This document outlines key topics and concepts about understanding the global business environment that managers should be familiar with. It discusses perspectives on globalization like parochialism and various attitudes. It also outlines major regional trade agreements and international organizations. Finally, it covers different types of international organizations, considerations for managing in different countries, and frameworks for assessing cultural differences.

1. 4–1
L E A R N I N G O U T L I N EL E A R N I N G O U T L I N E
Follow this Learning Outline as you read and study this chapter.Follow this Learning Outline as you read and study this chapter.
What’s Your Global Perspective?What’s Your Global Perspective?
• Define parochialism.Define parochialism.
• Contrast ethnocentric, polycentric, and geocentricContrast ethnocentric, polycentric, and geocentric
attitudes towards global business.attitudes towards global business.
• Explain why it’s important for managers to be sensitive toExplain why it’s important for managers to be sensitive to
global differencesglobal differences
Understanding the Global EnvironmentUnderstanding the Global Environment
• Describe the current status of the European Union.Describe the current status of the European Union.
• Discuss the North American Free Trade Agreement andDiscuss the North American Free Trade Agreement and
other regional trade alliances in Latin America.other regional trade alliances in Latin America.
• Tell about the Association of Southeast Asian Nations.Tell about the Association of Southeast Asian Nations.

2. 4–2
L E A R N I N G O U T L I N E (cont’d)L E A R N I N G O U T L I N E (cont’d)
Follow this Learning Outline as you read and study this chapter.Follow this Learning Outline as you read and study this chapter.
Understanding the Global EnvironmentUnderstanding the Global Environment
• Explain the interdependence that globalization involves.Explain the interdependence that globalization involves.
• Discuss the role of the WTO.Discuss the role of the WTO.
Doing Business GloballyDoing Business Globally
• Contrast multinational, multidomestic, global,Contrast multinational, multidomestic, global,
transnational, and born global organizations.transnational, and born global organizations.
• Describe the different ways organizations can goDescribe the different ways organizations can go
international.international.
• Define global sourcing, exporting, importing, licensing,Define global sourcing, exporting, importing, licensing,
and franchising.and franchising.
• Describe global strategic alliances, joint ventures, andDescribe global strategic alliances, joint ventures, and
foreign subsidiaries.foreign subsidiaries.

3. 4–3
L E A R N I N G O U T L I N E (cont’d)L E A R N I N G O U T L I N E (cont’d)
Follow this Learning Outline as you read and study this chapter.Follow this Learning Outline as you read and study this chapter.
Managing in a Global Environment (cont’d)Managing in a Global Environment (cont’d)
• Explain how the global legal-political and economicExplain how the global legal-political and economic
environments affect managers.environments affect managers.
• Discuss Hofstede’s five dimensions for assessingDiscuss Hofstede’s five dimensions for assessing
cultures.cultures.
• Explain the nine GLOBE dimensions for assessingExplain the nine GLOBE dimensions for assessing
cultures.cultures.
• Discuss the challenges of doing business globally inDiscuss the challenges of doing business globally in
today’s world.today’s world.

4. 4–4
The Global MarketplaceThe Global Marketplace
• Opportunities and ChallengesOpportunities and Challenges
 Coping with the sudden appearance of newCoping with the sudden appearance of new
competitorscompetitors
 Acknowledging cultural, political, and economicAcknowledging cultural, political, and economic
differencesdifferences
 Dealing with increased uncertainty, fear, and anxietyDealing with increased uncertainty, fear, and anxiety
 Adapting to changes in the global environmentAdapting to changes in the global environment
 Avoiding parochialismAvoiding parochialism

5. 4–5
What’s Your Global Perspective?What’s Your Global Perspective?
• ParochialismParochialism
 Is viewing the world solely through its own eyes andIs viewing the world solely through its own eyes and
perspectives.perspectives.
 Is not recognizing that others have different ways ofIs not recognizing that others have different ways of
living and working.living and working.
 Is a significant obstacle for managers working in aIs a significant obstacle for managers working in a
global business world.global business world.
 Is falling into the trap of ignoring others’ values andIs falling into the trap of ignoring others’ values and
customs and rigidly applying an attitude of “ours iscustoms and rigidly applying an attitude of “ours is
better than theirs” to foreign cultures.better than theirs” to foreign cultures.

6. 4–6
Exhibit 4–1Exhibit 4–1 Key Information About Three Global AttitudesKey Information About Three Global Attitudes

7. 4–7
Adopting a Global PerspectiveAdopting a Global Perspective
• Ethnocentric AttitudeEthnocentric Attitude
 The parochialistic belief that the best workThe parochialistic belief that the best work
approaches and practices are those of theapproaches and practices are those of the homehome
country.country.
• Polycentric AttitudePolycentric Attitude
 The view that the managers in theThe view that the managers in the hosthost country knowcountry know
the best work approaches and practices for runningthe best work approaches and practices for running
their business.their business.
• Geocentric AttitudeGeocentric Attitude
 AA world-orientedworld-oriented view that focuses on using the bestview that focuses on using the best
approaches and people from around the globe.approaches and people from around the globe.

8. 4–8
Regional Trading AgreementsRegional Trading Agreements
• The European Union (EU)The European Union (EU)
 A unified economic and trade entityA unified economic and trade entity
 Belgium, Denmark, France, Greece, Ireland, Italy,Belgium, Denmark, France, Greece, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, Spain, the UnitedLuxembourg, the Netherlands, Portugal, Spain, the United
Kingdom, Germany, Austria, Finland, and SwedenKingdom, Germany, Austria, Finland, and Sweden
 Economic and monetary union (Euro)Economic and monetary union (Euro)
• North American Free Trade Agreement (NAFTA)North American Free Trade Agreement (NAFTA)
 Eliminated barriers to free trade (tariffs, importEliminated barriers to free trade (tariffs, import
licensing requirements, and customs user fees)licensing requirements, and customs user fees)
 United States, Canada, and MexicoUnited States, Canada, and Mexico

9. 4–9
Exhibit 4–3Exhibit 4–3 European Union CountriesEuropean Union Countries

10. 4–10
Regional Trading Agreements (cont’d)Regional Trading Agreements (cont’d)
• U.S.-Central America Free Trade AgreementU.S.-Central America Free Trade Agreement
(CAFTA)(CAFTA)
• Free Trade Area of the AmericasFree Trade Area of the Americas
• Southern Cone Common Market (Mercosur)Southern Cone Common Market (Mercosur)
• Association of Southeast Asian NationsAssociation of Southeast Asian Nations
(ASEAN)(ASEAN)
 Trading alliance of 10 Southeast Asian nationsTrading alliance of 10 Southeast Asian nations
• African UnionAfrican Union
• South Asian Association for RegionalSouth Asian Association for Regional
Cooperation (SARRC)Cooperation (SARRC)

11. 4–11
Exhibit 4–4Exhibit 4–4 ASEAN MembersASEAN Members
Source: Based on J. McClenahen and T. Clark,
“ASEAN at Work,” IW. May 19, 1997, p. 42.

12. 4–12
The World Trade Organization (WTO)The World Trade Organization (WTO)
• Evolved from the General Agreement on TariffsEvolved from the General Agreement on Tariffs
and Trade (GATT) in 1995.and Trade (GATT) in 1995.
• Functions as the only global organizationFunctions as the only global organization
dealing with the rules of trade among nations.dealing with the rules of trade among nations.
• Has 149 member nations and 32 observerHas 149 member nations and 32 observer
governments.governments.
• Monitors and promotes world trade.Monitors and promotes world trade.

13. 4–13
Different Types of InternationalDifferent Types of International
OrganizationsOrganizations
• Multinational Corporation (MNC)Multinational Corporation (MNC)
 Maintains operations in multiple countries.Maintains operations in multiple countries.
• Multidomestic CorporationMultidomestic Corporation
 Is an MNC that decentralizes management and otherIs an MNC that decentralizes management and other
decisions to the local country.decisions to the local country.
• Global CompanyGlobal Company
 Is an MNC that centralizes its management and otherIs an MNC that centralizes its management and other
decisions in the home country.decisions in the home country.

14. 4–14
Different Types of InternationalDifferent Types of International
Organizations (cont’d)Organizations (cont’d)
• Transnational Corporation (BorderlessTransnational Corporation (Borderless
Organization)Organization)
 Is an MNC that has eliminated structural divisions thatIs an MNC that has eliminated structural divisions that
impose artificial geographic barriers and is organizedimpose artificial geographic barriers and is organized
along business lines that reflect a geocentric attitude.along business lines that reflect a geocentric attitude.
• Born Globals/International New Ventures (INVs)Born Globals/International New Ventures (INVs)
 Commit resources upfront (material, people,Commit resources upfront (material, people,
financing) to doing business in more than onefinancing) to doing business in more than one
country.country.

15. 4–15
Exhibit 4–5Exhibit 4–5 How Organizations Go GlobalHow Organizations Go Global

16. 4–16
Other Forms of GlobalizationOther Forms of Globalization
• Strategic AlliancesStrategic Alliances
 Partnerships between and organization and a foreignPartnerships between and organization and a foreign
company in which both share resources andcompany in which both share resources and
knowledge in developing new products or buildingknowledge in developing new products or building
new production facilities.new production facilities.
• Joint VentureJoint Venture
 A specific type of strategic alliance in which theA specific type of strategic alliance in which the
partners agree to form a separate, independentpartners agree to form a separate, independent
organization for some business purpose.organization for some business purpose.
• Foreign SubsidiaryForeign Subsidiary
 Directly investing in a foreign country by setting up aDirectly investing in a foreign country by setting up a
separate and independent production facility or office.separate and independent production facility or office.

17. 4–17
Managing in A Global EnvironmentManaging in A Global Environment
• The Legal EnvironmentThe Legal Environment
 Stability or instability of legal and political systemsStability or instability of legal and political systems
 Legal procedures are established and followedLegal procedures are established and followed
 Fair and honest elections held on a regular basisFair and honest elections held on a regular basis
 Differences in the laws of various nationsDifferences in the laws of various nations
 Effects on business activitiesEffects on business activities
 Effects on delivery of products and servicesEffects on delivery of products and services

18. 4–18
The Economic EnvironmentThe Economic Environment
• Economic SystemsEconomic Systems
 Market economyMarket economy
 An economy in which resources are primarily owned andAn economy in which resources are primarily owned and
controlled by the private sector.controlled by the private sector.
 Command economyCommand economy
 An economy in which all economic decisions are planned byAn economy in which all economic decisions are planned by
a central government.a central government.
• Monetary and Financial FactorsMonetary and Financial Factors
 Currency exchange ratesCurrency exchange rates
 Inflation ratesInflation rates
 Diverse tax policiesDiverse tax policies

19. 4–19
The Cultural EnvironmentThe Cultural Environment
• National CultureNational Culture
 Is the values and attitudes shared by individuals fromIs the values and attitudes shared by individuals from
a specific country that shape their behavior and theira specific country that shape their behavior and their
beliefs about what is important.beliefs about what is important.
 May have more influence on an organization than theMay have more influence on an organization than the
organization culture.organization culture.

20. 4–20
Exhibit 4–6Exhibit 4–6 What Are Americans LikeWhat Are Americans Like
Americans are very informal.
Americans are direct.
Americans are competitive.
Americans are achievers.
Americans are independent and individualistic.
Americans are questioners.
Americans dislike silence.
Americans value punctuality.
Americans value cleanliness.
Sources: Based on M. Ernest (ed.), Predeparture Orientation Handbook: For Foreign Students and Scholars Planning to Study in the
United States (Washington, DC: U.S. Information Agency, Bureau of Cultural Affairs, 1984), pp. 103–05; A. Bennett, “American Culture Is
Often a Puzzle for Foreign Managers in the U.S.,” Wall Street Journal, February 12, 1986, p. 29; “Don’t Think Our Way’s the Only Way,”
The Pryor Report, February 1988, p. 9; and B.J. Wattenberg, “The Attitudes behind American Exceptionalism,” U.S. News & World
Report, August 7, 1989, p. 25.

21. 4–21
Hofstede’s Framework for Assessing CulturesHofstede’s Framework for Assessing Cultures
Individualism
versus
Collectivism
Individualism
versus
Collectivism
Power
Distance
Power
Distance
Uncertainty
Avoidance
Uncertainty
Avoidance
Achievement
versus
Nurturing
Achievement
versus
Nurturing
Long-Term
versus
Short-Term
Orientation
Long-Term
versus
Short-Term
Orientation
CultureCulture

22. 4–22
Exhibit 4–7Exhibit 4–7 Examples of Hofstede’s Cultural DimensionsExamples of Hofstede’s Cultural Dimensions
Source: Based on G. Hofstede, “Motivation, Leadership, and Organization: Do American
Theories Apply Abroad?” Organizational Dynamics, Summer 1980, pp. 42–63.

23. 4–23
Exhibit 4–8Exhibit 4–8 GLOBE HighlightsGLOBE Highlights
Source: M. Javidan and R. J. House, “Cultural Acumen for the Global Manager: Lessons from Project GLOBE,”
Organizational Dynamics, Spring 2001, pp. 289–305. Copyright © 2001. Reprinted with permission from Elsevier.

24. 4–24
Global Management in Today’s WorldGlobal Management in Today’s World
• ChallengesChallenges
 Openness associated with globalizationOpenness associated with globalization
 Significant cultural differences (e.g., Americanization)Significant cultural differences (e.g., Americanization)
 Adjusting leadership styles and managementAdjusting leadership styles and management
approachesapproaches
• RisksRisks
 Loss of investments in unstable countriesLoss of investments in unstable countries
 Increased terrorismIncreased terrorism
 Economic interdependenceEconomic interdependence

25. 4–25
Terms to KnowTerms to Know
• parochialismparochialism
• ethnocentric attitudeethnocentric attitude
• polycentric attitudepolycentric attitude
• geocentric attitudegeocentric attitude
• European Union (EU)European Union (EU)
• EuroEuro
• North American Free TradeNorth American Free Trade
Agreement (NAFTA)Agreement (NAFTA)
• Association of Southeast AsianAssociation of Southeast Asian
Nations (ASEAN)Nations (ASEAN)
• World Trade Organization (WTO)World Trade Organization (WTO)
• multinational corporations (MNCs)multinational corporations (MNCs)
• multidomestic corporationmultidomestic corporation
• global companyglobal company
• transnational or borderlesstransnational or borderless
organizationorganization
• born globalsborn globals
• global sourcingglobal sourcing
• exportingexporting
• importingimporting
• licensinglicensing
• franchisingfranchising
• strategic alliancesstrategic alliances
• joint venturejoint venture
• foreign subsidiaryforeign subsidiary
• market economymarket economy
• command economycommand economy
• national culturenational culture
• GLOBEGLOBE
• wikiswikis
• blogsblogs