Essentials of

Contemporary
Management

Chapter

Managing in a Global Environment

PowerPoint Presentation by Charlie Cook
Copyright The McGraw-Hill Companies, Inc., 2004. All rights reserved.

Learning Objectives
After studying the chapter, you should be able to:
Explain why the ability to perceive, interpret, and
respond to the organizational environment is crucial
for managerial success.
Identify the main forces in a global organizations
task and general environments, and describe the
challenges that each force presents to managers.
Explain why the global environment is becoming
more open and competitive and why barriers to the
global transfer of goods and services are falling,
increasing opportunities, complexities, challenges, and
threats that managers face.
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What Is the Organizational Environment

Organizational Environment
The set of forces and conditions that operate
beyond an organizations boundaries but affect a
managers ability to acquire and utilize resources.
Forces and conditions change over time creating:
Opportunities for managers to enhance revenues,
enter new markets, and strengthen the firms
competitive position.
Threats to the firm from new competitors, economic
downturns, and diminished access to critical
resources.

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43

Forces in the Organizational Environment

Figure 4.1
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44

The Task Environment

Suppliers
Individuals and organizations that provide an
organization with the input resources that it needs
to produce goods and services.
Raw materials, component parts, labor (employees)

Relationships with suppliers can be difficult due to

materials shortages, unions, and lack of substitutes.
Suppliers that are the sole source of a critical item are
in a strong bargaining position to raise their prices.
Managers can reduce supplier effects by increasing
the number of suppliers of an input.

The lock-in effect caused by the suppliers

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The Task Environment (contd)

Global Outsourcing
The purchase of inputs from foreign suppliers, or
the production of inputs abroad, to lower
production costs and improve product quality.

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The Task Environment (contd)

Distributors
Organizations that help other organizations sell
their goods or services to customers.
Powerful distributors can limit access to markets
through its control of customers in those markets.

Managers can counter the effects of distributors by

seeking alternative distribution channels.

Moral hazard and the free riding behavior

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The Task Environment (contd)

Customers
Individuals and groups that buy goods and services
that an organization produces.
Identifying an organizations main customers and
producing the goods and services they want is crucial
to organizational and managerial success.

Lead users, Heavy users,

Opinion users, Co-option users

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48

The Task Environment (contd)

Competitors
Organizations that produce goods and services that
are similar to a particular organizations goods and
services.
Potential Competitors
Organizations that presently are not in the task
environment but could enter if they so chose.

Strong competitive rivalry results in price

competition, and falling prices reduce access to
resources and lower profits.
Price attrition, substitutability & market contestability
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The Task Environment (contd)

Barriers to Entry
Factors that make it difficult and costly for the
organization to enter a particular task environment
or industry.
Economies of scale
Cost advantages associated with large operations.

Brand loyalty
Customers preference for the products of
organizations currently existing in the task
environment.

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410

Analysis of entry/exit barrier

Exit barrier
low

low
high

Entry barrier

e.g.,

$
e.g.,

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high

e.g.,
e.g., ,,
etc

411

Barriers to Entry and Competition

Figure 4.2
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412

The General Environment

Economic Forces
Interest rates, inflation, unemployment, economic
growth, and other factors that affect the general
health and well-being of a nation or the regional
economy of an organization.

Managers usually cannot impact or control these.

Forces have profound impact on the firm.

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413

The General Environment

Technological Forces
Outcomes of changes in the technology that
managers use to design, produce, or distribute
goods and services.
Results in new opportunities or threats to managers

Often makes products obsolete very quickly.

Can change how managers manage.

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414

The General Environment (contd)

Sociocultural Forces
Pressures emanating from the social structure of a
country or society or from the national culture.
Social structure: the arrangement of relationships
between individuals and groups in society.

National culture: the set of values that a society

considers important and the norms of behavior that
are approved or sanctioned in that society.

Cultures and their associated social structures,

values, and norms differ widely throughout the
world.

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415

The General Environment (contd)

Demographic Forces
Outcomes of change in, or changing attitudes
toward, the characteristics of a population, such as
age, gender, ethnic origin, race, sexual orientation,
and social class.
During the past two decades, women have entered
the workforce in increasing numbers and most
industrial countries populations are aging.
This will change the opportunities for firms competing
in these areas as demands for child care and health
care are forecast to increase dramatically.

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416

The General Environment (contd)

Political Forces
Outcomes of changes in laws and regulations, such
as the deregulation of industries, the privatization
of organizations, and increased emphasis on
environmental protection.
Increases in laws and regulations increase the costs
of resources and limit the uses of resources that
managers are responsible for acquiring and using
effectively and efficiently.

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417

The General Environment (contd)

Global Forces
Outcomes of changes in international relationships;
changes in nations economic, political, and legal
systems; and changes in technology, such as
falling trade barriers, the growth of representative
democracies, and reliable and instantaneous
communication.
Important opportunities and threats to managers:
The economic integration of countries through freetrade agreements (GATT, NAFTA, EU) that decrease
the barriers to trade.

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418

The Changing Global Environment

Global Organization
An organization that operates and competes in
more than one country.

The Challenges of Global Competition

Establishing operations in a foreign country.
Obtaining inputs from foreign suppliers.
Managing in a foreign culture.

The Global Environment Is Open

Managers need to learn to compete globally.

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The Global Environment

Figure 4.3
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Declining Barriers to Trade and Investment

Tariff
A tax that government imposes on imported or,
occasionally, exported goods.
Intended to protect domestic industry and jobs from
foreign competition.

Other countries usually retaliate with their own tariffs,

actions that eventually reduce the overall amount of
trade and impede economic growth.

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421

GATT and the Rise of Free Trade

Free-Trade Doctrine
The idea that if each country specializes in the
production of the goods and services that it can
produce most efficiently, this will make the best
use of global resources.
If India is more efficient in making textiles, and the
United States is more efficient in making computer
software, then each country should focus on their
respective strengths and trade for the others goods.

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422

Declining Barriers of Distance and Culture

Distance
Markets were essentially closed because of the
slowness of communications over long distances.

Culture
Language barriers and cultural practices made
managing overseas businesses difficult.

Changes in Distance and Communication

Improvement in transportation technology and fast,
secure communications have greatly reduced the
barriers of physical and cultural distances.
The common platforms on the Internet,
English language, and US$
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Effects of Free Trade on Managers

Declining Trade Barriers
Opened enormous opportunities for managers to
expand the market for their goods and services.
Allowed managers to now both buy and sell goods
and services globally.

Increased intensity of global competition such that

managers now have a more dynamic and exciting
job of managing.

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424

Effects of Free Trade on Managers (contd)

North American Free Trade Agreement
(NAFTA)
Abolishes 99% of tariffs on goods traded between
Mexico, Canada and the United States.
Unrestricted cross-border flows of resources.

Increased investment by U.S. firms in Mexican

manufacturing facilities due lower wage costs in
Mexico.

Opportunities and Threats

The opportunity to serve more markets.
Increased competition from NAFTA competitors.
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425

The Role of National Culture

National culture
The set of values, norms, knowledge, beliefs, and
other practices that unite the citizens of a country.

Values
Ideas about what a society believes to be good,
desirable and beautiful.
Provides conceptual support for democracy, truth,
appropriate roles for men, and women.

Usually not static but very slow to change.

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426

Sociocultural Forces (contd)

Norms
Unwritten rules and codes of conduct that
prescribe how people should act in particular
situations.
Folkwaysroutine social conventions of daily life
(e.g., dress codes and social manners).
Moresbehavioral norms that are considered central
to functioning of society and much more significant
than folkways (e.g., theft and adultery), and they are
often enacted into law.

Norms vary from country to country.

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427

Hofstedes Model of National Culture

Figure 4.4
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428

Hofstedes Model of National Culture

Individualism
A worldview that values individual freedom and
self-expression and holds a strong belief in
personal rights and the need for persons to be
judged by their achievements rather their social
background.

Collectivism
A worldview that values subordination of the
individual to the goals of the group.
Widespread under communism and prevalent in
Japan as well.
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Hofstedes Model of National Culture

(contd)

Power Distance
A societys acceptance of differences in the well
being of citizens due to differences in heritage, and
physical and intellectual capabilities (individualism).
In high power distance societies, the gap between
rich and poor becomes very wide (e.g., Panama and
Malaysia).
In the low power distance societies of western
cultures (e.g., United States and Germany), the gap
between rich and poor is reduced by taxation and
welfare programs.

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Hofstedes Model of National Culture

(contd)

Achievement versus Nurturing Orientation

Achievement-oriented societies value assertiveness,
performance, and success and are results-oriented.
Nurturing-oriented cultures value quality of life,
personal relationships, and service.
The United States and Japan are achievementoriented; Sweden and Denmark are more
nurturing-oriented.

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431

Hofstedes Model of National Culture

(contd)

Uncertainty Avoidance
Societies and people differ in their tolerance for
uncertainty and risk.
Low uncertainty avoidance cultures (e.g., U.S. and
Hong Kong) value diversity and tolerate a wide
range of opinions and beliefs.
High uncertainty avoidance societies (e.g., Japan
and France) are more rigid and expect high
conformity in their citizens beliefs and norms of
behavior.

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432

Hofstedes Model of National Culture

(contd)

Long Term Outlook

Cultures (e.g., Taiwan and Hong Kong) with a
long-term in outlook are based on the values of
saving, and persistence.

Short-term outlook societies (e.g., France and the

United States) seek the maintenance of personal
stability or happiness in the present.

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433

National Culture and Global Management

Management practices that are effective in
one culture often will not work as well in
another culture.
Expatriate managers (managers who go abroad to
work for a global organization) need advance
training to understand the cultural context of their
host country.
Managers who do not understand the values,
folkways, and mores that guide behavior in a
culture will encounter difficulties in managing
within that culture.

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