Fundamental of Management. Lecture 3

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

4.2 Four Stages of Globalization

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

4.3 Strategies for Entering the
International Arena

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

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

4.4 Key Factors in
International Environment

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

4.5 World Economic Forum
Global Competitiveness
The United
States moved
from #1 to #2!

4.6 How Countries are Bearing
the Economic Crisis

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

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

Hofstede’s Value Dimensions
 Power Distance
 Uncertainty Avoidance
 Individualism and Collectivism
 Masculinity and Felinity

GLOBE Project Value Dimensions
• Assertiveness
• Future orientation
• Uncertainty avoidance
• Gender differentiation
• Power distance
• Social collectivism
• Individual collectivism
• Performance
orientation
• Humane orientation

4.7 Country Ranking on Four
GLOBE Value Dimensions

4.8 Country Ranking on Selected
GLOBE Value Dimensions

4.9 High-Context and
Low-Context Cultures

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

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

4.10 European Union

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

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

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

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

Fundamental of Management. Lecture 3

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