978-0134527604 Chapter 4

Chapter 4

Managing in a Global Environment

Every organization is affected in some way by the global environment. In this chapter,

you will learn what managers need to know about managing globally, including regional

trading alliances, how organizations go international, and cross-cultural differences.

Focus on the following learning objectives as you read and study this chapter.

LEARNING OBJECTIVES

1. Contrast ethnocentric, polycentric, and geocentric attitudes toward global business.

• Develop your skill at collaborating in cross-cultural settings.

2. Discuss the importance of regional trading alliances and global trade mechanisms.

3. Describe the structures and techniques organizations use as they go international.

4. Explain the relevance of the political/legal, economic, and cultural environments to

global business.

• Know how to be culturally aware.

It’s Your Career

1. Become aware of your own level of openness to and confidence in cross–

cultural experiences. Work on expanding your comfort zone.

2. Assume differences until similarity is proven. To avoid embarrassing

3. Emphasize description rather than interpretation or evaluation. Description

4. Show empathy. Interpret the words, motives, and actions of a person from

another culture from the perspective of that culture rather than your own.

5. Treat your initial interpretations as working hypotheses. Pay careful

7. Make a good first impression.

CHAPTER OUTLINE

WHO OWNS WHAT?

4.1 WHAT’S YOUR GLOBAL PERSPECTIVE?

culture?

1. An ethnocentric attitude is the parochialistic belief that the best

2. A polycentric attitude is the view that the managers in the host

3. A geocentric attitude is a world-oriented view that focuses on

using the best approaches and people from around the globe.

4.2 UNDERSTANDING THE GLOBAL TRADE ENVIRONMENT

Several significant forces are reshaping today’s global environment. Important

features of the global environment include regional trading alliances and different

types of global organizations.

1. The European Union (EU) is a union of 28 European nations

created as a unified economic and trade entity (see Exhibit 4-1).

Three more countries (will be gaining membership soon).

a. The primary motivation for the creation of the EU in

February 1992 was to allow member nations to reassert

their position against the industrial strength of the United

States and Japan. Currently its membership covers a

base of more than half a billion people and 16% of the

c. Eighteen of the 28 member states of the EU have agreed

to adopt the common currency of the EU, the euro.

Denmark, the United Kingdom, and Sweden have opted

2. The North American Free Trade Agreement (NAFTA) is an

agreement among the Mexican, Canadian, and U.S. governments

in which barriers to trade have been eliminated.

a. NAFTA went into effect on January 1, 1994 and today is

the world’s largest trading block in terms of GDP. Canada

is currently the US’s top trading partner with Mexico being

number three (China is number two). It is the second

largest trading block in terms of combined GDP of its

strengthening of the economic power of all three countries.

c. Colombia, Mexico, and Venezuela signed an economic

pact eliminating import duties and tariffs in 1994.

3. The Association of Southeast Asian Nations (ASEAN) is a

trading alliance of Southeast 10 Asian nations (see Exhibit 4-2).

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b. The future economic impact of the Southeast Asian region

could rival that of both NAFTA and the EU.

4. Other Trade Alliances. The 54-nation African Union (AU) came

into existence in July 2002. AU members plan to achieve greater

economic development and unity among Africa’s nations. The

4-3.) If the agreement goes into effect, it will influence about two–

1. The World Trade Organization (WTO)

Formed in 1995 and evolving from GATT, the WTO is the only

2. International Monetary Fund and World Bank Group

a. The International Monetary Fund (IMF) is an

organization of 188 countries that promotes international

3. Organization for Economic Cooperation and Development

(OECD)

The Organization for European Economic Cooperation,

LEADER MAKING A DIFFERENCE

Lucy Peng heads online-retailing giant Alibaba’s human resources department. In that

role Peng has be instrumental in creating the family-like organizational culture at

Alibaba. Known for being funny and down–to-earth, Peng is also recognized for her

sense of humility and passion. Peng was ranked number 33 on Forbes 2015 list of the

world’s most powerful women.

What can you learn from this leader making a difference?

4.3 DOING BUSINESS GLOBALLY

A. Different Types of International Organizations.

1. The term multinational corporation (MNC) is a broad term that

2. One type of MNC is a multidomestic corporation, which

3. Another type of MNC is a global company, which centralizes its

management and other decisions in the home country.

4. A transnational corporation (TNC), sometimes called a

borderless organization, is a type of international company in

which artificial geographical barriers are eliminated.

1. Companies that go international may begin by using global

sourcing (also called global outsourcing). In this stage of going

2. In the next stage, companies may go international by exporting

(making products domestically and selling them abroad) or

3. In the early stages of going international, managers may also use

licensing (giving another organization the right to make or sell its

4. After an organization has done international business for a period

of time, managers may decide to make more of a direct

investment in international markets by forming a strategic

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alliance, which is a partnership between an organization and a

foreign company partner(s). In a strategic alliance, partners share

resources and knowledge in developing new products or building

production facilities.

5. A joint venture (a specific type of strategic alliance) may be

6. Managers may decide to make a direct investment in a foreign

country by establishing a foreign subsidiary, in which a company

sets up a separate and independent production facility or office.

Establishing a foreign subsidiary involves the greatest

commitment of resources and the greatest risk of all of the stages

in going international.

FUTURE VISION: Communicating in a Connected World

According to the United Nations, some 3.2 billion people (out of a world

population of just over 7.2 billion) use the Internet. However, the diversity of

users creates challenges for companies using the Internet to expand globally.

One of the challenges for companies is to ﬁnd a common language to ensure

effective communication and shared understanding across cultures.

The following discussion questions are posed:

Talk About It 1: How can a manager improve communication between employees

in different international locations?

Talk About It 2: How can companies learn more about their customers with

different cultural backgrounds?

4.4 MANAGING IN A GLOBAL ENVIRONMENT

Managing in a global environment entails challenges.

A. The Legal-Political Environment.

1. In a free market economy, resources are primarily owned by the

private sector.

2. In a planned economy, all economic decisions are planned by a

central government.

C. The Cultural Environment.

1. Hofstede studied individualism versus collectivism.

Individualism is the degree to which people in a country prefer to

2. Another cultural dimension is power distance, which measures

tolerate risk and prefer structure over unstructured situations.

4. Hofstede identified the dimension of achievement versus

nurturing. Achievement is the degree to which values such as

5. Long-term and short-term orientation. People in countries

having long-term orientation cultures look to the future and value

6. Countries have different rankings on Hofstede’s cultural

7. The Global Leadership and Organizational Behavior

Effectiveness (GLOBE) research program is an assessment that

updates Hofstede’s studies.

1. The Challenge of Openness. As companies compete in the

international arena, the openness that is necessary to conduct

business successfully in a global environment poses great

challenges.

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a. The increased threat of terrorism, economic

interdependence of trading countries, and significant

cultural differences create a complicated environment in

which to manage.

b. Successful global managers need to have great sensitivity

and understanding.

c. Managers must adjust leadership styles and management

approaches to accommodate culturally diverse views.

2. Challenges of Maintaining a Global Workforce. As more businesses

go global, managers have a greater need to understand the global

workforce.

a. Cultural Intelligence encompasses three main areas:

4-1. Contrast ethnocentric, polycentric, and geocentric attitudes toward global business.

The ethnocentric, polycentric, and geocentric views vary by their degree to which the

holder adheres to the belief that their culture is the best and their willingness to accept

best approaches from other cultures. An ethnocentric attitude is the parochialistic belief

4-2. Describe the current status of each of the various regional trading alliances.

Recently, the EU is the most active of all of the regional trading alliances. With the

adoption of the majority of the guiding principles established in their charter, these

countries are pushing forward on reforms that will solidify the political, economic, and

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4-3. Contrast multinational, multidomestic, global, and transnational organizations.

A multinational corporation (MNC) refers to a broad group of organizations and refers to

any type of international company that maintains operations in multiple countries. The

types of MNC vary with respect to the degree to which they decentralize decision–

4-4. What are the managerial implications of a borderless organization?

4-5. Describe the different ways organizations can go international.

Management makes its first attempt to go international by using global sourcing, in which

companies take advantage of lower costs and minimal risk.

Next, managers may go international by exporting products to other countries and/or

4-6. Can the GLOBE framework presented in this chapter be used to guide managers in

4-7. What challenges might confront a Mexican manager transferred to the United States

to manage a manufacturing plant in Tucson, Arizona? Will these issues be the same for

a U.S. manager transferred to Guadalajara? Explain.

4-8. How might the cultural differences in the GLOBE dimensions affect how managers

(a) use work groups, (b) develop goals/plans, (c) reward outstanding employee

performance, and (d) deal with employee conflict?

There are multiple ways to address this question. First, students may address each item

by referring to one of the nine dimensions presented in the GLOBE model. For example,

a) institutional collectivism, b) future orientation, c) performance orientation, or d)

assertiveness. Or, students may attempt to use multiple dimensions to address each

item. On reflection, it is possible to see many combinations of how the dimensions

would impact the items presented in the question. (LO: 4 Explain the relevance of the

political/legal, economic, and cultural environments to global business, AACSB: Diverse

and multicultural work environments)

PERSONAL INVENTORY ASSESSMENTS

Student answers to these questions will vary.

ETHICS DILEMMA

Student answers to these questions will vary.

The emissions cheating scandal at Volkswagen caught many by surprise. How could

cheating at a company that coined the phrase truth in engineering go undetected by

4-11. What do you think? Whose responsibility is it to ensure that ethical practices are in

place and implemented?

(LO: 3 Describe the structures and techniques organizations use as they go

international, AACSB: Diverse and multicultural work environments)

SKILLS EXERCISE: DEVELOPING YOUR COLLABORATION SKILL

An important skill for any employee and new manager is collaboration. In this exercise

attitudes toward global business, AACSB: Written and oral communication)

WORKING TOGETHER: TEAM EXERCISE

In groups of three to four individuals, students are asked to develop a global aptitude

assessment form for Yum Brands. This company was addressed in the opening

MY TURN TO BE A MANAGER

• Find two current examples of each of the ways that organizations go

international. Write a short paper describing what these companies are doing.

(LO: 3 Describe the structures and techniques organizations use as they go

international, AACSB: Diverse and multicultural work environments)

• On the Kwintessential Web site, you’ll also find Intercultural Management

Guides. Pick two countries to study (from different regions) and compare them.

How are they the same? Different? How would this information help a manager?

(LO: 1 Contrast ethnocentric, polycentric, and geocentric attitudes toward global

business, AACSB: Diverse and multicultural work environments)

polycentric, and geocentric attitudes toward global business, AACSB: Diverse

and multicultural work environments)

• Sign up for a foreign language course. (LO: 1 Contrast ethnocentric, polycentric,

and geocentric attitudes toward global business, AACSB: Diverse and

multicultural work environments)

• Suppose that you were being sent on an overseas assignment to another country

(you decide which one). Research that country’s economic, political/legal, and

cultural environments. Write a report summarizing your findings. (LO: 4 Explain

the relevance of the political/legal, economic, and cultural environments to global

business, AACSB: Diverse and multicultural work environments)

• If you don’t have your passport yet, go through the process to get one. (The

current fee in the USA is $100.) (LO: 4 Explain the relevance of the political/legal,

economic, and cultural environments to global business, AACSB: Diverse and

multicultural work environments)

• It is important to understand basic etiquette when traveling internationally for

business (e.g., how does one greet someone new, and is a handshake

appropriate?). Identify three countries that you would like to travel to and conduct

4-13. What’s your reaction to these events? Are you surprised that bribery is illegal?

Why do you think bribery takes place? Why do you think it needs to be outlawed?

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government officials) in exchange for preferential treatment might be acceptable in some

cultures, but it is not acceptable in the United States and, because of the FCPA, it is

illegal to engage in outside of the country. In addressing the issue of why companies use

bribery, the fact is that many companies feel pressured to engage in activities that they

perceive will put them on a level playing field with other companies. On the other hand,

this is what makes bribery wrong; that it makes the playing field biased toward larger

companies that can afford payments to make lucrative contracts and expedite

government paperwork. In turn, this stifles competition and creates an environment that

decreases competition. (LO: 4 Explain the relevance of the political/legal, economic, and

cultural environments to global business, AACSB: Diverse and multicultural work

environments)

4-14. Research whether other countries outlaw bribery. (Hint: look at the Organization

for Economic Cooperation and Development.)

4-15. We’ve said it’s important for managers to be aware of external environmental

forces, especially in global settings. Discuss this statement in light of the events

described.

4-16. What might BNY Mellon’s executives here in the United States have done

differently? Explain.

4-17. BNY Mellon is not the only company to be linked to bribery. Find at least three

4-18. Tableau staffs its international offices primarily with host country nationals. What

are the advantages and disadvantages of this staffing strategy?

4-19. Do you agree with Chabot that the company will benefit if more executives spend

time in international offices? Why or why not?

4-20. As Tableau executives get ready to spend time in the company’s international

offices, how can they prepare for the cultural differences they will encounter?

4-21. What are some of the challenges Tableau will face as it hires 1,000 new

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moving employees around or setting up virtual teams between the units in foreign

subsidiaries. By setting up projects with a culturally diverse membership, Tableau can

better educate employees on the differences that exist across the varying cultures. (LO:

1 Contrast ethnocentric, polycentric, and geocentric attitudes toward global business,

AACSB: Diverse and multicultural work environments)