Policy and Strategy VIII

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Strategic Management Concepts: A

Competitive Advantage Approach,

Concepts and Cases Seventeenth Edition

Chapter 11

Global and International

Issues

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Learning Objectives (1 of 2)

11.1 Discuss the nature of doing business globally, including

labor union issues and tax rates.

11.2 Explain the advantages and disadvantages of doing

business globally.

11.3 Discuss the global challenge facing firms, including

outsourcing and reshoring.

After studying this chapter, you should be able to do the following:

11.1 Discuss the nature of doing business globally, including labor union

issues and tax rates.

11.2 Explain the advantages and disadvantages of doing business globally.

11.3 Discuss the global challenge facing firms, including outsourcing and

reshoring.

Learning Objectives (2 of 2)

11.4 Compare and contrast American business culture

versus foreign business cultures; explain why this is a

strategic issue.

11.5 Discuss business culture, with emphasis on Mexico,

Japan, China, and India.

11.6 Discuss business climate, with emphasis on Africa,

China, Indonesia, India, and Mexico.

After studying this chapter, you should be able to do the following:

11.4 Compare and contrast American business culture versus foreign business

cultures; explain why this is a strategic issue.

11.5 Discuss business culture, with emphasis on Mexico, Japan, China, and

India.

11.6 Discuss business climate, with emphasis on Africa, China, Indonesia,

India, and Mexico.

Figure 11.1 The Comprehensive,

Integrative Strategic-Management Model

Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 1 (February

1989): 91. See also Anik Ratnaningsih, Nadjadji Anwar, Patdono Suwignjo, and Putu Artama Wiguna, “Balance

Scorecard of David’s Strategic Modeling at Industrial Business for National Construction Contractor of

Indonesia,” Journal of Mathematics and Technology, no. 4, (October 2010): 20.

The strategic management model is included on this slide. This chapter

informs all earlier steps in the model.

Global/International Issues

• The underpinnings of strategic management hinge on

managers gaining an understanding of competitors,

markets, prices, suppliers, distributors, governments,

creditors, shareholders, and customers worldwide.

• The price and quality of a firm’s products and services

must be competitive on a worldwide basis, not just on a

local basis.

The boundaries of countries no longer can define the limits of our

imaginations. To see and appreciate the world from the perspective of others

has become a matter of survival for businesses.

The Nature of Doing Business

Globally

• Exports of goods and services from the United States

account for only 13 percent of U.S. gross domestic

product.

In contrast, as a percent of gross domestic product (GDP), exports comprise

46 percent of the German economy, 20 percent of the Chinese economy, and

172 percent of the Singapore economy

(http://data.worldbank.org/indicator/NE.EXP.GNFS.ZS).

Globalization

• Globalization

– process of doing business worldwide, so strategic

decisions are made based on global profitability of the

firm rather than just domestic considerations

• Global Strategy

– includes designing, producing, and marketing products

with global needs in mind, instead of considering

individual countries alone

A world market has emerged from what previously was a multitude of distinct

national markets, and the climate for international business today is more

favorable than in years past.

Multinational Firms

• Multinational Firms

– Organizations that conduct business operations across

national borders

The strategic-management process is conceptually the same for multinational

firms as for purely domestic firms; however, the process is more complex for

international firms as a result of more variables and relationships.

Table 11.2 Corporate Tax Rates

Across Countries in 2018 (From High

to Low) (1 of 2)

Country Corporate Tax Rate

United Arab Emirates 55

Argentina 35

France 33.33

India 34

Germany 30

Mexico 30

Canada 26.5

Italy 24

China 25

USA 21

Tax rates in countries are important in strategic decisions regarding where to

build manufacturing facilities or retail stores or even where to acquire other

firms. High corporate tax rates deter investment in new factories and also

provide strong incentives for corporations to avoid and evade taxes. Corporate

tax rates vary considerably across countries and companies.

Table 11.2 Corporate Tax Rates Across

Countries in 2018 (From High to Low) (2 of 2)

Country Corporate Tax Rate

Finland 20

Turkey 20

Poland 19

Singapore 17

Romania 16

Ireland 12

Bulgaria 10

Bermuda 00

Caymen Islands 00

Anguilla 00

Turks and Caicos Islands 00

Tax rates in countries are important in strategic decisions regarding where to

build manufacturing facilities or retail stores or even where to acquire other

firms. High corporate tax rates deter investment in new factories and also

provide strong incentives for corporations to avoid and evade taxes. Corporate

tax rates vary considerably across countries and companies.

Advantages of Global Business (1 of 2)

1. Firms can gain new customers for their products.

2. Foreign operations can absorb excess capacity, reduce

unit costs, and spread economic risks over a wider

number of markets.

3. Foreign operations can allow firms to establish low-cost

production facilities in locations close to raw materials or

cheap labor.

4. Competitors in foreign markets may not exist, or

competition may be less intense than in domestic

markets.

Firms have numerous reasons for formulating and implementing strategies

that initiate, continue, or expand involvement in business operations across

national borders.

Advantages of Global Business (2 of 2)

5. Foreign operations may result in reduced tariffs, lower

taxes, and favorable political treatment.

6. Multinational joint ventures can enable firms to learn the

technology, culture, and business practices of other

people and to make contacts with potential customers,

suppliers, creditors, and distributors in foreign countries.

7. Economies of scale can be achieved from operation in

global rather than solely domestic markets.

8. A firm’s power and prestige in domestic markets may be

significantly enhanced if the firm competes globally.

Disadvantages of Global Business

1. Foreign operations could be seized by nationalistic factions.

2. Firms confront different and often little-understood social,

cultural, demographic, environmental, political, governmental,

legal, technological, economic, and competitive forces.

3. Weaknesses of competitors in foreign lands are often

overestimated, and strengths are often underestimated.

4. Language, culture, and value systems differ among countries,

which can create barriers to communication.

5. Gaining an understanding of regional organizations is difficult.

6. Dealing with two or more monetary systems can complicate

international business operations.

The availability, depth, and reliability of economic and marketing information in

different countries vary extensively, as do industrial structures, business

practices, and the number and nature of regional organizations.

The Global Challenge (1 of 3)

• America's economy is becoming much less American.

• A world economy and monetary system are emerging.

• Markets are shifting rapidly and in many cases converging

in tastes, trends, and prices.

Few companies can afford to ignore the presence of international competition.

Firms that seem insulated and comfortable today may be vulnerable tomorrow.

The Global Challenge (2 of 3)

• Protectionism

– Refers to countries imposing tariffs, taxes, and

regulations on firms outside the country to favor their

own companies and people.

– The U.S. and China in early 2018 are imposing tariffs

on each other’s products imported.

Most economists argue that protectionism harms the world economy because

it inhibits trade among countries and invites retaliation.

The Global Challenge (3 of 3)

• Outsourcing

– Involves companies hiring other companies to take

over various parts of their functional operations, such

as human resources, information systems, payroll,

accounting, customer service, and even marketing.

• Reshoring

– Refers to U.S. companies moving a portion of their

manufacturing back to the United States.

The outsourcing business is booming. The current U.S. administration is

spurring and rewarding reshoring.

American Versus Foreign Business

Culture

• To be successful in world markets, U.S. managers must

obtain a better knowledge of historical, cultural, and

religious forces that motivate and drive people in other

countries.

• For multinational firms, knowledge of business culture

variation across countries can be essential for gaining and

sustaining competitive advantage.

An excellent website to visit on this topic is www.worldbusinessculture.com,

where you may select any country in the world and check out how business

culture varies in that country versus other lands.

Table 11.4 Cultural Pitfalls to Avoid to

be a Better Manager (1 of 2)

• Waving is a serious insult in Greece and Nigeria, particularly if the hand is

near someone’s face.

• Making a “good-bye” wave in Europe can mean “No,” but it means “Come

here” in Peru.

• In China, last names are written first.

• A man named Carlos Lopez-Garcia should be addressed as Mr. Lopez in

Latin America but as Mr. Garcia in Brazil.

• Breakfast meetings are considered uncivilized in most foreign countries.

• Latin Americans are, on average, 20 minutes late to business appointments.

• Direct eye contact is impolite in Japan.

• Do not cross your legs in any Arab or many Asian countries because it is

rude to show the sole of your shoe.

• In Brazil, touching your thumb and first finger—an American “Okay” sign—is

the equivalent of raising your middle finger.

Table 11.4 Cultural Pitfalls to Avoid to

be a Better Manager (2 of 2)

• Nodding or tossing your head back in southern Italy,

Malta, Greece, and Tunisia means “No.” In India, this

body motion means “Yes.”

• Snapping your fingers is vulgar in France and Belgium.

• Folding your arms across your chest is a sign of

annoyance in Finland.

• In China, leave some food on your plate to show that

your host was so generous that you could not finish.

• Do not eat with your left hand when dining with clients

from Malaysia or India.

• One form of communication works the same worldwide. It

is the smile; so take that along wherever you go.

Cultural Differences between U.S.

and Foreign Managers (1 of 3)

• Americans place an exceptionally high priority on time,

viewing time as an asset. Many foreigners place more

worth on relationships.

• Personal touching and distance norms differ around the

world. Americans generally stand about three feet from

each other when carrying on business conversations, but

Arabs and Africans stand about one foot apart.

Rose Knotts summarized some important cultural differences between U.S.

and foreign managers. Awareness and consideration of these differences

listed on the next four slides can enable a manager to be more effective,

regardless of his or her own nationality.

Cultural Differences between U.S.

and Foreign Managers (2 of 3)

• Family roles and relationships vary in different countries.

• Business and daily life in some societies are governed by

religious factors.

• Many cultures around the world value modesty, team spirit,

collectivity, and patience much more than competitiveness

and individualism, which are so important in the United

States.

Cultural Differences between U.S.

and Foreign Managers (3 of 3)

• Eating habits differ dramatically across cultures.

• Rules of etiquette vary and managers must learn the rules

of others.

• Americans often do business with individuals they do not

know, unlike businesspersons in many other cultures.

Communication Differences Across

Countries

• Americans sometimes come across as intrusive,

manipulative, and garrulous; this impression may reduce

their effectiveness in communication.

• Managers from the United States are much more action-

oriented than their counterparts around the world; they

rush to appointments, conferences, and meetings—and

then feel the day has been productive.

• U.S. managers often use blunt criticism, ask prying

questions, and make quick decisions.

Communication may be the most important word in strategic management.

Americans increasingly interact with managers in other countries, so it is

important to understand communication differences across countries.

Mexico’s Business Culture

• Employers seek workers who are agreeable, respectful,

and obedient, rather than innovative, creative, and

independent.

• Mexican employers are paternalistic, providing workers

with more than a paycheck, but in return they expect

allegiance.

Mexico is an authoritarian society in terms of schools, churches, businesses,

and families.

Japan’s Business Culture

• The Japanese place great importance on group loyalty and

consensus, a concept called Wa.

• When confronted with disturbing questions or opinions,

Japanese managers tend to remain silent.

Nearly all corporate activities in Japan encourage Wa among managers and

employees. Wa requires that all members of a group agree and cooperate; this

results in constant discussion and compromise.

China’s Business Culture

• The Chinese rarely do business with companies or people

they do not know.

• Your position on an organizational chart is extremely

important in business relationships.

• Arriving late to a meeting is an insult and could negatively

affect your relationship.

• Meetings require patience because mobile phones ring

frequently and conversations tend to be boisterous.

In China, greetings are formal and the oldest person is always greeted first.

Like in the United States, handshakes are the most common form of greeting.

India’s Business Culture (1 of 2)

• People in India do not like to say “no,” verbally or

nonverbally.

• Rather than disappoint you, they often will say something

is not available, or will offer you the response that they

think you want to hear, or will be vague with you.

Do not disagree publicly with anyone in India. Titles such as professor, doctor,

or engineer are important in India, as is a person’s age, university degree,

caste, and profession.

India’s Business Culture (2 of 2)

• Indians prefer to do business with those whom they have

established a relationship built upon mutual trust and

respect.

• Punctuality is important.

• Indians generally do not trust the legal system and

someone’s word is often sufficient to reach an agreement.

Use the right hand to give and receive business cards. Business cards need

not be translated into Hindi but always present your business card so the

recipient may read the card as it is handed to him or her. This is a nice,

expected gesture in most countries around the world.

Business Climate Across Countries

• Ease of doing business rankings based on how easy it is

to:

– start a business

– deal with construction permits

– register property

– get credit

– protect investors

– pay taxes

– trade across borders

– enforce contracts

– resolve insolvency

– get electricity

The World Bank and the International Finance Corporation annually rank 189

countries in terms of their respective ease of doing business

(http://www.doingbusiness.org/rankings). The index ranks nations from 1 (best)

to 189 (worst).

Africa’s Business Climate

• About 30 African countries are considered democracies.

• Currencies in Africa are stabilizing and many countries are

fund-raising to build modern highways, ports, and power

grids.

• Many African and non-African companies are launching

operations in Africa due to the rapidly growing middle class

and an average G D P growth of 5 percent for the continent

through 2020.

• McKinsey predicts that by 2025, 50 percent of Africa will be

online.

The general stereotype of Africa is rapidly changing from subsistence farmers

avoiding lions, to millions of smartphone-carrying consumers in cities

purchasing products.

China’s Business Climate

• As the world’s most populous country, China’s economic

output annually exceeds the United States.

• China ranks about 90th out of 190 countries in terms of

doing business.

• China accounts for nearly one-third of the global market for

cars.

• China has a relatively low ranking in ease of doing

business because of human rights issues and substantial

disregard for copyright, patent, and trademark rules of law.

China has tremendous importance globally because of its economic might.

Indonesia’s Business Climate

• Indonesia is a democratic Pacific archipelago comprised of

thousands of islands.

• Indonesia’s currency is the rupiah and its economy is one

of the fastest growing in Asia, behind China and the

Philippines.

• Indonesia’s G D P growth is 5 percent in 2017.

• The economic forecast for Indonesia is very bright.

Despite its large population and densely populated regions, Indonesia has the

world’s second-highest level of biodiversity, with vast areas of wilderness and

abundant natural resources.

India’s Business Climate

• India ranks 130 in terms of ease of doing business.

• While it ranks the lowest among BRICS nations, India has

made substantial progress in some areas.

Online activity has accelerated in India – in 2017, India replaced the U.S. as

the country that downloaded more apps from Google’s Play Store than any

other on the planet.

Mexico’s Business Climate

• The country of Mexico is now the fourth-largest auto

exporter in the world, behind Japan, Germany, and South

Korea.

• Mexico auto industry now employs one of every six

Mexican factory workers and comprises one third of all

exports from Mexico.

• Foreign direct investment (F D I) in Mexico has surged to

exceed $30 billion annually.

Mexico is especially attractive for manufacturing products that are bulky or

costly to transport, such as automobiles.

Figure 11.2 How to Gain and Sustain

Competitive Advantages

Slide 1: Strategic Management Concepts: A Competitive Advantage Approach, Concepts and Cases
Slide 2: Learning Objectives (1 of 2)
Slide 3: Learning Objectives (2 of 2)
Slide 4: Figure 11.1 The Comprehensive, Integrative Strategic-Management Model
Slide 5: Global/International Issues
Slide 6: The Nature of Doing Business Globally
Slide 7: Globalization
Slide 8: Multinational Firms
Slide 9: Table 11.2 Corporate Tax Rates Across Countries in 2018 (From High to Low) (1 of 2)
Slide 10: Table 11.2 Corporate Tax Rates Across Countries in 2018 (From High to Low) (2 of 2)
Slide 11: Advantages of Global Business (1 of 2)
Slide 12: Advantages of Global Business (2 of 2)
Slide 13: Disadvantages of Global Business
Slide 14: The Global Challenge (1 of 3)
Slide 15: The Global Challenge (2 of 3)
Slide 16: The Global Challenge (3 of 3)
Slide 17: American Versus Foreign Business Culture
Slide 18: Table 11.4 Cultural Pitfalls to Avoid to be a Better Manager (1 of 2)
Slide 19: Table 11.4 Cultural Pitfalls to Avoid to be a Better Manager (2 of 2)
Slide 20: Cultural Differences between U.S. and Foreign Managers (1 of 3)
Slide 21: Cultural Differences between U.S. and Foreign Managers (2 of 3)
Slide 22: Cultural Differences between U.S. and Foreign Managers (3 of 3)
Slide 23: Communication Differences Across Countries
Slide 24: Mexico’s Business Culture
Slide 25: Japan’s Business Culture
Slide 26: China’s Business Culture
Slide 27: India’s Business Culture (1 of 2)
Slide 28: India’s Business Culture (2 of 2)
Slide 29: Business Climate Across Countries
Slide 30: Africa’s Business Climate
Slide 31: China’s Business Climate
Slide 32: Indonesia’s Business Climate
Slide 33: India’s Business Climate
Slide 34: Mexico’s Business Climate
Slide 35: Figure 11.2 How to Gain and Sustain Competitive Advantages
Slide 36: Copyright