Managing in a Global Environment BUSI 2311/Spring2011/Ashvari.S

Lesson Outline Understanding the Global Environment Different types of International Organization Managing in Global Environment Activity Textbook page 73 – 79 Textbook page 85 - 105

Understanding the Global Environment Not so long ago, global competition was best described in terms of country against country - the US vs Japan, France vs Germany and so on. Now, global competition has been reshaped by the creation of regional trading agreements including the European Union (EU), North American Free Trade Agreement (NAFTA) the Association of Southeast Asian Nations (ASEAN) and others.

The European Union EU, a unified economic and trade entity with 12 original members. The primary motivation for the joining of these European nations was to reassert their economic position against the strength of the US and Japan. Working in separate countries with barriers against one another, European industries couldn’t develop the efficiency of American and Japanese business. Before the creation of the EU, each nation had border controls, taxes and so on. Now, as a single market, there are no barriers to travel, employment, investment and so on. NAFTA – Mexican, Canadian and US ASEAN – 10 Southeast Asian Nations

The World Trade Organization Global growth and trade among nations doesn’t just happen on its own. Systems and mechanism are needed so that efficient and effective trading relationships can develop. One of the most important of these mechanisms is the multilateral trading system called the World Trade Organization (WTO), formed in 1995

WTO is the only global organization dealing with the rules of trade among nations. Its membership consists of 149 member countries. The goal of the WTO is to help businesses (importers and exporters) conduct their business WTO appears to play an important role in monitoring and promoting global trade.

Doing Business Globally E.g. McDonald’s Corporation says it’s on track to continue expanding aggressively in China even though it already has more than 700 locations We can see that organizations in different industries and from different countries are pursuing global opportunities BUT HOW DO ORGANIZATIONS DO BUSINESS GLOBALLY?

1. Different Types of International Organizations Multinational corporations (MNCs) – refers to any and all types of international companies than maintain operations in multiple countries. Multidomestic corporation – an international company that decentralizes management and other decisions to the local country. E.g. Nestle, Switzerland based can be described as a multidomestic corporation. With operations in almost every country on the globe, its managers match the company’s products to its consumers. E.g. Dorito chip flavours differ in Canada, India, China and so on. Global company – centralized its management and other decisions in the home country. Management decisions are made from headquarters in the home country. The companies treat the world market as an integrated whole and focus on the need for global efficiency. E.g. Sony, Nokia. This approach to globalization called ethnocentric. Transnational or borderless organization refers to a type of international company in which artificial geographical barriers are eliminated. E.g. IBM dropped its organizational structure based on country. Reflects a geocentric attitude.

There are an increasingly large number of businesses called born global that choose to go global from inceptions.

How Organizations Go International During the initial stages of going international, managers look at ways to get into a global market without having to invest a lot of capital. At this stage, companies may start with global sourcing (also called global outsourcing), which is purchasing materials or labour from around the world where ever it is cheapest. The goal: take advantage of lower costs in order to be more competitive

Next, Managers may go international by exporting the organization’s product to other countries – that is making products domestically and selling them abroad In addition, an organization might choose importing, which involves acquiring products made abroad and selling them domestically Both exporting and importing are steps toward being a full-blown international business. Finally, in the early stages of doing business internationally, managers can use licensing or franchising, an organization gives another organization the right to use its name and operating methods.

Typically once an organization has been doing business internationally for awhile and has gained experience in international market, managers may decide to make more of a direct investment. One way they can do this is through strategic alliances, partnerships between an organization and a foreign company partner in which both share resources and knowledge in developing new products. Joint venture – a specific type of strategic alliances in which the partners agree to form a separate, independent organization for some business purpose. E..g HP had numerous JV with various suppliers around the globe to develop different components for its equipment. Foreign subsidiary – directly investing in a foreign country by setting up a separate and independent production facility or office

Managing in a Global Environment Any manager who finds himself or herself in a foreign country faces new challenges. The stability of laws governing the actions of individuals and institutions allows for accurate predictions. The same can’t be said for all countries. The Legal-Political Environment Managers of businesses in countries with lower stability level face dramatically greater uncertainty as a result of that instability. In addition, political interference is a fact of life in some regions, especially in some Asian countries. E.g. many large businesses have postponed doing business in China because the government controls what organizations do and how they do it. However, this scenario is changing.

Current organizational culture issues facing managers The Economic Environment The global manager must be aware of economic issues when doing business in other countries A market economy is one in which resources are primarily owned and controlled by the private sector. A command economy is one in which economic decisions are planned by a central government Inflation means that prices of products and services are going up. But it also affects interest rates, exchange rates, the cost of living. Managers need to monitor inflation trends so they can make good decisions and anticipate any possible changes in a country’s monetary policies.

The Cultural Environment Organization and countries have cultures National culture is the values and attitudes shared by individuals from a specific country that shape their behavior and their beliefs. E.g. India now graduates about 350,000 engineering students each year; the US,70,000. Organizations that need employees with engineering skills in order to be competitive are going to have to understand national cultures, such as that of India