1. Managing in a Global Environment
Managing in a Global Environment
CHAPTER 4

2. Learning Objectives
Describe the emerging borderless world and some issues of particular concern for today’s managers.
Describe market entry strategies that businesses use to develop foreign markets.
Define international management and explain how it differs from the management of domestic business operations.
Indicate how dissimilarities in the economic, sociocultural, and legal-political environments throughout the world can affect business operations.

3. Learning Objectives (contd.)
Learning Objectives (contd.)
Describe how regional trading alliances are reshaping the international business environment.
Describe the characteristics of a multinational corporation.
Explain cultural intelligence and why it is necessary for managers working in foreign countries.

4. Importance of International Business
Importance of International Business
If you are not thinking international,
you are not thinking business management

5. A Borderless World Business is becoming a unified, global field
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

6. 4 Stages of Globalization
4 Stages of Globalization
Exhibit 4.1

7. Four Stages of Globalization
Four Stages of Globalization
Domestic stage:
market potential is limited to the home country
production and marketing facilities located at home
International stage:
exports increase
company usually adopts a multi-domestic approach
Multinational stage:
marketing and production facilities located in many countries
more 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 cost ownership, control, and top management tend to be dispersed

8. Global (stateless) Corporations
Global (stateless) Corporations
Number is increasing
Awareness of national borders decreasing
Corporate Examples
Fred Hassan – Pakistan-born CEO of Schering Plough
Mexico-born Fernando Aguirre, CEO of Chiquita Brands

9. Strategies for Entering International Markets
Strategies for Entering International Markets
Exhibit 4.2

10. Getting Started Internationally
Getting Started Internationally
Market Entry Strategy
An organizational strategy for entering a foreign market
Global Outsourcing (offshoring)
Engaging in the international division of labor so as to obtain the cheapest sources of labor and supplies regardless of country. Also called global sourcing.

11. International Environment Factors
International Environment Factors
Exhibit 4.3
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, regulations
Organization
Sociocultural
Socio values, beliefs
Language
Religion (objects, taboos, holidays)
Kinship patterns
Formal education, literary
Time orientation

12. Economic Environment Factors
Economic Environment Factors
Economic development
Infrastructure
Resource and product markets
Exchange rates
Inflation
Interest rates
Economic growth

13. 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

14. Infrastructure
A country’s physical facilities that support economic activities
Airports, highways, and railroads
Energy-producing facilities
Communication facilities

15. Resource and Product Markets
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

16. 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

17. The Legal-Political Environment
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

18. Political Instability
Political Instability
Events such as riots, revolutions, or government upheavals that affect the operations of an international company

19. 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

20. Sociocultural Environment
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

21. Hofstede’s Value Dimensions
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

22. Four Dimensions of National Value
Four Dimensions of National Value
Exhibit 4.4

23. GLOBE Value Dimensions
GLOBE Value Dimensions
Global Leadership and Organizational Behavior Effectiveness project
More comprehensive view of cultural similarities and differences
Assertiveness
Future orientation
Uncertainty avoidance
Gender differentiation
Power distance
Societal collectivism
Individual collectivism
Performance orientation
Humane orientation

24. International Cultural Influences
International Cultural Influences
Other Cultural Characteristics
Language
Religion
Attitudes
Social Organization
Education
Linguistic pluralism – several languages exist
Ethnocentrism – regard own culture superior

25. International Trade Agreements
International Trade Agreements
Most visible changes in legal-political factors grow out of international trade agreements:
GATT
WTO EU
NAFTA

26. International Trade Alliances
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, 149 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

27. 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
Partly responsible for backlash against global trade

28. 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

29. North American Free Trade Agreement
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, th anniversary = success and failure

30. Other Trade Alliances
The Association of Southeast Asian Nations (ASEAN)
Mercosur (Argentina, Brazil, Bolivia, Chile, Paraguay, Uruguay)
The Central American Free Trade Agreement (CAFTA)
Free Trade Area of the Americas (FTAA)

31. Multinational Corporations (MNC)
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

32. Managing in a Global Environment
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