Managing in a Global Environment

Managing in a Global EnvironmentManaging in a Global Environment

CHAPTER 4CHAPTER 4

2 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved.

Learning ObjectivesLearning Objectives

Describe the emerging borderless world and some issues of particular concern for today’s managers.

Describe market entry strategies that businesses use to develop foreign markets.

Define international management and explain how it differs from the management of domestic business operations.

Indicate how dissimilarities in the economic, sociocultural, and legal-political environments throughout the world can affect business operations.


Learning Objectives (contd.)Learning Objectives (contd.)

Describe how regional trading alliances are reshaping the international business environment.

Describe the characteristics of a multinational corporation.

Explain cultural intelligence and why it is necessary for managers working in foreign countries.


Importance of International BusinessImportance of International Business

If you are not thinking international,

you are not thinking business management


A Borderless WorldA 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


4 Stages of Globalization4 Stages of Globalization

Exhibit 4.1


Four Stages of GlobalizationFour 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 cost ownership, control, and top management tend to be dispersed


Global (stateless) CorporationsGlobal (stateless) Corporations

Number is increasing

Awareness of national borders decreasing

Corporate Examples– Fred Hassan – Pakistan-born CEO of

Schering Plough

– Mexico-born Fernando Aguirre, CEO of Chiquita Brands


Strategies for Entering International MarketsStrategies for Entering International Markets

Exhibit 4.2


Getting Started InternationallyGetting Started Internationally

Market Entry Strategy– An organizational strategy for entering a

foreign market

Global Outsourcing (offshoring)– Engaging in the international division of labor

so as to obtain the cheapest sources of labor and supplies regardless of country. Also called global sourcing.


International Environment FactorsInternational 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, regulations

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

Exhibit 4.3


Economic growth

Economic development

Infrastructure

Resource and product markets

Exchange rates

Inflation

Interest rates

Economic Environment FactorsEconomic Environment Factors


Economic DevelopmentEconomic 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


InfrastructureInfrastructure

A country’s physical facilities that support economic activities

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


Resource and Product MarketsResource 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


Exchange RatesExchange 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


The Legal-Political EnvironmentThe 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


Political InstabilityPolitical Instability

Events such as riots, revolutions, or

government upheavals that affect the

operations of an international company


Laws and RegulationsLaws 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


Sociocultural EnvironmentSociocultural 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


Hofstede’s Value DimensionsHofstede’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


Four Dimensions of National ValueFour Dimensions of National ValueExhibit 4.4


GLOBE Value DimensionsGLOBE 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


International Cultural InfluencesInternational Cultural Influences

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

Linguistic pluralism – several languages exist

Ethnocentrism – regard own culture superior


International Trade AgreementsInternational Trade Agreements

Most visible changes in legal-political factors grow out of international trade agreements:

– GATT– WTO– EU– NAFTA


International Trade AlliancesInternational 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, 149 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


WTOWTO

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

Partly responsible for backlash against global trade


European UnionEuropean 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


North American Free Trade AgreementNorth 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


Other Trade AlliancesOther Trade Alliances

The Association of Southeast Asian Nations (ASEAN)

Mercosur (Argentina, Brazil, Bolivia, Chile, Paraguay, Uruguay)

The Central American Free Trade Agreement (CAFTA)

Free Trade Area of the Americas (FTAA)


Multinational Corporations (MNC)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


Managing in a Global EnvironmentManaging 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

Managing in a Global Environment

Technology

international management

international markets

economic development

home international stage

business management

home country global

foreign markets

global environment chapter