Chap04 the Global Environment

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The Global EnvironmentThe Global Environment

In the past, managers have viewed theglobal sector as closed. Each country or market was assumed to be isolated

from others. Firms did not consider global competition, exports.

Todays environment is very different. Managers need to view it as an open market. Organizations buy and sell around the world. Managers need to learn to compete globally.

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Tariff BarriersTariff BarriersA tariffis a barriers to trade. Tariffs are taxes levied upon imports.

These seek to protect jobs in the homecountry.

Other countries usually retaliate.Free trade: in a free tradeagreement, each country seeks tospecialize in things they makemost efficiently. If India is more efficient in making textiles,

and the USA in making computer software,then each country should focus on these.

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Distance & Culture BarriersDistance & Culture Barriers

The second leading cause of trade barriers.Distance closed the markets as far as some managers

were concerned.

Communications could be difficult. Languages and cultures were different.

During the last 50 years, communicationsand transportation technology has

dramatically improved. Jet aircraft, fiber optics, satellites have provided fast,

secure communications and transportation. These have also reduced cultural differences.

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Effects on ManagersEffects on ManagersDeclining barriers have opened greatopportunities for managers. Managers can not only sell goods and services but also

buy resources and components globally.

Managers now face a more dynamic andexciting job due to global competition.

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Free TradeFree Trade

NAFTA: North American Free TradeAgreement. Abolishes most tariffs on goods traded between

Mexico, Canada and the U.S.

Allows unrestricted cross-border flows of resources. Many U.S. firms have now invested in Mexico.

This is a manufacturing opportunity. Wage costs are lower in Mexico. Can serve Mexico with a plant in Mexico and reduce

freight.Managers face new opportunities andthreats.

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Suppliers & DistributorsSuppliers & DistributorsManagers buy products from global suppliersor make items abroad and supply themselves. Key is to keep quality high and costs low.

Global outsourcing:firms buy inputs fromthroughout the world. GM might build engines in Mexico, transmissions in Korea,

and seats in the U.S. Finished goods become global products.

Distributors:each country often has a uniquesystem of distribution. Managers must identify all the issues.

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Customers & CompetitorsCustomers & Competitors

Formerly distinct national markets aremerging into a huge global market. True for both consumer and business goods.

Creates large opportunities.

Still, managers often must customizeproducts to fit the culture.

McDonald's sells a local soft drink in Brazil.Global competitors present new threats. Increases competition abroad as well as at home.

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Forces in the Global General EnvironmentForces in the Global General Environment

Political &

Legal Systems

Economic

systemSociocultural

System

Forces yieldingForces yielding

OpportunitiesOpportunitiesand threatsand threats

Figure 4.3

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Political-Legal ForcesPolitical-Legal Forces

Results from diverse and changing natureof each countries political system.

Representative democracies:such as theU.S., Britain, Canada. Citizens elect leaders who make decisions for

electorate.

Usually has a number of safeguards such as freedomof expression, a fair court system, regular elections,and limited terms for officials.

Well defined legal system and economic freedom.

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Totalitarian regimes:a single political party orperson monopolize power in a country. Typically do not recognize or permit opposition.

Most safeguards found in a democracy do not exist.

Examples include Iran, Iraq, and China.These are difficult to do business with given thelack of economic freedom.

Further, human rights issuesalso cause managersto avoid dealing with these countries.

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Economic SystemsEconomic SystemsFree market economy:production of goods andservices is in private ownership. Production is dictated by supply and demand.

Command economy:decisions on what to

produce, how much, done by the government. Most command economies are moving away from the

command economy.Mixed economy:certain economic sectors

controlled by private business, others aregovernment controlled. Many mixed countries are moving toward a free enterprise

system.

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Recent TrendsRecent TrendsCurrent shift away from totalitariandictators toward democratic regimes. Very dramatic example seen in the collapse of the former

Soviet Republic. Also very pronounced in Latin America and Africa.

With this shift, has come a strong movementtoward free market systems.

This provides great opportunities to business managerson a global level.

Many businesses are investing millions in formertotalitarian countries to seize these opportunities.

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Changing Political andEconomic Forces

Changing Political andEconomic Forces

Russia

1985

Russia

1995

Democratic

Political

Freedom

TotalitarianChina

1985

China1995

Command MarketMixed

Economic Freedom

Britain

1985

Britain

1995

Hungary

1985

Hungary

1995

Figure 4.4

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Sociocultural ForcesSociocultural Forces

National culture:includes the values,norms, knowledge, beliefs, and other

practices that unite a country.Values:abstract ideas about what asociety believes to be good, desirable andbeautiful. Provides attitudes for democracy, truth, appropriate

roles for men, and women. Usually not static but very slow to change.

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Norms:social rules prescribing behavior ina given situation. Folkways:routine social conventions including dress

codes and manners.Mores:Norms that are central to functioning of

society. much more significant that folkways. More examples include theft, adultery, and are often

enacted into law.Norms vary from country to country.

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Hofstedes Model of National CultureHofstedes Model of National Culture

Individualism

Low Power

Distance

Achievement

Oriented

Low Uncertainty

Avoidance

Short Term

Orientation

Collectivism

High Power

Distance

Nurturing

Oriented

High UncertaintyAvoidance

Long Term

Orientation

Figure

4.

5

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Individualism v. CollectivismIndividualism v. CollectivismIndividualism:world view that valuesindividual freedom and self-expression. Usually has a strong belief in personal rights and need to

be judged by achievements.Collectivism:world view that values thegroup over the individual. Widespread in Communism.

Prevalent in Japan as well.

Managers must understand how theirworkers relate to this issue.

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Power DistancePower Distance

A societys acceptance of differences in the wellbeing of citizens due to differences in heritage,and physical and intellectual capabilities. In high power distance societies, the gap between rich and

poor gets very wide.

In low power distance societies, any gap between rich andpoor is reduced by taxation and welfare programs.

Most western cultures (U.S., Germany, United Kingdom)have relatively low power distance and high individualism.

Many economically poor countries such as Panama, Malaysia

have high power distance and low individualism.

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Achievement vs NurtureAchievement vs Nurture

Achievement oriented societiesvalueassertiveness, performance, success. The society is results-oriented.

Nurturing-orientedvalue quality of life,personal relationships, service.The U. S. and Japan are achievement-

oriented while Sweden, Denmark are morenurturing-oriented.

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Uncertainty AvoidanceUncertainty Avoidance

Societies and people differ on their willingness totake on risk.

Low uncertainty avoidance(U.S., Hong Kong),

value diversity, and tolerate differences. Tolerate a wide range of opinions and beliefs.

High uncertainty avoidance(Japan and France)are more rigid and do not tolerate people actingdifferently. High conformity to norms is expected.

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Long Term OutlookLong Term Outlook

Long-term outlookis based on values ofsaving, and persistence.

Taiwan and Hong Kong are cultures that are long -termin outlook.

Short-term outlookseeks the maintenance ofpersonal stability or happiness right now. France and the U. S. are examples of this approach.

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International ExpansionInternational Expansion

Importing and Exporting:the least complexmethod of expansion. Exporting: firm makes products and sells abroad. Importing: firm sells products made abroad.

Licensing:firm allows foreign organization tomake and distribute goods for a fee. Helps the home firm since it does not have to set up a

complete production and distribution network.

Franchising:company sells a foreignorganization the rights to use brand name andknow-how in return for payment and profitpercentage.

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International OptionsInternational Options

Strategic Alliances:managers pool resourceswith a foreign firm and both organizationsshare the rewards and risks.

Allows firm to maintain control which is a problem withexporting, licensing, and franchising.

Wholly-owned foreign subsidiary:firm investsin production operations in a foreign country. Many Japanese auto firms have done this in the U.S. This is very expensive but can yield high returns.

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International ExpansionInternational Expansion

Importing

Exporting

LicensingLicensing

FranchisingFranchising

Joint VenturesJoint Ventures

Strat. AlliancesStrat. Alliances

Wholly-

owned For.

Subsidiary

LowHighLevel of Foreign involvement and investmentneeded by a global organization

Figure4.6