Global Context of Business

1
Global Context of Business

• Does Thinking Globally Matter?

2
Getting Started.. We Will Learn

• Difference between supply demand global
  expansion
• Difference between supply value chains
• Owned vs. sourced supply avenues
• Variety of corporate relationships (buyer
  supplier)
• Global expansion drivers current trends
• Corporate responsibility ethics in a global
  economy

3
Topic Agenda

• Rise of a Global Economy
• Demand-Side Expansion
• Supply-Side Expansion Supply Value Chains
• Influencing Factors
• Trends Directions
• Business Ethics in a Global Setting
• Cultural Understanding Sensitivity
• Corporate Social Responsibility

• Demand-Side Expansion
  

4
Demand-Side Global Expansion

• What Expanding an enterprise to provide goods
  services in new, international markets
• Who Most large, well established firms
• Why Increased profits, market share, economic
  diversity

5
Global Demand Growth McDonalds

• 1 Fast Food (15.4 Billion Sales in 2002)
• 1 Owner of Commercial Real Estate
• 30,000 Restaurants in 120 Countries (13k in US)
• 413,000 Employees in 2002
• 2/3 of Sales 50 Profits from Non-US
• 70 Restaurants Franchised to Individuals
• 1st US in 1955, 1st Canada in 1967
• Creation of International Division 1969

6
Franchise Business Model

• McDonalds Role
• Evaluates Sites
• Selects Locations
• Acquires Property
• Improves Site
• Constructs Building
• Selects Franchisees to Train Support
• Franchisers Role
• Equip Building Run Operation
• 461k-789k start up 45k to MCD
• Must have 100k-175k non-borrowed money upfront

7
Examples of McDonalds Growth
Country First Site Current Sites
Australia 1971 680
Japan 1971 2400
United Kingdom 1974 1200
Hong Kong 1975 158
Brazil 1979 118
Mexico 1985 270
Argentina 1986 173
S. Korea 1988 270
Country First Site Current Sites
Chile 1990 70
Russia 1990 79
Greece 1991 48
Saudi Arabia 1993 71
Kuwait 1994 34
Peru 1996 10
India 1996 34
China 2000 100/yr
8
12/15/03 Global Strategy Change

• From the Associated Press
• McDonalds Corp. plans to significantly narrow
  its outside brand
• activity, retaining Chipotle and Boston Market in
  the US, but selling
• Donatos Pizzeria (Germany) back to its founder
  and discontinuing
• development of all partner brands outside the
  country.
• Any guesses as to why?

• Profits (or lack thereof for non-McDonalds
  chains)
• KISS
• In overseas markets cultures, stay with what
  you know

9
Global Demand Growth Starbucks

• 1 US Specialty Coffee (4 Billion 2003 Sales)
• Roughly 7225 Shops in 23 Countries
• Long-term Goal 30,000 Shops
• 1st US in 1971 1st in Canada 1987
• 1982 Howard Schultz Joins
• 1985 Incorporates
• Growth with Strategic Partnerships
• 2003 TMobile, Card Duetto, Acquires Seattle
  Coffee

10
Starbucks Strategic Partnerships

• Airlines
• Horizon (90), United (95), Canadian (97)
• Hotels
• Sheraton(94), Westin (96), Marriott (00), Hyatt
  (01)
• Retailers
• Nordstrom(92), BN (93), Albertsons (99)
• Canada Chapters Bookstore (95), TransFair (02)
• CPG
• PepsiCo (96), Kraft (98)
• Other
• SAZABY (Japan) Seattle Coffee (UK)

11
Starbucks Coffee Shop Growth
2002 5700 Shops 2003 7225 Shops
12
Starbucks International Growth

• 1987 Canada
• 1996 Japan (with SAZABY Inc.), Singapore
• 1997 Philippines
• 1998 Taiwan, Thailand, New Zealand, Malaysia
• 1999 China, Kuwait, Korea, Lebanon
• 2001 Switzerland, Israel, Austria
• 2002 Oman, Indonesia, Germany, Spain
• 2003 Turkey, Chile, Peru (1000th Shop in Asia)
• 2000 Howard Schultz becomes chief global
  strategist

13
Impact to Information Engineering
14
Topic Agenda

• Rise of a Global Economy
• Demand-Side Expansion
• Supply-Side Expansion
• Influencing Factors
• Trends Directions
• Business Ethics in a Global Setting
• Cultural Understanding Sensitivity
• Corporate Social Responsibility

• Supply-Side Expansion Supply Value Chains
  

15
Supply-Side Global Expansion

• What Expanding an enterprises supply
  infrastructure to include global options
• Who Variety of small large, established and
  emerging firms
• Why Increased profits (via lower costs), easier
  compliance with locally imposed laws,
  availability of skilled workforce

16
Did You Ever Wonder?

• When Buying Coffee at Starbucks
• Where are the coffee beans grown harvested?
• Where are the cows that make the milk for dairy?
• Where are the trees grown that make the cups?
• Where are the trees grown that make the slips?
• Where are the trees grown that make the stirrers?
  
• Where are the plastic covers made?
• Where is the sugar from packaged?
• Where are the flavored liquids from?

17
Alternatively What About?

• When a Buying a Pair of Running Shoes
• Where and who designed the shoe?
• Where is the rubber made for the sole?
• Where are the plastic logo pieces made?
• Where are the animals whose hides are used?
• Where is the cotton grown that is used for
  fabric?
• Where who makes the shoe laces?
• Where who makes the plastic piece of laces?
• Where is the cotton grown that is used in laces?

18
Questions Answers

• These questions strike at what are the SUPPLY and
  VALUE CHAINS
• The answers likely have commonality that more
  than one country/nation is involved..

19
Supply Chains Encompass

• Supply To and Demand From an Enterprise
• Sourcing Purchasing Raw Materials Parts
• Manufacturing Assembly
• Warehousing Inventory Tracking
• Order Entry Order Management
• Distribution (Logistics) Across All Channels
• Delivery to Customer

20
Supply Chain Management

• Oversight of materials, information finances as
  they move
• Supplier gt Manufacturer gt Wholesaler or Retailer
• Coordinating integrating flows within among
  companies

21
Hypothetical Best Buy Environment
BestBuy.com
Retail Stores
BestBuyBiz (B2B)
Tele-Sales Center
Best Buy (Stores DCs)
Nokia
TI Calculators
HP
Whirlpool
Arrow Electronics
Bose
Intel
Arrow Electronics
Seagate Hard Drive
ADS Casings
Buy From (Part of Supply Chain)
Praxair
MEMC
MSA
Sells Through (Customers)
22
Supply Chains Encompass

• Supply To and Demand From an Enterprise
• Sourcing Purchasing Raw Materials Parts
• Manufacturing Assembly
• Warehousing Inventory Tracking
• Order Entry Order Management
• Distribution (Logistics) Across All Channels
• Delivery to Customer

23
Variety of Supply Chain Models

• Own All Supply Resources/Options
• Own Some of the Supply Resources/Options
• Own None of the Supply Resources/Options

24
Value Chains Encompass

• A string of companies working together to meet
  market demand
• Typically consists of
• One or a few primary value (product or service)
  suppliers
• Many suppliers that add on to the value that is
  ultimately sold

25
HP Value Chain / Intel Supply Chain
Best Buy (Stores DCs)
Nokia
TI Calculators
HP
Whirlpool
Arrow Electronics
Bose
Intel
Arrow Electronics
Seagate Hard Drive
ADS Casings
Buy From (Part of Supply Chain)
Praxair
MEMC
MSA
Sells To (Customers)
26
Class Example..

• Pick an industry or government agency
• Define the supply chain
• Define the value chain

27
Supply-Side Global Expansion

• What Expanding an enterprises supply
  infrastructure to include global options
• Who Variety of small large, established and
  emerging firms
• Why Increased profits (via lower costs), easier
  compliance with locally imposed laws,
  availability of skilled workforce

28
Different Types of Suppliers in Chain

• Supplier Provides Core or Complementary
• I.e., Nike Shoes, Starbucks Paper Cups
• Supplier Provides Value-Add to Intermediate
• I.e., Assemble Test a Semiconductor Fab Wafer
• Supplier Provides Services
• I.e., DHL or FedEx Fleming for Kmart

• Supplier Provides Core or Complementary
  

29
Global Supply Growth Nike, Inc.

• Worlds 1 Shoe Company (9.9 Billion Sales)
• Controls 40 of US Athletic Shoe Market
• Sells Products in 140 Countries
• 22k Nike Employees
• 800 Manufacturing Contractors
• 200k Workers, 700 Factories, 50 Countries
• Roughly 84 Workers in Asia, 7 EMEA

30
Relative (Advertised) Shoe Mark-Up

• Consumer Pays Retailer 65.00
• Retailer Pays Nike 32.50
• Nike Pays Factory 16.25
• Materials 10.75 Labor 2.43 Overhead 2.10
• Remaining 16.25 Received by Nike
• RD, Shipping, Insurance, Profit

31
Different Types of Suppliers in Chain

• Supplier Provides Core or Complementary
• I.e., Nike Shoes, Starbucks Paper Cups
• Supplier Provides Value-Add to Intermediate
• I.e., Assemble Test a Semiconductor Fab Wafer
• Supplier Provides Services
• I.e., DHL or FedEx Fleming for Kmart

• Supplier Provides Value-Add to Intermediate
  

32
Key Stages of Semiconductor Production

• FABRICATION (FAB) - Raw wafer becomes wafer
  with die
• PROBE/SORT - Fabbed wafer becomes sorted die
• ASSEMBLY - Sorted die becomes packaged devices
• (sometimes marked)
• TEST - Packaged devices become tested devices
• (options binning or
  good/bad)
• FINISH - Tested bin devices become FG marked
  w/part

33
Semiconductor Manufacturing Product Overview
Raw Wafer
Wafer w/Die
Sorted Die
6-13 Wk
0-1 Wk
0-3 Wk
FAB
x x x x x x x x x x
x x x x x x x x x x
SORT
ASSEMBLY
Packaged Devices
y y y y y y y y y y
XY-70-PC
Tested Bin Die
Y-70-JC
Finished Good
0-1 Wk
Bin1 Die
0-1 Wk
TEST W/BINNING
XY- 70-CC
FINISHING
Bin2 Die
Bin3 Die
Finished Good
0-1 Wk
TEST W/OUT BINNING
XY-70-PC
34
Example Semiconductor Supply Chain
FAB
SORT
ASSEMBLY
TEST
FINISHING

• Fab/Sort
• Owns Operates Several Fabs
• Anam (S. Korea)
• Assembly/Test/Finishing
• Owns Operates Philippines ATF
• Amkor Technology/Anam (S. Korea, Philippines)
• All Stages (Foundries)
• TSMC (Taiwan)
• UMC (Taiwan Japan)

35
Impact to Information Engineering
36
Topic Agenda

• Rise of a Global Economy
• Demand-Side Expansion
• Supply-Side Expansion
• Influencing Factors
• Trends Directions
• Business Ethics in a Global Setting
• Cultural Understanding Sensitivity
• Corporate Social Responsibility

• Influencing Factors
  

37
A Few Drivers Behind Global Expansion

• Technology Breakthroughs (Internet, Wireless)
• Manufacturing Breakthroughs Economies of Scale
• Market Saturation
• Abrupt Potentially Long-Term Supply Changes
• Multi-National Trade Agreements
• European Union
• NAFTA (North American Free Trade Agreement)
• FTAA (Free Trade Area of Americas)
• Political Economic Changes
• Soviet Union
• Hong Kong Taiwan to China

38
Highlights of NAFTA

• Declares Free Trade Area Across Canada, US
  Mexico
• Each Country Agrees To
• Give Most Favored Nation (MFN) Treatment
  Transparency
• Commit to Cross-Border Movement of Goods
  Services
• Commit to Provide Adequate Effective Protection
  Enforcement of Intellectual Property Rights
• Statement Calling for Effective Domestic
  Procedures for Implementation Application
• Most Provisions Apply to Provincial, State or
  Local Govt
• I.e., Investment, Cross-Border Trade in Services
  Financial Services Exempt All Local Government
  Measures DO NOT apply

39
Highlights of FTAA

• Extension of NAFTA to Western Hemisphere
• 34 Members of Organization of American States
  (OAS)
• Summits of the Americas
• 1994 Miami
• 1998 Chili
• 2001 Canada
• Negotiating Groups
• Agriculture, Competition Policy, Dispute
  Settlement, Government, Procurement, IP,
  Subsidies, Investments, Market Access, Services
• Additional Core Issues
• Civil Society, Small Economies, E-Commerce,
  Business Facilitation (Customs Transparency)

40
Impact to Information Engineering..

• Increased Complexity in Planning Execution
  Practices to Handle MFN vs. non-MFN and Other
  Aspects of Agreements
• Increased Complexity in Data Associated with
  Tracking Agreement Compliance

41
Topic Agenda

• Rise of a Global Economy
• Demand-Side Expansion
• Supply-Side Expansion
• Influencing Factors
• Trends Directions
• Business Ethics in a Global Setting
• Cultural Understanding Sensitivity
• Corporate Social Responsibility

• Trends Directions
  

42
Likely Trends Directions..

• Continuous Decline in Barriers to International
  Business Transaction (I.e., Future Agreements)
• Continuous Growth of Trading Blocs
• Greater Opportunities Pursuits to Develop New
  Markets in Foreign Countries
• Continuing Shuffle of Direct Foreign Investments
• Continuing Shuffle of Who Does What Where

43
Topic Agenda

• Rise of a Global Economy
• Demand-Side Expansion
• Supply-Side Expansion
• Influencing Factors
• Trends Directions
• Business Ethics in a Global Setting
• Cultural Understanding Sensitivity
• Corporate Social Responsibility

• Business Ethics in a Global Setting
  

44
In The News

• 1984 Union Carbide, Bhopal India
• Worst Industrial Accident in History
• 40 Tons of Methyl Isocyanate Gas Released
• 2000-5000 Died Almost Immediately
• Hundreds of Thousands Permanently Disabled
• 1989 UCC/Indian Govt Settlement for 470Mil
• 1999 Dow Chemical Acquires UCC

45
Or What About Nike News

• 1996 NY Times on Labor Conditions/Pay at Asian
  Factories
• Age, Pay, Benefits, Union, Freedoms are Primary
  Focus
• Nike Contracts to Wide Array of Factories
  Throughout Asia
• Frequent Claim Nike Follows the Least Cost/Most
  Repressive
• Fair Labor Association (FLA) Membership
• May 2002 Kasky vs. Nike California Court Ruling

46
Nike Production Base Over Time
47
Also In The NewsMcDonalds France

• First Site in 1979 As of 2002, 900 Restaurants
  35,000 Employees
• November 2002 Fire at construction site near
  Grenoble
• October 2002 McDonalds France releases
  advertisement discouraging kids to eat more than
  once a week.. Strong disagreement from MCD US
• January 2001 McDonalds Europe 10 Sales
  Decrease after Mad Cow
• August 1999 12 Farmers Folk Hero Jose Bove
  Dismantle Millau Site

48
Alternatively McDonalds India

• No beef or pork products sold
• Wide array of vegetarian offerings
• Maharaja Mac (chicken mutton) Big Mac
• Egg-less Mayonnaise

49
Topic Agenda

• Rise of a Global Economy
• Demand-Side Expansion
• Supply-Side Expansion
• Influencing Factors
• Trends Directions
• Business Ethics in a Global Setting
• Cultural Understanding Sensitivity
• Corporate Social Responsibility

• Corporate Social Responsibility
  

50
One Way to Look At It

• Corporate social responsibility (CSR) is
• commercial success in ways that honor
• ethical values and respect for communities,
• natural environment and people
• Business for Social Responsibility (BSR)

51
Breadth of Social Responsibility Includes..

• Community Development Relief
• Environment Conservation Preservation
• Marketplace Supplier Monitoring
• People Commitment Diversity
• Business Conduct Accountability Quality

52
Social Responsibility at Weyerhaeuser

• Largest NA Producer of Softwood Lumber (15
  Billion Annual Sales)
• 5.9 Mil Acres of Timberland in NA Cutting
  Rights to 32 Mil Canadian Acres
• Products Span Lumber to Plywood to Paper
• Core Areas of Social Responsibility Focus
• Environmental Performance
• Policy, Focus, Accountability, Remediation
  Programs
• Business Conduct Community Activities
• Business Ethics, Community Giving, Global
  Business, Govt/Military Contracts, Use of
  Animals in Testing
• Employee Relations
• Safety/Health, Comp Benefits, Diversity,
  Work/Life

53
Summary.. What We Learned

• Difference between supply demand global
  expansion
• Difference between supply value chains
• Balance of owned vs. sourced supply avenues
• Variety of corporate relationships (buyer
  supplier)
• Global expansion drivers current trends
• Corporate responsibility ethics in a global
  economy