Finance

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You are called in as a financial analyst to appraise the bonds of Olsen’s Clothing Stores. The $1,000 par value bonds have a quoted annual interest rate of 10 percent, which is paid semiannually. The yield to maturity on the bonds is 10 percent annual interest. There are 15 years to maturity.

Compute the price of the bonds based on semiannual analysis.

 

 

b.)With 10 years to maturity, if yield to maturity goes down substantially to 8 percent, what will be the new price of the bonds?

Round “PV Factor” to 3 decimal points. Round your answer to 2 decimal places. Omit the “$” sign in your response

 

Stagnant Iron and Steel currently pays a $12.25 annual cash dividend (D0). They plan to maintain the dividend at this level for the foreseeable future as no future growth is anticipated. If the required rate of return by common stockholders (Ke) is 18 percent, what is the price of the common stock?

 

 

 

Ecology Labs, Inc., will pay a dividend of $6.40 per share in the next 12 months (D1). The required rate of return (Ke) is 14 percent and the constant growth rate is 5 percent.

For parts b, c, and d in this problem all variables remain the same except the one specifically changed. Each question is independent of the others.

a.)Compute P0.

b.)Assume Ke, the required rate of return, goes up to 18 percent; what will be the new value of P0?

 

c.)Assume the growth rate (g) goes up to 9 percent; what will be the new value of P0? Ke goes back to its original value of 14 percent.

d.)Assume D1 is $7.00; what will be the new value of P0? Assume Ke is at its original value of 14 percent and g goes back to its original value of 5 percent.

 

A firm pays a $4.80 dividend at the end of year one (D1), has a stock price of $80, and a constant growth rate (g) of 5 percent. Compute the required rate of return (Ke

 
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Developing Extreme Headphones.

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Managing New Product Development Teams Skullcandy: Developing Extreme Headphones1

In 2001, Rick Alden was riding up a ski lift and listening to music on an MP3 player when he heard his phone ringing, muffled in the pocket of his ski jacket. He fumbled around with his gloved hands, trying to get to the phone before it stopped ringing, and at that moment he thought “ why not have headphones that connect to both a cell phone and an MP3 player?” 2 In January of 2002 he had his first prototype built by a Chinese manufacturer, and by January of 2003 he launched his company, Skullcandy. 3

Building an Action Sports Brand

Alden had an extensive background in the snowboarding industry, having previ-ously founded National Snowboard Incorporated ( one of the first companies to promote snowboarding) and having developed and marketed his own line of snowboard bindings. His father, Paul Alden, had played many roles in the indus-try, including serving as the president of the North American Snowboard Association, which helped open up ski resorts to snowboarders. His brother, David Alden, had been a professional snowboarder for Burton, and a sales repre-sentative for several snowboard lines. Thus when Alden began creating an image and brand for the headphones, it only made sense to create a brand that would have the kind of dynamic edginess that would attract snowboarders and skate-boarders. Alden could also use his deep connections in the snowboarding and skateboarding worlds to line up endorsements by pro riders and distribution by skate and snowboard shops. As Alden notes, “ I’d walk into snowboarding and skateboarding shops that I’d sold bindings to or that I’d known for 15 years, and say, ` Hey, man, I think you ought to sell headphones.’” Soon he was developing headphones that were integrated into Giro ski and snowboard helmets, and MP3- equipped backpacks and watches. The graphic imagery of the brand— which draws from hip- hop culture and features a prominent skull— helped to turned a once placid and commoditized product category into an exciting and important fashion accessory for action sports enthusiasts.

The company grew quickly. By 2005, the company broke $ 1 million in sales, and in the following year sold almost $ 10 million worth of headphones and accessories. By 2007, Skullcandy’s products were selling in Best Buy, Target, Circuit City, and most college bookstores in addition to the core market of action sport retailers, for total revenues of $ 35 million, greatly exceeding even the stretch targets the company was shooting for. In 2008, almost 10 million people purchased Skullcandy headphones for total sales of $ 86.5 million, and as of April of 2009, the company was on track to exceed $ 100 million in sales. 4 The company was careful in its approach to selling to the mass market, care-fully distinguishing between products that were sold to the core channel versus to big box retailers. 5 Alden’s philosophy was that “ Conservative guys buy core products, but core guys will never buy conservative. In other words, we’ve got to be edgy and keep our original consumer happy, because without him, we’ll lose people like me— old guys who want to buy cool young products too.” 6 In 2009, the company began to target the hip- hop music aficionado market by partnering with key music industry veterans such as Calvin “ Snoop Dogg” Broadus and Michael “ Mix Master Mike” Schwartz of the Beastie Boys. The collaboration with Snoop Dogg resulted in the “ Skullcrusher”— a headphone with extreme bass amplification perfect for listening to rap music. The collab-oration with Mix Master Mike was intended to produce the “ ultimate DJ headphone.”

Developing the Ultimate DJ Headphone To begin designing a set of headphones that would uniquely target disc jockeys/ turntablists, Skullcandy assembled a team that included:

• Mix Master Mike ( who would lend insight into the key factors that would make the “ ideal” DJ headphone, as well as lending his own personal design inspirations)

• Skullcandy’s Director of Industrial Design, Pete Kelly ( who would translate the desired features into engineering specifications)

• Skullcandy’s Vice President of Marketing and Creative, Dan Levine,

• An external industrial design company ( which would be able to more quickly transform the team’s ideas into photorealistic renderings)

• Skullcandy Product Manager Josh Poulsen ( who would manage the project milestones and communicate directly to the factory in China where the product would be manufactured)

• Skullcandy’s “ creatives” ( people with backgrounds in graphic arts or fine arts who would explore the potential color palettes, materials, and form factors to use) The small size and informal atmosphere at Skullcandy ensured close contact between the team members, and between the team and other Skullcandy per-sonnel. For example, the director of industrial design and the art director shared an office, and all of the graphic designers worked in a common bullpen.

7 The team would schedule face- to- face meetings with Mix Master Mike and the external industrial design company, and Josh Poulsen would travel to China to have similar face- to- face meetings with the manufacturer. In the first phase, the team met to analyze what functionality would be key to making a compelling product. For the DJ headphones, the team identified the fol-lowing key factors that would help to significantly improve headphone design8:

• Tough, replaceable and/ or washable ear pads made of antimicrobial materials ( ear pads were prone to getting soiled or torn)

• Headphones that could be worn by “ righty” or “ lefty” DJs ( DJs typically have a preference for leaning on one side while they work, and this side determines the optimal cable location)

• Sound quality that was not too clear, not too bass, and not too muddy ( DJs typically were not looking for the clear quality of studio sound)

• Coiled cord or straight cord options ( many DJs preferred coiled cords whereas mass market consumers typically preferred straight cords) Above all, the team had the mandate given by Alden to create “ headphones that don’t look like headphones.” The product’s aesthetic design would be heavily influenced by Mix Master Mike. As noted by Dan Levine, “ When you attach yourself to someone iconic, you try to figure out what inspires their form sensibilities. For example, Mike likes transformers, Japanese robots, Lamborghinis, furniture by B& B Italia . . . we use these design elements to build inspiration boards.” 9 The team initially met for three straight days in Mix Master Mike’s studio. Then, after the team had created 6 to 12 initial sketches, they worked to narrow the list down to three of the best, and then fine- tuned those until they had one best sketch. The external industrial design firm created photorealistic renderings that precisely portrayed what the end product was to look like. At this point marketing people could be brought into the team to begin developing a marketing strategy around the product. The marketing team used “ sneak peaks” of renderings and nonfunctioning proto-types to gain initial sales contracts. The next phase was an iterative process of commercialization and design refinement. According to Levine, “ That’s when it feels like you’re swimming in glue because it never happens fast enough. The design phase is exciting. Once you have that design you get impatient for it to come to market, but you can only work as fast as manufacturing capabilities dictate, and building technical prod-ucts takes time.” 10 First, CAD files would be brought to China where a manufac-turer would use a stereolithography apparatus ( SLA) to create prototypes of each part of the headphone in a wax resin. As described by Alden, “ you can’t see the lasers – the part just rises up out of this primordial ooze. Then you can sand it down, paint it, screw it to your other parts. This part will end up costing $ 300 compared to the 30 cents the part will eventually cost when it’s mass- produced using injection molding, but it’s worth creating these SLA parts to make sure they’re accurate.” 11 SLA versions of the products were also often taken to the trade shows to solicit customer feedback and generate orders. Every week or two, the Product Manager would need to talk to the Chinese factory about build-ing or modifying SLA parts, until eventually a 100 percent complete SLA product was achieved. At that point, it was time to begin “ tooling” ( the process of build-ing molds that would be used to mass produce the product). This phase took four to six weeks to complete and was expensive. Several samples would be produced while final modifications were made, and then once a perfect sample was obtained, the tools would be hardened and mass production would begin. As Alden described, “ after you’ve got everything in place— after you’ve made the first one, then it’s just like making doughnuts.” 12 All of the steps of the project were scheduled using a Gantt chart ( a type of chart commonly used to depict project elements and their deadlines). Project deadlines were determined by working backward from a target market release date and the time required to manufacture the product in China. 13 In general, the firm sought to release new products in September ( before the big Christmas sales season), which required having the tooling complete in July.

Team Roles and Management

Josh Poulsen, the Product Manager, was responsible for coordinating all of the team members and making sure all of the deadlines were met. Every major design decision was passed up to Dan Levine for approval, and when the design was ready for “ tooling” ( being handed off to manufacturing), it had to be approved by Rick Alden, as this phase entailed large irreversible investments. Most of the people at Skullcandy were involved with many projects simultane-ously. As Levine emphasized, “ This is a lean organization. At Nike you can work on a single or a few projects; when you have a brand that’s small and growing fast, you work on a tremendous number of projects, and you also hire outside talent for some tasks.” 14 According to Rick Alden, “ We used to try to manage everything in- house, but we just don’t have enough bodies. We’ve discovered that the fastest way to expand our development capacity is to use outside developers for portions of the work. We’ll develop the initial idea, and then bring it to one of our trusted industrial design firms to do the renderings, for example.” 15 Team members did not receive financial rewards from individual projects. Instead, their performance was rewarded through recognition at monthly “ Skullcouncil” meetings, and through quarterly “ one touch” reviews. For the quarterly reviews, each employee would prepare a one- page “ brag sheet” about what they had accomplished in the previous quarter, what they intended to accomplish in the next quarter, and what their strengths and weaknesses were. These reviews would be used to provide feedback to the employee, and to deter-mine the annual bonus; 75 percent of the annual bonus was based on the indi-vidual’s performance, and 25 percent was based on overall company performance. According to Rick Alden, “ In the early days, we did things very differently than we do now. Everyone received bonuses based on overall performance— there were so few of us that we all had a direct attachment to the bottom line. Now with a bigger staff, we have to rely more on individual metrics, and we have to provide quarterly feedback so that the amount of the annual bonus doesn’t come as a surprise.” 16 The company also relied on some less conventional in-centives. Each year the board of directors would set an overarching stretch target for revenues, and if the company surpassed it, Alden took the whole com-pany on a trip. In 2006, he took everyone heliboarding ( an extreme sport where snowboarders are brought to the top of a snow- covered peak by helicopter). When the company achieved nearly triple its 2007 sales goal ( earning $ 35 million instead of the targeted $ 13 million), Alden took the entire staff and their families to Costa Rica to go surfing. 17 According to Alden, the biggest challenge associated with new product development has been managing three different development cycles simultane-ously. “ You have your new stuff that you’re coming out with that you haven’t shown anyone yet— that’s the really exciting stuff that everyone focuses on. Then you have the products you have just shown at the last show but that aren’t done yet— maybe the manufacturing process isn’t approved or the packaging isn’t finished. You’re taking orders but you haven’t yet finished the develop-ment. Finally, you have all of the products you’ve been selling already but that require little improvements ( e. g., altering how something is soldered, improving a cord, changing the packaging). We have so little bandwidth in product devel-opment that the big challenge has been managing all of these cycles. We just showed a product in January of this year [ 2009] that we still haven’t delivered and it’s now May. We were just too excited to show it. But that’s risky. If you don’t deliver on time to a retailer, they get really angry and they won’t keep your product on the shelf.” 18

Discussion Questions:

1. What are some of the ways that Skullcandy’s size and growth rate influence its development process? 2. How would you characterize Skullcandy’s new product development team structure?

3. What are the advantages and disadvantages of having Skullcandy employees serve on several project teams simultaneously?

4. What are the challenges associated with measuring and rewarding the performance of Skullcandy development team members?

5. If you were advising the top management of Skullcandy about new product development processes, what recommendations would you make?

 
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Globalization As An Important Trend

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Assignment 2: Discussion—Globalization as an Important Trend

Globalization is a trend that has been impacting business in a material way for the past 40 to 50 years. In recent years, this impact has been strengthening. Appreciating the impact of this trend and the driving forces is useful for today’s business professionals.

Research the topic using your textbook, Argosy University online library resources, and the Internet. Respond to the following:

  • Based on your experiences, would you characterize globalization as the most important trend in business today? Take a position for or against.
  • What do you believe is the single most important force driving globalization in business? Present an argument for your position, including reference to forces that you believe are less important.

Write your response in 300 words or less. Apply current APA standards for writing style to your work. All written assignments and responses should follow APA rules for attributing sources.

By Friday, January 11, 2013, submit your assignment to the appropriateDiscussion Area. Through Sunday, January 13, 2013, review and comment on at least two of your peers’ responses.

 

http://myeclassonline.com/ec/courses/AUO_files/AU_img.gifCourse Project Overview

 

http://myeclassonline.com/ec/courses/AUO_files/AU_spacer.gif

 

For the course project, you will select a country of interest and assess the international business potential of that country and compare its characteristics to the characteristics of the U.S. You will write a 15- to 20-page paper based on your research. Include the following sections in the paper:

  • Executive summary
  • Macroeconomic condition
  • Financial system
  • Political and cultural environment
  • Special legal and business issues
  • Overall recommendation and risk assessment for making business investments into this country

The following organizations gather and publish data relevant to your course project. Use these resources for research. You will find links to these resources in the Webliography.

  • United Nations
  • International Trade Center
  • World Bank
  • International Monetary Fund
  • European Union
  • Asian Development Bank
  • Central Intelligence Agency
  • Trade Information Center
  • Japanese External Trade Organization
  • Ernst & Young
  • Lexis-Nexis
  • DIALOG
  • Dow Jones

Your course project tasks are:

  • M1: Assignment 3, Task 1: Review of Web resources and available information; selection of the country for the course project
  • M2: Reminder: Macroeconomic characteristics of the selected country and comparison with the U.S., with statistical data
  • M4: Reminder: Financial system characteristics of the selected country and comparison with the U.S., with statistical data
  • M5: Reminder: Cultural and political characteristics of the selected country and comparison with the U.S., with statistical data
  • M6: Reminder: Add a discussion of special legal and business issues; first draft of the paper for facilitator feedback
  • M8: Assignment 1, Final Paper: Complete paper finalized for grading
  • M8: Assignment 2, Presentation: Presentation of highlights of the final paper1 Globalization

     A LOOK AT THIS CHAPTER

    This chapter defines the scope of international business and introduces us to some of its most important topics. We begin by presenting globalization—describing its influence on markets and production and the forces behind its growth. Each main argument in the debate over globalization is also analyzed in detail. We then identify the key players in international business today. This chapter closes with a model that depicts international business as occurring within an integrated global business environment.

     A LOOK AHEAD

    Part 2, encompassing Chapters 2, 3, and 4, introduces us to different national business environments. Chapter 2 describes important cultural differences among nations. Chapter 3 examines different political and legal systems. Chapter 4 presents the world’s various economic systems and issues surrounding economic development.

    YouTube’s Global Impact

    San mateo, California — YouTube (www.youtube.com) is the world’s most popular service for sharing video clips through Web sites, mobile devices, blogs, and e-mail. YouTube officially launched in December 2005, and less than a year later was purchased by Google for $1.65 billion! YouTube’s spectacular success illustrates the opportunities that globalization creates for entrepreneurs.

    Pictured at right in Paris, France, YouTube founders Chad Hurley and Steve Chen introduce national versions of their service. YouTube localizes its service for 19 nations to capitalize on exploding global demand for user-created video content. “This is just the beginning,” says Chen. “If we had the resources, we would be launching in 140 countries.”

     

    Source: Š Christoph Dernback/dpa/CORBIS. All Rights Reserved.

    Most people visit YouTube’s Web site to catch up on current events and find videos about their hobbies and interests. Wannabe pop stars and filmmakers also share their creative efforts with the world by uploading them to YouTube. And by creating CitizenNews (www.youtube.com/citizennews), YouTube has given a voice to citizen journalists and Vloggers (video bloggers) who report firsthand accounts of events where they live—whether their home is in Indiana or India.

    Freedom sparks the creativity of artists and journalists, but it also draws the attention of heavy-handed governments. Nations that have at times blocked access to YouTube include China, Iran, Pakistan, Tunisia, and Turkey. YouTube and local providers of similar services must then employ their entrepreneurial creativity to overcome this government censorship.

    As you read this chapter, consider how globalization is reshaping our personal lives and altering the activities of international companies. Also please visit this book’s YouTube channel (www.youtube.com/myibvideos) to watch specially selected videos on international business topics.1

    Globalization is reshaping our lives and leading us into uncharted territory. As new technologies drive down the cost of global communication and travel, we are increasingly exposed to the traits and practices of other cultures. As countries reduce barriers to trade and investment, globalization forces their industries to grow more competitive if they are to survive. And as multinationals from advanced countries and emerging markets seek out customers, competition intensifies on a global scale. These new realities of international business are altering our cultures and transforming the way companies do business.

    International Business Involves Us All

    The dynamic nature of international business affects each of us personally. In our daily communications we encounter terms such as outsourcing, innovation, emerging markets, competitive advantage, and social responsibility. And each of us experiences the result of dozens of international transactions every day.

    The General Electric alarm clock/radio (www.ge.com) that woke you was likely made in China. The breaking news buzzing in your ears was produced by Britain’s BBC radio (www.bbc.co.uk). You slip on your Adidas sandals (www.adidas.com) made in Indonesia, Abercrombie & Fitch T-shirt (www.abercrombie.com) made in the Northern Mariana Islands, and American Eagle jeans (www.ae.com) made in Mexico. You pull the charger off your Nokia phone (www.nokia.com), which was designed in Finland and manufactured in the United States with parts from Taiwan, and head out the door. You hop into your Toyota (www.toyota.com) that was made in Kentucky, and pop in a CD performed by the English band Coldplay (www.coldplay.com). You swing by the local Starbucks (www.starbucks.com) to charge your own batteries with coffee brewed from a blend of beans harvested in Colombia and Ethiopia. Your day is just one hour old but in a way you’ve already taken a virtual round-the-world trip. A quick glance at the “Made in” tags on your jacket, backpack, watch, wallet, or other items with you right now will demonstrate the pervasiveness of international business transactions.

    International business is any commercial transaction that crosses the borders of two or more nations. You don’t have to set foot outside a small town to find evidence of international business. No matter where you live, you’ll be surrounded by imports —goods and services purchased abroad and brought into a country. Your counterparts around the world will undoubtedly spend some part of their day using your nation’s exports —goods and services sold abroad and sent out of a country. The total value of goods and services exported by all nations each year is a staggering $14,950,150,000,000 (nearly $15 trillion). That is nearly 40 times the annual revenue of the world’s largest company, Wal-Mart Stores (www.walmart.com).2

    international business

    Commercial transaction that crosses the borders of two or more nations.

    imports

    Goods and services purchased abroad and brought into a country.

    exports

    Goods and services sold abroad and sent out of a country.

    Technology Makes It Possible

    Technology is perhaps the most remarkable facilitator of societal and commercial changes today. Consumers use technology to reach out to the world on the Internet—gathering and sending information and purchasing all kinds of goods and services. Companies use technology to acquire materials and products from distant lands and to sell goods and services abroad.

    When businesses or consumers use technology to conduct transactions, they engage in e-business (e-commerce) —the use of computer networks to purchase, sell, or exchange products, service customers, and collaborate with partners. E-business is making it easier for companies to make their products abroad, not simply import and export finished goods.

    e-business (e-commerce)

    Use of computer networks to purchase, sell, or exchange products, service customers, and collaborate with partners.

    Consider how Hewlett-Packard (HP) (www.hp.com) designed and built a computer server for small businesses. Once HP identified the need for a new low-cost computer server, it seized the rewards of globalization. HP dispersed the design and production of its ProLiant ML150 server throughout a specialized manufacturing system across five Pacific Rim nations and India (see Figure 1.1). This helped the company minimize labor costs, taxes, and shipping delays yet maximize productivity when designing, building, and distributing its new product. Companies use such innovative production and distribution techniques to squeeze inefficiencies out of their international operations and boost their competitiveness.

    FIGURE 1.1 Global Production of an HP Server

    Source: Rebecca Buckman, “H-P Outsourcing: Beyond China,” Wall Street Journal, (www.wsj.com), February 23, 2004.

    Global Talent Makes It Happen

    Media companies today commonly engage in a practice best described as a global relay race. Fox and NBC Universal created Hulu (www.hulu.com) as a cool venue for fans to watch TV shows online. Hulu employs two technical teams—one in the United States and one in China—to manage its Web site. Members of the team in Santa Monica, California, work late into the night detailing code specifications that it sends to the team in Beijing, China. The Chinese team then writes the code and sends it back to Santa Monica before the U.S. team gets to work in the morning.3

    Some innovative companies use online competitions to tap global talent. InnoCentive (www.innocentive.com) connects companies and institutions seeking solutions to difficult problems using a global network of more than 145,000 creative thinkers. These engineers, scientists, inventors, and businesspeople with expertise in life sciences, engineering, chemistry, math, computer science, and entrepreneurship compete to solve some of the world’s toughest problems in return for significant financial awards. InnoCentive is open to anyone, is available in seven languages, and pays cash awards that range from as little as $2,000 to as much as $1,000,000.4

    This chapter begins by presenting globalization—we describe its powerful influence on markets and production and explain the forces behind its rapid expansion. Following coverage of each main point in the debate over globalization, we examine the key players in international business. We then explain why international business is special by presenting the dynamic, integrated global business environment. Finally, the appendix at the end of this chapter contains a world atlas to be used as a primer for this chapter’s discussion and as a reference throughout the remainder of the book.

    Quick Study

    1. Define the term international business and explain how it affects each of us.

    2. What do we mean by the terms imports and exports ?

    3. Explain how e-business (e-commerce) is affecting international business.

    Globalization

    Although nations historically retained absolute control over the products, people, and capital crossing their borders, economies are becoming increasingly intertwined. Globalization is the trend toward greater economic, cultural, political, and technological interdependence among national institutions and economies. Globalization is a trend characterized by denationalization (national boundaries becoming less relevant) and is different from internationalization (entities cooperating across national boundaries). The greater interdependence that globalization is causing means an increasingly freer flow of goods, services, money, people, and ideas across national borders.

    globalization

    Trend toward greater economic, cultural, political, and technological interdependence among national institutions and economies.

    As its definition implies, globalization involves much more than the expansion of trade and investment among nations. Globalization embraces concepts and theories from political science, sociology, anthropology, and philosophy as well as economics. As such, it is not a term exclusively reserved for multinational corporations and international financial institutions. Nor is globalization the exclusive domain of those with only altruistic or moral intentions. In fact, globalization has been described as going “well beyond the links that bind corporations, traders, financiers, and central bankers. It provides a conduit not only for ideas but also for processes of coordination and cooperation used by terrorists, politicians, religious leaders, anti-globalization activists, and bureaucrats alike.”5

    For our purposes, this discussion focuses on the business implications of globalization. Two areas of business in which globalization is having profound effects are the globalization of markets and production.

    Globalization of Markets

    Globalization of markets refers to convergence in buyer preferences in markets around the world. This trend is occurring in many product categories, including consumer goods, industrial products, and business services. Clothing retailer L.L. Bean (www.llbean.com), shoe producer Nike (www.nike.com), and electronics maker Sony (www.sony.com) are just a few companies that sell global products —products marketed in all countries essentially without any changes. Global products and global competition characterize many industries and markets, including semiconductors (Intel, Philips), aircraft (Airbus, Boeing), construction equipment (Caterpillar, Mitsubishi), autos (Honda, Volkswagen), financial services (Citicorp, HSBC), air travel (Lufthansa, Singapore Airlines), accounting services (Ernst & Young, KPMG), consumer goods (Procter & Gamble, Unilever), and fast food (KFC, McDonald’s). The globalization of markets is important to international business because of the benefits it offers companies. Let’s now look briefly at each of these benefits.

    Reduces Marketing Costs

    Companies that sell global products can reduce costs by standardizing certain marketing activities. A company selling a global consumer good, such as shampoo, can make an identical product for the global market and then simply design different packaging to account for the language spoken in each market. Companies can achieve further cost savings by keeping an ad’s visual component the same for all markets, but dubbing TV ads and translating print ads into local languages.

    Creates New Market Opportunities

    A company that sells a global product can explore opportunities abroad if the home market is small or becomes saturated. For example, China holds enormous potential for e-business with more than 240 million Internet users, but this represents just 18 percent of China’s total population. By comparison, around 153 million people are online in the United States, about 70 percent of the population. So, the battle for market share in the Middle Kingdom is raging between the top two online search engines—Google (www.google.cn) and Yahoo! (www.cn.yahoo.com).6 Seeking sales growth abroad can be absolutely essential for an entrepreneur or small company that sells a global product but has a limited home market.

    An employee demonstrates the latest iPhone at a T-Mobile phone store in Cologne, Germany. The iPhone by Apple (www.apple.com) is a hugely successful global product that excites style-lovers the world over. The iPhone combines a music and video player, cell phone, and Web browser into a single handset. Apple standardized the iPhone to reduce production and marketing costs and to support the creation of a powerful global brand.

    Source: Š Nvennenbernd/epa/CORBIS. All Rights Reserved.

    Levels Uneven Income Streams

    A company that sells a product with universal, but seasonal, appeal can use international sales to level its income stream. By supplementing domestic sales with international sales, the company can reduce or eliminate wide variations in sales between seasons and steady its cash flow. For example, a firm that produces suntan and sunblock lotions can match product distribution with the summer seasons in the northern and southern hemispheres in alternating fashion—thereby steadying its income from these global, yet highly seasonal, products.

    Yet Local Needs Are Important

    Despite the potential benefits of global markets, managers must constantly monitor the match between the firm’s products and markets to not overlook the needs of buyers. The benefit of serving customers with an adapted product may outweigh the benefit of a standardized one. For instance, soft drinks, fast food, and other consumer goods are global products that continue to penetrate markets around the world. But sometimes these products require small modifications to better suit local tastes. In southern Japan, Coca-Cola (www.cocacola.com) sweetens its traditional formula to compete with sweeter-tasting Pepsi (www.pepsi.com). In India, where cows are sacred and the consumption of beef is taboo, McDonald’s (www.mcdonalds.com) markets the “Maharaja Mac”—two all-mutton patties on a sesame-seed bun with all the usual toppings.

    Globalization of Production

    Many production activities are also becoming global. Globalization of production refers to the dispersal of production activities to locations that help a company achieve its cost-minimization or quality-maximization objectives for a good or service. This includes the sourcing of key production inputs (such as raw materials or products for assembly) as well as the international outsourcing of services. Let’s now explore the benefits companies obtain from the globalization of production.

    Access Lower-Cost Workers

    Global production activities allow companies to reduce overall production costs through access to low-cost labor. For decades, companies located their factories in low-wage nations to churn out all kinds of goods, including toys, small appliances, inexpensive electronics, and textiles. Yet whereas moving production to low-cost locales traditionally meant production of goods almost exclusively, it increasingly applies to the production of services such as accounting and research. Although most services must be produced where they are consumed, some services can be performed at remote locations where labor costs are lower. Many European and U.S. businesses have moved their customer service and other nonessential operations to places as far away as India to slash costs by as much as 60 percent.

    Access Technical Expertise

    Companies also produce goods and services abroad to benefit from technical know-how. Film Roman (www.filmroman.com) produces the TV series, The Simpsons, but it provides key poses and step-by-step frame directions to AKOM Production Company (www.akomkorea.com) in Seoul, South Korea. AKOM then fills in the remaining poses and links them into an animated whole. But there are bumps along the way, says animation director Mark Kirkland. In one middle-of-the-night phone call, Kirkland was explaining to the Koreans how to draw a shooting gun. “They don’t allow guns in Korea; it’s against the law,” says Kirkland. “So they were calling me [asking]: ‘How does a gun work?’” Kirkland and others put up with such cultural differences and phone calls at odd hours to tap a highly qualified pool of South Korean animators.7

    Access Production Inputs

    Globalization of production allows companies to access resources that are unavailable or more costly at home. The quest for natural resources draws many companies into international markets. Japan, for example, is a small, densely populated island nation with very few natural resources of its own—especially forests. But Japan’s largest paper company, Nippon Seishi, does more than simply import wood pulp. The company owns huge forests and corresponding processing facilities in Australia, Canada, and the United States. This gives the firm not only access to an essential resource, but control over earlier stages in the papermaking process. As a result, the company is guaranteed a steady flow of its key ingredient (wood pulp) that is less subject to swings in prices and supply associated with buying pulp on the open market. Likewise, to access cheaper energy resources used in manufacturing, a variety of Japanese firms are relocating production to China, Mexico, and Vietnam where energy costs are lower.

    Despite its benefits, globalization also creates new risks and accentuates old ones for companies. To read about several key risks that globalization heightens and how companies can better manage them, see this chapter’s Global Challenges feature titled, “Investing in Security Pays Dividends.”

    Quick Study

    1. Define globalization . How does denationalization differ from internationalization?

    2. List each benefit a company might obtain from the globalization of markets.

    3. How might a company benefit from the globalization of production?

    Forces Driving Globalization

    Two main forces underlie the globalization of markets and production: falling barriers to trade and investment and technological innovation. These two features, more than anything else, are increasing competition among nations by leveling the global business playing field; what author Thomas Friedman refers to in his book titled, The World Is Flat.8 Greater competition is simultaneously driving companies worldwide into more direct confrontation and cooperation. Local industries once isolated by time and distance are increasingly accessible to large international companies based many thousands of miles away. Some small and medium sized local firms are compelled to cooperate with one another or with larger international firms to remain competitive. Other local businesses revitalize themselves in a bold attempt to survive the competitive onslaught. And on a global scale, consolidation is occurring in many industries as former competitors link-up to challenge others on a worldwide basis. Let’s now explore in greater detail the pivotal roles of the two forces driving globalization.

    GLOBAL CHALLENGES: Investing in Security Pays Dividends

    The globalization of markets and production creates new challenges for companies around the world. As well as the need to secure lengthier supply lines and distribution channels, companies must pay increased attention to their facilities, information systems, and reputations.

    ■ A Simple Plan. Careful planning and a vulnerability assessment of facilities (around $12,000 for a midsized company; $1 million for a large firm) can be well worth the cost. For example, Wall Street firms with well-executed disaster plans had their employees working from hotel rooms, rented offices, and their homes the day after terrorists attacked New York City on September 11, 2001.
 
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Business Driven Information Systems

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Resource : Project Executive Summary Grading Guide

Resources:

¡ Baltzan, P., and Phillips, A. (2015). Business Driven Information Systems (5th ed).

¡ Week 1 articles

¡ It is recommended students search the Internet for an Executive Summary template.

Scenario: You are an entrepreneur beginning the process of researching a business development idea. The first step in creating a high-level Information Technology (IT) strategy for your new enterprise is to develop an executive summary of your project in the context of your goal to incorporate business-driven IT. The executive summary is intended to describe high-level strategic elements of the project. The executive summary is a working document, which is expected to change over time as new project details emerge.

Create an Executive Summary of your project in a minimum of 700 words that includes the following information regarding your chosen enterprise:

¡ A description of the enterprise, the industry sector, product(s), and intended market

¡ An overview of the business focus, corporate culture, and ethical framework

¡ A summary of how the IT value chain will support enterprise innovation and competitive advantage through decision support

Cite a minimum of 3 peer-reviewed references from the University of Phoenix Library.

Format consistent with APA guidelines.

Submit your assignment.

Resources

¡ Center for Writing Excellence

¡ Reference and Citation Generator

¡ Grammar and Writing Guides

¡ Learning Team Toolkit

 
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