Richard L. Daft addresses themes and issues directly relevant to both the everyday demands and significant challenges facing businesses today. Comprehensive coverage helps develop managers able to look beyond traditional techniques and ideas to tap into a full breadth of management skills. With the best in proven management and new competencies that harness creativity, D.A.F.T. is Management!

1. Managing in a Global Environment
Chapter4

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2
Importance of International Business
If you are not thinking
international,
you are not thinking
business management

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3
Global Environment and
International Managers
 Difficulties Operating in Borderless World
 Challenges
– Economic
– Legal-political
– Socio-cultural
 Multinational Corporations
 Foreign Markets - Entrance
Chapter 4
Topics
Managers’ Challenge: Wal-Mart Managers

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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

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5
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

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4 Stages of Globalization
1. Domestic 2. International 3. Multinational 4. Global
Strategic Orientation
Stage of Development
Cultural Sensitivity
Manager Assumptions
Domestically
Oriented
Export- Oriented
multi-domestic
Multinational Global
GlobalInitial foreign
involvement
Competitive
positioning
Explosion of
international
operations
Of little
importance
“One best
way”
Very important
“Many good
ways”
Somewhat
important
“The least-cost
way”
Critically
important
“Many good
ways”
SOURCE: Based on Nancy J. Adler, International Dimensions of Organizational Behavior, 4th ed. (Cincinnati, Ohio: South-Western, 2002), 8-
9.

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7
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

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8
The International
Business Environment
 International management is management
of business operations conducted in more
than one country
 Fundamental tasks do not change
 Basic management functions
– are the same - domestic or international
– Greater difficulties and risks when performing on
an international scale

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9
International Environment Factors
Organization
Economic
•Economic
development
•Infrastructure
•Resource and
product markets
•Per capita
Income
•Exchange rates
•Economic
conditions
Legal-Political
•Political risk
•Government
takeovers
•Tariffs, quotas, taxes
•Terrorism, political
instability
•Laws, regulations
Sociocultural
•Socio values, beliefs
•Language
•Religion (objects, taboos, holidays)
•Kinship patterns
•Formal education, literary
•Time orientation

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Economic Environment Factors
 Economic development
 Infrastructure
 Resource and product markets
 Exchange rates
 Inflation
 Interest rates
 Economic growth

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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

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Infrastructure
A country’s physical facilities that support
economic activities
 Airports, highways, and railroads
 Energy-producing facilities
 Communication facilities

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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

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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

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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

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Political Instability
 Events such as riots, revolutions, or
government upheavals that affect the
operations of an international company

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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

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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

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19
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

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20
Four Dimensions of National Value

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21
GLOBE Value Dimensions
– Assertiveness
– Future orientation
– Uncertainty avoidance
– Gender differentiation
– Power distance
– Societal collectivism
– Individual collectivism
– Performance orientation
– Humane orientation
Global Leadership and Organizational Behavior Effectiveness project
More comprehensive view of cultural
similarities and differences

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22
International Cultural Influences
 Other Cultural Characteristics
– Language
– Religion
– Attitudes
– Social Organization
– Education
 Linguistic pluralism – several languages exist
 Ethnocentrism – regard own culture superior

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International Trade Agreements
 Most visible changes in legal-political
factors grow out of international trade
agreements:
– GATT
– WTO
– EU
– NAFTA

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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

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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

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26
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

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Nations of The EU
*
*
*
*
*
*
*
*
*
*
*Joined in
2004

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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

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Strategies for Entering
International Markets
Exporting
High
HighLow Low
Ownershipof
ForeignOperations
Cost to Enter Foreign Operations
Licensing
Franchising
Joint Venture
Acquisition
Greenfield
Venture

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30
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

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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