MANAGING THE GLOBAL

ENVIRONMENT
THE CHANGING GLOBAL ENVIRONMENT
Global organizations are organizations that operate
and compete in more than one country. Managers
cannot ignore the global environment except at their
peril. They will need to globalize if they want to make
it in the 21st century. Their managers must understand
the global forces and how these factors give rise to
opportunities and threats.
Traditionally, managers regarded the global
environment as closedmarkets and countries
isolated from one another. Now it is clearly OPEN!
Today, managers regard the global
environment as a source of
important opportunities and
threats that they must respond to.

They now view the global environment

as openan environment in which
they are free to buy goods from and sell
goods to whichever countries they
choose. What have been the factors
that have opened up this world
marketplace? One is clearly the fall of
the Berlin Wall in 1989.
Global organizations are free to
establish foreign subsidiaries to become
strong world competitors.
Declining Barriers to Trade and Investment:
During the 1920s and 1930s, many countries erected barriers to international trade in the belief
that this was the best way to promote their economic well being.
One barrier was the tariff, a tax that a government imposes on imported or exported
goods.
The aim of import tariffs is to protect domestic industries and jobs from foreign
competition.
Often the result is a series of retaliatory moves as countries raise barriers against each other.

In the 1920s this behavior depressed world demand and helped usher in the Great
Depression of the 1930s.

Rather than protecting jobs, governments ultimately reduced employment and

undermined economic growth.
GATT and the Rise of Free Trade
After WWII, Western industrial countries committed to removing barriers to free flow of
resources.
The underlying philosophy is that free trade, rather than tariff barriers, was the best way
to foster a healthy domestic economy.
The free trade doctrine predicts that if each country agrees to specialize in the
production of goods that it can produce most efficiently, it:
Will make the best use of global resources.
Will result in lower prices.
Countries set as their goal the removal of barriers to free flow of goods between
countries.
This has resulted in an international treaty known as the General Agreement on Tariffs
and Trade (GATT); negotiations aimed at lowering tariff barriers.
The last GATT negotiations involved 117 countries and were completed in December
1993. The result of the negotiations was that the tariffs were lowered by 30% over
previous levels.
Declining Barriers of Distance and Culture

Barriers of distance and culture also closed the global environment.

Since the end of WWII, advances in communication and transportation technology have reduced
these barriers.
Satellites, digital switching, and optical fibers have revolutionized global communications.
Reliable communication is now possible with nearly any location in the world.
This revolution has made it
possible for a global organization
to do business anywhere.
Innovations in transportation
technology have made the global
environment more open.
Innovations in transportation
technology have made the global
environment more open.
The growth of commercial jet travel
has reduced the time it takes to reach
any location.
Modern communications and
transportation technologies have also
reduced the cultural distance between
countries.
Global communications networks are
helping create a worldwide culture above
and beyond unique national cultures.
.
Effects of Free Trade on Managers
The lowering of barriers to trade and
investment and the decline of distance
and culture barriers have created
enormous opportunities for
organizations to expand the market for
their goods and services through
exports and investments in foreign
countries. Some have shied away from
this such as Barnes & Noble but the
more likely scenario is the Lands End
and Amazon.com approach.

The managers job is more challenging

because of the increased intensity of
competition that comes with the lower
of barriers to trade.