Managing in a Global Environment

Chapter 4

Importance of International Business

If you are not thinking international, you are not thinking business management

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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

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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

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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
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4 Stages of Globalization
1. Domestic Strategic Orientation Domestically Oriented Initial foreign involvement Of little importance 2. International Export- Oriented multi-domestic Competitive positioning Very important 3. Multinational Multinational 4. Global Global

Stage of Development

Explosion of international operations Somewhat important The least-cost way

Global

Cultural Sensitivity

Critically important

Manager Assumptions One best way

Many good ways

Many good ways

SOURCE: Based on Nancy J. Adler, International Dimensions of Organizational Behavior, 4 th ed. (Cincinnati, Ohio: South-Western, 2002), 89.

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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 BrabeckLetmathe (Austrian) Half of general managers (non-Swiss) Strong faith in regional managers who are native to the region

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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

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International Environment Factors

Economic
Economic development Infrastructure Resource and product markets Per capita Income Exchange rates Economic conditions

Legal-Political
Political risk Government takeovers

Organization

Tariffs, quotas, taxes Terrorism, political instability Laws, regulations

Sociocultural
Socio values, beliefs Language Religion (objects, taboos, holidays) Kinship patterns Formal education, literary Time orientation

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Economic Environment Factors

Economic development Infrastructure Resource and product markets Exchange rates

Inflation
Interest rates Economic growth

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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

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Infrastructure
A countrys physical facilities that support economic activities

Airports, highways, and railroads Energy-producing facilities Communication facilities

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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

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Exchange Rates

Rate at which one countrys currency is exchanged for another countrys Has become a major concern for companies doing business internationally Changes in the exchange rate can have major implications for profitability of international operations

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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

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Political Instability

Events such as riots, revolutions, or

government upheavals that affect the operations of an international company

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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

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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

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Hofstedes 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

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Four Dimensions of National Value

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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

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International Cultural Influences

Other Cultural Characteristics

Language Religion Attitudes Social Organization Education

Linguistic pluralism several languages exist Ethnocentrism regard own culture superior

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International Trade Agreements

Most visible changes in legal-political factors grow out of international trade agreements:

GATT WTO EU NAFTA

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International Trade Alliances

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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

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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

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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 Europes 340 million consumers Biggest expansion in 2004 10 new members from southern and eastern Europe Observers feared EU would become a trade barrier EUs monetary revolution, introduction of the Euro

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Nations of The EU

*Joined in 2004 * * * * * * * *
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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

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Strategies for Entering International Markets High

Greenfield Venture Acquisition Joint Venture Franchising

Ownership of Foreign Operations

Licensing
Exporting

Low
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Low

Cost to Enter Foreign Operations

High

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Multinational Corporations (MNC)

Receives >25% total sales revenues from operations outside parent companys home country

Managed as integrated worldwide business system Controlled by single management authority Top managers exercise global perspective

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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

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