Globalization and Management

What is globalization of business?

•Proximity
–Shrinking globe
– Use of telecommunications
– No distance bar
•Location
–Location and integration of operations across
several countries
–Employees recruited and posted in several
countries
–Phenomenon of transnational management –
growing practice of spreading an organization’s
operations across many nations.
–Sharing of values
•Attitude
•Open attitude of practicing management
internationally
•Nothing is overseas anymore
 Globalization and competitiveness
• Competitiveness is a the relative standing of one competitor against
other competitors
• There are more desirable players than the place
• Competitiveness means different things for different people
• Relative standing today, Looking forward:
• To have preparedness for future competitive interactions
• To have a change to win upcoming contests
• Criteria used: Labour cost and education/skill level.
• Relative standing today, From the past to today:
• a)It is the sense to have succeeded in attaining a certain favourable
ranking
• Criteria used: Nation’s share of a global market
• b) Nation’s standard of living
• Criteria used: Nation’s per capital income, healthcare services and
life expectancy
 How governments influence competitiveness
• Country’s ability to scan and deal with the changing environment
• Eg. Organizations in US and Japan.
• Change in government policies – favourable or unfavourable for businesses.
• Exemption in taxes
• Joint collaborations of government and private parties.

• The changing international scene

• The coming of the European community
• Established in 1992.
• Established to eliminate trade barriers among member nation creating a single
market of 300 million people

• People’s republic of China

• Protected economy for 40 years under Mao Zedong
• All the means of production and distribution owned by the government
• New generation leaders announced goal of economic growth after Mao’s death
• These reforms promoted entrepreneurship within state-owned businesses,
permitted certain businesses to experiment with restructuring and allowed
entrepreneurs to start small, privately owned businesses
• After 1980s China modified the economic plans to check the economy to
expand two quickly, to void the predictable effects of inflation, upward
spiraling wages and prices,
• After the Soviet Union
• President Mikhail Gorbachev (1998) called for a gradual end to
central economic coordination for the Soviet Union.
• This encouraged many MNCs to invest in Russia.
• After the collapse of Soviet Union Gorbachev’s successor Boris
Yeltsin continued with the reforms and promoted free economy.
• Some issues in newly opened countries:
• Language and cultural barriers
• Absence of an efficient businesses and communication
infrastructure
• Lack of employees with the combination skills
• Limited local knowledge of the human resources profession as it
is understood in the West
• Difficulty in finding managers willing to relocate.

• The north American free trade agreement

 The role of Multination Enterprises (MNE)
• Ways to own foreign assets:
• Foreign portfolio investment :
• Purchase share in the companies that own those assets
• Such investment gives those companies and individuals a claim on profits, but
no right to participate in management

• Direct investment: buying and management of foreign assets

• It is through a multinational enterprise, a large corporation with operations an
divisions spread over several countries but controlled by a central
headquarters.

• Three factors to be considered by managers before investment decisions:

• a) Economies of different nations
Infrastructure: Transportation systems, schools, communication systems, hospitals,
power plants and sanitary facilities

b) Political risk:
Possibility of political changes

c) Appropriateness of technology to different cultures

Production technology in one country may not work in another
Some governments may not encourage the technological changes.
 Impact of MNEs on host countries
• Not necessarily welcome participants in national
economies around the world
• Viewed with suspicion
• Some potential benefits:
• Transfer of capital, technology and entrepreneurship to the
host country
• Improved host country’s balance of payments
• Creation of local job and career opportunities
• Improved competition in the local economy
• Greater availability of products for local consumers
• Some potential costs:
• MNE may use local financing , thereby absorbing capital
which may have financed indigenous companies
• Few well-advertised, standardized consumer products may
drive many local produced products from the market,
thereby reducing consumer choice
 Impact of MNEs on home countries
• Less debatable due to absence of highly charged
emotional issues as political interference, cultural
disruption and economic dependence.
• Drawbacks:
• Outflow of foreign investments with reduced
income from exports may weaken the national
balance of payments
• Loss of technological advantage especially with
joint ventures
• Loss of domestic jobs
 Global Business Practice
• How companies go international
• Stages of Internationalization
• First stage:
• Exporting – selling of domestically
produced goods in foreign markets
• Passive dealing with foreign individuals and
organizations
• Involvement of third parties, agents
• Second stage:
• Companies deal directly with their overseas
interests though they may use third parties
 Global Business Practice
• At this stage most companies do not base employees
abroad but domestic employees regularly travel abroad on
business.
• Third stage:
• International interests shape the company’s overall make
up
• Although domestic, company has a direct hand in
importing, exporting and producing its goods and services
abroad.
• Formation of formal contractual relationships with
managers in the other countries
• Licensing, selling franchises McDonald, Pizza Hut etc.
• Forth stage:
• Create a foreign subsidiary or buy a controlling interest in
an existing foreign firm.
 Globalization across different cultures
• Managers and Prejudice
• Ethnocentric managers – see foreign countries and their
people as inferior to those of the home country
• Believe that practices of the home country can be exported
along with its goods and services
• Polycentric managers – sees all countries as different and
as hard to understand
• They tend to leave their foreign offices alone, believing
local managers are most likely to understand their own
needs.
• Geocentric managers – recognize similarities as well as
differences among countries
• Such managers attempt to draw on the most effective
techniques and practices wherever they originate.
 Women in the international work force
• Changing profile of women
• Women’s movement, economic necessity
and the greater avenues opened by court
cases and legislation
• In Asian and some other countries, women
are believed to be incompetent to hold
positions of authority outside the home
• Still times are changing and women are
being accepted as equal partners in many
places.