Managing in a Global Environment Chapter 4

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

Global Environment and International Managers Chapter 4 Topics Difficulties Operating in Borderless World Challenges Economic Legal-political Socio-cultural Multinational Corporations Foreign Markets - Entrance Managers’ Challenge: Wal-Mart Managers

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

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

4 Stages of Globalization 1. Domestic 2. International 3. Multinational 4. Global Strategic Orientation Domestically Oriented Export- Oriented multi-domestic Multinational Global Stage of Development Initial foreign involvement Competitive positioning Explosion of international operations Global Cultural Sensitivity Of little importance Very important Somewhat important Critically important Manager Assumptions “One best way” “Many good ways” “The least-cost way” “Many good ways” SOURCE: Based on Nancy J. Adler, International Dimensions of Organizational Behavior, 4th ed. (Cincinnati, Ohio: South-Western, 2002), 8-9.

Global (stateless) Corporations Number is increasing Awareness of national borders decreasing Rising managers expected to know a 2nd or 3rd language Corporate Example – Nestle (Swiss) CEO Peter Brabeck–Letmathe (Austrian) Half of general managers (non-Swiss) Strong faith in regional managers who are native to the region

The International Business Environment International management is management of business operations conducted in more than one country Fundamental tasks do not change Basic management functions are the same - domestic or international Greater difficulties and risks when performing on an international scale 4

International Environment Factors 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

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

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

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

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

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

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

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

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

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

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 Ethical Dilemma: The Problem in Asia

Four Dimensions of National Value

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

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

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

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, 147 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

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 Has legal authority to arbitrate disputes on 400 trade issues Partly responsible for backlash against global trade

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

Nations of The EU *Joined in 2004 * * * * * * * * * *

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, 2004 -10th anniversary = success and failure

Strategies for Entering International Markets High Greenfield Venture Acquisition Joint Venture Foreign Operations Ownership of Franchising Licensing Exporting Low Cost to Enter Foreign Operations Low High

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

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 Experiential Exercise: Rate your Global Management Potential