Advanced-Global-Trading

Managing in a Global Environment
CHAPTER 4

Learning Objectives







2

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

Learning Objectives (contd.)






3

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 Business
If you are not thinking
international,
you are not thinking
business management

4


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

5


4 Stages of Globalization

Exhibit 4.1

6


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

7


Global (stateless) Corporations
 Number

is increasing

 Awareness

of national borders

decreasing
 Corporate

Examples

–

–

8

Fred Hassan – Pakistan-born CEO of
Schering Plough
Mexico-born Fernando Aguirre, CEO of
Chiquita Brands


Strategies for Entering International Markets

Exhibit 4.2

9


Getting Started Internationally
 Market
–

An organizational strategy for entering a
foreign market

 Global
–

10

Entry Strategy

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 Factors
Exhibit 4.3

Economic

Legal-Political

•Economic
development
•Infrastructure
•Resource and
product markets
•Per capita
Income
•Exchange rates
•Economic
conditions

•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

11


Economic Environment Factors

Economic development
Infrastructure
Resource and product markets
Exchange rates
Inflation
Interest rates
Economic growth
12


Economic Development
●

●

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

●

13

Countries categorized as “developing” or
“developed”

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


Infrastructure
A country’s physical facilities that support
economic activities
 Airports,

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

14


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

15


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
16


The Legal-Political Environment

 Political

Risk– due to events or actions
by host governments
●
●
●
●
●

17

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


Political Instability

 Events

such as riots, revolutions, or

government upheavals that affect the
operations of an international company

18


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

19


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

20


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)
–

21

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


Four Dimensions of National Value
Exhibit 4.4

22


GLOBE Value Dimensions
Global Leadership and Organizational Behavior Effectiveness project

More comprehensive view of cultural
similarities and differences
–
–
–
–

23

Assertiveness
Future orientation
Uncertainty
avoidance
Gender
differentiation

–
–
–
–
–

Power distance
Societal collectivism
Individual collectivism
Performance
orientation
Humane orientation


International Cultural Influences
 Other
–
–
–
–
–

Cultural Characteristics

Language
Religion
Attitudes
Social Organization
Education

 Linguistic

pluralism – several languages exist

 Ethnocentrism

24

– regard own culture superior


International Trade Agreements


Most visible changes in legalpolitical factors grow out of
international trade agreements:
–
–
–
–

25

GATT
WTO
EU
NAFTA


International Trade Alliances









26

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


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

 Partly

responsible for backlash
against global trade

27


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

barrier

 EU’s

28

Euro

feared EU would become a trade

monetary revolution, introduction of the

North American Free Trade Agreement
●
●
●
●

●

29

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 Alliances








30

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)
 Receives

>25% total sales revenues from
operations outside parent company’s home
country
–
–

Controlled by single management authority

–

31

Managed as integrated worldwide business system
Top managers exercise global perspective


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
32


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