1. The Global Environment
CHAPTER 5
The Global Environment
PowerPoint Presentation by Charlie Cook
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2. Learning Objectives
After studying this chapter, you should be able to:
Describe the nature of international business, including its meaning, recent trends, the management of globalization, and competition in a global environment.
Discuss the structure of the global economy and how it affects international management.
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.
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3. Chapter Outline The Nature of International Business
The Meaning of International Business
Trends in International Business
Managing the Process of Globalization
Competing in a Global Environment
The Structure of the Global Economy
Mature Market Economies and Systems
High Potential/High Growth Economies
Other Economies
Environmental Challenges of International Management
The Economic Environment
The Political/Legal Environment
The Cultural Environment
Competing in a Global Economy
Globalization and Organizational Size
Management Challenges in a Global Economy
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4. Levels of International Business Activity
Level of International Activity
Lowest
Highest
Domestic
business
Multinational
International
Global
Figure 5.1
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5. The Meaning of International Business
Domestic Business
acquires all of its resources and sells all of its products or services within a single country.
International Business
is primarily based in a single country yet acquires a meaningful share of its resources and/or revenues from other countries.
Multinational Business
transcends national boundaries and buys raw materials, borrows money, and manufactures and sells its products in a world-wide marketplace.
Global Business
transcends national boundaries and is not committed to a single home country.
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6. Trends in International Business
Economic Recovery
Industrialized nations in Europe and Asia have rebuilt their economic systems that were devastated in WWII.
Decreasing Isolation from Foreign Competition
U.S. consumer goods markets are open to overseas competitors.
Increasing Globalization of World Markets
Volume of international trade has increased more than 3,000% from 1960 to 2000.
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7. Managing The Process of Globalization
Exporting
Making a product in the firm’s domestic market and selling it in another country.
Importing
Bringing a good, service, or capital into a home country from abroad.
Advantages are small cash outlay, little exchange risk, and no adaptation of product or service is necessary.
Disadvantages are tariffs and taxes imposed on cross-border goods, high transportation costs to/from distant markets, and governmental restrictions and regulations.
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8. Managing The Process of Globalization (cont’d)
Licensing
Advantages are increased profitability from licensing without additional capital requirements, lower operational costs in foreign markets, and extended profitability from existing technologies.
Disadvantages are inflexibility in the licensing arrangement, loss of profits from licensee failure, and licensing possibly helps competitors learn to compete.
Strategic Alliance and Joint Ventures
Advantages are quick market entry, access to materials and technology, and reduced risk.
Disadvantage is that shared ownership limits control and profitability.
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9. Managing The Process of Globalization (cont’d)
Direct Investment
Advantages are enhanced operational control, it allows use of existing infrastructure, and no adaptation of in-country product or service is necessary.
Disadvantages are complexity in managing a foreign operation, greater economic- and political-risk exposure, and greater uncertainty of business risk.
Maquiladoras are light-assembly plants built in northern Mexico close to the U.S. border which are given special tax breaks by the Mexican government.
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10. Advantages and Disadvantages of Different Approaches to Internationalization
Table 5.1
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11. The Structure of the Global Economy
Market Economies and Systems
Based on the private ownership of business and allows market factors such as supply and demand to determine business strategy.
Characteristics are a mature economy, well-developed infrastructures, and individual wealth.
Market Systems
Clusters of countries that engage in high levels of trade with each other through the elimination of trade barriers such as quotas and tariffs.
North American Free Trade Agreement (NAFTA) covering the United States, Mexico, and Canada.
European Union (EU) of western European countries.
Pacific Asia countries in Southeast Asia.
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12. The Global Economy
The global economy is dominated by three relatively mature market systems
Figure 5.2
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13. Market Economies and Systems
High Potential/High Growth Economies
Characteristics are underdeveloped and immature markets, weak industrial base, weak currency, and poor consumers.
People’s Republic of China, India, Vietnam, Brazil, Russia.
Challenges to market development:
The need for large investments in distribution systems.
The need to educate/train consumers in product usage.
A lack of infrastructure for support operations.
Unfavorable policy changes affecting investments.
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14. Market Economies and Systems (cont’d)
Other Economies
Some economies defy classification due to their possession of critical and valuable resources (e.g., oil-producing countries) or other social or political factors which distort their internal economies and markets.
Challenges of other economies
Political instability
Cultural differences
Ethnic violence
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15. Environmental Challenges of International Management
International management functions
Political/Legal Environment •
Government stability
Incentives for
international trade
Controls on international
trade
Economic communities
Economic Environment
Economic system
Natural resources
Infrastructure
Cultural Environment
Values, symbols, beliefs,
and language
Individual differences
across cultures
Figure 5.3
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16. Controls on International Management
Key Concepts
Tariffs are collected on goods shipped across national boundaries.
Quotas are limits placed on the number or value of goods that can be traded as exports or imports.
Export restraint agreements are voluntary limits on the volume or value of goods exported to or imported from another country.
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17. The Cultural Environment
Language
In Japanese the word “hai” can mean either “yes” or “I understand.”
General Motors’ brand name “Nova” when “va” is pronounced “ba” as “no va” in Spanish means “doesn’t go.”
The Meaning of Colors
Green is popular in Muslim countries, yet it signifies death in other countries.
Pink is associated with feminine characteristics in the U.S.; yellow is the most feminine color in other countries.
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18. Individual Behaviors Across Cultures
Social
Orientation
Relative importance
of the interests of
the individual vs.
the interests of
the group
The interests of
the individual take
precedence
Individualism
the group take
Collectivism
Power
Orientation
The appropriateness
of power/authority
within organi-
zations
Authority is inherent
in one’s
position
within a hierarchy
Power Respect
Individuals assess
authority in view of
its perceived right-
ness or their own
personal interests
Power Tolerance
Source: Adapted from R. W. Griffin,/M. Pustay, International Business, (figure 14.1, page 479) © 1996 Addison Wesley Longman. Reprinted by permission of Addison Wesley Longman.
Figure 5.4
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19. Individual Behaviors Across Cultures (cont’d)
Uncertainty
Orientation
An emotional
response to
uncertainty and
change
Positive response
to change and new
opportunities
Acceptance
Prefer structure
and a consistent
routine
Avoidance
Goal
Orientation
What motivates
people to achieve
different goals
Value material
possessions, money,
and assertiveness
Aggressive Goal
Behavior
Value social
relevance, quality
of life, and the
welfare of others
Passive Goal
Source: Adapted from R. W. Griffin,/M. Pustay, International Business, (figure 14.1, page 479) © 1996 Addison Wesley Longman. Reprinted by permission of Addison Wesley Longman.
Figure 5.4
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20. Individual Behaviors Across Cultures (cont’d)
Time
Orientation
The extent to which
members of a culture
adopt a long-term or a
short-term outlook
on work and life
Value dedication,
hard work, and
self-image
Long-Term
Outlook
Place less emphasis
on hard work
Short-Term
Source: Adapted from R. W. Griffin,/M. Pustay, International Business, (figure 14.1, page 479) © 1996 Addison Wesley Longman. Reprinted by permission of Addison Wesley Longman.
Figure 5.4
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21. Competing in a Global Economy
Globalization and Organization Size
Multinational Corporations (MNCs) adopt a global perspective and compete in the global marketplace.
Medium-Size Businesses remain primarily domestic organizations that may buy and sell abroad through trade specialists and compete with foreign companies in local markets.
Small Businesses participate in global markets when they serve as local suppliers for MNCs.
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22. The World’s Largest MNCs: Industrial Corporations
Source: Adapted from Fortune, July 24, 2000; p. F-1, Fortune © Time Inc. All rights reserved.
Table 5.2
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23. Management Challenges in a Global Economy
Planning in a Global Economy
Requires a broad-based understanding of both environmental issues and competitive issues.
Organizing in a Global Economy
Involves addressing issues of creating and managing operations on a world-wide scale.
Leading in a Global Economy
Requires learning how to interact with and motivate persons of different cultural, social, and economics backgrounds.
Controlling
Involves integrating global operations that encompass time-zone differences, cultural factors, and varying communication methods.
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