Chapter 13 - Globalization

Dr. C. M. Chang

Only to be used by instructors who adopt the text:

C. M. Chang, “Engineering Management: Challenges
in the New Millennium,” Pearson Prentice Hall (2005)
Copyright © 2005 by Dr. Carl Chang
1
Chapter Contents
• Introduction
• Globalization-Specific
Value-Creation
Opportunities
• Preparation for
Globalization
• Globalization Drivers

2
 Chapter Contents (cont’d)
• Global Leadership Quality
• Production Engineering in a Global Economy
• Summary and Conclusions
• Summary of Engineering Management Course
Sequence
• Literature

3
 Introduction
• Globalization - Cross-border exchanges of
goods, services, capital and technologies
• U.S. Trade
U.S. Trade As % of GNP

30
Percentage

25
20 Imports
15 Exports
10 Total
5
0
1970

1980

1990

1998
Year

4
 Intro- MNEs
• 433 of these 500 largest MNEs in only three
regions World's 500 Largest Multinational Enterprises

(US, EU 0 50
Number
100 150 200

and Japan) USA

EU

Japan
Canada
South Korea
Switzerland
China
Australia

Brazil
Rest of World

5
 Intro - MNEs Concentration
• Dominance of MNEs in Triad regions
132.1 B

NAFT
A
226B 182.1B
220B 155.3B
116.1B 444.1B
153B
Asia EU
197.6B

6
 Intro - Projection
G6: US, Japan, Germany, France, UK and Italy; BRIC: Brazil, Russia, India and China

THE NEW GIANTS

90
80
GPD IN $TRILLIOIN

70
60
50 G6
40 BRIC
30
20
10
0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

YEAR

Source: Goldman Sachs (2003) 7

 Intro - 2020 Vision
• Future Look - Global Economic Prospects
(UN) - Largest Economies by 2020:
(1) China, (2) United States, (3) Japan,
(4) India, and (5) Indonesia
• Growth rate in emerging markets is predicted
to be 3 - 10 times of that of US
• Center of economic activities will gradually
shift to Asia
8
 Intro - MNE Ownership
• Nestle - Global Ownership

Nestle Shareholder Citizenship

50.0
45.0
40.0
35.0
Percentage

30.0
25.0
20.0
15.0
10.0
5.0
0.0
Switzerland USA Great Germany France Others
Britain

9
 Intro – Great Debate about
Globalization
• For – Big business, industry, governments
• Against – Labor unions, human rights
groups, environmentalists
• Major issues are discussed in Chapter 13 of
text

10
 Intro- Impact of Special Events
• Major Events: 9/11, Iraqi War, SARS
• Increase cost of doing global businesses:
(1) Raised insurance costs, (2) Reduced
willingness to travel, causing global work
inefficiency, (3) Investors demand a higher
return because of increased risks,
(4) Reduced time horizon for new FDI,
(5) Reduction of global equity sources
11
Value-Creation Opportunities
(Globalization-specific)
• Adapting to local market
differences
• Exploit economies of global
scale
• Exploit economies of global
scope
• Tap optimum locations for
activities and resources
• Maximize knowledge
transfer across locations

12
 Local Market Differences
• Business Week – Offers different regional
editions; Coke markets different drinks of local
tastes
• Budweiser (Beer programs in China)
• Whirlpool (Wash machine program in India)
• Kodak (Express shop program in China)
• TGI Friday (Kimchi in Korea)

13
 Economies of Scale
• Value added: (1) Spreading fixed costs, (2)
Reduce unit product costs, (3) Pooling
purchase power, (4) Creating critical mass
of talents
• Autobytel - Created baseline software
modules and snapped them together in
different combinations to meet local needs,
with hooks to add new modules
14
 Economies of Scope
• Coordinate marketing approach for standard
products (consistency in quality, better coordination,
lower unit transaction costs)
• Leverage market power and customer-specific
insights (global customers’ needs are better
understood by companies which serve them)
• Apply same CAD hardware platform for all
locations (Unigraphics by GM) - collaboration and
perform design 24/7
15
 Location-Specific Optimization
• Elect optimum locations for specific activities
(R&D, Procurement, component manufacturing,
product assembly, distribution, service): Fiat
choose Brazil, not Italy, to design and launch its
“World Car” Palio, Texas Instruments formed a
software development center in India, Microsoft
created a corporate research lab in Cambridge, UK
• Add value through (1) Performance enhancement,
(2) Cost reduction, and (3) Risk management
16
 Location-Specific Optimization
• Texas Instruments created the product
concept of its TCM 9055 (high speed
telecommunications ship) in collaboration
with engineers in Sweden, developed the
product in France using software tools
produced in Houston, fabricated the product
in Japan and Dallas, and tested the product
in Taiwan.
17
Preparation for Globalization
• Success Factors
• Global Virtual Teams
• Management Style
• Strategic Pathways to
Globalization
• International
Perspectives
• Personal Preparations
18
 Success Factors
• Build customers relationship supported by superior
service
• Know customers well
• Brands are recognizable and strong, with home market
strengths
• Recruit talented people
• Manage virtual teams
• Scalable business model

19
 Personal Preparations
• New mindset: “What is different is not dangerous”
• Relevant management model for global business:
Responsiveness, partnership, teamwork and
decentralization -- not efficiency, hierarchy, control
and centralization

20
 Globalization Drivers
• Market -- 90% of future world consumers are
outside of US
• Cost -- labor wages, transportation/logistics,
economies of scale, technological innovations
• Competition -- global business models, supply
chains and customer partnerships
• Government -- privatization, trade blocks
(EU, NAFTA, World Trade Organization)
21
 Income Per Head (2002)

INCOME PER HEAD ($ Thoudsand)

0 5 10 15 20 25 30 35 40

Norway
United States
Hong Kong
Germany
Japan
Singapore
COUNTRIES

Israel
South Korea
Czech
Saudi Arabia
Hungary
Poland
South Africa
Chile
Mexico
Malaysia
Russia
Brazil
Thailand
Turkey
Colombia
Venezuela
Peru
China
Philippines
Egypt
Indonesia
India
Pakistan 22
 Gross Dom e stic Sa vings Ra te s

35

30

25 A sia ex-Japan
Latin-A merica
%

20 USA

15

10
1970 1975 1980 1985 1990 1995 2000
Ye ar

23
 Net Private Capital Inflows to Emerging Market Economies

350

300

250

200
$ (B)

150

100

50

0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Year

Source: Institute of International Finance (2003) 24

 Net Private Capital Inflow s by Region in 2003

Asia-Pacific
Latin-America
Europe
Africa-Middle East

Source: Institute of International Finance (2003)

25
Corporate Characteristics in the
New Millennium
• Complex • Management Reporting
Organization Layers
Design • Customer Sophistication
and Demand
• Global Reach • Public Image
• Partnership • Stock Market Valuation
• New Composition
of Employees
26
 Knowledge and Skills
• Versed in Technologies (IT, telecom, operations)
• Social political factors of different countries
• Culture and cross-cultural issues which impact management
• Global competition (supply chain, TQM, JIT, Cell
manufacturing, outsourcing, enterprise resources integration,
etc.)
• Technical, business and industry knowledge
• Skills to put knowledge into action

27
 Global Business Savvy
• Recognize business opportunities (market
needs, cost differential, resource utilization,
productivity/efficiency enhancement,
supply chains)
• Have vision of company’s core, which
makes money worldwide by adding value to
end customers

28
 Common Mistakes in
Globalization
• Absent of strong company commitment in
people, capital and time
• Absent of focused management attention
(management by exception)
• Low priority (view global business as
incremental)
• Not engaging foreign partners decisively

29
 Job Migration - Globalization
• First Wave – Toys, Textile, Shoes, production
jobs for commodity products
• Second Wave – Financial analysis, call centers,
tax preparation, software programming, medical
diagnosis (x-ray charts), legal analysis and studies
– digitizable and requiring no face-to-face contacts
• Third wave – R&D, product design and other
high-tech jobs

30
 M a n u fa c tu rin g J o b s a s a P e rc e n ta g e o f T o ta l W o rk e r

40.0%
35.0%
30.0%
25.0%
Percentage

20.0%
15.0%
10.0%
5.0%
0.0%
1 9 4 01 9 4 51 9 5 01 9 5 51 9 6 01 9 6 51 9 7 01 9 7 51 9 8 01 9 8 51 9 9 01 9 9 52 0 0 02 0 0 2
Ye a r

Source: US Department of Labor

31
 U S Manufacturing Productivity

50%
45%
40%
35%
Percentage Gained

30%
25%
20%
15%
10%
5%
0%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Ye a r

Source: US Department of Labor Statistics

32
 US Service Jobs Predicted to Go Offshore

3.5
3
Jobs (Million)

2.5
2
1.5
1
0.5
0
2000 2005 2010 2015
Ye a r

Source: Schwartz 2003

33
 White-collar Jobs as Percentage of Total
Unemployed

18%

16%
Percentage

14%

12%

10%

8%

6%
1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

Year

Source: Schwartz 2003

34
 US Graduates as Percent of Total
(5 Countries)

50%
40%
Percentage

30% BS
20% MS/PhD
10%
0%
1989 1999 2009
Year

35
 Summary and Conclusions
• Globalization is certain business trend, as the
Asian markets will expanding at a high growth
rate in the next 15 to 20 years
• Ample opportunities for those who are prepared
with the proper mindset, knowledge, and savvy

36
 Summary and Conclusions
• Students should (1) follow the globalization
process, (2) become sensitized with issues
involved, (3) find technical areas to make
contributions, and (4) prepare themselves
for providing leadership in the globalization
of the economy

37