1. Chapter 3
Global Management

2. What’s Your Global Perspective?
Ethnocentric Attitude
Belief that home country has the best work approaches and practices
Polycentric Attitude
View that managers in host country know the best approaches and practices
Geocentric Attitude
A world-oriented view that focuses on using the best approaches and people from around the globe
It’s not unusual for Germans, Italians, or Indonesians to speak three or four languages. On the other hand, Canadians tend to think of English as the only international business language and they don't see a need to study other languages.
A. Parochialism is defined as a selfish, narrow view of the world and an inability to recognize differences between people. Parochialism is an obstacle for many managers working in the global business world. These attitudes often stem from monolinguism .
B. Managers might have one of three perspectives or attitudes toward international business (see Exhibit 3.1).
1) An ethnocentric attitude is the parochialistic belief that the best work approaches and practices are those of the home country (the country in which the company’s headquarters are located).
2) A polycentric attitude is the view that the managers in the host country (the foreign country where the organization is doing business) know the best work approaches and practices for running their business.
3) A geocentric attitude is a world-oriented view that focuses on using the best approaches and people from around the globe.
4) To be a successful global manager, you need to be sensitive to differences in national customs and practices.

3. Global Attitudes

4. Regional Trading Alliances
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
Economic and monetary union (Euro)
North American Free Trade Agreement (NAFTA)
Eliminated barriers to free trade (tariffs, import licensing requirements, and customs user fees)
United States, Canada, and Mexico
Several significant forces are reshaping the global environment that managers face. Two important features of the global environment are regional trading alliances and the different types of global organizations.
A. Regional Trading Alliances. Regional trading alliances are reshaping global competition. It’s no longer country versus country, but region against region.
1. The European Union (EU) is a union of 25 European nations created to eliminate national barriers to travel, employment, investment, and trade (see Exhibit 3.2).
a. The primary motivation for the creation of the EU (in February 1992) was to allow these nations to reassert their position against the indus trial strength of the United States and Japan.
b. The EU took an enormous step toward full unification in 1999 when 12 of the 15 countries became part of the EMU—the economic and monetary union, the formal name for the system where participating countries share the same currency, the Euro.
c. In 2004, the EU added 10 new members (Cyprus, Malta, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia). Two other countries could join by 2007.
2. The North American Free Trade Agreement (NAFTA) is an agreement among the Mexican, Canadian, and U.S. governments in which all barriers to free trade will eventually be eliminated.
a. NAFTA went into effect on January 1, 1994.
b. The signing of NAFTA had both critics and champions.
c. Eliminating the barriers to free trade (tariffs, import licensing requirements, customs user fees) has resulted in a strengthening of the economic power of all three countries.
d. Colombia, Mexico, and Venezuela signed an economic pact eliminating import duties and tariffs in 1994.
e. Now 34 countries in the Caribbean region, South America, and Central America are negotiating a Free Trade Area of the Americas (FTAA) trade agreement, which will be operational no later than 2005.

5. European Union Countries

6. The World Trade Organization (WTO)
Evolved from the General Agreement on Tariffs and Trade (GATT) in 1995
Functions as the only global organization dealing with the rules of trade among nations
Has 147 member nations
Monitors and promotes world trade
Formed in 1995 evolving from GATT. The only global organization dealing with the rules of trade among nations.
Membership consists of 147 countries as of April 2004.
WTO appears to play an important role even though there are vocal critics.

7. Bangladesh Export Processing Zones Authority (BEPZA)
The official organ of the government to promote, attract and facilitate foreign investment in the Export Processing Zones (EPZs).
The primary objective of an EPZ is to provide special areas where potential investors would find a congenial investment climate, free from cumbersome procedures.
Bangladesh has Eight EPZs.

8. Bangladesh Garments Manufacturers and Exporters Association (BGMEA)
An association of readymade garments manufacturers and exporters of Bangladesh.
It promotes and protects the greater interest of the garment sector of Bangladesh and its members.
BGMEA is dedicated to establishing and promoting contacts with foreign buyers, business and trade associations, chambers and research organizations to develop the export base of apparels.

9. Different Types of Global Organizations
Multinational Corporation (MNC)
A firm that maintains operations in multiple countries but manages from the home country
Transnational Corporation (TNC)
A firm that maintains operations in several countries but decentralizes management to the local country
Borderless Organization
A firm that organizes along business lines without consideration to artificial geographic barriers
Although international business has been around a long time (DuPont did business in China in 1863; Ford set up its first overseas sales branch in France in 1908), the popularity of multinational corporations really didn’t occur until the mid-1960s. What are the various types of global organizations?
1. A multinational corporation (MNC) is a company that maintains significant operations in multiple countries simultaneously, but manages them all from one base in a home country. It reflects the ethnocentric attitude.
2. A transnational corporation (TNC) is a company that maintains significant operations in more than one country simultaneously, but decentralizes management to the local country. It reflects the polycentric attitude.
3. Another type of global organization is the borderless organization that is a global type of organization in which artificial geographical barriers are eliminated so that the management structure can be more effectively globalized. It reflects the geocentric attitude.
Keep in mind, however, that a company’s national origin is no longer a good measure of where it does business or of the national origin of its employees.

10. How Organizations Go Global
Exporting to
Hiring foreign
Licensing/
Strategic
Foreign
or importing
representation
Franchising
Alliances
Subsidiary
from foreign
or contracting
countries
with foreign
managers
Low
Degree of Risk and Investment
High
Organizations have different ways of going global

11. How Organizations Go Global
Exporting
Making products at home and selling them overseas
Importing
Selling products at home that are made overseas
Organizations have different ways of going global
Importing and Exporting. A relatively low-investment strategy is to go global by exporting the organization’s products to other countries—that is, by making products at home and selling them overseas. In addition, an organization can go global by importing products, selling products at home that are made overseas. Both exporting and importing are small steps toward being a global business and involve minimal investment and minimal risk.

12. How Organizations Go Global (cont’d)
Internal Sales or Manufacturing
Selling or having products made in foreign factories with no physical presence
Licensing and Franchising
Giving another organization the right to use brand name, technology, or product specifications
Licensing (manufacturing organizations)
Franchising (service organizations)
Internal Sales or Manufacturing. This involves managers making more of an investment by committing to sell products in foreign countries or to having them made in foreign factories. However, there is still no physical presence of company employees outside the company’s home country.
Licensing and Franchising. An organization can give another organization the right to use its brand name, technology, or product specifications in return for a lump-sum payment or a fee usually based on sales through licensing or franchising. The only difference is that licensing is primarily used by manufacturing organizations and franchising is used by service organizations.

13. How Organizations Go Global (cont’d)
Strategic Alliance
Partnership between an organization and a foreign company in which both share resources and knowledge in developing new products or building new production facilities
Joint Venture
A specific type of strategic alliance in which the partners agree to form a separate, independent organization for some business purpose
Strategic Alliance. Strategic alliances are partnerships between an organization and a foreign company in which both share resources and knowledge in developing new products or building production facilities. The partners also share the risks and rewards of this alliance.
1. A specific type of strategic alliance in which the partners agree to form a separate, independent organization for some business purpose is called a joint venture.
Foreign Subsidiaries. Managers can make a direct investment in a foreign country by setting up a foreign subsidiary, a separate and independent production facility or office.
1. This subsidiary can be managed as an MNC (domestic control), a TNC (foreign control), or as a borderless organization (global control).
2. This arrangement involves the greatest commitment of resources and poses the greatest amount of risk.

14. Managing in a Global Environment
The Legal-Political Environment
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
There are many challenges associated with managing in a global environment.
A. The Legal-Political Environment. The legal-political environment doesn’t have to be unstable or revolutionary to be a challenge to managers. It is important to recognize that a country’s political system differs from Canada’s.

15. Managing in a Global Environment (cont’d)
The Economic Environment
Economic Systems
Market economy
An economy in which resources are primarily owned and controlled by the private sector
Command economy
An economy in which all economic decisions are planned by a central government
Monetary and Financial Factors
Currency exchange rates
Inflation rates
Diverse tax policies
B. The Economic Environment. Also presents many challenges to foreign-based managers. Obviously, currency rate fluctuations, inflation, and diverse tax policies are economic challenges to managers.
Market economy — resources are primarily owned by the private sector
Command economy — where all economic decisions are planned by a central government

16. Managing in a Global Environment (cont’d)
The Cultural Environment
National Culture
Values and attitudes shared by individuals from a specific country that shape their behaviour and their beliefs about what is important
May have more influence on an organization than the organization culture
C. The Cultural Environment. The cultural environment involves cultural differences between nations. National culture is the values and attitudes shared by individuals from a specific country that shape their behaviour and their beliefs about what is important.

17. The Challenge of Global Management
Increased threat of terrorism
Economic interdependence of trading
Dealing with increased uncertainty, fear, and anxiety
Acknowledging cultural, political, and economic differences
1. Uncertainty after 9/11 has had a profound impact on business. Managers face serious challenges arising from globalization and from significant cultural differences.
2. Intense underlying and fundamental cultural differences create a very complicated environment in which to manage.
3. Successful global managers will have incredible sensitivity and understanding.
4. Need to adjust leadership styles and management approaches to accommodate culturally diverse views.
Some have predicted that globalization is dead, including philosopher John Ralston Saul.
a. However, Joel Bakan, a University of British Columbia law professor who wrote The Corporation and coproduced the documentary of the same name, claims “It’s overly optimistic to say globalization is dead.” (J. Bakan, The Corporation (Toronto: Big Picture Media Corporation, 2003))
b. In support of Bakan’s view, consulting firm A.T. Kearney concluded, based on a 2002 survey of the situation, that overall, globalization remained a strong force, even if there has been some slowdown.