This document discusses the concepts of globalization and its implications for managers. It defines globalization as businesses operating internationally and the increasing influence of businesses across borders. Some key drivers of increased globalization are the spread of market economies, reduced barriers to trade and investment, and falling communication and transportation costs. As a result, both international trade and foreign direct investment have surged. For managers, globalization means production and markets are becoming more global in scope. Technologies help facilitate globally dispersed production and global market reach. However, national differences also present constraints to full globalization. The document outlines challenges managers face in areas like standardization vs customization, managing multinational employees, locating business activities, and choosing entry modes into foreign markets.

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3
Globalization and
The Manager
McGraw-Hill/Irwin
Principles of Management

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Globalization
the process by
which businesses
or other
organizations
develop
international
influence or start
operating on an
international scale.

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Accelerated Pace of
Globalization
main reasons:
•The spread of market based
economic system
•The decline of barriers to international
trade & foreign direct investment
•Falling costs of communication and
transportation

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Market Economy
• Most businesses are privately owned
• Prices are set by the interaction of supply and
demand
• Government regulation is limited to ensuring
that competition between individual enterprises
is free and fair and that the system does not
produce outcomes judged to be unacceptable

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Socialist Economy
• Most businesses are owned by the state
• Private producers were excluded from certain
industrial and commercial activities
• Prices were set by the state
• State planners decided what was produced where, in
what quantity, and by whom

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Falling Barriers to Trade
and Investment
• Tariffs – A tax on imports
• Quotas – A limit on the number of items of a
good that can be imported from a foreign
nation
• Regional trade agreements – agreements to
remove barriers to trade between nations within
a geographic region

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Communication &
Transportation Costs
Satellite Optical fiber
Wireless
technologies
Internet

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Implications of
Globalization
• A massive surge in the volume of international
trade and foreign direct investments
• Foreign Direct Investment (FDI) has increased
even more dramatically
• For individual enterprises and their managers:
- Globalization of production is well under way
- Globalization of markets is starting to occur
- Advances in technology are facilitating these
trends

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Globalization of
Production
Capital
Labor
Land
Energy
Factors
of
Production

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Globalization of
Markets
• Merging of historically distinct and separate national
markets into one huge marketplace
• As firms follow each other around the world, they
bring
- Products
- Operating strategies
- Marketing strategies

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Technology
Innovations
• Allow managers to create
and then manage a globally
dispersed production
system
• Further facilitating the
globalization of production
• Facilitated in globalization
of markets

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Constraints to
Globalization
Protectionist
Countertrends
National
Differences in
Consumer Behavior
National Differences
in Business Systems
Differences in
Social Culture

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Benefits of going
global
1. Expand the market
2. Realize scale economies
3. Realize location
economies
4. Benefit from global
learning

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Management Challenges
to Globalization
Global
Standardization
or Local
Customization
Managing
People in the
Multinational
Firm
Locating
Activities
Entry Mode

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Global Standardization
or Local Customization
• Global standardization strategy – treating the
world market as a single entity, selling the
same basic product around the world
• Local customization strategy – varying some
aspect of product offerings or marketing
messages to take country or regional
differences into account

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Question
When McDonald’s sells wine on its menu in
France and Soy Burgers or Lamb Burgers in
India, it is adopting which of these strategies?
a. Licensing
b. Franchising
c. Global standardization
d. Local customization

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Question
When McDonald’s sells wine on its menu in
France and Soy Burgers or Lamb Burgers in
India, it is adopting which of these strategies?
a. Licensing
b. Franchising
c. Global standardization
d. Local customization

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Entry Mode
ExportingExporting
LicensingLicensing
FranchisingFranchisingJoint ventureJoint venture
Wholly owned
subsidiary
Wholly owned
subsidiary
Franchising
x
Wholly owned
subsidiary
Licensing
x
Joint
venture
Exporting
x

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Locating Activities
1. Managers have to break the operations of the firm into
discrete steps or activities
2. Each activity has to be located in the best place given
a consideration of factors such as country differences
in:
• Labor costs and infrastructure
• Transportation costs
• Tariff barriers
• Currency exchange rates
• Strategic orientation

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Managing People
Geocentric
Staffing
Ethnocentric
Staffing
Polycentric
Staffing