled products or simple labor-intensive products: promo t-shirts, fad toys, seasonal items, etc.

3. No tariffs are levied on supplies imported into the FTZ or the finished product exported back across the home border

4. FTZs are especially useful for nations not part of a regional free trade zone such as the EU or NAFTA.

Why would a company sell on a (risky) open

account?

SELLING ON OPEN ACCOUNT

Global companies sometimes elect to sell on open account where no contract is signed before the goods are shipped. They are willing to take this risk (of having no legal recourse should the customer accept the shipment but not pay for it) in order to possibly recruit new foreign customers. The seller hopes the customer will appreciate the seller’s trust and pay up (setting the stage for future business deals).

Should Waco’s Plantation

(Cargill) Foods charge a high price or a low

price for turkey feed it

sells to its meat-

processing facility in

Japan?

(Transfer pricing)

Plantation should charge its Japanese subsidiary a high price if the subsidiary has to pay high taxes on its profits. The high cost of turkey feed would lower the amount of “paper” profit the subsidiary makes, thus reducing its taxes. If a high import tariff is placed on the turkey feed, Plantation should keep its transfer price low to minimize the tariffs.

Why does Europe

use VATs while the USA uses corporate

income taxes?

Value Added Taxes are a substitute for corporate income taxes on products made sequentially in several different nations (such as European cars that might be assembled in Spain with parts from Italy & Greece, shipped by a French trucking to Daimler-Chrysler in Germany, and financed by a Dutch bank). Each company pays a tax on the amount of value it added to the car. If income taxes were used instead, only the German government would realize any revenue on the regionally-made car.

1.International Standards Organization (ISO): founded in 1947; 140 voluntary national “chapters”; 13,700 global ops standards; Headquartered in Switzerland.

2.Mandatory global standards among member nations for all manufactured products: design, safety, storage, shipping, inventory, etc.

3.The ISO is a major plank in the (often invisible) centralized infrastructure of the rapidly materializing unified world economy

4.“Neo-liberal” (“libertarian”) the world’s prevailing form, advocates the maximum operating efficiency bolstered by the ISO.

5.Meet the emerging universal global

operations standard, or don’toperate at all

THE ICANN CONTROVERSY1. The Internet Corporation for Assigned

Names & Numbers (ICANN) is an American corporation of computer technicians/users funded by the U.S. government

2. ICANN coordinates Internet domain names (like .com, .edu, .net, etc.) & sets & maintains various Internet technical standards.

3. A number of countries (especially nations such as China & Saudi Arabia who restrict Internet freedom) are unhappy with the American backing of ICANN & want it taken over by the UN.

4. If the Internet is regulated sometime in the future, will ICANN be in charge?

Why recent college graduates are prime prospects for international assignments once they learn the ropes of how their company does business domestically:–They are usually “foot-loose-and-

fancy-free” (not married, no mortgage, energetic, adventurous travelers, etc.)

–They have few business habits to unlearn, permitting quick adjustment to doing business in a foreign operating environment

–They tend to be less ethnocentric than older business professionals

THE STRESSES & STRAINS OF GLOBAL ASSIGNMENTS

1. Tough on family members (especially wives who may have to put their domestic career on hold while the husband is working abroad)

2. Inadequate staff support due to high cost of living in major cities of the world

3. Long, intense hours of crash projects4. Pressures to cut corners ethically in

nations with weak institutions5. Perhaps being passed over for

promotions at home & often paying double income taxes (in your home nation + where you work abroad)

THE REALITIES OF WORKING AS AN EX-PAT

1. You must adapt to other cultures, because you can’t change them

2. It normally takes 2-3 visits to a foreign company before you can even begin to talk business

3. Most women need cutting-edge technical skills to overcome job discrimination

4. It takes about 4 years of domestic business experience before most companies are willing to send you abroad. Most international assignments last from about 2-4 years

5. It’s harder to get out of a foreign business venture than it is to start it up in the first place

6. The most challenging assignment is to operate at the grass roots level in a developing nation where you have to know people who know people

7. The single most important cross-border business skill is the ability to close a deal

8. You can never take at face value what a foreign venture partner says

9. The most miserable ex-pat working abroad is the one who is doing it strictly for the money and can’t wait to get back home