MANAGEMENT Chapter Five: Navigating the Global Environment TWELFTH EDITION MANAGEMENT Ricky W. Griffin Part Two: Understanding the Environmental Context of Management Chapter Five: Navigating the Global Environment © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Outcomes Describe the nature of international business, including its meaning, recent trends, management of globalization, and competition in a global market. Discuss the structure of the global economy and describe the GATT and the WTO. Identify and discuss the environmental challenges inherent in international management. Describe the basic issues involved in competing in a global economy, including organization size and the management challenges in a global economy. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Nature of International Business You Clothes made in Taiwan Car made in Japan Phone made in China Coffee grown in Africa Failure to take a global perspective is one of the biggest mistakes a manager can make. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Levels of International Business Activity Figure 5.1 Levels of International Business Activity The text identifies four general levels of international activity differentiating organizations. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Meaning of International Business A domestic business acquires all of its resources and sells all of its products or services within a single country. An international business is based in a single country but acquires meaningful resources and/or revenues from other countries. A multinational business uses a worldwide marketplace to buy materials, borrow money, manufacture, and sell its products. A global business transcends national boundaries and is not committed to a single home country. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Trends in International Business After WW II, the U.S. dominated global markets. Rebuilt countries were poised for growth while U.S. companies became complacent. Increased population and affluence meant consumers wanted new/better products. Foreign products began flooding the U.S. market and companies had to compete. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Managing the Process of Globalization Involves making the product in the firm’s domestic marketplace and selling it in another country. Exporting Means that a good, service, or capital is brought into the home country from abroad. Importing Importing and/or exporting is usually the first type of international business in which a firm gets involved. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Managing the Process of Globalization Licensing An arrangement whereby one company allows another to use its brand name, trademark, technology, patent, copyright, or other assets in exchange for a royalty based on sales. Strategic alliance Occurs when two or more firms jointly cooperate for mutual gain. A joint venture is a special type of strategic alliance in which partners share ownership in a new enterprise. Direct investment Occurs when a firm headquartered in one country builds or purchases operating facilities or subsidiaries in a foreign country. Maquiladoras are light-assembly plants built in northern Mexico, close to the U.S. border. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Table 5.1 Advantages and Disadvantages of Different Approaches to Internationalization © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Competing in a Global Market The functions are the same, whatever a firm’s level of international involvement. Complexity increases for international firms. The key question is whether to focus on globalization or regionalism. Most MNC’s use both global and local resources and activities. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Structure of the Global Economy Mature market economies and systems A market economy is based on the private ownership of business that allows market factors such as supply and demand to determine business strategy. Clusters of countries that engage in high levels of trade with one another is known as market systems. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure 5.2 The Global Economy © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Mature Market Economies and Systems An agreement made by the U.S., Canada, and Mexico to promote trade with one another. North American Free Trade Agreement (NAFTA) The first and most important international market system. European Union (EU) A market system located in Southeast Asia. Pacific Asia © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Structure of the Global Economy High-potential/high-growth economies Underdeveloped and immature economies. Characterized by weak industry, weak currency, and relatively poor consumers. China, India, Brazil, Russia, Vietnam and South Africa. Currently experiencing strong development and growth. Barriers to international trade: consumers’ lack of wealth and poor infrastructure. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Structure of the Global Economy Other economies The Middle East defies classification. These countries hold tremendous wealth yet are politically unstable and exhibit vast cultural differences. Countries involved in political or ethnic violence are poor business risks. Cuba offers a unique opportunity as it is only now emerging into the outside world. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Role of the GATT and the WTO The General Agreement on Tariffs and Trade is a trade agreement to promote international trade by reducing barriers and making it easier for all nations to compete in international markets. (WTO) The World Trade Organization began in 1995 and replaced the GATT, absorbing its mission. Requires members to open their markets to international trade and follow WTO rules. The WTO has three goals: to promote fair trade policies, to reduce trade barriers, and to resolve trade disputes. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Environmental Challenges of International Management Figure 5.3 Environmental Challenges of International Management Managers functioning in a global context must be aware of several environmental challenges. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Environmental Challenges of International Management Three aspects of the economic environment Economic system Most countries are moving toward a market economy. Natural resources These vary by country. Access to and use of natural resources. Infrastructure The schools, hospitals, power plants, railroads, highways, ports, airfields, and distribution systems make up infrastructure. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Environmental Challenges of International Management The political/legal environment Government stability includes the ability to stay in power or as the permanence of policies toward business. If nationalized, a company is taken over by the government. Incentives for multinational trade include tax cuts, low interest rates, or other subsidies. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Environmental Challenges of International Management The political/legal environment Controls on international trade A tariff is a tax collected on goods shipped across national boundaries. A quota is a limit on the number or value of goods that can be traded. An export restraint agreement between governments sets voluntary limits on goods exported or imported from each other. “Buy national” legislation gives preference to domestic producers. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Environmental Challenges of International Management The political/legal environment An economic community is a set of countries that agree to markedly reduce or eliminate trade barriers among member nations. A formalized market system. The European Union (EU). NAFTA. The Latin American Integration Association. The Caribbean Common Market. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Environmental Challenges of International Management The cultural environment Values, symbols, beliefs, and language differ from one country to another. Barbie dolls do not sell well in Muslim countries. Different cultures value time differently. Language can pose a barrier. Both spoken works and nonverbal aspects of language can pose problems for managers. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Individual Differences Across Cultures Figure 5.4 Individual Differences Across Cultures © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Individual Differences Across Cultures Figure 5.4 Individual Differences Across Cultures © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Individual Differences Across Cultures Figure 5.4 Individual Differences Across Cultures © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Competing in a Global Economy Globalization and organization size Multinational corporations (MNCs) adopt a global perspective and compete in the global marketplace. Medium-size organizations remain primarily domestic but may buy/sell products made abroad and may face foreign competition in their own domestic market. Small organizations participate as local suppliers to MCCs, and some perform simple importing/exporting. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Competing in a Global Economy Management challenges Planning and decision making Managers need a broad understanding of the environment and competition in order to plan. Organizing Degree of control allowed local managers influences difficulties of organizing. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Competing in a Global Economy Management challenges Leading Managers must understand how cultural factors affect individuals, motivation, the role of leadership, communication, interpersonal and group processes. Controlling Basic issues revolve around operations management, productivity, quality, technology, and information systems. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Competing in a Global Economy Management challenges Leading Managers must understand how cultural factors affect individuals, motivation, the role of leadership, communication, interpersonal and group processes. Controlling Basic issues revolve around operations management, productivity, quality, technology, and information systems. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Summary Chapter five described the nature of international business and discussed the structure of the global market. The chapter introduced and discussed the basic environmental challenges with a deeper focus on global competition. The chapter concluded by looking at the four management functions within a global economy. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.