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Chapter Four
Multinationals and the Global Business System
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
McGraw-Hill/IrwinIntroduction to Business
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The Multinational Company
• Multinational companies - companies that operate and trade in many
different countries around the world
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Political Systems and National Governments
• Government - the political system chosen to create and
manage the set of laws, rules, and regulations that control the actions of people and companies that operate in a society
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Political Systems and National Governments
• Representative democracy - a form of government in which citizens
periodically elect individuals to represent their interests
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Political Systems and National Governments
• Totalitarian government - a form of government in which a person or
group of people attempts to exercise absolute control over all forms of business activity
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Political Systems and National Governments
• Communism - a one-party totalitarian system based on
the dogma that all property should be owned by the state and that no individual should have the right to own private property
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National Governments and Free Trade
• Free-trade agreements - joint decisions by countries to reduce or
eliminate trade barriers that impede the flow of products between nations
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National Governments and Free Trade
• Tariffs - taxes or duties on imported products that
raise the price at which they must be sold in foreign markets
• Quotas - restrictions on the amount of a good or
service that can be imported into a country
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Global and Regional Trade Agreements
• GATT (General Agreement on Tariffs and Trade)
- an international treaty between nations after WWII, dramatically fueling free trade
• Free-trade area - a group of countries that agree to promote
the free flow of goods and services between them
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The Global Environment of Business
• Global environment - the set of forces surrounding a company
that determine its ability to obtain productive resources – land, labor, capital and enterprise
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Forces in the Global Environment
Figure 4.2
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Specific Forces in the Global Environment
• Specific forces - forces in the global environment that
directly increase or decrease a company’s sales revenues or operating costs, and thus its profitability
• Suppliers, distributors, customers, competitors
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Suppliers
• Suppliers - the individuals and companies that provide
a company with the resources that it needs to produce goods and services
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Suppliers
• Global outsourcing - the process of purchasing inputs from
around the world to take advantage of differences in the cost and quality of resources
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Distributors
• Distributors - firms that link the companies that make
products with the customers who buy them
• Intermediary - a company such as a merchant, broker, or
wholesaler that buys the products of one company and sells them to another
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The Role of the Intermediary
Figure 4.3
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Competitors
• Market share - the total percentage of a product a
company sells in a particular market
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General Forces in the Global Environment
• Political-Economic forces• Socio-cultural forces• Demographic forces• Legal forces
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Political-Economic Forces
• Political-economic forces - changes that occur in the form of a
country’s social and political systems
• Free-market economy - economic system in which the production of
goods and services is left in the hands of private enterprise
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Political-Economic Forces
• Command economy - economic system in which the quantity and
price of goods and services that a country produces is planned by the government
• Mixed economy - economic system in which certain goods
and services are produced by private enterprise and others are provided via centralized government planning
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Changes in Political and Economic Forces
Figure 4.5
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Sociocultural Forces
• Sociocultural forces - changes in the social structure of a country
and in its class structure, culture, customs, and beliefs
• Values - general standards and guiding principles
that people in a society use to determine which kinds of behavior are right or wrong
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Sociocultural Forces
• Norms - unwritten codes of conduct that prescribe
how people in a particular culture should act in certain situations
• National culture - the particular set of economic, political, and
social values and norms that exist in a particular country
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Hofstede’s Model of National Culture
• Individualism versus collectivism• Power distance• Achievement-oriented versus nurturing• Long or short-term orientation
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Demographic Forces
• Demographic forces - changes in the characteristics of a
country’s population, such as its age, gender, ethnic origin, race, and sexual orientation
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Legal Forces
• Legal forces - changes in a country’s laws and regulations
that often occur because of changes in the political and ethical attitudes within a society
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Global Workforce Challenges
• Expatriate managers - domestic managers who work for their
companies abroad
• Host-country nationals - natives of a foreign country hired to
manage a multinationals divisions there
Read an article by Chris Westphal on living and working outside the US
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Global Organization Challenges
• Exporting and licensing• Network structure• Joint venture
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Exporting and Licensing
• Exporting - selling domestically produced goods and
services to customers in countries abroad
• Licensing - contracting with companies in other
countries in order to give them the right to use a company’s brand name and business model
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Network Structure
• Network structure - a system of task and reporting relationships
based on the use of electronic ties that links suppliers, manufacturers, and distributors
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Joint Venture
• Joint venture - an alliance in which companies from
different countries agree to pool their skills and resources to make and distribute a product together
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Wholly Owned Subsidiary
• Wholly owned subsidiary - business units established in countries
abroad to manufacture and distribute a multinational’s products
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Forms of Global Organizing
Figure 4.8
