Strategic Management

Chapter 4

Managing in a Global Environment

 With national borders becoming increasingly more meaningless the

potential for organisations to grow and expand in almost unlimited
 Mangers must deal with cultural, economic and political differences
– Successful global management requires enhanced sensitivity in
national customs and practices
 Global perspective on management requires rejection of parochialism
and a carefully developed understanding of cultural differences

The Globalisation of business

 Change in Australia and NZ orientation to the rest of the world in past

30 years
– More focussed on Asia-Pacific region
 Result of development of EU resulting in losing
traditional markets in Europe
 Coming of age – more focussed goals
 Changing immigration policies – allowing greater
numbers from south-east Asia
– Developing closer relationships with more immediate
neighbours
 Led to greater opportunities and challenges
– Global marketplace is now very competitive
 Due to development of infrastructure and reduction of trade barriers =
opportunities to expand domestic markets
 Karpin Report – no company whether big or small is immune to the
influence of global competition

Who Owns What?

 5 November 07 PetroChina, Asia’s top oil and gas producer became the
world’s largest company by market value.
– Underlines the ongoing boom in the Chinese market
 Companies of all sizes are increasingly taking advantages of the
opportunities that a new global market has generated
 The globalisation of business is putting many organisations to the test,
identifying whether they have the management, talent, resources,
 products and services that will make them competitive on the world
market

What is Your Global Perspective?

 Once everyone speaks English, competitive advantage can only be

determined by speaking multiple languages
 Language is the key to understanding culture
 Important to managers to consider learning another language
– Particular from Asia-Pacific trading areas
– Language skills will be invaluable when it comes to making
contacts with new business partners in the Asia-Pacific region.
 Monolinguism is a sign that a nation suffers from parochialism
– Parochialism = viewing the world solely though your own
perspectives leading to an in ability to recognise differences
between people.
 It is a significant difficulty to overcome for managers
working in a global business world.
 Find it difficult to compete with managers and
organisations around the world that are seeking to
understand foreign customs and market differences
 Ethnocentric attitude
– The parochialist belief that the best work approaches and
practices are those of the home country.
 Believe that people in foreign countries do not have
expertise, knowledge or experience
– Don’t trust foreign employees
 Polycentric attitude
– The view that the managers in the host country know the best
work approaches and practices for running their business
– View every foreign operation as difficult to understand
 Geocentric attitude
– A world-orientated view that focuses on using the best
approaches and people from around the globe.
 Need to have a global view both at the organisations
headquarters and at various foreign work venues

The Risk of Cross-Culture Blunders

 Successful global marketing requires enhanced sensitivity to differences

in national customs and practices
– = Geocentrism

Understanding the Global Environment

 Features of the global environment

 – Global trade
 Central to human health, prosperity and social welfare
 When trade is allowed to flow freely countries benefit
from economic growth and productivity gains as they
specialize in producing the goods they are best at and
importing foods that are more efficiently produced
elsewhere
 Global trade = shaped by 2 forces
– 1. Regional Trading Alliances
– 2. Agreements negotiated with World Trade
Organisation (WTO)
 Regional Trading Alliances
– International competition use to be described in country-
country
– Reshaped by the creation of either bilateral agreements or by
regional trading and cooperation agreements
 The Australia-New Zealand Closer Economic Relations
Agreement (CER)
– 1983 to coordinate business regulation and
competition policy and to remove all trade
barriers
o facilitating freer trade between Aus and NZ
o both countries have small domestic
markets
 Australian bilateral free trade agreements
– Singapore- Aus
o Aimed to further strengthen trade and
investment links
o Eliminated tariffs
o Guaranteed increase market access for
Australian services
 US – on free trade 2005
– Expected to generate about 6 billion in economic
benefit for Australia
 Association of Southeast Asian Nations (ASEAN)
– A trading alliance of ten southeast Asian nations
– Economic Free-trade area
o Indonesia
o Singapore
o Philippines
o Malaysia
o Brunei
o Vietnam
o Cambodia
o Laos
o Myanmar
 The European Union
 – A union of 27 European nations created as a
unified economic and trade entity
– 1992 Maastricht Treaty
– 12 countries – Belgium , Denmark, Italy, France,
Germany, Greece, Ireland, Luxembourg, UK
– No national barriers to travel, trade, employment
or investment
– To reassert economic position against US and
Japan
 North American Free Trade Agreement (NAFTA)
– An agreement between the Mexican, Canadian
and US governments in which barriers to free
trade have been eliminated
 World Trade Organization
– Systems and mechanism are needed so that efficient and
effective trading relationships can develop
– WTO = a global organisation of 151 countries that deals with
the rules of trade among nations
– Goal of WTO is to help businesses conduct their business

Doing Business Globally

 Different types of International Organisations

– Multinational corporations (MNC)
 A broad term that refers to any and all types of
international companies that maintain operations in
multiple countries
– Multi-domestic Corporation
 An international company that decentralises
management and other decisions to the local country
– Reflects polycentric attitude
– Global company
 An international company that centralises management
and other decisions in the home country
– Focus on the need for global efficiency
– Ethnocentric attitude
o Sony
– Transnational or borderless organisation
 A global type of organisation in which artificial
geographical barriers are eliminated
– Increases efficiency and effectiveness
– Born Global
 An international company that chooses to go global from
inception
– International New Ventures (INV)
 – Essentially a company’s national origin is no longer an accurate
gauge of where it does business or the national origin of its
products and employees
 How organisations go International
– Depends on whether they are just starting out or whether they
have been doing business internationally for awhile
– During the initial stages of going international managers look
at ways to get into a global market without having to invest a
lot of capital
– Start with global (out) sourcing
 Purchasing materials or labour from around world
wherever it is cheapest
– Next go international by exporting
 Making products domestically and selling them overseas