Management A Practical Introduction Third Edition

Management A Practical Introduction Third Edition
Angelo Kinicki & Brian K. Williams

Chapter 4: Global Management
Managing Across Borders Globalization You & International Management Why & How Companies Expand Internationally Economic & Political-Legal Differences Regional Economic Cooperation Cultural Differences The Manager’s Toolbox: Being a Star Road Warrior In today’s global world, managers need to be prepared to travel a lot. In fact, frequent travel may be needed because personal encounters are essential for teamwork. It’s important to know though, that frequent travel requires frequent adjustments. For Discussion: Ask students how they can simplify travel.

4.1 Globalization: The Collapse Of Time & Distance

WHAT IS GLOBALIZATION? Globalization is the trend of the world economy toward becoming a more interdependent system Today, we are witnessing a shrinking of time and space as air travel and the electronic media have made it easier for people around the world to communicate with each other We call this the global village Lecture Note: Challenge students to think of ways that globalization has affected every company—even those that don’t actively seek out foreign markets. What does this mean to managers?

The Global Economy Global Economy refers to the increasing tendency of economies of the world to interact with one another as one market instead of many national markets. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

IS GLOBALIZATION A GOOD THING? Growth in jobs and income in one country means growth in jobs and income in other countries—a win-win situation However, global interdependency can be negative when negative events in one country generate negative events in other countries Outsourcing jobs also brings negative effects to the country that loses the jobs Lecture Note: Ask students to think about companies like Coca-Cola, MTV, and Starbucks that see the world as their market. Discuss how new technology like the Internet has affected their strategies.

The Global Economy: Positive and Negative Effects
Can have some insecurity Economic crises in some countries can soon affect other countries Positive Effects U.S. exports, international trade, and U.S. workers are connected Growth of jobs and income in other countries will mean growth of jobs and income for the U.S. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Two types of firms are emerging in the world economy: mergers of huge companies into even bigger companies, and small, fast-moving start-up companies Companies in many industries are merging with other companies to be bigger, cross-border enterprises Almost any firm can operate globally today Thanks to the Internet and World Wide Web, small companies can get started more easily, and small companies can maneuver faster

Globalization: The Collapse Of Time & Distance
WHY SHOULD YOU LEARN ABOUT INTERNATIONAL MANAGEMENT? Practical Action: Being a World Citizen: Learning to Be a Success Abroad Summary: This Practical Action explores how managers can make their travel abroad successful. Specifically, managers should be careful not to an “Ugly American” managers should learn about the host country before leaving managers should know appropriate behavior in the host country managers should be comfortable in their field managers should become at least minimally skilled in the local language.

WHY SHOULD YOU LEARN ABOUT INTERNATIONAL MANAGEMENT? International managers oversee the conduct of operations in, or with, organizations in foreign countries Practical Action: Being a World Citizen: Learning to Be a Success Abroad Summary: This Practical Action explores how managers can make their travel abroad successful. Specifically, managers should be careful not to an “Ugly American” managers should learn about the host country before leaving managers should know appropriate behavior in the host country managers should be comfortable in their field managers should become at least minimally skilled in the local language.

International Management
Multinational Corporation: is a business firm with operations in several countries. Multinational Organization: is a not-for-profit organization with operations in several countries. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

You need to learn about international management because you may find yourself in any of the following situations: dealing with customers or partners from different cultures buying components, raw materials, or services from foreign suppliers working for a superior from a foreign country working in a foreign subsidiary or for a foreign firm located in another country

4.2 You & International Management
There are three primary attitudes among international managers: managers who believe that their native country, culture, language, and behavior are superior to all others are ethnocentric managers managers who believe native managers in foreign offices best understand native personnel and practices, and so the home office should leave them alone are polycentric managers Geocentric managers accept that there are differences and similarities between home and foreign personnel and practices, and that they should use whatever techniques are most effective

The Successful International Manager:
Is: Is Not: Geocentric: accepts diversity. Ethnocentric: believe that they are culturally superior. Polycentric: feels native management in native country is best. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

CLASSROOM PERFORMANCE SYSTEM A manager that believes his way is best is a ______ manager. A) geocentric B) polycentric C) transcentric D) ethnocentric The answer is D.

Why Companies Expand Internationally
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

4.3 Why & How Companies Expand Internationally
WHY DO COMPANIES EXPAND INTERNATIONALLY? Firms expand internationally to take advantage of: 1. Availability of supplies - some companies have to go to foreign countries to get their supplies 2. New markets - when domestic demand declines, companies need to find new markets 3. Lower labor costs - manufacturing is cheaper where wages are lower 4. Access to finance capital - foreign financing, either private or through a government, can entice companies to go international 5. Avoidance of tariffs & import quotas - companies might establish a foreign subsidiary to avoid tariffs or quotas Practical Action: Global Outsourcing: Which Jobs Are Likely to Fall Victim to Offshoring? This Practical Action explores the outsourcing trend and finds that while outsourcing does cause jobs to leave the U.S., productivity gains are also responsible for the loss of white collar jobs, moreover. the U.S. is a beneficiary of the increased buying power of countries where jobs have gone. Jobs that are likely to be safe from outsourcing are those that involve face-to-face contact like an ER doctor, physical contact like a gardener, or a need to recognize complex patterns like a teacher. To keep your job at home, you need to promote teamwork and creativity, flexibility, and extend your education.

You and International Management
You may deal with foreign customers or partners You may deal with foreign suppliers You may work for a foreign firm in the United States You may work for an American firm outside the United States McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Practical Action: What You Can Do to Prepare for Overseas Assignments
Persuade your boss that you can handle overseas duty and that the organization will benefit Study up on your host country Become skilled in the language Become skilled in the culture McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

For Women (percentage)
Practical Action: What You Can Do to Prepare for Overseas Assignments (Cont.) Skills Most Lacking for Managers Overseas For Men (percentage) For Women (percentage) 27 31 Foreign language 7 14 Interpersonal skills 5 11 Administrative 8 Management 15 8 Technical 9 7 Basic computer 6 5 Problem solving McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

How Companies Expand Internationally
Panel 4.1 How Companies Expand Internationally Global Outsourcing Importing, exporting, & countertrading Licensing & franchising Joint ventures Wholly owned subsidiaries Highest risk & invest-ment Lowest risk & investment McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

HOW DO COMPANIES EXPAND INTERNATIONALLY? There are five ways to expand internationally: 1. Global outsourcing - many companies engage in global outsourcing (using suppliers outside the country to provide goods and services) – sometimes called contract manufacturing 2. Importing, exporting, & countertrading - a company that buys goods outside the country and resells them domestically is importing, while a company that produces goods domestically and sells them outside the country is exporting, and countertrading occurs when a firm barters for goods

3. Licensing & franchising - licensing (when a company allows a foreign company to pay a fee to make or distribute the first company’s product or service) and franchising (when a company allows a foreign company to pay a fee and a share of the profits in exchange for using the first company’s brand name and a package of materials and services) are very similar 4. Joint ventures - when firms join forces to share the risks and rewards of starting a new enterprise together in a foreign country, they form a joint venture or strategic alliance 5. Wholly-owned subsidiaries - a foreign subsidiary that is totally owned and controlled by an organization is a wholly owned subsidiary

4.4 Economic & Political-Legal Differences
HOW CAN MANAGERS ADJUST TO ECONOMIC DIFFERENCES IN OTHER COUNTRIES? Managers need to consider economic systems, economic development, infrastructure and resources, and currency exchange rates in foreign markets There are three types of economic systems: free market, command, and mixed

1. In a free market economy (capitalism) like the U.S., the production of goods and services is controlled by private enterprise and the interaction of the forces of supply and demand 2. In a command economy (communism) like North Korea, the government owns most businesses and regulates the amount, types, and prices of goods 3. In a mixed economy (socialism) like many European countries, most of the important industries are owned by the government, but others are controlled by private enterprise

CLASSROOM PERFORMANCE SYSTEM In which type of economy is the production of goods and services controlled by private enterprise? A) command B) centrally planned C) free D) mixed The answer is C.

There are two levels of economic development: Countries with high levels of economic development and generally high average incomes are developed countries Developing or less developed countries include countries with low economic development and low average incomes

A country’s infrastructure consists of the physical facilities that form the basis for its level of economic development Thanks to cell phone service, many countries with poor communication infrastructure have been able to participate in the world economy The rate at which one country’s currency can be exchanged for another country’s currency is the exchange rate A change of just a few percentage points can have major implications for a company

CLASSROOM PERFORMANCE SYSTEM Which of the following is not an example of a developed country? A) New Zealand B) Japan C) France D) Brazil The answer is D.

HOW CAN MANAGERS ADJUST TO POLITICAL-LEGAL DIFFERENCES IN OTHER COUNTRIES? Managers need to be aware of governmental systems and the potential for political risk Democratic governments rely on free elections and representative assemblies Totalitarian governments are ruled by a dictator, a single political party, or a special-membership group

The risk that political changes will cause loss of a company’s assets or impair its foreign operations is called political risk Firms need to plan for instability and expropriation (government seizure of a foreign country’s assets) Companies need to be aware of laws that could affect how they do business in other countries like the U.S. Foreign Corrupt Practices Act which makes it illegal for employees of U.S. companies to bribe political decision makers in foreign nations

4.5 The World Of Free Trade: Regional Economic Cooperation
WHAT IS FREE TRADE AND REGIONAL ECONOMIC COOPERATION? Free trade means that goods and services move among nations without political or economic obstruction When governments use regulations such as tariffs, import quotas, and embargoes to limit the import of goods and services, they are being protectionist Governments use barriers to protect domestic industries from foreign competition

There are three main types of trade barriers: 1. Trade barriers in the form of a customs duty, or tax, levied mainly on imports are called tariffs 2. Trade barriers that limit the numbers of a product that can be imported are import quotas 3. Embargoes are complete bans on the import or export of certain products Groups of nations within a geographic region that have agreed to remove trade barriers with one another are called trading blocs or economic communities

There are four major trading blocs: 1. The North American Free Trade Agreement or NAFTA was formed in 1994 between the U.S., Canada, and Mexico NAFTA’s goal is to eliminate 99 percent of tariffs on goods trade between members 2. The European Union was originally formed in 1957 and now includes 25 European countries The EU is the world’s largest free market

3. The group of 21 Pacific Rim countries whose purpose is to improve economic and political ties is called the Asia-Pacific Economic Cooperation or APEC APEC, founded in 1989, is working toward the elimination of trade barriers 4. Mercosur is the largest trade bloc in Latin America and has four core members—Argentina, Brazil, Paraguay, and Uruguay, and two associate members, Chile and Bolivia MERCOSUR has reduced tariffs by 75 percent

Three organizations facilitate international trade: 1. The World Trade Organization (WTO) is designed to monitor and enforce trade agreements The WTO, which superseded GATT in 1995, has 146 members and covers trade in goods and services 2. The World Bank was established in 1944 to help rebuild Europe Today, it provides low-interest loans to developing nations for improving transportation, education, health, and telecommunications 3. The International Monetary Fund (IMF) is designed to assist in smoothing the flow of money between nations The IMF was instrumental in bailing out nations affected by the Southeast Asian financial crisis

CLASSROOM PERFORMANCE SYSTEM Which trading bloc includes 21 Pacific Rim countries whose goal is to improve economic and political ties? A) the EU B) APEC C) NAFTA D) MERCOSUR The answer is B.

4.6 The Importance Of Understanding Cultural Differences
WHY SHOULD MANAGERS UNDERSTAND CULTURAL DIFFERENCES BETWEEN COUNTRIES? Culture is the shared set of beliefs, values, knowledge, and patterns of behavior common to a group of people Misunderstandings and miscommunications in international business often occur because of cultural misunderstandings In low-context cultures like Germany and the U.S., shared meanings are primarily derived from written and spoken words In high-context cultures like Japan and China, people rely heavily on situational cues for meaning when communicating with others

Geert Hofstede identified four dimensions along which national cultures vary 1. individualism/collectivism describes how loosely or tightly people are socially bonded (high) 2. power distance refers to how much people accept inequality in power (low) 3. uncertainty avoidance describes how strongly people desire uncertainty (low) 4. masculinity/femininity refers to how much people embrace stereotypical male or female traits (moderately high)

CLASSROOM PERFORMANCE SYSTEM Which of the following is not one of Hofstede’s four dimensions? A) gender differentiation B) individualism/collectivism C) power distance D) uncertainty avoidance The answer is A.

The GLOBE project is an ongoing cross-cultural investigation of nine cultural dimensions involved in leadership and organizational processes 1. institutional collectivism - how much should leaders encourage and reward loyalty to the social unit 2. in-group collectivism - how much pride and loyalty should people have for their family or organization 3. power distance - how much unequal distribution of power should there be in society and organizations 4. uncertainty avoidance - how much should people rely on social norms and rules to avoid uncertainty

5. gender differentiation - how much should society maximize gender role differences 6. assertiveness - how confrontational and dominant should individuals be in social relationships 7. future orientation - how much should people delay gratifications by planning and saving for the future 8. performance orientation - how much should individuals be rewarded for improvement and excellence 9. humane orientation - how much should society encourage and reward people for being kind, fair, friendly, and generous

Managers need to bridge cross-cultural gaps by understanding basic cultural across four areas 1. Language - more than 3,000 different languages are spoken in the world Managers can either speak their own language, use a translator, or learn the local language 2. Interpersonal space - how close people should be when communicating varies by culture Some cultures like the people of Latin America prefer a smaller interpersonal space, whereas others, like the people of Northern Europe prefer to be further apart

3. Time orientation - time orientation varies by culture Americans practice monochromatic time (a preference for doing one thing at a time) Arab cultures follow polychromatic time (preference for doing more than one thing at a time) 4. Religion - Christianity has the largest following with 2.1 billion adherents, Islam is next with 1.3 billion followers, then Hinduism, Buddhism, and Judaism Organizations need to consider the impact of religious differences on employee groups

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