Principles of Management Studies Lecture 4 A.K.Ghosh E-MBA 2013-14

Global Perspective Parochialism: Narrow, restricted attitude that we are the best. Ethnocentric attitude: People of parent company are the best choice to run foreign operations. Preference to your own people than others. Polycentric attitude: Employees in host country decides how best to do things. Geocentric attitude: World Oriented view.

Understanding the Global Environment Regional Trading Alliances SAARC The European Union Association of Southeast Asian Nations North American Free Trade Agreement and other Latin American Agreements

SAARC Eliminates tariff and allows free flow of goods and services. 7 countries: Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. Observe Status: China, the EU, Iran, Japan, Korea, Mauritius and the USA. Areas of cooperation are: Agriculture and Rural, Health and Population Activities, Women, Youth and Children, Environment and Forestry, Science and Technology and Meteorology, HRD, Transport, Information and Communication Technology, Biotechnology, IPR, Tourism and Energy. Eliminates tariff and allows free flow of goods and services.

The European Union An Economic and political partnership of 27 democratic European countries. Primary motive was to reassert the region’s economic position against US and Japan. Common Currency: Euro

Association of Southeast Asian Nations(ASEAN) Indonesia, Malaysia, the Philippines, Singapore and Thailand, Brunei, Burma (Myanmar), Cambodia, Laos, and Vietnam. Its aims economic growth, social progress, cultural development among its members, protection of regional peace and stability, and opportunities for member countries to discuss differences peacefully.

North American Free Trade Agreement and other Latin American Agreements (NAFTA) Canada, Mexico, and the United States. Eliminating barriers to free trade has resulted in a strengthening of the economic power of all three countries.

World Trade Organization The goal of WTO is to help countries conduct trade through trade rules.

Doing Business Globally Different type of International Organizations MNC Multidomestic Corporation Global company Transnational/ Borderless organization

Multidomestic Corporation Decentralizes management and other decisions to the local country. Polycentric attitude. Local employees are hired to manage the business and marketing strategies are tailored to that country’s unique characteristics.

Global company Centralizes its management and other decisions in the home country. Ethnocentric Attitude.

Transnational/ Borderless organization Eliminates artificial geographic barriers. Geocentric attitude.

How organizations go International Global Sourcing Exporting/Importing Licensing or Franchising Strategic Alliance Joint venture Foreign Subsidiary

Global Sourcing Purchasing materials or labors from around the world based on lowest cost. The goal is to keep lower costs to gain competitive ad

Imports and Exports Import and Export Entail minimal investment and risk. Many small businesses often use this approach to go global.

Licensing or Franchising Giving another organization the right to use its brand name, technology or product specifications in return off fee or lump-sum payment. Licensing is used by manufacturing organizations that make or sell another company’s products Franchising is primarily used by service organizations that want to use another company’s name and operating methods.

Strategic Alliance Partnership between an organization and a foreign company partner or partners Both share resources and knowledge in developing new products and building production facilities. A specific type of strategic alliance in which partners form a separate, independent organization for some business purpose is called Joint Venture.

Foreign Subsidiary Managers choose to directly invest in a foreign country by setting up a foreign subsidiary as a separate and independent facility or office. Can be managed as a multidomestic or global organization.

Managing in a Global Environment Political/ Legal Environment: Managers must stay informed of the specific laws in countries where they do business. The Economic Environment: A free market economy: Resources are primarily owned and controlled by the private sector. Ex. USA and UK A planned economy: Economic decisions are planned by a central government. Ex. India, Vietnam, North Korea. Managers also need to monitor inflation

Managing in a Global Environment The cultural Environment: National Culture and Organizational Culture. Hofstede’s Framework for Assessing Cultures: Individualistic and Collectivistic High power distance and Low power distance High uncertainty avoidance and Low uncertainty avoidance Achievement and Nurturing Long term orientation and Short-term orientation

GLOBE Framework for Assessing Cultures Power Distance Uncertainty avoidance Assertiveness Humane orientation Future orientation Institutional Collectivism Gender Differentiation In-Group Collectivism Performance orientation

Thank you