Outside–USA

Strategic
Planning

Chapter Two

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 Learning Objectives

1. Discuss the nature of doing business globally,

including language and labor union issues.
2. Explain the advantages and disadvantages of doing
business globally.
3. Discuss the global challenge facing firms and why
this is a strategic issue.
4. Discuss tax rates and tax inversions as strategic
issues.

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 Learning Objectives (cont.)
5. Compare and contrast American business culture
versus foreign business cultures; explain why this is
a strategic issue.
6. Discuss the business culture found in Mexico, Japan,
China, and India; explain why this is a strategic
issue.
7. Discuss the business climate in Africa, China,
Indonesia, India, Japan, Mexico, and Vietnam;
explain why this is a strategic issue.

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A Comprehensive Strategic-Management
Model

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 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.

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The Nature of Doing Business Globally

Exports of goods and services from the United

States account for only 13.5 percent of U.S.
gross domestic product.

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 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

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 Multinational Firms

Multinational Corporations

Organizations that conduct business

operations across national borders

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Advantages of Global Business
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.

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Advantages of Global Business
5. Foreign operations may result in reduced tariffs, lower
taxes, and favorable political treatment.
6. 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.

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 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.

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 The Global Challenge
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.

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Corporate Tax Rates Across
Countries in 2015

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Corporate Tax Rates Across
Countries in 2015 (cont.)

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 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.

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Cultural Pitfalls to Avoid to be a
Better Manager

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 Cultural Differences between U.S. and
Foreign Managers

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.

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 Cultural Differences between U.S. and
Foreign Managers

Family roles and relationships vary in different

countries.
Business and daily life in some societies are
governed by religious factors.
Time spent with the family and the quality of
relationships are more important in some cultures
than the personal achievement and
accomplishments espoused by the traditional U.S.
manager.
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 Cultural Differences between U.S. and
Foreign Managers

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.

Punctuality is a valued personal trait when

conducting business in the United States, but it is
not revered in many of the world’s societies.

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Cultural Differences between U.S. and
Foreign Managers
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.

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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.

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 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.

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 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.

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 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.

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 India’s Business Culture
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.

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 India’s Business Culture
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.

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 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

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 Africa’s Business Climate
 Recently, 25 African countries held democratic
elections, whereas two decades ago only 3 African
countries were 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 GDP growth of 5 percent for the
continent through 2017.
 The World Bank says food demand across Africa will
double between 2012 and 2020.

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 China’s Business Climate
 The International Monetary Fund (IMF) recently reported
that China, the world’s most populous country, has
overtaken the United States as the world’s number-one
economic powerhouse.
 China’s economic output in 2014 reached $17.6 trillion,
compared to the USA’s $17.4 trillion.
 China now accounts for 16.5 percent of the world economy,
compared to the 6.3 percent recorded by the United States.
 Experts have predicted this monumental shift in economic
power for years, but it has come much faster than
expected.
 Hundreds of companies are scurrying to set up business in
China.

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 Indonesia’s Business Climate
 A Pacific archipelago comprised of thousands of
islands, Indonesia’s stock market was the top
performer in 2014 among all Asian countries, and was
also the top performer in five out of the last seven
years in Asia.
 Indonesia’s currency is the rupiah and its economy is
one of the fastest growing in Asia, behind China and
the Philippines.
 Indonesia’s GDP is expected to grow 5.7 percent in
2015.
 As Southeast Asia’s largest economy, Indonesia elected
a new legislature and president in 2014.

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 India’s Business Climate
The GDP of India in 2015 is expected to reach
8.3 percent, making it the world’s fastest-
growing large economy, and the first time that
India’s growth rate has exceeded that of China
since the 1990s.

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 Japan’s Business Climate
Japan’s new Prime Minister Shinzo Abe was
reelected on a mandate to revive the economy.
Hopes for Abe’s “Three Arrows” of hyper-easy
monetary policy, government spending, and
reforms such as deregulation were tarnished
after Japan’s economy slipped into a recession in
Q3 2014, following a national sales tax increase
from 5 to 8 percent aimed primarily at reducing
Japan’s huge public debt, the worst among
advanced nations.

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 Mexico’s Business Climate
 The country of Mexico is now (2015) 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.
 No country was hurt more in the last decade by the
rise of China than Mexico, but Chinese policy today is
to boost wages and therefore boost consumer
spending.
 Foreign direct investment (FDI) in Mexico has surged to
exceed $30 billion annually.

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 Vietnam’s Business Climate
 Internet penetration has grown to 44 percent among
Vietnam’s 90 million people, up from 12 percent a decade
ago.
 Unlike another communist country, North Korea, Vietnam is
booming for business.
 The market for e-commerce in Vietnam generates $4 billion
in revenue annually.
 Telecommunications companies in Vietnam, such as Viettel
Mobile and Vietnam Mobile Telecom Services, provide the
lowest data prices in the world at just over $3 per gigabyte.
 Vietnamese are among the most prevalent watchers of
videos on smartphones in the world.

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