1. The Global Environment
Mgmt 371 Chapter Five
The Global Environment
Much of the slide content was created by Dr, Charlie Cook, Houghton Mifflin, Co.©

3. Figure 5.1: Levels of International Business Activity

4. The Meaning of International Business
Domestic Business
acquires all of its resources and sells all of its products or services within a single country.
International Business
is primarily based in a single country yet acquires a meaningful share of its resources and/or revenues from other countries.

5. The Meaning of International Business
Multinational Business
transcends national boundaries and buys raw materials, borrows money, and manufactures and sells its products in a world-wide marketplace.
Global Business
transcends national boundaries and is not committed to a single home country.

6. Trends in International Business
Economic Recovery
Industrialized nations in Europe and Asia have rebuilt their economic systems that were devastated in WWII.
Decreasing Isolation from Foreign Competition
U.S. consumer goods markets are open to overseas competitors.
Increasing Globalization of World Markets
Volume of international trade has increased more than 3,000% from 1960 to 2000.
This includes labor markets.

7. Table 5.1: Advantages and Disadvantages of Different Approaches to Internationalization

8. The Structure of the Global Economy
Mature Market Economies and Systems
Based on the private ownership of business and allows market factors to determine business strategy.
A mature economy, well-developed infrastructures, and individual wealth.
Primarily concentrated in North America and Europe.
Compare to High Potential/High Growth Economies.

9. The Structure of the Global Economy
Trade Agreements
North American Free Trade Agreement (NAFTA) covering the United States, Mexico, and Canada.
European Union (EU) 27 member states in Europe.
Association of Southeast Asian Nations (ASEAN) 10 members in Southeast Asia.
South Asian Association for Regional Cooperation (SAARC) 8 members in South Asia

10. The Global Economy

11. Market Economies and Systems
High Potential/High Growth Economies
Underdeveloped and immature markets with a weak industrial base, weak currency, and poor consumers
People’s Republic of China, India, Vietnam, Brazil, Russia
Challenges to market development:
The need for large investments in distribution systems
The need to educate/train consumers in product usage
A lack of infrastructure for support operations
Unfavorable policy changes affecting investments

12. Market Economies and Systems
Other Economies
Economies that defy classification due to their possession of critical and valuable resources or other social or political factors which distort their internal economies and markets.
Challenges of other economies
Political instability
Cultural differences
Ethnic violence

13. The Role of the GATT and the WTO
General Agreement on Tariffs and Trade (GATT)
Promoted international trade by reducing trade barriers and making it easier for all nations to compete.
Most Favored Nation (MFN) principle

14. The Role of the GATT and the WTO
The World Trade Organization (WTO)
Organization (replacing GATT) with the goals of:
Promoting trade flows by encouraging nations to adopt nondiscriminatory and predictable trade policies
Reducing remaining trade barriers through multilateral negotiations
Establishing impartial procedures for resolving trade disputes among its members

15. Environmental Challenges of International Management

16. Controls on International Management
Tariffs
Taxes collected on goods shipped across national boundaries.
Quotas
Limits placed on the number or value of goods that can be traded as exports or imports.
Export restraint agreements
Voluntary limits on the volume or value of goods exported to or imported from another country.

17. Social Orientation
Individualism v. Collectivism - self-explanatory
In individualistic societies you are expected to take care of yourself (the lower the score, the more individualistic).
Self expression and individual achievement is valued.
US, Canada.
Collectivistic societies expect you to subordinate your interests to those of your group or society

18. Power Orientation
Power Distance - the degree to which people accept the idea that disparities in power and well-being among members of society are due to each individual’s physical and intellectual abilities.
The higher the power distance score, the greater the acceptance of inequality (Power Respect).
Latin America, Asia.
The lower the power distance score, the less the acceptance of inequality (Power Tolerance).
US, UK, Netherlands, Western Europe.

19. Uncertainty Orientation
Uncertainty Avoidance - tolerance for risk and ambiguity.
Measures resistance to change and preference for structured situations.
Uncertainty Avoidance = Japan, France.
Uncertainty Acceptance = US, UK, India.

20. Goal Orientation
Aggressive Goal Orientation (Masculinity) v. Passive Goal Orientation (Femininity)- the degree to which a society divides its roles and jobs along gender lines.
Aggressive Goal Orientation societies have clearly defined “male” and “female” roles.
Value assertiveness, performance, material success, and competition. Japan, US.
Passive Goal Orientation societies have few or no social distinctions based on sex.
Value personal relationships, quality of life, and care of the weak. Scandinavia

21. Time Orientation
Short-Term Orientation – the cultural dimension that measures the value societies put on personal stability,living for the present, and immediate gratification. (U.S., France, Canada)
Long-Term Orientation – the cultural dimension that measures the value societies put on the future (i.e., thrift and persistence), as opposed to a short-term focus on the present. (Taiwan, Japan, India).

22. Competing in a Global Economy
Globalization and Organization Size
Multinational Corporations (MNCs)
Adopt a global perspective and compete in the global marketplace.
Medium-Size Businesses
Remain primarily domestic organizations that may buy and sell abroad through trade specialists and compete with foreign companies in local markets.
Small Businesses
Participate in global markets when they serve as local suppliers for MNCs.

23. Top 10 Largest MNCs Exxon/Mobil* Wal-Mart Royal Dutch Shell* BP*
General Motors
Chevron
Daimler Benz
Toyota
Ford
Conoco Phillips*
General Electric
Total*
ING Group**
Citicorp**
AXA**
Allianz**
Volkswagen
Fortis**
Credit Agricole**
AIG**
*Petroleum
** Banking, Insurance, Financial Services

24. Management Challenges in a Global Economy
Planning in a Global Economy
Understanding of both environmental issues and competitive issues.
Organizing in a Global Economy
Addressing issues of creating and managing operations on a world-wide scale.
Leading in a Global Economy
Learning how to interact with and motivate persons of different cultural, social, and economics backgrounds.
Controlling in a Global Economy
Integrating global operations that encompass time-zone differences, cultural factors, and varying communication methods.