global business operations

wallbroadSecurity

Dec 3, 2013 (3 years and 9 months ago)

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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 employees

3.
Annual U.S. payroll of $1.27B

4.
$12B in U.S. parts purchased

5.
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
multinational
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 risk

away from your
business is
the mating
game of

global business
logistics



THE RISKS OF:

1.
Insurance

2.
Currency exchange

3.
Title transfer of goods

4.
Warehouse security

5.
Weather

6.
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
?

V
alue
A
dded
T
axes 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’t

operate at all



THE ICANN CONTROVERSY

1.
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 projects

4.
Pressures to cut corners ethically in nations
with weak institutions

5.
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