Chapter 4

Managing in a Global Environment
SEATWORK
Think of at least five (5) global companies
and think of the strategy/(ies) they
formulated to conquer the market...
Importance of International Business
If you are not thinking
international,
you are not thinking business
management

Copy...
Global Environment and
International Managers
 Difficulties

Chapter 4
Topics

Operating in Borderless World

 Challenge...
A Borderless World
 Business

is becoming a unified, global field

 Companies

that think globally have a
competitive ed...
Globalization refers to the
extent to which trade and
investments, information,
social and cultural ideas,
and political c...
Four Stages of Globalization
Domestic stage:
market potential is limited to the home country
production and marketing faci...
4 Stages of Globalization
1. Domestic

2. International

3. Multinational

4. Global

Strategic Orientation

Domestically
...
Global (stateless) Corporations


Number is increasing



Awareness of national borders decreasing



Rising managers e...
The International
Business Environment
 International

management is management
of business operations conducted in more
...
International Environment Factors

Economic
•Economic
development
•Infrastructure
•Resource and
product markets
•Per capit...
Economic Environment Factors


Economic development



Infrastructure



Resource and product markets



Exchange rate...
Economic Development
●

Countries categorized as “developing” or “developed”

●

Criterion used to classify is per capita ...
Infrastructure
A country’s physical facilities that support
economic activities
 Airports,

highways, and railroads
 Ene...
Resource and Product Markets
When operating in another country...
–
–

Managers must evaluate market demand
To develop pla...
Exchange Rates






Rate at which one country’s
currency is exchanged for
another country’s
Has become a major concern...
The Legal-Political Environment
 Political

Risk– due to events or actions by host

governments
● Loss of assets
● Loss o...
Political Instability

 Events

such as riots, revolutions, or

government upheavals that affect the
operations of an int...
Laws and Regulations
 Government

laws and regulations differ from
country to country

 Make

doing business a true chal...
Sociocultural Environment


Culture – shared knowledge, beliefs, values,
common modes of behavior, and ways of thinking
a...
Hofstede’s Value Dimensions


Research = national value systems influence
organizational and employee working relationshi...
Four Dimensions of National Value

Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved....
GLOBE Value Dimensions
Global Leadership and Organizational Behavior Effectiveness project

More comprehensive view of cul...
International Cultural Influences
 Other
–
–
–
–
–

Cultural Characteristics

Language
Religion
Attitudes
Social Organiza...
International Trade Agreements


Most visible changes in legal-political
factors grow out of international trade
agreemen...
International Trade Alliances









General Agreement on Tariffs and Trade (GATT)
Signed by 23 nations in 1947 as...
WTO


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



Encompasses GA...
European Union


Formed in 1957 to improve economic and social
conditions



Has grown to 25-nation alliance



Initiat...
Nations of The EU

*Joined in
2004
*
*
*
* *
*

*

*
*
Copyright © 2005 by South-Western, a division of Thomson Learning. ...
North American Free Trade Agreement
●
●
●
●

●

Went into effect on January 1, 1994
Merged the United States, Canada, and ...
Ownership of
Foreign Operations

Strategies for Entering
International Markets
High
Greenfield
Venture
Acquisition
Joint V...
Multinational Corporations (MNC)
 Receives

>25% total sales revenues from
operations outside parent company’s home
count...
Managing in a Global Environment
Managers must be sensitive to cultural subtleties
 Personal challenges – culture shock
...
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  • Borderless world - the global economy in the age of the Internet, which is thought to have removed all the previous barriers to international trade
    Saturate - Describing a market in which nearly all potential customers have been reached and use of a product or service is currently near a maximum. For example, a town is saturated with supermarkets.
  • Managing in a global environment

    1. 1. Chapter 4 Managing in a Global Environment
    2. 2. SEATWORK Think of at least five (5) global companies and think of the strategy/(ies) they formulated to conquer the market of a particular country. (Example, McDonald’s Philippines used advertising and promotion to capture the hearts of the Filipinos) Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 2
    3. 3. Importance of International Business If you are not thinking international, you are not thinking business management Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 3
    4. 4. Global Environment and International Managers  Difficulties Chapter 4 Topics Operating in Borderless World  Challenges – Economic – Legal-political – Socio-cultural  Multinational  Foreign Corporations Markets - Entrance Managers’ Challenge: Wal-Mart Managers Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 4
    5. 5. 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 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 5
    6. 6. Globalization refers to the extent to which trade and investments, information, social and cultural ideas, and political cooperation flow between countries. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 6
    7. 7. Four Stages of Globalization Domestic stage: market potential is limited to the home country production and marketing facilities located at home International stage: exports increase company usually adopts a multi-domestic approach Multinational stage: marketing and production facilities located in many countries more 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 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 7
    8. 8. 4 Stages of Globalization 1. Domestic 2. International 3. Multinational 4. Global Strategic Orientation Domestically Oriented Export- Oriented multi-domestic Multinational Global Stage of Development Initial foreign involvement Competitive positioning Explosion of international operations Global Cultural Sensitivity Of little importance Very important Somewhat important Critically important “Many good ways” “The least-cost way” “Many good ways” Manager Assumptions “One best way” SOURCE: Based on Nancy J. Adler, International Dimensions of Organizational Behavior, 4 th ed. (Cincinnati, Ohio: South-Western, 2002), 89. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 8
    9. 9. 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 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 9
    10. 10. The International Business Environment  International management is management of business operations conducted in more than one country  Fundamental  Basic – – tasks do not change management functions are the same - domestic or international Greater difficulties and risks when performing on an international scale Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 10
    11. 11. International Environment Factors Economic •Economic development •Infrastructure •Resource and product markets •Per capita Income •Exchange rates •Economic conditions Legal-Political •Political risk •Government takeovers Organization •Tariffs, quotas, taxes •Terrorism, political instability •Laws, regulations Sociocultural •Socio values, beliefs •Language •Religion (objects, taboos, holidays) •Kinship patterns •Formal education, literary •Time orientation Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 11
    12. 12. Economic Environment Factors  Economic development  Infrastructure  Resource and product markets  Exchange rates  Inflation  Interest rates  Economic growth Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 12
    13. 13. 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 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 13
    14. 14. Infrastructure A country’s physical facilities that support economic activities  Airports, highways, and railroads  Energy-producing facilities  Communication facilities Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 14
    15. 15. 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 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 15
    16. 16. 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 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 16
    17. 17. 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 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 17
    18. 18. Political Instability  Events such as riots, revolutions, or government upheavals that affect the operations of an international company Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 18
    19. 19. 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 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 19
    20. 20. 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 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 20
    21. 21. 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 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 21
    22. 22. Four Dimensions of National Value Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 22
    23. 23. GLOBE Value Dimensions Global Leadership and Organizational Behavior Effectiveness project More comprehensive view of cultural similarities and differences – – – – Assertiveness Future orientation Uncertainty avoidance Gender differentiation – – – – – Power distance Societal collectivism Individual collectivism Performance orientation Humane orientation Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 23
    24. 24. International Cultural Influences  Other – – – – – Cultural Characteristics Language Religion Attitudes Social Organization Education  Linguistic pluralism – several languages exist  Ethnocentrism – regard own culture superior Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 24
    25. 25. International Trade Agreements  Most visible changes in legal-political factors grow out of international trade agreements: – – – – GATT WTO EU NAFTA Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 25
    26. 26. 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 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 26
    27. 27. 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 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 27
    28. 28. 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 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 28
    29. 29. Nations of The EU *Joined in 2004 * * * * * * * * * Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 29 *
    30. 30. 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 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 30
    31. 31. Ownership of Foreign Operations Strategies for Entering International Markets High Greenfield Venture Acquisition Joint Venture Franchising Licensing Exporting Low Low Cost to Enter Foreign Operations Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 31 High
    32. 32. 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 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 32
    33. 33. 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 Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 33
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