International International Management Management

ConcernsConcerns

Lecture 22Lecture 22

Global DifferencesGlobal Differences Average paid vacation days per yearAverage paid vacation days per year

Paid vacation days per year required Paid vacation days per year required by lawby law

Average paid vacation days Average paid vacation days per yearper year

Germany:Germany: 3030

Italy:Italy: 3030

France:France: 2525

Netherlands:Netherlands: 2525

Average paid vacation days Average paid vacation days per yearper year

Britain:Britain: 2525

Belgium:Belgium: 2424

Japan:Japan: 17.517.5

U.S.:U.S.: 10.210.2

Paid vacation days per year Paid vacation days per year required by lawrequired by law

France:France: 2525

Germany:Germany: 2424

Italy:Italy: 2020

Netherlands:Netherlands: 2020

Paid vacation days per year Paid vacation days per year required by lawrequired by law

Britain:Britain: 2020

Belgium:Belgium: 2020

Japan:Japan: 1010

U.S.:U.S.:

Labor CostsLabor Costs

Average production worker Average production worker compensation per hour compensation per hour

Labor Costs (2002)Labor Costs (2002)

U.S.U.S. $17.10$17.10

JapanJapan 21.42 21.42

GermanyGermany 27.31 27.31

MexicoMexico 1.38 1.38

Fastest Growing Auto Fastest Growing Auto Market?Market?

Total vehicle sales increase 75% Total vehicle sales increase 75% from 2002 to 2003.from 2002 to 2003.

Chinese consumption in ‘03Chinese consumption in ‘03

50% of world’s concrete output50% of world’s concrete output 33% of world’s steel output33% of world’s steel output 25% of world’s copper output25% of world’s copper output 20% of world’s aluminum output20% of world’s aluminum output

(Fortune, 6-8-(Fortune, 6-8-04)04)

Health Insurance Costs Per Health Insurance Costs Per CapitaCapita

UKUK $1400$1400 CanadaCanada $2300$2300 GermanyGermany $2400$2400 USUS $4200$4200

(2003, in US dollars)(2003, in US dollars)

CEO PayCEO Pay

Manufacturing SectorManufacturing Sector

CEO pay as a factor of average CEO pay as a factor of average worker payworker pay

(Business Week, May 6, 2002)(Business Week, May 6, 2002)

CEO PayCEO Pay

EnglandEngland 24x average worker’s pay24x average worker’s pay

GermanyGermany 15x average worker’s 15x average worker’s paypay

Sweden Sweden 13x average worker’s pay13x average worker’s pay

USUS ??

Global Pricing – Volkswagen Global Pricing – Volkswagen GolfGolf

Finland:Finland: $ 8,290 $ 8,290 France:France: 10,51010,510 Italy:Italy: 10,69010,690 Germany:Germany: 11,04011,040 Britain:Britain: 13,04013,040

(Year 2000)(Year 2000)

Economic Market Economic Market OrganizationsOrganizations

NAFTANAFTA

United StatesUnited States MexicoMexico CanadaCanada

European UnionEuropean Union

28 countries and counting 28 countries and counting (members & applicants)(members & applicants)

World Trade OrganizationWorld Trade Organization

146 Member Countries146 Member Countries

MercosurMercosur(Southern Common Market)(Southern Common Market)

ArgentinaArgentina BrazilBrazil ParaguayParaguay UruguayUruguay

MercosurMercosur(Southern Common Market)(Southern Common Market)

ChileChile BoliviaBolivia

PeruPeru (Venezuela)(Venezuela)

Andean Common MarketAndean Common Market

BoliviaBolivia ColumbiaColumbia EcuadorEcuador PeruPeru VenezuelaVenezuela

FTAA FTAA (Free Trade Area of the (Free Trade Area of the

Americas)Americas)Alliance of the AmericasAlliance of the Americas

From Alaska to ArgentinaFrom Alaska to Argentina

SAFTASAFTASouth Asian Free Trade AreaSouth Asian Free Trade Area

IndiaIndia PakistanPakistan Sri LankaSri Lanka BangladeshBangladesh NepalNepal BhutanBhutan MaldivesMaldives

2003 Top U.S. Trade 2003 Top U.S. Trade PartnersPartners

1.1.

2.2.

3.3. China China

4.4. Japan Japan

5.5. Germany Germany

2003 Top U.S. Trade 2003 Top U.S. Trade PartnersPartners

6.6. United KingdomUnited Kingdom

7.7. South KoreaSouth Korea

8.8. TaiwanTaiwan

9.9. FranceFrance

10.10. ItalyItaly

Global Business TermsGlobal Business Terms ExportingExporting

Licensing/FranchisingLicensing/Franchising

Joint VentureJoint Venture

Wholly Owned SubsidiaryWholly Owned Subsidiary

ExportingExporting Selling products or services produced Selling products or services produced

in one country to customers in in one country to customers in another countryanother country

ExportingExporting

Entry without ownership (EWO)Entry without ownership (EWO) Beware of tariffs (Hail Free Trade Beware of tariffs (Hail Free Trade

Zones!)Zones!) Intracorporate TransfersIntracorporate Transfers

– Ford plant in Mexico exports fuel tanks Ford plant in Mexico exports fuel tanks to Ford assembly plants in U.S.to Ford assembly plants in U.S.

ExportingExporting

Overseas DistributorsOverseas Distributors– Understand the marketUnderstand the market– Understand the cultureUnderstand the culture– Understand the product/serviceUnderstand the product/service

Licensing/FranchisingLicensing/Franchising

Using the Using the logo/system of logo/system of another companyanother company

LicensingLicensing

Selling the right to brand names, Selling the right to brand names, patents, manufacturing technology, patents, manufacturing technology, or intellectual propertyor intellectual property

EWOEWO Avoids high tariffsAvoids high tariffs

LicensingLicensing

Licensor gives up considerable Licensor gives up considerable controlcontrol

May be educating a potential rivalMay be educating a potential rival– Mitsubishi and HyundaiMitsubishi and Hyundai

Microsoft in the PRCMicrosoft in the PRC

FranchisingFranchising

Selling the contractual rights to Selling the contractual rights to methods, trademarks, products, methods, trademarks, products, procedures, and marketing strategiesprocedures, and marketing strategies

EWOEWO Allows quick expansion by franchiserAllows quick expansion by franchiser

Joint VentureJoint Venture A company from one country pools A company from one country pools

its resources with those of a foreign its resources with those of a foreign companycompany

Joint VenturesJoint Ventures

Shared ownership between Shared ownership between companiescompanies

Set up as a separate legal entitySet up as a separate legal entity

Joint VenturesJoint Ventures

Large MNC with a product design and Large MNC with a product design and technological expertise partners with technological expertise partners with local firm that offers marketing local firm that offers marketing expertise in that cultureexpertise in that culture

Joint VenturesJoint Ventures

Sharing of costs/risksSharing of costs/risks

Chrysler and BMW built a $500 Chrysler and BMW built a $500 million engine plant.million engine plant.

Joint VenturesJoint Ventures

Economies of scale required selling Economies of scale required selling 400,000 of those engines. Neither 400,000 of those engines. Neither Chrysler nor BMW thought they could Chrysler nor BMW thought they could sell that many engines alone. Win-sell that many engines alone. Win-Win.Win.

Wholly Owned SubsidiaryWholly Owned Subsidiary

An independent company owned by An independent company owned by the parent corporationthe parent corporation

Wholly Owned SubsidiariesWholly Owned Subsidiaries

OwnershipOwnership More ControlMore Control More closely coordinate worldwide More closely coordinate worldwide

opsops Greater expense and riskGreater expense and risk

Wholly Owned SubsidiariesWholly Owned Subsidiaries

Greenfield approachGreenfield approach– Time consuming and expensiveTime consuming and expensive

Acquisition approachAcquisition approach– Complicated negotiations and financial Complicated negotiations and financial

transactionstransactions