1. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 1 Chapter 5 Managing Globally

2. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 2 Learning Objectives State several characteristics of the global economy. Describe how a country’s culture can affect an organization's business practices. Explain the impact of political–legal forces on international business. Discuss how three major trade agreements affect global competition. Describe six strategies used by organizations used by organizations in international business.

3. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 3 Global Economic Trends (adapted from Table 4.1) Foreign exchange rates Importance of exports and imports Expanding nature of trade Worldwide communication Borderless organizations Worldwide labor pool

4. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 4 Culture Five Aspects of Culture (adapted from Figure 4.1) Cultural Distance Social Change Value Systems Language Time Orientation

5. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 5 Cultural Values in Mexico and the United States (adapted from figure 4.2)

6. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 6 Managerial Implications of Power Distance Differences (adapted from Table 4.2) IssueUnited StatesMexico Subordinates’ dependence needs Moderate dependence on supervisor Heavy dependence on supervisor ConsultationExpect to be consultedExpect little consultation Ideal superiorDemocratic leadershipA benevolent autocrat or paternalistic father figure Rules and regulationsApply to allSupervisors are above rules and regulations and take advantage of privileges Status symbolsAre accepted as symbols of authority, but are not necessary Are very important evidence of the authority of superiors

7. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 7 Examples of Cultural Distance and Industries Affected by It (adapted from Table 4.3) Aspects of Distance Different languages Different ethnicities Different religions Different social norms Industries Affected by Cultural Distance Include: Consumer foods Tobacco products Products that have high linguistic content (TV) Auto (size, features)

8. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 8 Political-Legal Forces Political risk is the probability that political decisions or events in a country will negatively affect the long-term profitability of an investments.

9. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 9 Assessing Political Risk (adapted from Figure 4.3) Noncorrupt Corrupt Stable Unstable Stable Unstable Low High Low HighDomestic Instability Foreign Conflict Political Climate Economic Climate Corruption

10. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 10 Political Mechanisms Protectionism - refers to the many mechanisms designed to help home-based industries or firms avoid or reduce potential or actual competitive threats from abroad. –A tariff is a government tax on goods or services entering the country. –A quota is a restriction on the quantity of a country’s imports and sometimes exports. –A subsidy is a direct or indirect payment by a government to domestic firms to make selling or investing abroad cheaper for them. –A cartel is an alliance of producers engaged in the same type of business that is formed to limit or eliminate competition and control production and prices.

11. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 11 Political Mechanisms A bribe is an improper payment made to induce the recipient to do something for the payer. Extortion is a payment made to ensure that the recipient doesn’t harm the payer in some way.

12. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 12 Global Trade Agreements The World Trade Organization was established in 1995 as an outgrowth of the General Agreement on Tariffs and Trade (GATT). North American Free Trade Agreement European Union

13. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 13 Strategies for International Operations (adapted from Figure 4.4) Exporting Licensing Franchising Alliances Multidomestic Global Complexity Resource Commitment Low High