Managing in a Global Environment
Cha
pter
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Importance of International Business
If you are not thinking international,
you are not thinking business management
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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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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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Four Stages of Globalization
Domestic stage:market potential is limited to the home countryproduction and marketing facilities located at home
International stage:exports increasecompany usually adopts a multi-domestic approach
Multinational stage:marketing and production facilities located in many countriesmore 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 costownership, control, and top management tend to be dispersed
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4 Stages of Globalization1. 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, 4 th ed. (Cincinnati, Ohio: South-Western, 2002), 8-9.
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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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The InternationalBusiness 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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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, regulationsSociocultural• 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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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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Four Dimensions of National Value
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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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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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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
*
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**
*
*
*
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*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 EnteringInternational Markets
Exporting
High
HighLow Low
Ow
ne
rsh
ip o
f F
ore
ign
Op
erat
ion
s
Cost to Enter Foreign Operations
Licensing
Franchising
Joint Venture
Acquisition
GreenfieldVenture
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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