Essentials of Contemporary Management

Chapter

Managing in a Global Environment

Learning Objectives
After studying the chapter, you should be able to:
Explain why the ability to perceive, interpret, and respond to the organizational environment is crucial for managerial success.
Identify the main forces in a global organizations task and general environments, and describe the challenges that each force presents to managers. Explain why the global environment is becoming more open and competitive and why barriers to the global transfer of goods and services are falling, increasing opportunities, complexities, challenges, and threats that managers face.
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What Is the Organizational Environment

Organizational Environment
The set of forces and conditions that operate beyond an organizations boundaries but affect a managers ability to acquire and utilize resources. Forces and conditions change over time creating:
Opportunities for managers to enhance revenues, enter new markets, and strengthen the firms competitive position. Threats to the firm from new competitors, economic downturns, and diminished access to critical resources.
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Forces in the Organizational Environment

Figure 4.1

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The Task Environment

Suppliers
Individuals and organizations that provide an organization with the input resources that it needs to produce goods and services.
Raw materials, component parts, labor (employees)

Relationships with suppliers can be difficult due to materials shortages, unions, and lack of substitutes.
Suppliers that are the sole source of a critical item are in a strong bargaining position to raise their prices. Managers can reduce supplier effects by increasing the number of suppliers of an input.
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The Task Environment (contd)

Global Outsourcing
The purchase of inputs from foreign suppliers, or the production of inputs abroad, to lower production costs and improve product quality.

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The Task Environment (contd)

Distributors
Organizations that help other organizations sell their goods or services to customers.
Powerful distributors can limit access to markets through its control of customers in those markets.

Managers can counter the effects of distributors by seeking alternative distribution channels.

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The Task Environment (contd)

Customers
Individuals and groups that buy goods and services that an organization produces.
Identifying an organizations main customers and producing the goods and services they want is crucial to organizational and managerial success.

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The Task Environment (contd)

Competitors
Organizations that produce goods and services that are similar to a particular organizations goods and services. Potential Competitors
Organizations that presently are not in the task environment but could enter if they so chose.

Strong competitive rivalry results in price competition, and falling prices reduce access to resources and lower profits.

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The Task Environment (contd)

Barriers to Entry
Factors that make it difficult and costly for the organization to enter a particular task environment or industry. Economies of scale
Cost advantages associated with large operations.

Brand loyalty
Customers preference for the products of organizations currently existing in the task environment.

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Barriers to Entry and Competition

Figure 4.2

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The General Environment

Economic Forces
Interest rates, inflation, unemployment, economic growth, and other factors that affect the general health and well-being of a nation or the regional economy of an organization. Managers usually cannot impact or control these. Forces have profound impact on the firm.

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The General Environment

Technological Forces
Outcomes of changes in the technology that managers use to design, produce, or distribute goods and services.
Results in new opportunities or threats to managers Often makes products obsolete very quickly. Can change how managers manage.

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The General Environment (contd)

Sociocultural Forces
Pressures emanating from the social structure of a country or society or from the national culture.
Social structure: the arrangement of relationships between individuals and groups in society. National culture: the set of values that a society considers important and the norms of behavior that are approved or sanctioned in that society.

Cultures and their associated social structures, values, and norms differ widely throughout the world.
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The General Environment (contd)

Demographic Forces
Outcomes of change in, or changing attitudes toward, the characteristics of a population, such as age, gender, ethnic origin, race, sexual orientation, and social class.
During the past two decades, women have entered the workforce in increasing numbers and most industrial countries populations are aging. This will change the opportunities for firms competing in these areas as demands for child care and health care are forecast to increase dramatically.
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The General Environment (contd)

Political Forces
Outcomes of changes in laws and regulations, such as the deregulation of industries, the privatization of organizations, and increased emphasis on environmental protection.
Increases in laws and regulations increase the costs of resources and limit the uses of resources that managers are responsible for acquiring and using effectively and efficiently.

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The General Environment (contd)

Global Forces
Outcomes of changes in international relationships; changes in nations economic, political, and legal systems; and changes in technology, such as falling trade barriers, the growth of representative democracies, and reliable and instantaneous communication. Important opportunities and threats to managers:
The economic integration of countries through free-trade agreements (GATT, NAFTA, EU) that decrease the barriers to trade.
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The Changing Global Environment

Global Organization
An organization that operates and competes in more than one country.

The Challenges of Global Competition

Establishing operations in a foreign country. Obtaining inputs from foreign suppliers. Managing in a foreign culture.

The Global Environment Is Open

Managers need to learn to compete globally.

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The Global Environment

Figure 4.3

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Declining Barriers to Trade and Investment

Tariff
A tax that government imposes on imported or, occasionally, exported goods.
Intended to protect domestic industry and jobs from foreign competition. Other countries usually retaliate with their own tariffs, actions that eventually reduce the overall amount of trade and impede economic growth.

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GATT and the Rise of Free Trade

Free-Trade Doctrine
The idea that if each country specializes in the production of the goods and services that it can produce most efficiently, this will make the best use of global resources.
If India is more efficient in making textiles, and the United States is more efficient in making computer software, then each country should focus on their respective strengths and trade for the others goods.

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Declining Barriers of Distance and Culture

Distance
Markets were essentially closed because of the slowness of communications over long distances.

Culture
Language barriers and cultural practices made managing overseas businesses difficult.

Changes in Distance and Communication

Improvement in transportation technology and fast, secure communications have greatly reduced the barriers of physical and cultural distances.

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Effects of Free Trade on Managers

Declining Trade Barriers
Opened enormous opportunities for managers to expand the market for their goods and services. Allowed managers to now both buy and sell goods and services globally.

Increased intensity of global competition such that managers now have a more dynamic and exciting job of managing.

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Effects of Free Trade on Managers (contd)

North American Free Trade Agreement (NAFTA)
Abolishes 99% of tariffs on goods traded between Mexico, Canada and the United States.
Unrestricted cross-border flows of resources.

Increased investment by U.S. firms in Mexican manufacturing facilities due lower wage costs in Mexico.

Opportunities and Threats

The opportunity to serve more markets. Increased competition from NAFTA competitors.
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The Role of National Culture

National culture
The set of values, norms, knowledge, beliefs, and other practices that unite the citizens of a country.

Values
Ideas about what a society believes to be good, desirable and beautiful.
Provides conceptual support for democracy, truth, appropriate roles for men, and women. Usually not static but very slow to change.

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Sociocultural Forces (contd)

Norms
Unwritten rules and codes of conduct that prescribe how people should act in particular situations.
Folkwaysroutine social conventions of daily life (e.g., dress codes and social manners). Moresbehavioral norms that are considered central to functioning of society and much more significant than folkways (e.g., theft and adultery), and they are often enacted into law.

Norms vary from country to country.

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Hofstedes Model of National Culture

Figure 4.4

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Hofstedes Model of National Culture

Individualism
A worldview that values individual freedom and self-expression and holds a strong belief in personal rights and the need for persons to be judged by their achievements rather their social background.

Collectivism

A worldview that values subordination of the individual to the goals of the group.
Widespread under communism and prevalent in Japan as well.
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Hofstedes Model of National Culture

(contd) Power Distance
A societys acceptance of differences in the well being of citizens due to differences in heritage, and physical and intellectual capabilities (individualism).
In high power distance societies, the gap between rich and poor becomes very wide (e.g., Panama and Malaysia). In the low power distance societies of western cultures (e.g., United States and Germany), the gap between rich and poor is reduced by taxation and welfare programs.
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Hofstedes Model of National Culture

(contd) Achievement versus Nurturing Orientation
(Achievement Orientation): (Nurturing Orientation): Achievement-oriented societies value assertiveness, performance, and success and are results-oriented. Nurturing-oriented cultures value quality of life, personal relationships, and service. The United States and Japan are achievementoriented; Sweden and Denmark are more nurturingoriented.
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Hofstedes Model of National Culture

(contd) Uncertainty Avoidance
Societies and people differ in their tolerance for uncertainty and risk.

Low uncertainty avoidance cultures (e.g., U.S. and Hong Kong) value diversity and tolerate a wide range of opinions and beliefs.
High uncertainty avoidance societies (e.g., Japan and France) are more rigid and expect high conformity in their citizens beliefs and norms of behavior.
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Hofstedes Model of National Culture

(contd) Long Term Outlook
Cultures (e.g., Taiwan and Hong Kong) with a long-term in outlook are based on the values of saving, and persistence. Short-term outlook societies (e.g., France and the United States) seek the maintenance of personal stability or happiness in the present.

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National Culture and Global Management

Management practices that are effective in one culture often will not work as well in another culture.
Expatriate managers (managers who go abroad to work for a global organization) need advance training to understand the cultural context of their host country. Managers who do not understand the values, folkways, and mores that guide behavior in a culture will encounter difficulties in managing within that culture.

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