Managing in a Global Environment Chapter 3 Managing in a Global Environment

Global Perspectives Parochialism Is viewing the world exclusively through one’s own eyes and perspectives. Is not recognizing that others have different ways of living and working. Is a significant problem for managers working in a global business world. Is falling into the trap of ignoring others’ values and customs and strictly applying an attitude of “ours is better than theirs” to foreign cultures they'll find it difficult to compete with other organizations around the world that are seeking to understand foreign customs and market differences.

3 Global Attitude 1. Ethnocentric Attitude The parochalistic belief that the best work approaches and practices are those of the home country (the country in which the company’s headquarters are located). Managers with an ethnocentric attitude believe that people in foreign countries don’t have the needed skills, expertise, knowledge, or experience to make the best business decisions as people in the home country do. They don’t trust foreign employees with key decisions or technology. Example: America and Britain

Global Perspectives 2. Polycentric Attitude The view that the employees in the host country (the foreign country in which the organization is doing business) know the best work approaches and practices for running their business. Managers with this attitude view every foreign operation as different and hard to understand Thus, they’re likely to let employees there figure out how best to do things. Example: Nestle

Global Perspectives 3. Geocentric Attitude A world-oriented view that focuses on using the best approaches and people from around the globe. Managers with this type of attitude have a global view and look for the best approaches and people regardless of origin. Example: Novertis

Regional Trading Agreements The European Union (EU) A unified economic and trade entity Belgium, Denmark, France, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, the United Kingdom, Germany, Austria, Finland, and Sweden North American Free Trade Agreement (NAFTA) Eliminated barriers to free trade (tariffs, import licensing requirements, and customs user fees) United States, Canada, and Mexico

Exhibit 4–1 European Union

Regional Trading Agreements U.S.-Central America Free Trade Agreement (CAFTA) Free Trade Area of the Americas Southern Cone Common Market (Mercosur) Association of Southeast Asian Nations (ASEAN) Trading alliance of 10 Southeast Asian nations African Union South Asian Association for Regional Cooperation (SARRC)

Exhibit 4–2 ASEAN Members Source: Based on J. McClenahen and T. Clark, “ASEAN at Work,” IW. May 19, 1997, p. 42.

Different Types of International Organizations Multinational Corporation (MNC): Maintains operations in multiple countries. Types of MNC: Multi-domestic Corporation is an MNC that decentralizes management and other decisions to the local country. Reflects the polycentric attitude Doesn’t attempt to replicate its domestic successes by managing foreign operations from its home country. Instead, local employees typically are hired to manage the business and marketing strategies are tailored to that country’s unique characteristics. Example: Nestle

Different Types of International Organizations Global Company is an MNC that centralizes its management and other decisions in the home country. Reflects the ethnocentric attitude Treat the world market as an integrated whole and focus on the need for global efficiency and cost savings Example: Sony

Different Types of International Organizations (cont’d) Transnational Corporation (Borderless Organization) is an MNC that has eliminated structural divisions that impose artificial geographic barriers. Reflects a geocentric attitude Example: IBM

Managing in A Global Environment The Legal Environment Ex: Bangladesh vs. USA Stability or instability of legal and political systems: Legal procedures are established and followed Fair and honest elections held on a regular basis Differences in the laws of various nations: Effects on business activities Effects on delivery of products and services

The Economic Environment Economic Systems Free market economy An economy in which resources are primarily owned and controlled by the private sector. Ex: BD Planned economy An economy in which all economic decisions are planned by a central government. Ex: North Korea Monetary and Financial Factors Currency exchange rates Inflation rates Diverse tax policies

The Economic Environment Infrastructure: refers to basic systems of communication (telecommunications, television, radio, and print media), transportation (roads and highways, railroads, and airports), and energy facilities (power plants and gas and electric utilities). The Internet and technology use can also be considered part of infrastructure. Example: Ethiopia doesn’t accept any debit or credit card which is a drawback in trading with this country. Power problem in BD

The Economic Environment Currency Conversion and Shifts: Shifts in exchange rates can also influence the attractiveness of various business decisions. A devalued currency may make a nation less desirable as an export destination because of reduced demand in that market. However, devaluation can make the nation desirable as an investment opportunity because investments there will be a bargain in terms of the investor’s currency. Example: RMG in BD

The Cultural Environment National Culture Is the values and attitudes shared by individuals from a specific country that shape their behavior and their beliefs about what is important. May have more influence on an organization than the organization culture. Ex: Calling in first name in USA vs. UK