Chapter 4 MGT 301 Managing Globally. Learning Goals 1.State the trends affecting organizations in a global economy 2.Describe how a country’s culture.

Chapter 4

MGT 301MGT 301

Managing GloballyManaging Globally

Learning Goals

1. State the trends affecting organizations in a global economy

2. Describe how a country’s culture can affect an organization’s business practices

3. Explain how political—legal forces impact global business

4. Discuss how three major international trade agreements affect global competition and cooperation

5. Describe six strategies used by organizations to grow globally

International ManagementInternational Management

Managing Across the Globe: Why?Managing Across the Globe: Why?

Great opportunities in the international marketplace todayGreat opportunities in the international marketplace today

Other countries having population explosionsOther countries having population explosions

Strong profit potentialStrong profit potential

Growing trend – Across borders business relationshipsGrowing trend – Across borders business relationships

Slowdown in industrialized nationsSlowdown in industrialized nations

Growth in newly industrialized and developing countriesGrowth in newly industrialized and developing countries

Worldwidecommunication

Borderlessorganizations

Worldwide laborpool

ForeignExchange

rates

ExpandingNature of

trade

Globalsourcing of parts

Importanceof exports

and imports

“It is now possible for more people than ever to collaborate and compete in real time with more people on different kinds of work from different corners of the planet and on more equal footing than at any previous time in the history of the

world using computers, e-mail, teleconferencing and dynamic software.”

Thomas L. Friedman, Author, The World is Flat

Culture

CulturalDistance

ValueSystems

SocialChange

LanguageTime

Orientation

0

10

20

30

40

50

60

70

80

90

100

Pow er Distance Uncertainty Avoidance Individualism Gender-Role Orientation

Mexico

USA

Imp

orta

nce

of

Cu

ltu

ral O

rien

tati

on

Cultural Value Dimension

UncertaintyAvoidance Individualism Gender-Role

Orientation

Power Distance

Subordinates’ dependence needs

Consultation

Ideal superior

Moderate dependence on

supervisor

Expect to be consulted

Democratic leadership

Heavy dependence on

supervisor

Expect little consultation

A benevolent autocrat or

paternalistic father figure

United States MexicoIssue

Rules and regulations

Status symbols

IssueApply to all

Are accepted as symbols of

authority, but are not necessary

Supervisors are above rules and regulations and

take advantage of privileges

Are very important evidence of the

authority of superiors

United States Mexico

Characteristics

Decision making

Responsibility

Organization chart

United States Mexico

Participation, delegation to employees

Centralized, concentrated at top

Employees assume responsibility for their own lives

Employees expect close paternalistic supervisors

Indicative of unequalcompetencies;reflects information flow in organization

Indicative of unequal roles; reflects power relationships of key family members

Hiring criteria

Performance feedback

Leadership pattern

Planning process

Characteristics

Demonstrated performance

Family or personal ties

Employee accepts accountability

Critical feedback resented

Democratic leader Benevolent dictator

Long term, proactive, formal

Short term, reactive, unstructured

United States Mexico

Source: Adapted from T.H. Becker. Doing Business in the New Latin America. Westport, CT: Praeger, 2004, 135-136.

Examples of IndustriesAffected by Cultural

Distance Consumer foods Tobacco products Products that have high

linguistic content (TV) Auto (size, features)

Aspects of CulturalDistance

Different languages Different ethnicities Different religions Different social norms

Political risk: probability that governmental decisions or events in a country will negatively affect the long-term profitability of an investment

Major Dimensions of political risk

Domestic instability

Foreign conflict

Political climate

Economic climate

Corruption

Low

Low

Low

Low

Low

High

High

High

High

High

*Score relates to degree of corrupt behaviors by analysts. Scores can range from 10 (not corrupt) to 0 (highly corrupt).

Country Rank Country Score*1 (least Corrupt)

2

14

17

2165

117

130

158 (Most Corrupt)

Iceland (9.7)

Finland and New Zealand (9.6)

Canada (8.4)

United States (7.6)

Japan and Chile (7.5)Mexico (3.5)

Philippines and Bolivia (2.5)

Venezuela (2.3)

Bangladesh and Chad (1.7)

Protectionism is designed to help home-based industries or firms avoid (or reduce) potential (or actual) competitive threats from abroad

Tariff: a government tax on goods or services entering the country

Quota: a restriction on the quantity of a country’s imports and sometimes exports

Subsidy: a direct or indirect payment by a government to domestic firms to make selling or investing abroad cheaper for them

Cartel: an alliance of producers engaged in the same type of business that is formed to limit or eliminate competition and control production and prices

Political Mechanisms Related to Various Degrees of Corruption

Bribe: an improper payment made to induce the recipient to do something for the payer

Extortion: a payment made to ensure that the recipient doesn’t harm the payer in some way

Grease payments: small payments used to get lower level government employees to speed up required paperwork

“Every morning in Africa, a gazelle wakes up and knows it must run faster than a lion or it will be killed. Every morning a lion wakes up and knows that it must outrun the slowest gazelle or it will starve to death. It doesn’t matter whether or not you are a gazelle or lion. When the sun comes up, you better start running.”

Jack Perkowski, Chairman and CEO, ASIMCO Technologies

Represents 149 negotiated trade agreements among countries

Key FunctionsCooperating with other International Organizations

AdministeringWTO

agreement

Providing a forum for trade negotiations

Handling trade disputes between

nations

Monitoringnational trade

policies

Providingtechnical assistance and

training for people in developing countries

Benefits

Promotes peace by handling trade disputes

constructively

Rules make life easier for all organizations

to follow

Trade stimulates economic growth

and reduces the cost of living

Systemencourages good

government

Major International Trade Agreements: WTO Fundamental Principles

Most favored nation principle: when country A grants a tariff concession to country B, the same concession automatically applies to all other countries that are members of WTO

Reciprocity principle: each member country will not be forced to reduce tariffs unilaterally. A tariff concession is made only in return for comparable concessions from the other countries

Transparency principle: tariffs are to be readily visible to all countries

Created a freer trade zone among Canada, Mexico, and United States

Maquiladora plants: foreign-owned plants located in Mexico that border the U.S.

removed and reduced barriers to trade, such as tariffs, quotas, and licenses

increased trade tightened intellectual property right protection

account for 40% of Mexico’s manufacturing wages range from $15 - $20 a day employ more than 1.2 million people

An organization with the goals of creating a single market among member nations and establishing the free movement of goods, people, services, and capital

Removes/Reduces:

Created the EURO as currency

currently 25 member countries

physical barriers at country borderstechnical barriers that prevent goods

produced in one country being sold in others

Fiscal barriers:red-tape and tax systems that hinder tradefinancial barriers that prevent/hinder free

movement of investment capital

Resource CommitmentLow High

Low

HighC

omp

lexi

ty

Exporting

Licensing

Franchising

Alliances

Multidomestic

Global

Maintaining facilities within a home country and shipping goods and services abroad for sale in foreign markets (e.g., California Sunshine; Thomson Publishing)

Benefits: no cash outlays extends products/services to other countries most sales done via Internet

Firm (the licensor) in one country giving other domestic or foreign firms (licensees) the right to use a patent, trademark, technology, production process, or product in return for the payment of a royalty or fee (e.g., Coca-Cola; PepsiCo)

Benefits: little financial risk increase market awareness no production plants

Risks: violation of intellectual property rights licensee fails to pay royalty or fee licensee steals technology

Parent organization (the franchiser) granting other companies or individuals (franchisees) the right to use its trademarked name and to produce and sell its goods or services (e.g., KFC, Marriott)

Benefits: parent company maintains control of brand

image, manufacturing and services increase global presence franchisee tailors marketing to local area(s)

Risks: need to monitor franchisee franchisee operates independently and

doesn’t perform services according to contract

Benefits: share costs and risks of capital intense projects desire for partners to learn from each other partners shape competition in the industry

An agreement between two or more organizations to pool physical, financial, and human resources to achieve common goals (e.g., Nestlé; L’Oreal)

Risks: political uncertainty partners can become competitors economic uncertainty partners develop different goals

Benefits: firm taps into country values for product customization marketing campaigns tailored to country firm understands local distribution system extending global brand name

Adjusting products, services, and practices to individual countries or regions (e.g., Pacific Rim versus Western Europe versus North America) (e.g., Domino’s Pizza; Procter & Gamble)

Risks: large financial investment required shared services high level of coordination needed across firm reliance on local managers to implement strategy

A.G. Lafley, CEO and President, Procter and Gamble

“Procter and Gamble chose a multidomestic strategy because we believe that this leads to

superior understanding of consumers and their needs and it develops close relationships with suppliers. This structure also enables product

divisions to share information and key activities.”

Benefits: worldwide standards promotes brand recognition coordination of global manufacturing distribution advantages

Stresses worldwide consistency, standardization and relatively low cost (e.g., Black & Decker, Kodak)

Risks: assumes customers needs are similar across globe high level of financial investment in plants and

equipment national currency fluctuations loss of flexibility between plants