4. ib enviorment

Managing in a Global Environment

Cha

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Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved.

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Importance of International Business

If you are not thinking international,

you are not thinking business management


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Global Environment and International Managers

Difficulties Operating in Borderless World Challenges

– Economic– Legal-political– Socio-cultural

Multinational Corporations Foreign Markets - Entrance

Chapter 4 Topics

Managers’ Challenge: Wal-Mart Managers


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A Borderless World

Business is becoming a unified, global field

Companies that think globally have a competitive edge

Domestic markets are saturated for many companies

Consumers can no longer tell from which country they are buying


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Four Stages of Globalization

Domestic stage:market potential is limited to the home countryproduction and marketing facilities located at home

International stage:exports increasecompany usually adopts a multi-domestic approach

Multinational stage:marketing and production facilities located in many countriesmore than 1/3 of its sales outside the home country

Global (or stateless) stage:making sales and acquiring resources in whatever country offers the best opportunities and lowest costownership, control, and top management tend to be dispersed


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4 Stages of Globalization1. Domestic 2. International 3. Multinational 4. Global

Strategic Orientation

Stage of Development

Cultural Sensitivity

Manager Assumptions

Domestically Oriented

Export- Oriented multi-domestic

Multinational Global

GlobalInitial foreign involvement

Competitive positioning

Explosion of international operations

Of little importance

“One best way”

Very important

“Many good ways”

Somewhat important

“The least-cost way”

Critically important

“Many good ways”

SOURCE: Based on Nancy J. Adler, International Dimensions of Organizational Behavior, 4 th ed. (Cincinnati, Ohio: South-Western, 2002), 8-9.


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Global (stateless) Corporations

Number is increasing Awareness of national borders decreasing Rising managers expected to know a 2nd or 3rd

language Corporate Example – Nestle (Swiss)

– CEO Peter Brabeck–Letmathe (Austrian)– Half of general managers (non-Swiss)– Strong faith in regional managers who are native to the

region


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The InternationalBusiness Environment

International management is management of business operations conducted in more than one country

Fundamental tasks do not change Basic management functions

– are the same - domestic or international– Greater difficulties and risks when performing on

an international scale


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International Environment Factors

Organization

Economic• Economic

development

• Infrastructure

• Resource and product markets

• Per capita Income

• Exchange rates

• Economic conditions

Legal-Political• Political risk

• Government takeovers

• Tariffs, quotas, taxes

• Terrorism, political instability

• Laws, regulationsSociocultural• Socio values, beliefs• Language• Religion (objects, taboos, holidays)• Kinship patterns• Formal education, literary• Time orientation


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Economic Environment Factors

Economic development

Infrastructure

Resource and product markets

Exchange rates

Inflation

Interest rates

Economic growth


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Economic Development

● Countries categorized as “developing” or “developed”

● Criterion used to classify is per capita income

● Developing countries have low per capita incomes

● LDCs located in Asia, Africa, and South America

● Developed are North America, Europe, & Japan

● Driving global growth in Asia, Eastern Europe, & Latin America


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Infrastructure

A country’s physical facilities that support economic activities

Airports, highways, and railroads Energy-producing facilities Communication facilities


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Resource and Product Markets

When operating in another country...– Managers must evaluate market demand– To develop plants, resource markets must be

available – raw materials and labor

Corporate Example – McDonald


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Exchange Rates

Rate at which one country’s currency is exchanged for another country’s

Has become a major concern for companies doing business internationally

Changes in the exchange rate can have major implications for profitability of international operations


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The Legal-Political Environment

Political Risk– due to events or actions by host

governments ● Loss of assets● Loss of earning power● Loss of managerial control● Government takeovers● Acts of violence


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Political Instability

Events such as riots, revolutions, or

government upheavals that affect the

operations of an international company


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Laws and Regulations

Government laws and regulations differ from country to country

Make doing business a true challenge for international firms

Internet has increased impact of foreign laws on U.S. companies – expands potential for doing business on global basis


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Sociocultural Environment

Culture – shared knowledge, beliefs, values, common modes of behavior, and ways of thinking among members of a society– Intangible– Pervasive– Difficult for outsider to learn

Managers need to understand difference in social values to comprehend local cultures and deal with them effectively


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Hofstede’s Value Dimensions

Research = national value systems influence organizational and employee working relationships– Power distance (high = accept inequality)

– Uncertainty avoidance (uncomfortable with uncertainty)

– Individualism and collectivism (Individualism take care of themselves)

– Masculinity/femininity (preference for achievement/assertiveness; femininity for relationship)

– Long-term/short-term orientation = 5th dimension

Ethical Dilemma: The Problem in Asia


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Four Dimensions of National Value


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GLOBE Value Dimensions

– Assertiveness– Future orientation– Uncertainty avoidance– Gender differentiation

– Power distance– Societal collectivism– Individual collectivism– Performance orientation– Humane orientation

Global Leadership and Organizational Behavior Effectiveness project

More comprehensive view of cultural similarities and differences


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International Cultural Influences

Other Cultural Characteristics– Language– Religion– Attitudes– Social Organization– Education

Linguistic pluralism – several languages exist Ethnocentrism – regard own culture superior


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International Trade Agreements

Most visible changes in legal-political factors grow out of international trade agreements:– GATT– WTO– EU– NAFTA


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International Trade Alliances

General Agreement on Tariffs and Trade (GATT) Signed by 23 nations in 1947 as a set of rules Ensured nondiscrimination, clear procedures,

negotiation of disputes, and participation of lesser developed countries in international trade

Today, 147 member countries abide by the rules Primary tools WTO uses on tariff concessions,

countries agree to limit level of tariffs on imports from other WTO members

Most favored nation clause


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WTO

Goal, is to guide and sometimes urge the nations of the world toward free trade and open markets

Encompasses GATT and all of its agreements

Has legal authority to arbitrate disputes on 400 trade issues

Partly responsible for backlash against global trade


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European Union

Formed in 1957 to improve economic and social conditions

Has grown to 25-nation alliance Initiative Europe ’92 called for creation of open markets

for Europe’s 340 million consumers Biggest expansion in 2004 – 10 new members from

southern and eastern Europe Observers feared EU would become a trade barrier EU’s monetary revolution, introduction of the Euro


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Nations of The EU

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*Joined in 2004


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North American Free Trade Agreement

● Went into effect on January 1, 1994● Merged the United States, Canada, and Mexico with

more that 421 million consumers● Breaks down tariffs and trade restrictions on most

agriculture and manufactured products● August 12, 1992 agreements in number of key areas

include: agriculture, autos, transport, & intellectual property

● January, 2004 -10th anniversary = success and failure


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Strategies for EnteringInternational Markets

Exporting

High

HighLow Low

Ow

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Op

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Cost to Enter Foreign Operations

Licensing

Franchising

Joint Venture

Acquisition

GreenfieldVenture


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Multinational Corporations (MNC)

Receives >25% total sales revenues from operations outside parent company’s home country– Managed as integrated worldwide business system

– Controlled by single management authority

– Top managers exercise global perspective


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Managing in a Global Environment

Managers must be sensitive to cultural subtleties Personal challenges – culture shock Managing Cross-culturally

– Leading– Decision making– Motivating– Controlling

Managers must be culturally flexible and easily adapt to new situations

Experiential Exercise: Rate your Global Management Potential