2. chapter six
Managing in the Global
Environment
McGraw-Hill/Irwin
Contemporary Management, 5/e
Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

3. Learning Objectives
• Explain why the ability to perceive,
interpret, and respond appropriately to
the global environment is crucial for
managerial success
• Differentiate between the global task and
global general environments
• Identify the main forces in both the global
task and general environments, and
describe the challenges that each force
presents to managers
McGraw-Hill/Irwin
6-3
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.

4. Learning Objectives
• Explain why the global environment is
becoming more open and competitive
and identify the forces behind the
process of globalization that increases
the opportunities, complexities,
challenges, and threats that managers
face
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5. Learning Objectives
• Discuss why national cultures differ and
why it is important that managers be
sensitive to the effects of falling trade
barriers and regional trade associations
on the political and social systems of
nations around the world
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6. Global Organizations
• Organizations that operate and compete
not only domestically, but also globally
• Uncertain and
unpredictable
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7. Global Environment
• Set of forces and conditions in the world
outside the organization’s boundaries
that affect the way it operates and shape
its behavior
• Changes over time
• Presents managers with opportunities
and threats
6-7

8. Task Environment
• Set of forces and conditions that
originate with suppliers, distributors,
customers, and competitors
• Affect an organization’s ability to obtain
inputs and dispose of its outputs
• Most immediate and direct effect on
managers
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9. Forces in the Organizational Environment
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10. Question?
Which part of the task environment
provides an organization with the input
resources that it needs to produce
goods and services?
A. Customers
B. Suppliers
C. Competitors
D. Distributors
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11. The Task Environment
Suppliers
– Individuals and organizations that provide an
organization with the input resources that it
needs to produce goods and services
• Raw materials, component parts, labor
(employees)
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12. The Task Environment
Suppliers
– Relationships with suppliers can be difficult
due to materials shortages, unions, and lack
of substitutes.
• Suppliers that are the sole source of a
critical item are in a strong bargaining
position to raise their prices.
– Managers can reduce these supplier effects
by increasing the number of suppliers of an
input.
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13. Suppliers
• It’s important that managers recognize
the opportunities and threats associated
with managing the global supply chain
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14. Suppliers
• Gaining access to low-cost products
made abroad represents an opportunity
for U.S. companies to lower their input
costs
• Managers who fail to utilize low-cost
overseas suppliers create a threat and
put their organizations at a competitive
disadvantage
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15. Global Outsourcing
• Process by which organizations
purchase inputs from other companies
or produce inputs themselves throughout
the world to lower production costs and
improve the quality or design of their
products
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16. The Task Environment
Distributors
– Organizations that help other organizations
sell their goods or services to customers
• Powerful distributors can limit access to
markets through its control of customers
in those markets.
• Managers can counter the effects of
distributors by seeking alternative
distribution channels.
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17. The Task Environment
Customers
– Individuals and groups that buy goods and
services that an organization produces
• Identifying an organization’s main
customers and producing the goods and
services they want is crucial to
organizational and managerial success.
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18. The Task Environment
Competitors
– Organizations that produce goods and
services that are similar to a particular
organization’s goods and services
Vs. Vs.
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19. The Task Environment
• Potential Competitors
– Organizations that presently are not in the
task environment but could enter if they so
choose
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20. The Task Environment
• Rivalry between competitors is
potentially the most threatening force
that managers deal with
• Strong competitive rivalry results in price
competition, and falling prices reduce
access to resources and lower profits
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21. The Task Environment
Barriers to Entry
– Factors that make it difficult and costly for
the organization to enter a particular task
environment or industry
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22. Barriers to Entry
• Economies of scale
– Cost advantages associated with large
operations
• Brand loyalty
• Customers’ preference for the products of
organizations currently existing in the task
environment.
• Government regulations that impede
entry
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23. Barriers to Entry and Competition
Figure 6.2
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24. General Environment
Economic
Socio-
Technological cultural
Forces
Demographi Political and
c Legal
6-24

25. The General Environment
Economic Forces
– Interest rates, inflation, unemployment,
economic growth, and other factors that
affect the general health and well-being of a
country or world region
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26. Economic Forces
Successful managers:
• Realize the important effects that
economic forces have on their
organizations
• Pay close attention to what is occurring
in the national and regional economies
to respond appropriately
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27. The General Environment
• Technology
– Combination of tools, machines, computers,
skills, information, and knowledge that
managers use in the design, production,
and distribution
of goods and
services
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28. The General Environment
Technological Forces
– Outcomes of changes in the technology that
managers use to design, produce, or
distribute goods and services
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29. The General Environment
Technological Forces
– Results in new opportunities or threats to
managers
– Often makes products obsolete very
quickly
– Changes are altering the very nature of
work itself, including the manager’s job
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30. The General Environment
Sociocultural Forces
– Pressures emanating from the social structure of a
country or society or from the national culture
• Social structure: the arrangement of relationships
between individuals and groups in society
• National culture: the set of values that a society
considers important and the norms of behavior
that are approved or sanctioned in that society.
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31. The General Environment
Sociocultural Forces
– Societies differ substantially in the values
and norms they emphasize.
– Effective managers are sensitive to
differences between societies and adjust
their behaviors accordingly
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32. The General Environment
Demographic Forces
– Outcomes of change in, or changing attitudes
toward, the characteristics of a population,
such as age, gender, ethnic origin, race,
sexual orientation, and social class
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33. The General Environment
Demographic Forces
– Most industrialized nations are experiencing
the aging of their populations as a
consequence of failing birth and death rates
and the aging of the baby-boom generation
– Organizations need to find ways to motivate
and utilize the skills and knowledge of older
employees
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34. The General Environment
Political and Legal Forces
– Outcomes of changes in laws and
regulations, such as the deregulation of
industries, the privatization of organizations,
and increased emphasis on environmental
protection
• Increasingly nations are joining together
into political unions that allow for the free
exchange of resources and capital
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35. The Global Environment
Figure 6.3
6-35

36. The Changing Global Environment
• Managers now recognize that
companies exist and compete in a truly
global market
• Managers constantly confront the
challenges of global competition
– Establishing operations in a country abroad
– Obtaining inputs from suppliers abroad
– Challenges of managing in a different
national culture
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37. Process of Globalization
• Globalization
– Set of specific and general forces that work
together to integrate and connect economic,
political, and social systems across
countries, cultures, or geographical regions
– Result is that nations and peoples become
increasingly interdependent
6-37

38. Discussion Question?
What is the principal form of capital that
flows between countries?
A. Human
B. Political
C. Resource
D. Financial
6-38

39. Process of Globalization
• Four principal forms of capital that flow
between countries are:
– Human capital
– Financial capital
– Resource capital
– Political capital
6-39

40. Declining Barriers to Trade and
Investment
Tariff
– A tax that government imposes on imported
or, occasionally, exported goods.
• Intended to protect domestic industry and
jobs from foreign competition
• Other countries usually retaliate their own
tariffs, actions that eventually reduce the
overall amount of trade and impedes
economic growth.
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41. GATT and the Rise of Free Trade
Free-Trade Doctrine
– The idea that if each country specializes in
the production of the goods and services that
it can produce most efficiently, this will make
the best use of global resources
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42. Declining Barriers of Distance and
Culture
• Distance
– Markets were essentially closed because of the
slowness of communications over long distances.
• Culture
– Language barriers and cultural practices made
managing overseas businesses difficult
• Changes in Distance and Communication
– Improvement in transportation technology and fast,
secure communications have greatly reduced the
barriers of physical and cultural distances.
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43. Effects of Free Trade on Managers
Declining Trade Barriers
– Opened enormous opportunities for
managers to expand the market for their
goods and services.
– Allowed managers to now both buy and sell
goods and services globally.
– Increased intensity of global competition
such that managers now have a more
dynamic and exciting job of managing.
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44. Effects of Free Trade on Managers
North American Free Trade Agreement (NAFTA)
– Abolishes 99% of tariffs on goods traded between
Mexico, Canada and the United States
• Unrestricted cross-border flows of resources
• Increased investment by U.S. firms in Mexican
manufacturing facilities due lower wage costs in
Mexico
– Opportunities and Threats
• The opportunity to serve more markets
• Increased competition from NAFTA competitors
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45. Effects of Free Trade on Managers
CAFTA
– Regional trade agreement designed to
eliminate tariffs on products between the
United States and all countries in Central
America
– Approved by Dominican Republic, El
Salvador, Guatemala, Nicaragua, and
Honduras
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46. Question?
What are ideas about what a society
believes to be good, desirable and
beautiful?
A. Norms
B. Needs
C. Roles
D. Values
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47. The Role of National Culture
Values
– Ideas about what a society believes to be
good, desirable and beautiful.
– Provide the basic underpinnings for notions
of individual freedom, democracy, truth,
justice, honesty, loyalty,
love, sex, marriage, etc.
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48. The Role of National Culture
Norms
– Unwritten rules and codes of conduct that prescribe
how people should act in particular situations.
• Folkways—routine social conventions of daily life
(e.g., dress codes and social manners)
• Mores—behavioral norms that are considered
central to functioning of society and much more
significant than folkways (e.g., theft and adultery),
and they are often enacted into law.
– Many differences in mores from one society to
another
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49. Hofstede’s Model of National Culture
Figure 6.4
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50. Hofstede’s Model of National
Culture
• Individualism
– A worldview that values individual freedom and self-
expression and adherence to the principle that
people should be judged by their individual
achievements rather their social background.
• Collectivism
– A worldview that values subordination of the
individual to the goals of the group and adherence to
the principle that people should be judged by their
contribution to the group
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51. Hofstede’s Model of National
Culture
Power Distance
– A society’s acceptance of differences in the
well being of citizens due to differences in
heritage, and physical and intellectual
capabilities (individualism).
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52. Hofstede’s Model of National
Culture
Achievement versus Nurturing Orientation
– Achievement-oriented societies value
assertiveness, performance, and success
and are results-oriented.
– Nurturing-oriented cultures value quality of
life, personal relationships, and service.
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53. Hofstede’s Model of National
Culture
Uncertainty Avoidance
– Societies and people differ in their tolerance
for uncertainty and risk.
– Low uncertainty avoidance cultures (e.g.,
U.S. and Hong Kong) value diversity and
tolerate a wide range of opinions and beliefs.
– High uncertainty avoidance societies (e.g.,
Japan and France) are more rigid and expect
high conformity in their citizens’ beliefs and
norms of behavior.
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54. Hofstede’s Model of National
Culture
Long Term Outlook
– Cultures with a long-term orientation rest on
values such as thrift and persistence in
achieving goals
– Cultures with a short-term orientation are
concerned with maintaining personal
stability or happiness and living for the
present
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55. National Culture and Global
Management
• Management practices that are effective
in one culture often will not work as well
in another culture
• Managers must be sensitive to the value
systems and norms of an individual’s
country and behave accordingly
6-55

56. Movie Example: Gung Ho
What decisions should
the Asian
executives consider
before opening a
plant in the U.S.?
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