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Lecture 3 
Managing in a Global Environment
A Borderless World 
Organizations and managers are not isolated from 
international forces: 
– Trade barriers have fallen 
– Communication is faster, cheaper 
– Consumer tastes converge 
The difficulties and risks of a borderless world are 
matched by benefits and opportunities 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 2
4.1 Ranking of Six Countries 
on the Global Index 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 3
4.2 Four Stages of Globalization 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 4
International Market Strategies 
• Exporting – transferring products for sale to foreign 
countries 
• Outsourcing – also called off shoring, work activities are 
done in countries with cheap labor 
• Licensing – enabling a company to produce and market a 
product in another country 
– Franchising is licensing that provides a complete package of 
materials and services 
• Direct Investing – high level of involvement, company 
manages and controls assets 
– Joint venture and other types of partnerships are common 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 5
4.3 Strategies for Entering the 
International Arena 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 6
China Inc. 
 China manufacturers many products for U.S. companies 
 China is also a growing consumer market 
 Regulations and government policies make doing 
business in China a challenge 
 India is a service giant, growing in software design and 
engineering 
 Brazil is a country that is gaining the attention of 
American managers 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 7
The International Business Environment 
• Planning, organizing, leading, and controlling in 
multiple countries can be challenging 
– It took McDonalds a year to figure out that Hindus in 
India do not eat beef 
– In Africa, the baby food includes pictures to aid 
illiterate consumers 
• Managers must be mindful in the global 
marketplace 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 8
4.4 Key Factors in 
International Environment 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 9
The Economic Environment 
• Economic Development - Countries are categorized as either 
developed or developing based on per capita income 
– Government Policies 
– Market Size 
– Financial Markets 
– Infrastructure 
• Resource and Product Markets 
– Companies must evaluate market demand 
The current economic crisis has highlighted how interconnected 
economies are around the world 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 10
4.5 World Economic Forum 
Global Competitiveness 
The United 
States moved 
from #1 to #2! 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 11
4.6 How Countries are Bearing 
the Economic Crisis 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 12
The Legal-Political Environment 
• Political risk is defined as the risk of lost assets, 
earning power, or managerial control 
• Managers must be concerned with the political 
instability of global markets 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 13
The Sociocultural Environment 
The values and behaviors that govern U.S. 
business do not always translate 
– Social Values 
– Communication Differences 
– Other Cultural Characteristics 
→ Language 
→ Religion 
→ Social organization 
→ Education 
→ Attitudes 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 14
Hofstede’s Value Dimensions 
 Power Distance 
 Uncertainty Avoidance 
 Individualism and Collectivism 
 Masculinity and Felinity 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 15
GLOBE Project Value Dimensions 
• Assertiveness 
• Future orientation 
• Uncertainty avoidance 
• Gender differentiation 
• Power distance 
• Social collectivism 
• Individual collectivism 
• Performance 
orientation 
• Humane orientation 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 16
4.7 Country Ranking on Four 
GLOBE Value Dimensions 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 17
4.8 Country Ranking on Selected 
GLOBE Value Dimensions 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 18
4.9 High-Context and 
Low-Context Cultures 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 19
Developing Cultural Intelligence 
• Cultural intelligence – ability to use reasoning 
and observation skills 
– Culturally flexible 
– Adapt to new situations 
• Managers must study the language and learn 
• Cognitive, emotional, and physical intelligence 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 20
International Trade Alliances 
• General Agreement on Tariff and Trade (GATT) 
– 23 nations in 1947, a set of rules for fair trade 
• World Trade Organization (WTO) 
– Maturation of GATT into permanent global institute 
• European Union 
– 1957 Alliance to improve economic and social conditions 
among members; evolved to 27-nation European Union 
• North American Free Trade Agreement (NAFTA) 
– Merged the United States, Canada, and Mexico into 
trading bloc 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 21
4.10 European Union 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 22
China-ASEAN Free Trade Area 
 Trading alliance of ten countries 
 World’s third largest free-trade area 
 1.9 billion people and $45 trillion in 
trade 
 Remove all tariffs between China 
and ASEAN countries by 2015 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 23
The Impact of Multinational 
Corporations (MNC) 
• The size and volume of international business is 
LARGE 
– Companies have revenue = GDP of small country 
– Move assets from country to country 
– 25% or more of its profit comes from outside parent 
country 
• MNC is managed as an integrated whole 
• Controlled by one management authority 
• MNC managers must have a global perspective 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 24
The Globalization Backlash 
• 68% of Americans say other countries benefit the most 
from free trade 
– 53% believe free trade has hurt U.S. 
• The United States’ primary concern is the loss of jobs 
– $136 billion in wages will shift from the U.S. 
• Business leaders insist that economic benefits flow back to 
the U.S. economy 
– Lower prices and expanded markets 
– Increased profits and funds for innovation 
• But American shoppers say they would pay higher prices 
to keep down foreign competition 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 25
Serving the Bottom 
of the Pyramid (BOP) 
 An approach for multinationals to do good 
 Corporations can alleviate problems and make 
large profits by selling to the world’s poor 
 There are more than 4 billion people at the 
lowest level of the economic pyramid 
 Many companies are adopting BOP strategies 
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 26

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Fundamental of Management. Lecture 3

  • 1. Lecture 3 Managing in a Global Environment
  • 2. A Borderless World Organizations and managers are not isolated from international forces: – Trade barriers have fallen – Communication is faster, cheaper – Consumer tastes converge The difficulties and risks of a borderless world are matched by benefits and opportunities Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 2
  • 3. 4.1 Ranking of Six Countries on the Global Index Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 3
  • 4. 4.2 Four Stages of Globalization Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 4
  • 5. International Market Strategies • Exporting – transferring products for sale to foreign countries • Outsourcing – also called off shoring, work activities are done in countries with cheap labor • Licensing – enabling a company to produce and market a product in another country – Franchising is licensing that provides a complete package of materials and services • Direct Investing – high level of involvement, company manages and controls assets – Joint venture and other types of partnerships are common Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 5
  • 6. 4.3 Strategies for Entering the International Arena Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 6
  • 7. China Inc.  China manufacturers many products for U.S. companies  China is also a growing consumer market  Regulations and government policies make doing business in China a challenge  India is a service giant, growing in software design and engineering  Brazil is a country that is gaining the attention of American managers Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 7
  • 8. The International Business Environment • Planning, organizing, leading, and controlling in multiple countries can be challenging – It took McDonalds a year to figure out that Hindus in India do not eat beef – In Africa, the baby food includes pictures to aid illiterate consumers • Managers must be mindful in the global marketplace Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 8
  • 9. 4.4 Key Factors in International Environment Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 9
  • 10. The Economic Environment • Economic Development - Countries are categorized as either developed or developing based on per capita income – Government Policies – Market Size – Financial Markets – Infrastructure • Resource and Product Markets – Companies must evaluate market demand The current economic crisis has highlighted how interconnected economies are around the world Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 10
  • 11. 4.5 World Economic Forum Global Competitiveness The United States moved from #1 to #2! Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 11
  • 12. 4.6 How Countries are Bearing the Economic Crisis Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 12
  • 13. The Legal-Political Environment • Political risk is defined as the risk of lost assets, earning power, or managerial control • Managers must be concerned with the political instability of global markets Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 13
  • 14. The Sociocultural Environment The values and behaviors that govern U.S. business do not always translate – Social Values – Communication Differences – Other Cultural Characteristics → Language → Religion → Social organization → Education → Attitudes Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 14
  • 15. Hofstede’s Value Dimensions  Power Distance  Uncertainty Avoidance  Individualism and Collectivism  Masculinity and Felinity Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 15
  • 16. GLOBE Project Value Dimensions • Assertiveness • Future orientation • Uncertainty avoidance • Gender differentiation • Power distance • Social collectivism • Individual collectivism • Performance orientation • Humane orientation Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 16
  • 17. 4.7 Country Ranking on Four GLOBE Value Dimensions Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 17
  • 18. 4.8 Country Ranking on Selected GLOBE Value Dimensions Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 18
  • 19. 4.9 High-Context and Low-Context Cultures Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 19
  • 20. Developing Cultural Intelligence • Cultural intelligence – ability to use reasoning and observation skills – Culturally flexible – Adapt to new situations • Managers must study the language and learn • Cognitive, emotional, and physical intelligence Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 20
  • 21. International Trade Alliances • General Agreement on Tariff and Trade (GATT) – 23 nations in 1947, a set of rules for fair trade • World Trade Organization (WTO) – Maturation of GATT into permanent global institute • European Union – 1957 Alliance to improve economic and social conditions among members; evolved to 27-nation European Union • North American Free Trade Agreement (NAFTA) – Merged the United States, Canada, and Mexico into trading bloc Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 21
  • 22. 4.10 European Union Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 22
  • 23. China-ASEAN Free Trade Area  Trading alliance of ten countries  World’s third largest free-trade area  1.9 billion people and $45 trillion in trade  Remove all tariffs between China and ASEAN countries by 2015 Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 23
  • 24. The Impact of Multinational Corporations (MNC) • The size and volume of international business is LARGE – Companies have revenue = GDP of small country – Move assets from country to country – 25% or more of its profit comes from outside parent country • MNC is managed as an integrated whole • Controlled by one management authority • MNC managers must have a global perspective Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 24
  • 25. The Globalization Backlash • 68% of Americans say other countries benefit the most from free trade – 53% believe free trade has hurt U.S. • The United States’ primary concern is the loss of jobs – $136 billion in wages will shift from the U.S. • Business leaders insist that economic benefits flow back to the U.S. economy – Lower prices and expanded markets – Increased profits and funds for innovation • But American shoppers say they would pay higher prices to keep down foreign competition Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 25
  • 26. Serving the Bottom of the Pyramid (BOP)  An approach for multinationals to do good  Corporations can alleviate problems and make large profits by selling to the world’s poor  There are more than 4 billion people at the lowest level of the economic pyramid  Many companies are adopting BOP strategies Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 26