Management

Gomez-Mejia & Balkin

Chapter 2
Managing in a
Global Environment
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The Changing Pattern of
International Business

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 Changing Demographics
• The population is getting older in
industrialized countries
• Richer countries are experiencing rising
levels of legal and illegal immigration
from poorer countries
• Less developed nations have younger
populations
• Gender distribution is unequal in some
countries
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 Lower Trade Barriers

• General Agreement on Tariffs and Trade

(GATT)

• World Trade Organization (WTO)

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Integrated Economic Markets
• Objective is to reduce or eliminate barriers to
the free flow of goods, services, labor, capital,
and other inputs of production between
member nations
• 35 agreements currently in place between
nations
– EU
– NAFTA
– CAFTA
– ASEAN
– APEC
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Global Consumer Preferences

• Consumer tastes and preferences are

converging due to:
– The presence of mass media
– Exposure to goods from various countries
– Marketing strategies of multinational firms
offering standardized products to reduce
expenses

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 Globalized Production

• Firms split production around the world

to achieve the highest quality standards
at the lowest possible cost

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Technological Innovations

• Advances have made international

business feasible
– Communications
– Information processing
– Transportation technology

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Management Across Cultures

• Culture plays a major role in shaping

consumer preferences and tastes, so
firms may:
– Customize products
– Use marketing strategies designed to meet
different customer tastes
– Create a need for the product without
adaptations

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 Major Factors Affecting
International Business

 General  Legal Systems

Business
Environment

 Economic  Cultural Norms

Conditions

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General Business Environment

• All of the factors that combine to affect

the benefits, costs, and risks of
conducting business in that country
– Political risk
– Economic risk
– Legal risk

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Legal Systems

• Common law
• Civil law
• Muslim Law

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Economic Environment

• High inflation

• Exchange rate

• Taxation

• Intellectual property
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Cultural Environments

• Hofstede’s five dimensions

– Power distance
– Individualism
– Uncertainty avoidance
– Masculinity/femininity
– Long-term/short-term orientation

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 Entry Strategy

 Which countries to enter

 When to enter

 Scale of involvement
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Choosing Foreign Countries

• Large domestic market

• High present wealth with projected
growth
• Readily available needed resources
• Product offerings suitable to the market
• Positive business environment

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When to Enter Foreign Countries

• First mover advantage

• Pioneering costs

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 Scale of Involvement

• Lowest if the firm simply exports its

products to the foreign location

• Highest if the firm decides to have a

wholly owned subsidiary in the foreign
location

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 Exporting

• Retaining production facilities within

domestic borders

• Sending finished products to other

countries

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 Turnkey Projects

• Selling firm handles the design,

construction, start-up operations, and
workforce training of a foreign plant

• A local client is handed the key to the

plant that is fully operational

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 Licensing

• A company transfers the rights to

produce and sell its products overseas to
a foreign firm

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 Franchising

• Similar to licensing

• Mainly used by service companies

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 Joint Ventures and Strategic
Alliances
• Joint venture - two or more independent
firms agree to establish a separate firm
that is owned by the participating
companies
• Strategic alliance – cooperative
arrangements between competitors or
potential competitors from different
countries
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Wholly Owned Subsidiaries

• A local company fully owned by a

multinational firm in a foreign country

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Managing the Global Firm

• Basic approaches

– Ethnocentric approach
– Polycentric approach
– Geocentric approach

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 Selection

• Criteria should include:

– Previous international experience
– Flexible, patient, adaptable spouse and
family

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 Training

• Cross-cultural training sensitizes

candidates to the local culture, customs,
language, and government

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 Career Development

• Firms must position international

assignments as a step toward
advancement within the firm

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 Compensation

• Firms should provide disposable income

equivalent to what the individual would
earn at home

• Firms should use bonuses, especially for

less desirable locations

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Ethics and Social Responsibility

• Globalization greatly increases the

possibility that a manager will face an
ethical dilemma

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 Learning Objective 1
• Describe the changing patterns of international
business
– Changing world output and world trade picture
– Changing demographics
– Lower trade barriers
– Greater market integration
– Converging global consumer preferences
– More globalization of production
– Rapid technological innovations
– Greater cultural diversity
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Learning Objective 2

• Identify major factors affecting

international business
– General business environment
– Legal systems
– Economic environment
– Cultural environment

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 Learning Objective 3

• Determine key decisions firms face when

contemplating foreign expansion
– Which countries to enter
– When to enter particular countries
– What the scale of involvement should be

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 Learning Objective 4

• Differentiate the various ways firms can

enter foreign markets
– Exporting
– Turnkey
– Licensing
– Franchising
– Joint ventures and strategic alliances
– Wholly owned subsidiaries
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 Learning Objective 5

• Identify alternative ways of managing a

foreign operation
– Ethnocentric approach
– Polycentric approach
– Geocentric approach

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 Learning Objective 6

• Recognize the key human resource

policies that firms can develop to help
expatriates succeed
– Selection
– Training
– Career development
– Compensation

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 Learning Objective 7

• Understand the ethical and social

responsibility implications of doing
business in different countries
– Norms vary by country
– U.S. firms are prohibited from paying bribes
– Firms develop their own codes of conduct or
may follow codes from international
organizations

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Copyright Notice

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