Chapter 2 - The Global Environment


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Chapter 2 - The Global Environment

  1. 1. The Global Environment: Culture, Ethics, and Social Responsibility
  2. 2. Learning Outcomes <ul><li>Explain the five internal environmental factors. </li></ul><ul><li>List and explain the need for the two primary principles of total quality management (TQM). </li></ul><ul><li>Describe the three levels of organizational culture and their relationship to each other. </li></ul><ul><li>Describe how the nine external environmental factors—customers, competition, suppliers, labor force, shareholders, society, technology, the economy, and governments—can affect the internal business environment. </li></ul><ul><li>Contrast the classification of businesses in the global village. </li></ul><ul><li>List the six activities that make a business a global one, in order from lowest to highest cost and risk. </li></ul>After studying this chapter, you should be able to:
  3. 3. Learning Outcomes (cont’d) <ul><li>Compare the three levels of moral development. </li></ul><ul><li>Explain the stakeholders’ approach to ethics. </li></ul><ul><li>Define the key terms listed at the end of this chapter. </li></ul>After studying this chapter, you should be able to:
  4. 4. IDEAS ON MANAGEMENT at <ul><li>Who is’s top manager, and what is its mission, major resource, systems process, and structure? </li></ul><ul><li>What type of culture does have? </li></ul><ul><li>How does the external environment affect </li></ul><ul><li>How is classified in the global village, and how did it go global? </li></ul><ul><li>Is ethical, and does it have a code of ethics? </li></ul><ul><li>What types of things does do to be socially responsible? </li></ul>
  5. 5. The Internal Environment <ul><li>Management and Culture </li></ul><ul><ul><li>Organizational culture </li></ul></ul><ul><ul><ul><li>The values, beliefs, and assumptions about appropriate behavior that members of an organization share. </li></ul></ul></ul><ul><li>Mission </li></ul><ul><ul><li>A organization’s purpose or reason for being. </li></ul></ul><ul><ul><ul><li>Top management’s responsibility is to develop a mission with clear measurable objectives. </li></ul></ul></ul><ul><ul><ul><li>Should be relevant to all stakeholders’ interests. </li></ul></ul></ul><ul><ul><ul><li>Is an expression of the ends the organization strives to attain. </li></ul></ul></ul>
  6. 6. Exhibit 2 – 1 ● Internal Environmental Means and Ends Exhibit 2 – 1 ● Internal Environmental Means and Ends
  7. 7. The Internal Environment (cont’d) <ul><li>Resources </li></ul><ul><ul><li>Human resources </li></ul></ul><ul><ul><li>Physical resources </li></ul></ul><ul><ul><li>Financial resources </li></ul></ul><ul><ul><li>Informational resources </li></ul></ul><ul><li>Systems Process </li></ul><ul><ul><li>The method used to transform inputs into outputs. </li></ul></ul><ul><ul><li>Process components </li></ul></ul><ul><ul><ul><li>Inputs </li></ul></ul></ul><ul><ul><ul><li>Transformation </li></ul></ul></ul><ul><ul><ul><li>Outputs </li></ul></ul></ul><ul><ul><ul><li>Feedback </li></ul></ul></ul>
  8. 8. Exhibit 2 –2 ● The Systems Process
  9. 9. The Internal Environment (cont’d) <ul><li>Quality </li></ul><ul><ul><li>Comparing a product’s actual functioning to their requirements to determine value. </li></ul></ul><ul><li>Customer Value </li></ul><ul><ul><li>The perceived benefit of a product, used by customers to determine whether or not to buy the product. </li></ul></ul><ul><li>Total Quality Management (TQM) </li></ul><ul><ul><li>Focusing the organization on the customer to continually improve product value. </li></ul></ul>
  10. 10. The Internal Environment (cont’d) <ul><li>Structure </li></ul><ul><ul><li>The way in which resources are grouped to effectively achieve the organization’s mission. </li></ul></ul><ul><ul><li>Organizations structure resources to transform inputs into outputs. </li></ul></ul><ul><ul><li>All of an organization’s resources must be structured effectively to achieve its mission. </li></ul></ul>
  11. 11. Exhibit 2 –3 ● Components of the Internal Environment
  12. 13. Join the Discussion Ethics & Social Responsibility <ul><li>Downsizing and Part-Time Workers </li></ul><ul><ul><li>Is downsizing ethical and socially responsible? </li></ul></ul><ul><ul><li>Is using part-time employees rather than full-time ones ethical and socially responsible? </li></ul></ul>
  13. 14. Organizational Culture <ul><li>Learning the Organization’s Culture </li></ul><ul><ul><li>Heroes </li></ul></ul><ul><ul><li>Stories </li></ul></ul><ul><ul><li>Slogans </li></ul></ul><ul><ul><li>Symbols </li></ul></ul><ul><ul><li>Ceremonies </li></ul></ul><ul><li>Three Levels of Culture </li></ul><ul><ul><li>Level 1 —Behavior ( the visible level) </li></ul></ul><ul><ul><li>Level 2 —V alues and Beliefs (the invisible level) </li></ul></ul><ul><ul><li>Level 3 —Assumptions </li></ul></ul><ul><ul><ul><li>Are so deeply ingrained that they are considered unquestionably true. </li></ul></ul></ul>
  14. 15. Exhibit 2 –4 ● Three Levels of Organizational Culture Direction of effect
  15. 16. Organizational Culture (cont’d) <ul><li>Strong Cultures </li></ul><ul><ul><li>Have employees who subconsciously know the shared assumptions; consciously know the values and beliefs; agree with the shared assumptions, values, and beliefs; and behave as expected. </li></ul></ul><ul><ul><ul><li>Advantage: </li></ul></ul></ul><ul><ul><ul><ul><li>Benefit from easier communication and cooperation; unity of direction; and consensus is easier to reach </li></ul></ul></ul></ul><ul><ul><ul><li>Disadvantage: </li></ul></ul></ul><ul><ul><ul><ul><li>Threat of becoming stagnant </li></ul></ul></ul></ul><ul><li>Weak Cultures </li></ul><ul><ul><li>Have employees who do not behave as expected and do not agree with the shared values. </li></ul></ul>
  16. 18. Organizational Culture (cont’d) <ul><li>Managing, Changing, and Merging Cultures </li></ul><ul><ul><li>Symbolic Leaders </li></ul></ul><ul><ul><ul><li>Articulate a vision for the organization and reinforce the culture through slogans, symbols, and ceremonies. </li></ul></ul></ul><ul><ul><ul><li>Facilitate cultural change and/or mergers. </li></ul></ul></ul><ul><li>Learning Organizations </li></ul><ul><ul><li>Have cultures that value sharing knowledge so as to adapt to the changing environment and continuously improve. </li></ul></ul><ul><ul><ul><li>Strong leadership, a team-based structure, employee empowerment, open information, a participative strategy, and a strong adaptive culture. </li></ul></ul></ul>
  17. 19. The External Environment <ul><li>Task Factors </li></ul><ul><ul><li>Customers </li></ul></ul><ul><ul><ul><li>Their needs decide what products businesses offer. </li></ul></ul></ul><ul><ul><li>Competition </li></ul></ul><ul><ul><ul><li>Competitors’ business practices often have to be duplicated to maintain customer value. </li></ul></ul></ul><ul><ul><li>Suppliers </li></ul></ul><ul><ul><ul><li>Poor quality suppliers mean poor quality products. </li></ul></ul></ul><ul><ul><li>Labor force </li></ul></ul><ul><ul><ul><li>Quality labor is needed to produce quality products. </li></ul></ul></ul><ul><ul><li>Shareholders </li></ul></ul><ul><ul><ul><li>The board of directors monitors management and provides direction for the organization. </li></ul></ul></ul>
  18. 20. The External Environment <ul><li>General Factors </li></ul><ul><ul><li>Society </li></ul></ul><ul><ul><ul><li>Businesses are pressured by societal forces to behave in an acceptable manner. </li></ul></ul></ul><ul><ul><li>Technology </li></ul></ul><ul><ul><ul><li>Firms must stay current on technology to stay competitive and provide customer value. </li></ul></ul></ul><ul><ul><li>The Economy </li></ul></ul><ul><ul><ul><li>Economic activity has both short and long-term effects on an organization’s ability to provide customer value. </li></ul></ul></ul><ul><ul><li>Governments </li></ul></ul><ul><ul><ul><li>Policies, rules, and regulations affect what, how much, and how business is conducted. </li></ul></ul></ul>
  19. 22. Join the Discussion Ethics & Social Responsibility <ul><li>Auto Fuel Efficiency </li></ul><ul><ul><li>Are the automakers being ethical and socially responsible by taking advantage of loopholes in the law to classify one-half of their vehicles as light trucks? </li></ul></ul><ul><ul><li>Should society be concerned about fuel efficiency? Should people use fuel efficiency as a major criterion when buying a car? </li></ul></ul><ul><ul><li>Should the government be involved in setting fuel efficiency standards? If yes, should it change the current standards? How? </li></ul></ul>
  20. 23. The External Environment (cont’d) <ul><li>Chaos and Interactive Management </li></ul><ul><ul><li>Reactive managers </li></ul></ul><ul><ul><ul><li>Make changes only when forced to by external factors. </li></ul></ul></ul><ul><ul><li>Responsive managers </li></ul></ul><ul><ul><ul><li>Try to adapt to the environment by predicting and preparing for change before they are required to do so. </li></ul></ul></ul><ul><ul><li>Interactive managers </li></ul></ul><ul><ul><ul><li>Design a desirable future and invent ways of bringing it about by trying to prevent, not prepare for, threats and to create, not exploit, opportunities. </li></ul></ul></ul>
  21. 24. Exhibit 2 –5 ● The Organizational Environment
  22. 25. The Global Environment <ul><li>The Global Village </li></ul><ul><ul><li>Globalization is the number-one challenge of business leaders in the 21st century. </li></ul></ul><ul><ul><li>Companies are conducting business worldwide without boundaries as the world becomes smaller through technology. </li></ul></ul><ul><li>Ethnocentrism and “Made in America” </li></ul><ul><ul><li>Regarding one’s own ethnic group or culture as superior to others (e.g., “Buy American”). </li></ul></ul>
  23. 26. Join the Discussion Ethics & Social Responsibility <ul><li>Buy American </li></ul><ul><ul><li>Is it ethical and socially responsible to buy foreign products? </li></ul></ul>
  24. 27. Foreign Trade Balance of Trade World Trade Organization (WTO) Trade Alliances Protectionism Currency Exchange Rates
  25. 28. Exhibit 2 –6 ● Exchange Rates Suppose you are selling a product in China for 8,000 yuan. With an exchange rate of 8 yuan to 1 dollar, you get $1,000 [8,000 (yuan selling price) divided by 8 (8 yuan = $1)] for each product you sell. Suppose that this price and exchange rate give you a 25 percent profit margin. Now let’s see what happens with the extreme fluctuations in exchange rates that sometimes occur: <ul><li>If the exchange rate becomes 6 yuan to 1 dollar, the yuan is strong (and the dollar is weak). When you exchange the yuan for dollars, you get $1,333.33 [8,000 (yuan selling price) divided by 6 (6 yuan = $1)] for each product you sell. </li></ul><ul><li>Now let’s make the dollar strong (and the yuan weak). If the exchange rate goes to 10 yuan to the dollar, you get $800 [8,000 (yuan selling price) divided by 10 (10 yuan = $1)]. </li></ul>You can either change your yuan selling price to maintain your 25 percent profit margin or make more or less based on the exchange rate. Now think about the complexity of FedEx doing business in over 100 currencies.
  26. 29. Global Trading Agreements <ul><li>World Trade Organization </li></ul><ul><ul><li>Establishes and enforces world trade laws. </li></ul></ul><ul><li>Trade Alliances </li></ul><ul><ul><li>European Union (EU) </li></ul></ul><ul><ul><ul><li>Created a single market without national barriers to travel, employment, investment, and trade. </li></ul></ul></ul><ul><ul><ul><li>Euro (€) </li></ul></ul></ul><ul><ul><ul><ul><li>Single currency for the EU </li></ul></ul></ul></ul><ul><ul><li>North American Free Trade Agreement (NAFTA) </li></ul></ul><ul><ul><ul><li>United States, Canada, and Mexico </li></ul></ul></ul><ul><ul><li>Association of Southeast Asian Nations (ASEAN) </li></ul></ul><ul><ul><li>Asia-Pacific Economic Cooperation (APEC) </li></ul></ul>
  27. 30. Exhibit 2 –7 ● Trading Blocs
  28. 31. Classifying Businesses in the Global Village <ul><li>Domestic Business </li></ul><ul><ul><li>Conducts business only in its home country. </li></ul></ul><ul><li>International Business </li></ul><ul><ul><li>Is based primarily in one country but transacts business outside its boundaries. </li></ul></ul><ul><li>Multinational Corporation (MNC) </li></ul><ul><ul><li>Has significant operations in more than one country. </li></ul></ul>
  29. 32. Exhibit 2 –8 ● Taking a Business Global
  30. 33. Taking a Business Global <ul><li>Global Sourcing </li></ul><ul><ul><li>The use of worldwide resources (outsourcing). </li></ul></ul><ul><li>Importing </li></ul><ul><ul><li>A domestic firm buys products from foreign firms and sells them in its home market. </li></ul></ul><ul><li>Exporting </li></ul><ul><ul><li>A domestic firm sells its locally-made products to foreign buyers in overseas markets. </li></ul></ul>
  31. 34. Taking a Business Global (cont’d) <ul><li>Licensing </li></ul><ul><ul><li>One company allows another company to use its assets (intellectual property) for a fee. </li></ul></ul><ul><ul><ul><li>Brand name, a trademark, a particular technology, a patent, or a copyright </li></ul></ul></ul><ul><ul><li>Franchising </li></ul></ul><ul><ul><ul><li>For a fee and a percentage of the revenues, a franchiser provides the franchisee with a combination of trademark, equipment, materials, training, managerial guidelines, consulting advice, and cooperative advertising. </li></ul></ul></ul>
  32. 35. Taking a Business Global (cont’d) <ul><li>Contracting </li></ul><ul><ul><li>A company has a foreign firm manufacture the goods that it sells as its own. </li></ul></ul><ul><li>Joint Venture </li></ul><ul><ul><li>An enterprise that is created when firms agree to share in its ownership. </li></ul></ul><ul><li>Direct Investment </li></ul><ul><ul><li>Investment that occurs when a company builds or purchases operating facilities (subsidiaries) in a foreign country. </li></ul></ul>
  33. 37. Exhibit 2 –9 ● Practices of Global Companies
  34. 39. Join the Discussion Ethics & Social Responsibility <ul><li>File Sharing </li></ul><ul><ul><li>Is it ethical and socially responsible for people to download music, movies, or software for free, which prevents recording, film, or software companies and artists from getting any royalties? </li></ul></ul><ul><ul><li>Is it ethical and socially responsible for LimeWire and others to give people the means to download music, movies, or software for free? </li></ul></ul>
  35. 40. Join the Discussion Ethics & Social Responsibility <ul><li>Bribes </li></ul><ul><ul><li>Is it ethical and socially responsible to pay bribes? </li></ul></ul><ul><ul><li>Should the manager have paid the bribe to get the phone installed? </li></ul></ul>
  36. 41. Exhibit 2 – 10 ● GLOBE Dimensions Source: Adapted from M. Javidan and R. J. House, “Cultural Acumen for the Global Manager: Lessons from Project GLOBE,” Organizational Dynamics (Spring 2001), pp. 289–305
  37. 43. Business Ethics <ul><li>Ethics </li></ul><ul><ul><li>The standards of right and wrong that influence behavior. </li></ul></ul><ul><ul><ul><li>Right behavior is considered ethical, and wrong behavior is considered unethical. </li></ul></ul></ul><ul><ul><li>Government laws and regulations are designed to govern business behavior. </li></ul></ul><ul><ul><ul><li>However, ethics go beyond legal requirements. </li></ul></ul></ul><ul><ul><li>Ethical concepts are culturally-bound. </li></ul></ul><ul><ul><ul><li>What is considered ethical in one country may be unethical in another. </li></ul></ul></ul>
  38. 44. Business Ethics (cont’d) <ul><li>Does Ethical Behavior Pay? </li></ul><ul><ul><li>Research shows a positive relationship between ethical behavior and leadership effectiveness. </li></ul></ul><ul><ul><ul><li>Having strong ethics means having integrity, and people trust others they believe have integrity. </li></ul></ul></ul><ul><ul><li>Unethical behavior creates a negative image of big business. </li></ul></ul><ul><ul><ul><li>Mahatma Gandhi called business without morality a sin. </li></ul></ul></ul>
  39. 45. Factors Affecting Ethical Behavior The Situation Personality Traits and Attitudes Moral Development Ethical Behavior
  40. 46. Levels of Moral Development <ul><li>Preconventional </li></ul><ul><ul><li>Self-interest motivates behavior. </li></ul></ul><ul><li>Conventional </li></ul><ul><ul><li>Behavior is motivated by the desire to live up to others’ expectations. </li></ul></ul><ul><li>Postconventional </li></ul><ul><ul><li>Behavior is motivated by universal principles of right and wrong, regardless of the expectations of leaders or one’s group. </li></ul></ul>
  41. 47. Exhibit 2 – 11 ● Levels of Moral Development Level
  42. 48. How People Justify Unethical Behavior <ul><li>Moral Justification </li></ul><ul><ul><li>The process of reinterpreting immoral behavior in terms of a higher purpose. </li></ul></ul><ul><ul><ul><li>Displacement of responsibility </li></ul></ul></ul><ul><ul><ul><li>Diffusion of responsibility </li></ul></ul></ul><ul><ul><ul><li>Advantageous comparison </li></ul></ul></ul><ul><ul><ul><li>Disregard or distortion of consequences </li></ul></ul></ul><ul><ul><ul><li>Attribution of blame </li></ul></ul></ul><ul><ul><ul><li>Euphemistic labeling </li></ul></ul></ul>
  43. 49. Simple Guides to Ethical Behavior <ul><li>Golden Rule </li></ul><ul><ul><li>“Do unto others as you want them to do unto you.” </li></ul></ul><ul><li>Four-Way Test </li></ul><ul><ul><ul><li>Is it the truth? </li></ul></ul></ul><ul><ul><ul><li>Is it fair to all concerned? </li></ul></ul></ul><ul><ul><ul><li>Will it build goodwill and better friendship? </li></ul></ul></ul><ul><ul><ul><li>Will it be beneficial to all concerned? </li></ul></ul></ul><ul><li>Stakeholders’ Approach to Ethics </li></ul><ul><ul><li>Creating a win-win situation for all relevant stakeholders so that everyone benefits from the decision. </li></ul></ul>
  44. 50. Managing Ethics <ul><li>Codes of Ethics </li></ul><ul><ul><li>State the importance of conducting business in an ethical manner and provide guidelines for ethical behavior. </li></ul></ul><ul><li>Top Management Support and Example </li></ul><ul><ul><li>Develop codes of ethics. </li></ul></ul><ul><ul><li>Ensure that employees are instructed on what is and what is not considered ethical behavior. </li></ul></ul><ul><ul><li>Enforce ethical behavior. </li></ul></ul><ul><li>Enforcing Ethical Behavior </li></ul><ul><ul><li>Do not fail to punish unethical behavior. </li></ul></ul><ul><ul><ul><li>Whistle-blowers should not suffer negative consequences. </li></ul></ul></ul>
  45. 51. Social Responsibility <ul><li>Social Responsibility to Stakeholders </li></ul><ul><ul><li>The conscious effort to try to create a win-win situation for all external stakeholders, as well as internal stakeholders. </li></ul></ul><ul><li>Does It Pay to Be Socially Responsible? </li></ul><ul><ul><li>Social responsibility doesn’t guarantee or improve profits, but scandals do hurt corporate reputations. </li></ul></ul><ul><li>Social Audit </li></ul><ul><ul><li>A measure of how well a firm’s social behavior helps it achieve its social objectives. </li></ul></ul>
  46. 52. Join the Discussion Ethics & Social Responsibility <ul><li>TV and Movie Sex and Violence </li></ul><ul><ul><li>How do TV and movies influence societal values? (Consider that many children watch as many as five hours of TV per day.) </li></ul></ul><ul><ul><li>Do TV shows and movies that include sex and violence reflect current religious and societal values? </li></ul></ul><ul><ul><li>Should the FCC regulate television, and if yes, how far should it go? Should it make networks tone down the sex and violence, or take shows off the air? </li></ul></ul><ul><ul><li>Is it ethical and socially responsible to portray women as sex objects? </li></ul></ul>
  47. 53. KEY TERMS <ul><li>internal environment </li></ul><ul><li>organizational culture </li></ul><ul><li>mission </li></ul><ul><li>stakeholders </li></ul><ul><li>systems process </li></ul><ul><li>quality </li></ul><ul><li>customer value </li></ul><ul><li>total quality management (TQM) </li></ul><ul><li>levels of culture </li></ul><ul><li>symbolic leaders </li></ul><ul><li>learning organization </li></ul><ul><li>external environment </li></ul><ul><li>global village </li></ul><ul><li>ethnocentrism </li></ul><ul><li>international business </li></ul><ul><li>multinational corporation (MNC) </li></ul><ul><li>global sourcing </li></ul><ul><li>joint venture </li></ul><ul><li>direct investment </li></ul><ul><li>ethics </li></ul><ul><li>stakeholders’ approach to ethics </li></ul><ul><li>social responsibility </li></ul>