CHAPTER 2:
STRATEGIC
PLANNING
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 issues.
4. Discuss tax rates and tax Inversions as strategic Issues.
5. Compare and contrast Filipino business culture
versus foreign business cultures.
6. Discuss the business culture found in Mexico, Japan,
China, and India.
7. Discuss the business climate in Africa, China,
Indonesia, India, Japan, Mexico, and Vietnam.
2-1. 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
Globalizat
ion• is a 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.
Multinational Firms or Multinational
• organizationsCorporations
that conduct business operations across
national borders.
Different Languages Globally
• A strategic issue facing many firms is whether to
publish their website material in different languages,
given that most of the world’s population does not
speak English.
Labor Unions across
Europe
• Prevalence of unions is a relevant factor
in many strategic decisions, such as
where to locate stores or factories.
2-2. Advantages and
Disadvantages of Doing
Business Globally
Potential advantages to initiating, continuing, o
expanding international operations are as follow
Advantages:
• Firms can gain new costumers for their products.
• Foreign operations can absorb excess capacity,
reduce unit costs, and spread economic risks over a
wider number of markets.
• Foreign operations can allow firms to establish low-
cost production facilities in locations close to raw
materials or cheap labor
• Competitors in foreign markets may not exist, or
competition may be less intense than in domestic
markets.
• Foreign operations may result in reduced tariffs, lower
taxes, and favorable political treatment.
• 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.
• Economies of scale can be achieved from operation in
global rather than solely domestic markets. Larger-scale
production and better efficiencies allow higher sales
volumes and lower-price offerings.
• A firm’s power and prestige in domestic markets may be
significantly enhanced if the firm competes globally.
Enhanced prestige can translate into improved negotiating
power among creditors, suppliers, distributors, and other
important groups.
The availability, depth, and reliability of economic and
marketing information in different countries vary extensively, as
do industrial structures, business practices, and the number and
nature of regional organizations. There are also numerous
potential disadvantages of initiating, continuing, or expanding
business across national borders, such as the following:
1. Foreign operations could be seized by nationalistic factions.
• Firms confront different and often little-understood social,
cultural, demographic, environmental, political, governmental,
legal, technological, economic, and competitive forces when
doing business internationally. These forces can make
communication difficult in the firm.
• Weaknesses of competitors in foreign lands are often
overestimated, and strengths are often underestimated. Keeping
informed about the number and nature of competitors is more
difficult when doing business internationally.
• Gaining an understanding of regional organizations such
as the European Economic Community, the Latin
American Free Trade Area, the International Bank for
Reconstruction and Development, and the International
Finance Corporation is difficult but is often required in
doing business internationally.
• Dealing with two or more monetary systems can
complicate international business operations.
2-3. The Global
Challenges Facing
Firms and Why This
is a Strategic Issue
The Global challenge
facing firms
• A world economy and monetary system are
emerging.
• More and more countries around the world are
welcoming foreign investment and capital.
• Advancements in telecommunications are drawing
countries, cultures, and organizations worldwide closer
together.
• •Shareholders and investors expect sustained growth in
revenues from firms; satisfactory growth for many
firms can only be achieved by capitalizing on demand
outside the United States.
2-4. Tax Rate
and Tax
Inversion as
Strategic Issue
Tax
Rates:
• the percentage of income, profit, or sales that
businesses and individuals must pay to the
government.
• Tax rates in countries are important in strategic
decisions regarding where to build manufacturing
facilities or retail stores or even where to acquire
other firms.
Corporate tax rates
• affect strategic decisions on where to
build factories, open stores, or acquire
companies. High corporate tax rate
deter investment in new factories.
Lower tax rate attracts investment or
businesses
Flat tax
• A single tax rate applied to all businesses,
often increasing foreign direct investment
(FDI) (investment by foreign companies).
United States Tax System vs.
Territorial Tax System
US Tax
•System
Requires companies to pay the
difference between lower foreign taxes
and the U.S. corporate-tax rate of 35
percent when they bring their
international earnings home.
Territorial system
• Many other countries use allows
companies to pay little to no taxes on
foreign profits above what they have
already paid abroad.
Corporate Tax Rates Across
Countries (2015)
• Highest: UAE (55%), Chad (40%),
USA (35%), Brazil (34%), France
(33.33%)
• Lowest: Bermuda (0%), Cyprus (10%),
Bulgaria (10%), Serbia (10%), Ireland
(12.50%)
Tax
Inversion
• is a strategy where a company moves its legal
headquarters to another country with lower tax
rates to reduce its tax burden.
• when a U.S. company acquires a foreign
company and shifts its headquarters to that
foreign country to benefit from lower tax rates.
Filipino Business Culture
Vs. Foreign Business
Cultures
Filipino Business Culture:
• The heart of the matter Filipino business culture is deeply
rooted in values like pakikipagkapwa-tao (shared
identity), bayanihan (communal unity), and hiya (sense
of shame/propriety).
This translates to:
• Relationship-focused
• Hierarchical
• Family-oriented
• Indirect Communication
• Time-flexible
Foreign Business Cultures:
foreign business cultures, especially those from
Western countries, often emphasize:
• Individualism
• Direct Communication
• Time-conscious
Task-oriented
MEMBERS
Mary Lyn U. Raganas
Dhesirhe Q. Sajul
Danielle Kristine E. Romulo
John Alexis Sahilan
Rizabel Jean Paredes
The Business Culture
Found in Mexico,
Japan, China, and
India
Mexico's Business Culture
• Mexico is an authoritarian society in terms of
schools, churches, businesses, and families.
• Employers seek workers who are agreeable,
respectful, and obedient, rather than innovative,
creative, and independent.
• Mexicans desire harmony rather than conflict; desire
for harmony is part of the social fabric in worker–
manager relations.
Mexican employers are paternalistic, providing workers
with more than a paycheck, but in
• return they expect allegiance.
• Meetings are for giving orders, not open discussions.
• Punctuality is flexible, and negotiations involve
haggling.
• Face-to-face interactions are preferred over emails
or calls.
Japan's Business Culture
• The Japanese people place great importance
on group loyalty and consensus—a concept
called Wa.
• Decision-making is consensus-driven, and
silence is a sign of thoughtfulness.
• Business is built on personal relationships
rather than impersonal communication
• Punctuality is crucial, and negotiations take
time.
• Business cards are exchanged formally, and
small gifts are customary.
China's Business Culture
• In China, greetings are formal and the oldest person is
always greeted first.
• Business relies on trust, and rank is highly valued.
• Social events and business discussions are kept
separate.
• Punctuality is expected, and meetings can be noisy
due to frequent phone use.
• Certain gifts and numbers should be avoided
due to cultural beliefs.
• The Chinese are nonconfrontational and
virtually never overtly say no. Rather, “they
will think about it.”
ndia's Business Culture
• India’s female participation in the labor force is low,
even though many women are college graduates.
• People in India do not like to say no, verbally or
nonverbally and may give vague responses.
• Shaking hands is common, but rarely between men
and women.
• Giving gifts is important, but leather, white flowers,
and certain colors should be avoided.
• Business is based on mutual trust, and agreements do
not always rely on the legal system.
• Titles, age, caste, and profession are valued.
• Punctuality is important, and business cards should be
given and received with the right hand.
2.7 The Business Climate
in Africa, China,
Indonesia, India, Japan,
Mexico, and Vietnam
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.
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.
Indonesia's Business Climate
• Indonesia, a country made up of many islands in the Pacific
region, has a thriving economy and stock market. It was the
top-performing stock market in Asia in 2014 and has
consistently been strong in recent years.
• Its currency is the "rupiah", and it is one of the fastest-
growing economies in Asia, following China and the
Philippines. The country's GDP growth rate is expected to be
5.7% in 2015.
• Indonesia, being the largest economy in Southeast
Asia, underwent political changes in 2014 with
new leadership. Despite having a large population
and densely populated areas, Indonesia is known
for its rich biodiversity and abundant natural
resources.
India's Business Climate
• India's economy is booming, with a GDP growth rate of
8.3% in 2015, surpassing China for the first time in decades.
Under the leadership of Prime Minister Narendra Modi,
India has implemented pro-growth policies, attracting
significant foreign investments and driving stock market
growth and limited access to higher education.
India's Business Climate
• Modi's government is focused on economic reforms to
strengthen industries like manufacturing and retail, improve
infrastructure, and streamline business regulations. The
country's education system is undergoing gradual
improvement, but challenges remain due to low literacy rates
and limited access to higher education.
• India aims to enhance its financial stability by
reducing budget deficits and implementing long-
term fiscal strategies.
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.
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.
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 for
business.
• The market for e-commerce in Vietnam generates $4 billion in
revenue annually
• and is growing dramatically.
Vietnam’s Business Climate
• 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.
• The Vietnamese are among the most prevalent
watchers of videos on smartphones
• in the world. .
• The number of active mobile social-media accounts in Vietnam
rose 41 percent from January 2014 to January 2015—a higher
growth rate than China, India, or Brazil.
• Facebook has over 30 million active users in Vietnam, up from 8.5
million in 2012. Even the smallest businesses in the United States
(and elsewhere) can easily reach and sell to consumers in Vietnam,
who yearn for new products and services. (Interestingly, the most
recent foreign translation of this textbook, Strategic Management,
has been translated into Vietnamese.)
THANK
YOU!