CHAPTER 5 The Global Environment Copyright  © by Houghton Mifflin Company. All rights reserved. PowerPoint Presentation  b...
Learning Objectives <ul><li>After studying this chapter, you should be able to: </li></ul><ul><ul><li>Describe the nature ...
Chapter Outline <ul><li>The Nature of International Business </li></ul><ul><ul><li>The Meaning of International Business <...
Levels of International Business Activity Figure  5.1 Level of International Activity Lowest Highest Domestic business Mul...
The Meaning of International Business <ul><li>Domestic Business </li></ul><ul><ul><li>acquires all of its resources and se...
Trends in International Business <ul><li>Economic Recovery </li></ul><ul><ul><li>Industrialized nations in Europe and Asia...
Managing The Process of Globalization <ul><li>Exporting </li></ul><ul><ul><li>Making a product in the firm’s domestic mark...
Managing The Process of Globalization (cont’d) <ul><li>Licensing </li></ul><ul><ul><li>Advantages  are increased profitabi...
Managing The Process of Globalization (cont’d) <ul><li>Direct Investment </li></ul><ul><ul><li>Advantages are enhanced ope...
Advantages and Disadvantages of Different Approaches to Internationalization Table  5.1
The Structure of the Global Economy <ul><li>Market Economies and Systems </li></ul><ul><ul><li>Based on the private owners...
The Global Economy <ul><li>The global economy is dominated by three relatively mature market systems </li></ul>Figure  5.2
Market Economies and Systems <ul><li>High Potential/High Growth Economies </li></ul><ul><ul><li>Characteristics are underd...
Market Economies and Systems (cont’d) <ul><li>Other Economies </li></ul><ul><ul><li>Some economies defy classification due...
Environmental Challenges of International Management Figure  5.3 International management functions Political/Legal Enviro...
Controls on International Management <ul><li>Key Concepts </li></ul><ul><ul><li>Tariffs are collected on goods shipped acr...
The Cultural Environment <ul><li>Language </li></ul><ul><ul><li>In Japanese the word “hai” can mean either “yes” or “I und...
Individual Behaviors Across Cultures Source:  Adapted from R. W. Griffin,/M. Pustay,  International Business,  (figure 14....
Individual Behaviors Across Cultures (cont’d) Source:  Adapted from R. W. Griffin,/M. Pustay,  International Business,  (f...
Individual Behaviors Across Cultures (cont’d) Source:  Adapted from R. W. Griffin,/M. Pustay,  International Business,  (f...
Problems with Hofstede’s findings <ul><li>Assumes one-to-one relationship between culture and the nation-state </li></ul><...
Competing in a Global Economy <ul><li>Globalization and Organization Size </li></ul><ul><ul><li>Multinational Corporations...
The World’s Largest MNCs: Industrial Corporations Table  5.2 Source:  Adapted from  Fortune , July 24, 2000; p. F-1,  Fort...
The World’s Largest MNCs: Industrial Corporations
Management Challenges in a Global Economy <ul><li>Planning in a Global Economy </li></ul><ul><ul><li>Requires a broad-base...
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Griffin Chap05

  1. 1. CHAPTER 5 The Global Environment Copyright © by Houghton Mifflin Company. All rights reserved. PowerPoint Presentation by Charlie Cook
  2. 2. Learning Objectives <ul><li>After studying this chapter, you should be able to: </li></ul><ul><ul><li>Describe the nature of international business, including its meaning, recent trends, the management of globalization, and competition in a global environment. </li></ul></ul><ul><ul><li>Discuss the structure of the global economy and how it affects international management. </li></ul></ul><ul><ul><li>Identify and discuss the environmental challenges inherent in international management. </li></ul></ul><ul><ul><li>Describe the basic issues involved in competing in a global economy, including organization size and the management challenges in a global economy. </li></ul></ul>
  3. 3. Chapter Outline <ul><li>The Nature of International Business </li></ul><ul><ul><li>The Meaning of International Business </li></ul></ul><ul><ul><li>Trends in International Business </li></ul></ul><ul><ul><li>Managing the Process of Globalization </li></ul></ul><ul><ul><li>Competing in a Global Environment </li></ul></ul><ul><li>The Structure of the Global Economy </li></ul><ul><ul><li>Mature Market Economies and Systems </li></ul></ul><ul><ul><li>High Potential/High Growth Economies </li></ul></ul><ul><ul><li>Other Economies </li></ul></ul><ul><li>Environmental Challenges of International Management </li></ul><ul><ul><li>The Economic Environment </li></ul></ul><ul><ul><li>The Political/Legal Environment </li></ul></ul><ul><ul><li>The Cultural Environment </li></ul></ul><ul><li>Competing in a Global Economy </li></ul><ul><ul><li>Globalization and Organizational Size </li></ul></ul><ul><ul><li>Management Challenges in a Global Economy </li></ul></ul>
  4. 4. Levels of International Business Activity Figure 5.1 Level of International Activity Lowest Highest Domestic business Multinational business International business Global business
  5. 5. The Meaning of International Business <ul><li>Domestic Business </li></ul><ul><ul><li>acquires all of its resources and sells all of its products or services within a single country. </li></ul></ul><ul><li>International Business </li></ul><ul><ul><li>is primarily based in a single country yet acquires a meaningful share of its resources and/or revenues from other countries. </li></ul></ul><ul><li>Multinational Business </li></ul><ul><ul><li>transcends national boundaries and buys raw materials, borrows money, and manufactures and sells its products in a world-wide marketplace. </li></ul></ul><ul><li>Global Business </li></ul><ul><ul><li>transcends national boundaries and is not committed to a single home country. </li></ul></ul>
  6. 6. Trends in International Business <ul><li>Economic Recovery </li></ul><ul><ul><li>Industrialized nations in Europe and Asia have rebuilt their economic systems that were devastated in WWII. </li></ul></ul><ul><li>Decreasing Isolation from Foreign Competition </li></ul><ul><ul><li>U.S. consumer goods markets are open to overseas competitors. </li></ul></ul><ul><li>Increasing Globalization of World Markets </li></ul><ul><ul><li>Volume of international trade has increased more than 3,000% from 1960 to 2000. </li></ul></ul>
  7. 7. Managing The Process of Globalization <ul><li>Exporting </li></ul><ul><ul><li>Making a product in the firm’s domestic market and selling it in another country. </li></ul></ul><ul><li>Importing </li></ul><ul><ul><li>Bringing a good, service, or capital into a home country from abroad. </li></ul></ul><ul><ul><li>Advantages are small cash outlay, little exchange risk, and no adaptation of product or service is necessary. </li></ul></ul><ul><ul><li>Disadvantages are tariffs and taxes imposed on cross-border goods, high transportation costs to/from distant markets, and governmental restrictions and regulations. </li></ul></ul>
  8. 8. Managing The Process of Globalization (cont’d) <ul><li>Licensing </li></ul><ul><ul><li>Advantages are increased profitability from licensing without additional capital requirements, lower operational costs in foreign markets, and extended profitability from existing technologies. </li></ul></ul><ul><ul><li>Disadvantages are inflexibility in the licensing arrangement, loss of profits from licensee failure, and licensing possibly helps competitors learn to compete. </li></ul></ul><ul><li>Strategic Alliance and Joint Ventures </li></ul><ul><ul><li>Advantages are quick market entry, access to materials and technology, and reduced risk. </li></ul></ul><ul><ul><li>Disadvantage is that shared ownership limits control and profitability. </li></ul></ul>
  9. 9. Managing The Process of Globalization (cont’d) <ul><li>Direct Investment </li></ul><ul><ul><li>Advantages are enhanced operational control, it allows use of existing infrastructure, and no adaptation of in-country product or service is necessary. </li></ul></ul><ul><ul><li>Disadvantages are complexity in managing a foreign operation, greater economic- and political-risk exposure, and greater uncertainty of business risk. </li></ul></ul><ul><ul><li>Maquiladoras are light-assembly plants built in northern Mexico close to the U.S. border which are given special tax breaks by the Mexican government. </li></ul></ul>
  10. 10. Advantages and Disadvantages of Different Approaches to Internationalization Table 5.1
  11. 11. The Structure of the Global Economy <ul><li>Market Economies and Systems </li></ul><ul><ul><li>Based on the private ownership of business and allows market factors such as supply and demand to determine business strategy. </li></ul></ul><ul><ul><li>Characteristics are a mature economy, well-developed infrastructures, and individual wealth. </li></ul></ul><ul><li>Market Systems </li></ul><ul><ul><li>Clusters of countries that engage in high levels of trade with each other through the elimination of trade barriers such as quotas and tariffs. </li></ul></ul><ul><ul><li>North American Free Trade Agreement (NAFTA) covering the United States, Mexico, and Canada. </li></ul></ul><ul><ul><li>European Union (EU) of western European countries. </li></ul></ul><ul><ul><li>Pacific Asia countries in Southeast Asia. </li></ul></ul>
  12. 12. The Global Economy <ul><li>The global economy is dominated by three relatively mature market systems </li></ul>Figure 5.2
  13. 13. Market Economies and Systems <ul><li>High Potential/High Growth Economies </li></ul><ul><ul><li>Characteristics are underdeveloped and immature markets, weak industrial base, weak currency, and poor consumers. </li></ul></ul><ul><ul><li>People’s Republic of China, India, Vietnam, Brazil, Russia. </li></ul></ul><ul><ul><li>Challenges to market development: </li></ul></ul><ul><ul><ul><li>The need for large investments in distribution systems. </li></ul></ul></ul><ul><ul><ul><li>The need to educate/train consumers in product usage. </li></ul></ul></ul><ul><ul><ul><li>A lack of infrastructure for support operations. </li></ul></ul></ul><ul><ul><ul><li>Unfavorable policy changes affecting investments. </li></ul></ul></ul>
  14. 14. Market Economies and Systems (cont’d) <ul><li>Other Economies </li></ul><ul><ul><li>Some economies defy classification due to their possession of critical and valuable resources (e.g., oil-producing countries) or other social or political factors which distort their internal economies and markets. </li></ul></ul><ul><ul><li>Challenges of other economies </li></ul></ul><ul><ul><ul><li>Political instability </li></ul></ul></ul><ul><ul><ul><li>Cultural differences </li></ul></ul></ul><ul><ul><ul><li>Ethnic violence </li></ul></ul></ul>
  15. 15. Environmental Challenges of International Management Figure 5.3 International management functions Political/Legal Environment • Government stability • Incentives for international trade • Controls on international trade • Economic communities Economic Environment • Economic system • Natural resources • Infrastructure Cultural Environment • Values, symbols, beliefs, and language • Individual differences across cultures
  16. 16. Controls on International Management <ul><li>Key Concepts </li></ul><ul><ul><li>Tariffs are collected on goods shipped across national boundaries. </li></ul></ul><ul><ul><li>Quotas are limits placed on the number or value of goods that can be traded as exports or imports. </li></ul></ul><ul><ul><li>Export restraint agreements are voluntary limits on the volume or value of goods exported to or imported from another country. </li></ul></ul>
  17. 17. The Cultural Environment <ul><li>Language </li></ul><ul><ul><li>In Japanese the word “hai” can mean either “yes” or “I understand.” </li></ul></ul><ul><ul><li>General Motors’ brand name “Nova” when “va” is pronounced “ba” as “no va” in Spanish means “doesn’t go.” </li></ul></ul><ul><li>The Meaning of Colors </li></ul><ul><ul><li>Green is popular in Muslim countries, yet it signifies death in other countries. </li></ul></ul><ul><ul><li>Pink is associated with feminine characteristics in the U.S.; yellow is the most feminine color in other countries. </li></ul></ul>
  18. 18. Individual Behaviors Across Cultures Source: Adapted from R. W. Griffin,/M. Pustay, International Business, (figure 14.1, page 479) © 1996 Addison Wesley Longman. Reprinted by permission of Addison Wesley Longman. Figure 5.4 Social Orientation Relative importance of the interests of the individual vs. the interests of the group The interests of the individual take precedence Individualism The interests of the group take precedence Collectivism Power Orientation The appropriateness of power/authority within organi- zations Authority is inherent in one’s position within a hierarchy Power Respect Individuals assess authority in view of its perceived right- ness or their own personal interests Power Tolerance
  19. 19. Individual Behaviors Across Cultures (cont’d) Source: Adapted from R. W. Griffin,/M. Pustay, International Business, (figure 14.1, page 479) © 1996 Addison Wesley Longman. Reprinted by permission of Addison Wesley Longman. Figure 5.4 Goal Orientation What motivates people to achieve different goals Value material possessions, money, and assertiveness Aggressive Goal Behavior Value social relevance, quality of life, and the welfare of others Passive Goal Behavior Uncertainty Orientation An emotional response to uncertainty and change Positive response to change and new opportunities Uncertainty Acceptance Prefer structure and a consistent routine Uncertainty Avoidance
  20. 20. Individual Behaviors Across Cultures (cont’d) Source: Adapted from R. W. Griffin,/M. Pustay, International Business, (figure 14.1, page 479) © 1996 Addison Wesley Longman. Reprinted by permission of Addison Wesley Longman. Figure 5.4 Time Orientation The extent to which members of a culture adopt a long-term or a short-term outlook on work and life Value dedication, hard work, and self-image Long-Term Outlook Place less emphasis on hard work Short-Term Outlook
  21. 21. Problems with Hofstede’s findings <ul><li>Assumes one-to-one relationship between culture and the nation-state </li></ul><ul><li>His research may have been culturally bound. </li></ul><ul><li>Survey respondents were from a single industry (computer) and a single company (IBM) </li></ul>
  22. 22. Competing in a Global Economy <ul><li>Globalization and Organization Size </li></ul><ul><ul><li>Multinational Corporations (MNCs) adopt a global perspective and compete in the global marketplace. </li></ul></ul><ul><ul><li>Medium-Size Businesses remain primarily domestic organizations that may buy and sell abroad through trade specialists and compete with foreign companies in local markets. </li></ul></ul><ul><ul><li>Small Businesses participate in global markets when they serve as local suppliers for MNCs. </li></ul></ul>
  23. 23. The World’s Largest MNCs: Industrial Corporations Table 5.2 Source: Adapted from Fortune , July 24, 2000; p. F-1, Fortune © 2000. Time Inc. All rights reserved.
  24. 24. The World’s Largest MNCs: Industrial Corporations
  25. 25. Management Challenges in a Global Economy <ul><li>Planning in a Global Economy </li></ul><ul><ul><li>Requires a broad-based understanding of both environmental issues and competitive issues. </li></ul></ul><ul><li>Organizing in a Global Economy </li></ul><ul><ul><li>Involves addressing issues of creating and managing operations on a world-wide scale. </li></ul></ul><ul><li>Leading in a Global Economy </li></ul><ul><ul><li>Requires learning how to interact with and motivate persons of different cultural, social, and economics backgrounds. </li></ul></ul><ul><li>Controlling </li></ul><ul><ul><li>Involves integrating global operations that encompass time-zone differences, cultural factors, and varying communication methods. </li></ul></ul>
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