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Shane Daly Business Studies Global Business

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Global Business
Nature & trends Growth of global economy and changes in mkts
Globalisation is a process by which markets become increasingly integrated through the removal of trade barriers and through the transfer of goods, services, capital, labour, finance and intellectual property among nations. Through globalisation, economic events in one country can potentially have significant impacts on business elsewhere. Globalisation has diversified culture but at the same time, the cultures of some countries have become dominant.

Changes in markets Financial/ Since the 1970s when many countries phased out their controls on foreign exchange capital trading, international financial flows have expanded very rapidly. markets Consequently, globalisation has increased access to global finance, allowing businesses to grow and expand their operations. Labour The increasing importance and role of transnational corporations (TNCs), the removal markets of many international investment laws and effective travelling methods have allowed many businesses to move their operations to countries that have the most appropriate supply of workers and biggest advantage in terms of cost. Consumer The growth of international trade has facilitated consumer access to goods produced all markets over the world, usually at lower prices. Bizs now can reach much larger markets and take advantage of economies of scale. Consumers can make more informed choices about what they buy as they have more information about different products and their alternatives.

Trends in global trade since WW2

Dramatic increase in international trade since WWII has been the most obvious characteristic of globalisation. The types of goods and services traded between countries have also changed over time. Since the 1950s, the stronger growth in exports has been in manufactured goods and capital equipment. The only primary products that have experienced consistently strong growth are oil and fuel products. More recently, services have been the faster growing area of global trade, but still remain small in comparison to merchandise goods. Global trade remains dominated by the largest economies in North America and Western Europe, which together account for over half of global trade. The fastest-growing region, however, is Asia, which now accounts for over a quarter of global trade.

History 1945 to 1960 US domination of global trade:

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Only US had an economy that was able to produce goods on a large scale. There was little competition for US companies at home or overseas because industrial regions of Europe and Asia had suffered enormous damage after WWII. 1960 to 1980 Japan and Europe re-emerge: Europe and Japan had largely rebuilt their industries. They recommenced their global trade. 1980 to the present the global marketplace: Integration of the worlds markets has dramatically altered the nature and pattern of global trade.

Drivers of globalisation
Role of TNCs TNC = a biz that has productive activities in two or more countries through subsidiaries. It is managed, controlled and owned globally. TNCs have their greatest impact on globalisation through the movement of goods and resources between nations accounting for over 2/3 of global trade. Global consumers Increased tourism and global branding have also had a considerable impact on consumption, leading to more similar tastes and lifestyles in different countries creating global consumers. Businesses that have reached the maturity stage of their products life cycle in their home markets can find global consumers in other markets. As the living standards in many developing nations improve, opportunities also exist for global businesses to expand their markets. Impact of technology Improvements in transport e.g. containerisation have facilitated global trade growth. New automation technologies have driven developing nations desire to attract foreign investment and gain the benefits of technology transfer. Information and communications technology (ICT) including the Internet and cable television has allowed global businesses to advertise their products around the world and reach a much larger audience. Global communications systems make it possible for businesses to coordinate production and distribution worldwide. Electronic commerce (e-commerce) has become a major medium for business transactions, both with suppliers and customers. These transactions are responsible for cost reductions throughout many organisations and accelerated the pace of globalisation greatly. Role of government Governments have played a major role in promoting globalisation through policies that seek to open up their economies to international influences. Governments have progressively reduced the barriers to trade and investment such as tariffs which are taxes placed on imported goods. Australian government has been active in regional negotiations such as Asia-Pacific Economic Cooperation to promote open trade and practical economic cooperation.

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Many countries esp. the developed countries have floated currencies on foreign exchange markets and relaxed many of the restrictions on the movement of international finance, and investment. Deregulation of financial markets Deregulation of financial markets refers to reduction or abolitions of the restrictions on the movement of finance between nations. As a result, financial and investment flow across borders has grown dramatically over the past two decades. This has seen the barriers to foreign direct investment progressively eased. Through this, businesses gain greater accesses to investment finance from other countries

Interaction between global biz and Aust. domestic biz

Despite its population size and distant location, Australia has always been an important trading country, relying on the export of food and raw materials and receiving large volumes of foreign investment. Increasingly Australian domestic business has been affected by the expansion of global business activities. Interaction between domestic and global business Increased competition o Trade barriers have been reduced, Australian businesses increased competition from imports. Foreign investment o Overseas investors see Australia as a safe and profitable area for investment. o As a result, many Australian firms have been taken over by foreign corporations. o The Australian economy has expanded due to capital inflows. Part of the global network o Australia has become part of the global network. o Sydney in particular is the regional headquarters for many TNCs. o The Sydney Stock Exchange is a very important world financial body. Global business cooperation o To achieve global economies Australian businesses such as Qantas have increasingly sought business partners overseas to coordinate their global activities. Export and foreign business opportunities o Many Australian businesses have seen the opportunities that globalisation presents. o CSR and BHP for example have established operations in foreign countries such as New Zealand, Taiwan and USA. Increased efficiencies o In order to compete against increased foreign competition and to gain export markets Australian businesses have had to become more efficient.

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o Inefficient businesses have ceased to operate; as a result Australian consumers benefit.

Global business strategy

Methods of international expansion
Licensing/ franchising

Methods for international expansion


Management contracts

Relocation of production

Foreign direct investment

Exporting When a biz manufactures products in its home country and sells them in foreign mkts Types of exporting: o Indirect = biz sells products to domestic consumers who then sell overseas o Direct = biz sells products directly in another country o Intra-corporate (transfer) = biz sells products to a subsidiary firm in another country Advantages Disadvantages Inexpensive compared to setting up Barriers of trade = increases price of exported goods production overseas Opportunity to gain valuable High transport costs = uneconomical experience Overseas agents/ on-sellers may not do a good job Low cost competition in country Foreign direct investment (FDI) When a biz in one country owns property, assets or biz interests in another country FDI methods: o Greenfield = commencing a new biz venture from scratch in a foreign country o Acquisition = Taking over/ merging with an existing biz already operating overseas o Joint venture = 2+ bizs form a jointly owned but separate biz Advantages Disadvantages Parent biz has direct control over foreign Increased financial risk as parent biz is exposed to facilities and can monitor and adapt to economic uncertainties of foreign country changes better (currency fluctuations, politically unstable)

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Low transport costs Transfer of people/tech/products becomes easier

Social, cultural, language barriers

Relocation of production Domestic production facility closed and set up in a foreign country AKA relocating offshore Has increased recently as bizs in developed world relocate production to lower cost developing countries due to global competition Advantages Disadvantages Decreased production costs = increased profits Consumer backlash of exploitive work practices Modern facilities can be constructed = increasing Biz seen as foreign, non-local = less sales efficiency Some Gov.s over financial assistance to encourage New local workforce needs to be trained = this expensive Management contract An arrangement where a global biz provides managerial/ technical assistance to a second/ host biz for a fee E.g. Hilton Hotels offers mgt expertise for hotels that use the Hilton name Types of assistance: o Managerial = managers from parent biz help set up overseas o Expertise = experts assist in expansion o Operational = managers from parent biz set up operations overseas Advantages Disadvantages Parent biz can earn extra money + more Costs second/ host biz control over standards Fees paid to parent biz = expense = tax deduction Parent biz has to deal with political pressures of the foreign country (foreign exchange restrictions)

Licensing and franchising Licensing = when one biz (licensor) permits another biz (licensee) to produce and mkt its products Franchising = Specialised form of licensing = franchisor grants a franchisee the right to use a companys trademark and distribute its products Advantages Disadvantages Little financial risk for licensor/ franchisor Risk of loosing intellectual property rights to licensee/ franchisee Useful for firms lacking the capital for Difficult to maintain quality overseas expansion/ operation Quick way to develop a global presence Profits shared between two parties

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Reasons for international expansion

Tax minimisation Increasing sales & finding new mkts Acquiring resources and technology

Responding to regulatory differences

Reasons for international expansion


Cushoining economic cycles

Exploitng economies of scale

Minimisation of competitive risk

Increasing sales and finding new markets The larger the market, the greater the potential sales Australia = small market (22mil) compared to Asias (2bil+) When the market is saturated or experiencing an economic downturn biz needs to look elsewhere Products could be in diff stages of their life cycle in diff countries so global expansion can tap into a growing mkt overseas Acquiring resources and technology Resources (materials, labour, capital or technology) may be unavailable or more expensive at home. Developing a variety of resource sources = spreads the risk Labour markets attract businesses to global markets; keep prices competitive by locating production in countries with low cost labour. Diversification Spreads the risk and protects against: unreliable suppliers, price fluctuations, poor sales in one country, the economic cycle and political risks Minimisation of competitive risk By operating in many national markets, a business can make itself less vulnerable to competitive threats. Large/ relatively wealthy markets provide opportunities, but as the marketplace becomes more global, non-competitive markets are very rare.

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Some businesses develop market niches. Exploiting economies of scale Economies of scale are the cost savings a business gains by increasing the size of its production. Reduction of costs may come about by: o Spreading fixed costs over larger output o Becoming more efficient due to large scale production o Bulk purchases of materials or transportation Generated by selling worldwide or establishing production operations in low labour cost countries. Increasing size of market = business reduce costs by larger production runs = price per unit of output falls. Cushioning the economic cycle Economic cycle = the periodic rise and fall in an economys level of activity. By spreading sales in more than one country, a business will be less exposed to changes in demand in any one market because of differences in the timing of the economic cycles in different countries. While sales may fall in one country in recession, they increase in another undergoing recovery. Responding to regulatory differences Domestic laws may affect the ability of businesses to compete internationally by increasing their costs and reducing their international competitiveness. Some counties have lax labour laws with low minimum wages and very basic safety standards and workers compensation. These advantages attract many TNCs to developing nations. Tax minimisation International businesses can reduce their tax burdens by locating their activities in countries with favourable taxation laws. Tax havens are countries that have little or no corporate income taxes

Specific influences on global business

Financial influences
Currency fluctuations Exchange rate = the price of one countrys currency in terms of other countries. The foreign exchange (forex or fx) market determines the price of one currency relative to another Exchange rates move in response to demand and supply and will appreciate or depreciate accordingly

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For example if the demand for the $AUD increases then the $AUD appreciates, vice versa demand decrease, dollar depreciates Causes of changes in demand for a currency include: o Changes in exports, interest rates = speculation of the currency will appreciate Causes of changes in supply for a currency include: o Changes in exports, interest rates speculation Why are exchange rate movements a problem for global bizs? o Bizs need stability in cash flow which is affected by rate change, if not can effect liquidity, solvency etc. Interest rates Low interest rates cost of borrowing falls, allowing businesses to expand their activities. A biz that plans to expand globally will normally need to raise finance. Aus. interest rates are normally higher than other countries so bizs may choose to borrow from overseas. But as the loans are written in the countrys currency, although the interest rate is lower, the biz will have to trade against possible changes in the value of repayments due to currency fluctuations. Overseas borrowing International capital market: Network of individuals, businesses, financial institutions and governments that invest and borrow across national borders. Joins borrowers and lenders in different national capital markets. Large international banks play a central role. Made up of 3 main parts: International bond market o Market for the sale of bonds issued by organisations outside their own country. o Bonds when companies borrow money from general public, lender receives a bond; a formal record specifying value of loan, when repayments will be made and how much will be repaid. o Business wanting access to larger pool of investors or lower interest rates can issue international bonds. Foreign bonds issued outside the borrowers country and are denominated in the currency of the country of issue. E.g. Australian company releasing bond issue in $US in the USA. Eurobond issued to lenders in other countries, in the borrowers own currency. E.g. Australian company selling a bond issue in $AU to another country. Eurocurrency market o Any currency that is banked outside its country of origin; important source of debt available.

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o Eurodollars (make up 80% of the market) are $US banked outside of USA. Others exist for Euro-yen, etc. o Major source of Eurodollars: Foreign governments or business people wanting to hold $US outside the USA. MNCs and TNCs with excess cash. European banks with foreign currency in excess of current needs. The reserves of countries with large trade surpluses. Offshore financial centres o Cities/ countries that provide large amounts of funds in currencies other than their own. o Used by TNCs to obtain low cost Eurocurrency loans.

Political influences
Political influences arise from the actions of governments both domestically and overseas. Governments can act to influence their domestic economy or, by acting collectively, they can enact agreements that influence a range of economies around the globe. Political risk = any political event that results in a drastic change to the countrys biz environment and that ultimately has a negative impact upon biz operations and profit Tensions between protectionism and free trade Protectionism o Protection is any type of government action that has the effect of giving domestic producers an artificial advantage over foreign competitors, thus putting trade restrictions on them. o The main protectionist measures include tariffs, import quotas, subsidies, local content rules, embargoes and quarantine restrictions. Arguments for: Arguments against
To protect weak domestic industries from strong foreign competitors. To protect domestic jobs. To protect national security by restricting sale of certain technology. To protect the health of citizens by banning products which do not meet specified health and safety standards. To retaliate against another countrys trade restriction. Causing artificially higher prices for consumer and producer products. Restricting consumer choice by offering less variety. Loss of jobs from export-oriented bizs As countries concentrate on producing goods they have a competitive advantage in resources are more efficiently allocated around the globe. Leading to lower economic growth rates. May restrict domestic businesses from expanding overseas due to similar barriers erected by other countries.

Free trade o Free trade allows free exchange of goods and services between countries. o Free trade policies encourage domestic business to expand internationally as previously closed markets open up. o Free trade policies could also lead to cheaper foreign-made products entering the domestic market. International organisations and treaties (WTO)

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International institutions deal with the problems created by globalisation, such as the instability on global financial markets, the risks of global financial collapse, and the provision of assistance to countries which are experiencing an economic crisis. World Trade Organisation (WTO). o WTO has become the major international organisation responsible for managing world trade and investment activities, with special reference to international trade laws. o Its role is to implement and advance global trade agreements and to resolve trade disputes between countries. o Its main goal is to reduce or eliminate barriers to global trade and promote its policies of free trade. o Undertakes a regular review of the trade policies of member nations through a continual process of revising the rules of international trade. Trade agreements Trade agreements (bilateral or multilateral) are formal agreements between nations regarding trade and exchange. They form trade agreements to ensure that they are in the best position to gain from growing trade opportunities. Essential that biz managers planning to sell to overseas markets be aware of the existence and functions of these agreements which may have an enormous impact upon a global businesss operations. Countries that participate in a trade agreement form a trading bloc. = an organisation of nations formed to promote free trade among its members and to create common economic policies. Trading blocs and regional trade agreements o The European Union is closer than ever to removing barriers to trade within Europe, having established its own parliament, commission, court and currency (the euro). o North American Free Trade Agreement (NAFTA) is the free trade zone incorporating Canada, the United States and Mexico. Through this, the economies of these three countries will be integrated with successive reductions in tariffs. Regionalism Regionalism is the expansion of trading agreements among geographically close countries. Regionalism may result in the creation of regional free trade zone which allows members countries to trade with each other without restrictions. Capital and labour also move freely between countries in the region as well, forming a common market. Countries in the region may proceed towards closer political ties by giving up various functions of government to a common authority which may determine various policies for all member countries.

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War and civil unrest Social unrest which escalates into prolonged civil disturbances or war has devastating consequences for any international business conducting trade with that country, especially if the business owns production facilities there. In such situations, the safety of personnel needs to be constantly monitored. As many countries experience periods of severe instability, all international businesses should constantly monitor the level of political risk and instability in the countries in which they do business. Within Australia, the Department of Foreign Affairs and Trade (DFAT) and Austrade provide up-to-date information about the level of political risk for each country of the world.

Legal influences
The legal system of a country refers to the laws that regulate behaviour and the procedures used to enforce the laws. Any global biz must be aware of the legal system of the host countries in which their biz is conducted because failure to abide by the law may result in severe consequences. Contracts Most business dealings involve some form of contract. A contract is a legally binding agreement which outlines the details of the agreement and the rights and obligations to each party involved. Contract law refers to those laws that govern the enforcement of a contract. If one of the parties believes that an obligation in the contract has not been fulfilled they will normally resort to contract law. Two main legal systems; common law and civil law
Common law Law based on tradition, judges decisions and custom. Civil law - Most common legal system which is based on a very detailed set of laws and is organised into codes which is what is permissible and what is not. - Here, contracts tend to be shorter and less specific because many of the issues that could arise are already covered in a civil code.

Dispute resolution Resolving a dispute between residents of two or more countries can be very complicated due to differences in legal systems and culture. As a safety precaution, many international businesses contracts specify answers to: o Which countrys legal system applies? o In which country should the dispute be settled? o How will the final decision be enforced? The courts of most major trading nations respect and enforce the conditions of such contracts. However, due to high expense incurred during a court case, businesses avoid resorting to the legal system (this is the last resort).

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Instead, they attempt to resolve disputes using less expensive methods e.g. negotiation, mediation or arbitration. Intellectual property Intellectual property refers to property such as a brand name, a computer program or an artistic work that is created by an individuals intellect. It is possible to establish ownership rights over IP through IP rights, including patents, trademarks and copyright. Weak protection (common in developing countries) of IP rights can cost international businesses a great deal of money. A patent gives the inventor exclusive rights to make, use or sell, and license others to make or sell a newly invented product or process. A trademark is a brand name or design that is officially registered. Copyright is the exclusive right of an author, artist or publisher to copy, publish or sell an original work. An international treaty such as Universal Copyright Convention provides some protection although not all countries have signed the treaties.

Social and cultural influences

Sociocultural characteristics are a system of values, beliefs, rules and customs that are shared among people in the society. It is imperative that international businesspeople fully understand and appreciate the unique characteristics of the countries they deal with. Failing to do so will result in lost business opportunities. Languages Not being able to understand a foreign language may prevent a business from fully connecting to a countrys culture, hence its target customer. Verbal communication issue and contract writing can be relatively easily dealt by a business through the use of translators, although misunderstanding may still occur. Non-verbal communication refers to the message we convey through body movements, facial expressions and the physical distance between individuals. It is a very powerful way of communication because great majority of a messages meaning is communicated through non-verbal gestures. Tastes Tastes refer to a particular liking for something e.g. foods and music. As a business expands into global markets, it will face a range of different tastes, affecting the success of its products and sparking the need for product differentiation esp. design, packaging and advertising. A biz needs to be aware of how local tastes can influence the demand for their products and must adapt the products to suit local preferences. A biz needs to be aware of a merging of taste as the pace of globalisation increases. Religion

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Religion influences its adherents to adopt certain values and abide by a particular moral and behavioural code e.g. food, clothing, time of the day, relationship with other people. When members of different religious groups work together, there may be some tension within the group. International managers need to respect the religious beliefs of workers and customers and adapt business practices to the religious constraints of other cultures. Varying business practices and ethics Each nation has a set of morals which dictate and influence what is deemed to be acceptable business practice. Through research, businesses operating overseas must be aware of the differences in business practices, or risk causing offence, or unknowingly running a business deal. DFAT offers free advice to Australian business managers who want to learn about the local customs and standards of behaviour for countries they trade with. An international business manager has to adapt to the hosts way of doing things to ensure business success.

Managing global business

Methods of payment There are a variety of payment methods designed to facilitate foreign trade One of the most crucial aspects of financial management is to select an appropriate method of payment which carries different levels of risk for both importers and exporters. Payment is complicated by the fact that the business may be dealing with someone they have never seen, who speaks another language, uses a different monetary system, who abides by a different legal system and who may provide difficult to deal with if problems occur later. Foreign trade is usually financed by credit Method of payment Payment in advance Letter of credit How it works Allows the exporter to receive payment and then arrange for the goods to be sent A commitment by the importers bank which promises to pay the exporter a specific amount when the documents proving the shipment are presented Easiest & quickest way of settling an international transaction. When the payment is sent to, but not received by, the exporter before the goods are transported A document drawn up by the exporter demanding payment from the importer at a specific time. There are two types: Document against payment = importer can collect the goods only after paying for them Document against acceptance = Importer can collect

Clean payment

Bills of exchange

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Open credit/ account

Open account

goods before paying Allows the importer access to the goods with a promise to repay at a later date.

Bill of exchange Exporters risk Clean payment Letter of credit Payment in advanced

Credit risks Importers risk Credit risk = the chance of the overseas purchaser of the product failing to pay. The foreign businesss payment record may be uncertain or hard to determine. Credit risks also increase because it is difficult to chase up unpaid accounts in different legal jurisdictions. An exporting business will usually assess the credit-worthiness of international customers before agreeing to provide goods or services on credit. Austrade offer credit checking services as well as other major banks. Hedging Hedging refers to the practice of reducing risk associated with any potential changes in asset prices which may be in the form of currency or interest rate fluctuations. Natural hedging = refers to strategies to minimise the risk of foreign exchange exposure: o Establishing offshore subsidiaries o Arranging for import payments and export receipts denominated in the same foreign currency this means any losses from a movement in the exchange rate will be offset by gains from the other o Implementing marketing strategies to reduce the price sensitivity of the exported products Derivatives Derivatives are hedging instruments/ tools used to hedge provided by banks Can minimise or spread the risk of exchange rate fluctuations when exporting or importing for a fee $ Derivatives types
Futures/forward (exchange contract)

Options contract

- An agreement to buy or sell assets at a specified date in the future for a specified price. - For example, the financial market guarantees the exporter, within the set time period, a fixed rate of exchange for the money generated from the sale of the exported goods. - Gives the option holder the right, but not the obligation, to buy or sell assets at some time in the future should asset prices be favourable. - Unlike future, forwards or swaps, options do not have to be used once purchased.

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- Option holders are protected from unfavourable exchange rate fluctuations. - More expensive but more flexible - An agreement by two parties to exchange assets on an agreed amount over time. - AUS biz borrows $AUS, Jap biz borrows YEN Bizs then swap loans. - Cheap way of borrowing other currencies - The main advantage of a swap contract is that it allows the business to alter its exposure to exchange fluctuations without discarding the original transaction.

Insurance Export Finance and Insurance Corporation (EFIC) o Federal agency that uses insurance and finance products to help increase Australias exports Marine insurance o Covers shipment by road, rail, air, sea Product liability insurance o Protects exporter from liability due to damage caused by the use of the product Currency risk insurance o Protects exporter from losses due to currency fluctuations (entering a forward exchange contract with bank) Obtaining finance Domestic capital mkt o Many AUS banks and non-financial institutions have facilities for organising finance International capital mkt o These financial institutions play a specialised role in accessing finance from a wide range of sources o They provide: finance for importing & exporting, working capital loans, cash mgt services, finance for mergers between domestic & foreign bizs o These international banks can access and transfer large amounts of money around the world at any time Eurocurrency o The currency of one country that is placed in a bank in another country o Makes offshore borrowing easier because it allows businesses to access foreign currency from within their own country.

It is essential to analyse international markets in greater depth compared to domestic markets because the business is not familiar with the culture and market attributes. Market research Gather information about the countrys economic, political, social and cultural features.

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Gathering secondary data will often be more cost effective especially for new businesses. Sources of information include government publications, international organisations, e.g. UN and WTO and DFAT. Marketers also need primary data while it may be time consuming to collect. Market research data can provide valuable insights into a specific markets cultural and economic features After gathering and analysing secondary and primary data, marketers can make specific marketing strategy i.e. marketing mix for that specific market. Global branding Is the worldwide use of a name, term, symbol or logo to identify products of one seller and differentiate them from those of the competitor. Businesses are increasingly using global branding for a number of reasons: o It can be cost effective because one advertisement can be used in a number of locations. o It provides a uniform recognisable worldwide image. o The successful name can be linked to new products being introduced into the market. However, there are some modifications to products and services depending on which country they are operating in (due to language issue or the problem that the brand name may pose) Standardisation and differentiation Standardised approach Marketing strategy that assumes the way the product is used and the needs it satisfies are the same in all markets. Marketing mix will be the same in all markets. Industrial goods are more likely to be standardised than consumer goods. Cost saving to businesses: o production runs may be larger, thereby achieving economies of scale o Research and development costs are reduced o Spare parts and after sales service are simplified o Promotion strategies may be standardised Differentiated approach Marketing strategy that assumes the way the product is used and the needs it satisfies are different between countries. This requires customising the marketing plan to fit the individual markets. They often adapt their products to suit local tastes or in order to gain a competitive advantage over their rivals. It may necessary to make modifications in order to meet foreign legal requirements. Mixed approach Possible for a biz to adopt a combination of two approaches to maximise each strategys advantage.

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E.g. standardising its name, logo, production methods and much of its menu as well as some local variations.

Operations Employment relations

Business should ask itself: Should a business specialise its production facilities in one country, its support services in another country and its distribution chain elsewhere (global web)? Should it have all these facilities in every country where its goods and services are sold (country specific)? Organisational structure The structure of a business depends on: The extent of businesss global operations Whether it makes or buys components The type of business. Staffing Involves the recruiting and selecting of qualified people to ensure the success of the biz A staffing system is concerned with the selection of employees for particular jobs. In a global business, finding the right people can be extremely difficult, esp. for management positions. These positions require bicultural people who are able to appreciate and understand the business practices and customs in the host country as well as being able to speak the language of both home and host country. Global staffing should never disregard the effect of the local culture when selecting employees. This is because in some cultures, family and tribal relationships are more important than technical qualifications when hiring employees. Disregarding it could possibly lead to staffing difficulties and a loss of productivity in the long term. Source of employees: Home country citizens of the TNCs own country Host country citizens of the overseas country Citizens of neither the home nor host country. Ethnocentric approach All key management positions are filled by parent company personnel. It may be practised when a business undertakes its first overseas expansion. Polycentric approach Personnel from the host country manage the subsidiaries, while the parent company personnel fill the key roles at company headquarters. Host countries prefer this system compared to the ethnocentric approach but it may still cause a degree of resentment among local employees within the subsidiary.

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This is because host country management have limited experiences and knowledge of the global business and their business objectives, thus limiting their productivity. Geocentric approach Seeks, trains and develops the best people from a worldwide pool of talent for key jobs throughout the organisation, irrespective of nationality. Businesses adapt their recruitment and selection practices to different cultures while maintaining their worldwide policies and identity. Often bring their managers from around the world to meetings and workshops with the intention of broadening everyones appreciation and understanding of the global environment. This can be difficult to achieve in practice. Shortage of skilled labour Global business may sometimes have difficulty in finding suitable host country employees for management positions. This shortage of skilled labour can be overcome by the global business transferring workers of the home country to manage the operation until local people can be found and trained. Sometimes global firm sends a team of specialists to assist in the establishment of a production facility, staying until local personnel were trained to run and maintain the new facilities. Labour law variations Global business must be aware of laws of different countries in terms of wages, work conditions, OH & S, discrimination issue and dispute resolution. A business that does not comply with local labour laws can face large financial penalties which can cripple a newly established operation. Absolute compliance with the law is required. In recent years, there has been increasing interest in establishing labour standards that could act as a safety net to protect the workers. Minimum labour standards are slowly being established among trade agreements This strategy is being opposed by many countries esp. developing countries as this reduces their attractiveness to firms considering international expansion.

Once the global business strategy is implemented, managers must continually evaluate the results. Evaluating involves the comparison of planned performance against actual performance. Business must constantly ask what the businesss objectives are and ask whether they are being achieved or not. By considering these questions regularly, management may clearly assess the degree of success of a particular strategy.

Modifications of strategies according to changes in global markets

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Global markets constantly change. Therefore, business should be constantly scanning the environment for changes that affect it. Constantly evaluating its present strategies with environmental scan, a business is in a strong position to respond to the changes by modifying its existing strategies. Modifying its existing strategies will ensure business success. As businesses become more global in their operations, they increasingly recognise the importance and necessity of pursuing global business goals with a consciousness of social and ethical responsibilities. Global businesses which take their social and ethical responsibilities seriously often outperform other companies. Companies should implement a policy of caring for the triple bottom line- economic, environment and social performance.

Management and responsibility in a global environment

Ethical practice
Global companies attempt to minimise their taxation liability to maximise their aftertax profit. Tax-minimisation practices: For Against As long as the TNC is only engaging in tax Decrease the tax revenue available to the avoidance measures, and not tax evasion, TNCs home country to help solve such then this is an ethical business practice. social problems as unemployment and poverty. Managers of any business have a financial Business is not paying its fair share of taxes obligation to their shareholders to maximise other individuals will have to pay more tax. after-tax profits (hence shareholder return) Consequently, global businesses must take advantage of tax minimisation schemes but must not exploit them beyond an accepted level, or they risk attracting public criticism and negative publicity. Tax Haven To reduce its tax obligation, a business can locate its activity in a tax haven, country that has a very low business tax rates or tax exemptions on certain types of business activities. Transfer pricing Transfer pricing provides the opportunity for the business as a whole to gain while both the buying and selling subsidiaries lose. This is because the subsidiaries receive a lower price for their product than if the transaction took place on the open market. This effectively hides any profit. The manipulation of the transfer price also reduces custom duties and important tariffs.

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Minimum standards of labour Labour standards refer to those conditions that affect a businesss employees. There is increasing pressure for businesses to ensure employees who work for low wages in many developing countries are not exploited by corrupt businesses (i.e. no safety precaution, poor work conditions and no other benefits). One area of special concern is the use of child labour in developing countries. These kids are involved in the manufacture of products for well-known TNCs who outsource production to countries that offer low-cost labour or no payment at all. To counter such conditions, some global businesses have adopted specific programs to eliminate child labour e.g. human rights program. Human rights code of conduct is one method of attempting to conduct business in a socially responsible way.