Overview Of International Business Functions

Overview Of International Business Functions Arvind V. Phatak Carnell Professor of Management and International Business; Ex. Director, IGMS/CIBER

Presentation Format Drivers of Globalization

Effects of Globalization

Globalization’s Challenges to Business Firms

Impacts on Curriculum

Major Skills and Characteristics of New Employees (On a 5-point scale) Knowledge of Other Cultures: 4.2 Cross-Cultural Communications skills: 4.2 Experience in IB: 4.2 College Degree: 4.2 Experience in related functional area: 4.1 Fluency in Foreign Language: 4.1 General knowledge of other countries: 4.0

Globalization • The international Monetary Fund defines it as “the growing economic interdependence of countries worldwide through the increasing volume and variety of cross-border transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology

Drivers Of Globalization

Death Of Distance • Countries inter-connected by rapid flows of knowledge and information • E-mail and chat rooms • Vide Conferencing • Cell phones • Satellite Transmission • BBC, CNN, Star, Al Jazeera

Death Of Time • London – New York • • • • •

1930: Steam ships, 10 days 1950s: Propeller Aircraft 200-300 mph, 2 days 1960s: Jet Aircraft 500-700mph, 8 hours 1990s: Supersonic Jets, 3 hours Distance measured in time to get there

The Push Towards Free Trade • International Trade measured by volumes of imports and exports • International trade growing at a sky rocketing pace • Increasing economic interdependence among countries

The Push Towards Free Trade • World exports of goods $ 2 Trillion in 1991, $ 6 Trillion in 2001 • World economy growth – 3 % • World trade growth – 6 % • Significant increase in cross border investments in portfolio and Foreign Direct Investment

Creation of a Global Labor Force • Jobs come to where people are • Indian Software industry serves the needs of Europe and American markets • China dictating price of consumer goods • Fast approaching global wage rate for skilled and unskilled workers • Global workforce determines global prices of goods and services • People > Jobs • Jobs > People

Porous Borders Between countries • Lowering of barriers to immigration • Increase in transfer of wealth, knowledge and technology among countries • Economic linkages between adopted and mother countries – Indian and Chinese Diaspora has its footprints in every country in world

Porous Borders Between countries • Pre-1964: Immigration restrictions against Asia Pacific triangle • Post 1964: Non-European Immigration world wide • Ease of visa restrictions: H1B

Globalization of Financial Markets • What happens in US impacts rest of the world • Interest rates, stock markets, currency values are all interconnected • A country’s ability to compete is often dictated by events in distant parts of the world

Global Thrust for a Market Economy • Centralized planning replaced by free markets and economic liberalization • Deregulation of airline, financial services and telecommunications in developed and developing countries • Welcome mat for foreign companies in consumer products • Opportunities in infrastructure projects

Global Thrust for a Market Economy • The fall of the Soviet Union has given a boost to free enterprise and market based economies.

Current trends in International economy • Privatization – Huge public sector debts – Poor performance of SOEs – Raise revenue for state – Attract foreign investment and technology

Deregulation and Privatization of Commerce and Industry Globally • Money is flowing across national boundaries • Number of international airlines has grown • Number of passenger miles flown has shot up • The tourism and hospitality industry has flourished

Rapidly Falling Freight costs Three notable economic trends: • World economy has become far less transport-intensive • “Containerization” and “intermodal transportation” has led to steep drops in the cost of cargo handling • Deregulation of the airlines and telecommunications has brought about huge drop in the data transfer and air transport

Effects Of Globalization

Movement Toward Free Trade and Trade Blocs Types of Trade Blocs Free Trade Area: member countries eliminate trade barriers among themselves, but retain right to impose barriers on non-members. Customs Union: member countries remove barriers among themselves and have common barriers on nonmember countries Common market: A customs Union that allows free movement of factors of production Economic Union: A common market where economic policies are also harmonized

European Union

ASEAN

Mercosur

Trade Blocs and Global Free Trade

Trade Bloc 1990 1995 1996 1997 1998 1999 226273 394472 437804 496423 521649 581162 NAFTA 981260 1259699 437804 496423 1226988 1376314 EU 28648 81911 86923 88770 71669 81929 ASEAN MERCOSuR 4127 14199 17075 20772 20352 15313

Evolution & Growth of Global Companies • Principally companies from Europe, United States, Japan and South Korea • • Global Companies and their global network of subsidiaries are connecting countries and companies world-wide.

Table 1-2

Challenges Faced By Businesses in Global Environment

Environmental Challenges Political Ideologies Economic Systems Technological Sophistication Legal Challenges Cultural Distance

Impacts on Business Functions Marketing: advertisements, packaging Finance: pricing, balance sheet effects Production: reward systems, technology Leadership: styles Communications: methods and modes .

The Importance Of Understanding Culture and Cultural Differences

Iceberg

Major Business languages Globally • • • • • • • •

English Chinese Spanish Hindi Bengali Japanese Portuguese Russian

Top Languages

8%

7%

6%

C hinese, Mandarin

5%

Hindi English

12%

Spanish 35%

Bengali Portuguese

13% 14%

Russian J apanese

World Religions and Business • • • • •

Christianity Judaism – Holidays, Sabbath, dietary prohibitions Islam – banking, holidays Buddhism Hinduism – dietary prohibitions Top Religions

C hristia n Islam

14%

6%

Hinduism

4% 3% 2%

Secula r/ No nreligious Buddhism 34%

15% 22%

C hinese Traditio na l religio n prima l-indigeno us Africa n Tra ditiona l & Dia spo ric

Corruption rankings

South Asia West Asia The Western Eastern Americas Europe Europe

Region 7 Nationa

East Asia

Africa

Corruption Rankings Nigeria

Africa Nigeria

Bostwana

Africa Bostwana

Vietnam

East Asia Vietnam

China

East Asia China

Singapore

East Asia Singapore

Pakistan

South Asia Pakistan

India

South Asia India

Sri Lanka

South Asia Sri Lanka

Kazakhastan

Series1

West Asia Kazakhastan

Israel

West Asia Israel

Ukraine

Eastern Europe Ukraine

Slovenia

Eastern Europe Slovenia

Greece

Western Europe Greece

Finland

Western Europe Finland

Venezuela

The Americas Venezuela

USA

The Americas USA 0

2

4

6 Corruption Index

8

10

12

Cost Of Corruption

Value Orientations In Society Universalism---------------Particularism Affect Neutrality---------------Affect Specificity---------------Diffusion Achieved Status---------------Ascribed Status Self Interest---------------Collectivity

Private and Public Self

Public Self

Private Self

Private and Public Self

Private and Public Self

Private and public Self

Cultural differences • Gestures and body language • Marketing • Colors – Prussian blue for singer – Red and Gold are tops in China – White in India and Japan = Death

The Language of Time American Culture Time is Money! There is a limited amount of time available to each person.

Language of Time Eastern Culture Time does not begin at birth nor end at death. Time is an inexhaustible resource.

Language of Space Office Location

Boss is in the Penthouse

Boss is in the Center

Language of Things

Language of Agreements T C A R T CON

U.S. VIEW

The end point of the negotiation

Language of Agreements EASTERN VIEW

This is the beginning of the negotiations

CON T

RAC

T

Language of Friendship You take care of a friend’s family!

Friendship is a lifetime thing! Few -- but very good friends!

Eastern Cultures

Key IB Success Factors • • • • • • • • •

Technical Ability Managerial Skills Cultural Empathy Adaptability and Flexibility Diplomatic Skills Language Aptitude Personal Motives Emotional Stability and Maturity Adaptability of Family

The IB Curricular Tripod Language

Area Business Leadership Business

Questions