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Managing in a Global Environment

CHAPTER 4
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Learning Objectives

 Describe the emerging borderless world and

some issues of particular concern for today’s
managers.
 Describe market entry strategies that
businesses use to develop foreign markets.
 Define international management and explain
how it differs from the management of domestic
business operations.
 Indicate how dissimilarities in the economic,
sociocultural, and legal-political environments
throughout the world can affect business
operations.

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Learning Objectives (contd.)

 Describe how regional trading alliances are

reshaping the international business
environment.
 Describe the characteristics of a multinational
corporation.
 Explain cultural intelligence and why it is
necessary for managers working in foreign
countries.

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Importance of International Business

If you are not thinking

international,

you are not thinking

business management

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A Borderless World

 Business is becoming a unified, global

field
 Companies that think globally have a
competitive edge
 Domestic markets are saturated for
many companies
 Consumers can no longer tell from which
country they are buying

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4 Stages of Globalization

Exhibit 4.1

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Four Stages of Globalization

Domestic stage:
market potential is limited to the home country
production and marketing facilities located at home
International stage:
exports increase
company usually adopts a multi-domestic approach
Multinational stage:
marketing and production facilities located in many countries
more than 1/3 of its sales outside the home country
Global (or stateless) stage:
making sales and acquiring resources in whatever country
offers the best opportunities and lowest cost ownership,
control, and top management tend to be dispersed

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Global (stateless) Corporations

 Number is increasing
 Awareness of national borders
decreasing
 Corporate Examples
– Fred Hassan – Pakistan-born CEO of
Schering Plough
– Mexico-born Fernando Aguirre, CEO of
Chiquita Brands

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Strategies for Entering International Markets

Exhibit 4.2

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Getting Started Internationally

 Market Entry Strategy

– An organizational strategy for entering a
foreign market
 Global Outsourcing (offshoring)
– Engaging in the international division of labor
so as to obtain the cheapest sources of labor
and supplies regardless of country. Also
called global sourcing.

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International Environment Factors

Exhibit 4.3

Economic Legal-Political
•Economic •Political risk
development
•Government
•Infrastructure
takeovers
•Resource and
product markets •Tariffs, quotas, taxes
•Per capita
Organization
•Terrorism, political
Income instability
•Exchange rates •Laws, regulations
•Economic
conditions Sociocultural
•Socio values, beliefs
•Language
•Religion (objects, taboos, holidays)
•Kinship patterns
•Formal education, literary
•Time orientation

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Economic Environment Factors

Economic development
Infrastructure
Resource and product markets
Exchange rates
Inflation
Interest rates
Economic growth

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Economic Development
● Countries categorized as “developing” or
“developed”
● Criterion used to classify is per capita income
● Developing countries have low per capita incomes
● LDCs located in Asia, Africa, and South America
● Developed are North America, Europe, & Japan
● Driving global growth in Asia, Eastern Europe, &
Latin America

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Infrastructure

A country’s physical facilities that support

economic activities

 Airports, highways, and railroads

 Energy-producing facilities
 Communication facilities

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Resource and Product Markets

When operating in another country...

– Managers must evaluate market demand
– To develop plants, resource markets must
be available – raw materials and labor

Corporate Example – McDonald

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Exchange Rates

 Rate at which one country’s

currency is exchanged for another
country’s
 Has become a major concern for
companies doing business
internationally
 Changes in the exchange rate
can have major implications for
profitability of international
operations

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The Legal-Political Environment

 Political Risk– due to events or actions

by host governments
● Loss of assets
● Loss of earning power
● Loss of managerial control
● Government takeovers
● Acts of violence

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Political Instability

 Events such as riots, revolutions, or

government upheavals that affect the
operations of an international company

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Laws and Regulations

 Government laws and regulations differ

from country to country
 Make doing business a true challenge
for international firms
 Internet has increased impact of foreign
laws on U.S. companies – expands
potential for doing business on global
basis

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Sociocultural Environment

 Culture – shared knowledge, beliefs,

values, common modes of behavior, and
ways of thinking among members of a
society
– Intangible
– Pervasive
– Difficult for outsider to learn

 Managers need to understand difference

in social values to comprehend local
cultures and deal with them effectively

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Hofstede’s Value Dimensions

 Research = national value systems influence
organizational and employee working relationships
– Power distance (high = accept inequality)
– Uncertainty avoidance (uncomfortable with
uncertainty)
– Individualism and collectivism (Individualism take
care of themselves)
– Masculinity/femininity (preference for
achievement/assertiveness; femininity for
relationship)
– Long-term/short-term orientation = 5th dimension

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Four Dimensions of National Value

Exhibit 4.4

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GLOBE Value Dimensions

Global Leadership and Organizational Behavior Effectiveness project

More comprehensive view of cultural

similarities and differences
– Assertiveness – Power distance
– Future orientation – Societal collectivism
– Uncertainty – Individual collectivism
avoidance – Performance
– Gender orientation
differentiation – Humane orientation

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International Cultural Influences

 Other Cultural Characteristics

– Language
– Religion
– Attitudes
– Social Organization
– Education
 Linguistic pluralism – several languages exist
 Ethnocentrism – regard own culture superior

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International Trade Agreements

 Most visible changes in legal-

political factors grow out of
international trade agreements:
– GATT
– WTO
– EU
– NAFTA

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International Trade Alliances

 General Agreement on Tariffs and Trade (GATT)

 Signed by 23 nations in 1947 as a set of rules
 Ensured nondiscrimination, clear procedures,
negotiation of disputes, and participation of lesser
developed countries in international trade
 Today, 149 member countries abide by the rules
 Primary tools WTO uses on tariff concessions,
countries agree to limit level of tariffs on imports
from other WTO members
 Most favored nation clause

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WTO
 Goal, is to guide and sometimes
urge the nations of the world
toward free trade and open
markets
 Encompasses GATT and all of
its agreements
 Partly responsible for backlash
against global trade

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European Union
 Formed in 1957 to improve economic and
social conditions
 Has grown to 25-nation alliance
 Initiative Europe ’92 called for creation of open
markets for Europe’s 340 million consumers
 Biggest expansion in 2004 – 10 new members
from southern and eastern Europe
 Observers feared EU would become a trade
barrier
 EU’s monetary revolution, introduction of the
Euro
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North American Free Trade Agreement

● Went into effect on January 1, 1994
● Merged the United States, Canada, and Mexico with
more that 421 million consumers
● Breaks down tariffs and trade restrictions on most
agriculture and manufactured products
● August 12, 1992 agreements in number of key areas
include: agriculture, autos, transport, & intellectual
property
● January, 2004 -10th anniversary = success and failure

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Other Trade Alliances

 The Association of Southeast Asian Nations

(ASEAN)
 Mercosur (Argentina, Brazil, Bolivia, Chile,
Paraguay, Uruguay)
 The Central American Free Trade Agreement
(CAFTA)
 Free Trade Area of the Americas (FTAA)

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Multinational Corporations (MNC)

 Receives >25% total sales revenues from

operations outside parent company’s home
country
– Managed as integrated worldwide business system
– Controlled by single management authority
– Top managers exercise global perspective

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Managing in a Global Environment

Managers must be sensitive to cultural

subtleties
 Personal challenges – culture shock
 Managing cross-culturally
– Leading
– Decision making
– Motivating
– Controlling
Managers must be culturally flexible and
easily adapt to new situations

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