978-1305502215 Chapter 3 Part 1

Unlock access to all the studying documents.

View Full Document

CHAPTER 3

MANAGING IN A GLOBAL ENVIRONMENT

CHAPTER OUTLINE

New Manager Self-Test: Are You Ready to Work Internationally?

I. A Borderless World

A. Globalization

B. Developing a Global Mindset

II. The Changing International Landscape

A. China, Inc.

B. India, the Service Giant

C. Brazil’s Growing Clout

III. Multinational Corporations

A. A Globalization Backlash

B. Serving the Bottom of the Pyramid

IV. Getting Started Internationally

A. Exporting

B. Outsourcing

C. Licensing

D. Direct Investing

V. The International Business Environment

VI. The Economic Environment

A. Economic Development

B. Economic Interdependence

VII. The Legal-Political Environment

VIII. The Sociocultural Environment

A. Social Values

B. Communication Differences

New Manager Self-Test: Are You Culturally Intelligent?

IX. International Trade Alliances

A. GATT and the WTO

B. European Union

C. North American Free Trade Agreement (NAFTA)

ANNOTATED LEARNING OUTCOMES

After studying this chapter, students should be able to:

1. Define globalization and explain how it is creating a borderless world for today’s managers.

and people become increasingly interdependent. Globalization has been on the rise since the

1970s, and most industrialized nations show a high degree of globalization today. Business is

becoming a unified, global field as trade barriers fall, communication becomes faster and

cheaper, and consumer tastes in everything from clothing to cellular phones converge. For many

companies today, the only potential for significant growth lies overseas. The reality of today’s

borderless companies also means consumers can no longer tell from which country they’re

buying.

2. Describe a global mind-set and why it has become imperative for companies operating

internationally.

Succeeding on a global level requires more than a desire to do business globally and a new set of

3. Discuss how the international landscape is changing, including the growing power of China,

India, and Brazil.

Many companies today are going straight to China as a first step into international business.

Business is booming, and U.S. and European companies are taking advantage of opportunities

4. Describe the characteristics of a multinational corporation.

A multinational corporation typically receives more than 25 percent of its total sales revenues

5. Explain the bottom of the pyramid concept.

6. Define outsourcing and the three common market entry strategies: exporting, licensing, and

direct investing.

Global outsourcing, or offshoring, means engaging in the international division of labor so that

7. Indicate how dissimilarities in the economic, sociocultural, and legal-political environments

throughout the world can affect business operations.

Environmental factors that affect international business are similar to the task and general

economic development, infrastructure, resource and product markets, exchange rates, inflation,

interest rates, and economic growth. Economic environments in some countries can be quite

unstable, presenting a great deal of risk to companies operating within those countries.

The sociocultural environment includes a nation’s culture and social values. Culture consists of

the shared knowledge, beliefs, and values, as well as the common modes of behavior and ways

of thinking, among members of a society. Cultural factors are more perplexing than political-

legal and economic factors in foreign countries. Culture is intangible, pervasive, and difficult to

learn. It is absolutely imperative that international businesses comprehend the significance of

local cultures and deal with them effectively.

Businesses must deal with unfamiliar legal-political systems when they go international, as well

as with more government supervision and regulation. Some of the major legal-political concerns

affecting international business are political risk, political instability, and laws and restrictions.

8. Explain why it is important for managers to develop their cultural intelligence.

Developing cultural intelligence is imperative for managers doing business successfully abroad.

LECTURE OUTLINE

NEW MANAGER SELF-TEST: ARE YOU READY TO WORK INTERNATIONALLY?

American managers often display cross-cultural ignorance during business negotiations

compared to counterparts in other countries. This exercise helps students determine the extent to

which they are ready to participate in international negotiations.

I. A BORDERLESS WORLD Exhibit 3.1

A. Globalization

Globalization refers to the extent to which trade and investments, information, social and

cultural ideas, and political cooperation flow between countries. One result is that

countries, businesses, and people become increasingly interdependent. Globalization

Managing in a Global Environment •

provides a competitive edge at all stages of developing, manufacturing, and marketing

products, and domestic markets are saturated for many firms. The reality of today’s

borderless companies means consumers can no longer tell from which country they’re

buying (e.g., the U.S. firm IBM gets 65 percent of its tech services revenue overseas, and

General Motors (GM) makes the Chevrolet HHR in Mexico with parts that come from all

over the world).

Globalization has been on the rise since the 1970s, and most industrialized nations show

a high degree of globalization today. The KOF Swiss Economic Institute measures

economic, political and social aspects of globalization and ranks countries on a

globalization index. The most globalized countries are Belgium, Ireland, Austria, the

Netherlands, and Singapore.

B. Developing a Global Mindset Exhibit 3.2

A global mindset is the ability of managers to appreciate and influence individuals,

groups, organizations, and systems that represent different social, cultural, political,

institutional, intellectual, and psychological characteristics.

A manager with a global mindset can perceive and respond to many different

perspectives at the same time rather than being stuck in a domestic mindset that sees

everything from one’s own perspective.

Developing a global mindset requires managers who are genuinely curious and

inquisitive about other people and cultures, are open-minded and nonjudgmental, and can

deal with ambiguity and complexity without becoming overwhelmed or frustrated.

NOTES________________________________________________________________________

______________________________________________________________________________

II. THE CHANGING INTERNATIONAL LANDSCAPE

A. China Inc.

1. Many companies today are going straight to China as a first step into international

business. Business is booming, and U.S. and European companies are taking

advantage of opportunities for all of the strategies discussed above. Outsourcing is

probably the most widespread approach to international involvement in China, but the

country is moving toward a consumer-driven economy, with the fastest-growing

middle class population.

2. Doing business in China has never been smooth, and new regulations are making it

tougher. Despite the problems, China is a market that foreign managers can’t afford

to ignore. Competition from domestic companies in China is also growing fast.

Managing in a Global Environment •

B. India, the Service Giant

1. Whereas China is strong in manufacturing, India is a rising power in software design,

services, and precision engineering. One index lists more than 900 business services

companies in India, which employ around 575,000 people. With its large English-

speaking population, India has numerous companies offering services such as call-

center operations, data processing, computer programming and technical support,

accounting, and so forth.

C. Brazil’s Growing Clout

1. Brazil is another country that is gaining increasing attention of managers. Although

Brazil’s economic growth slowed in 2011, it is still one of the fastest-growing

emerging economies in the world, with large and growing agricultural, mining,

manufacturing, and service sectors. The country’s economy, already the seventh

largest in the world, is projected to move into fourth place by 2050. The Brazilian

government has initiated major investments in the development of infrastructure such

as highways, ports, and electricity projects.

NOTES________________________________________________________________________

______________________________________________________________________________

III. MULTINATIONAL CORPORATIONS

The size and volume of international businesses are so large that they are hard to comprehend.

Although the term has no precise definition, a multinational corporation (MNC) typically

receives more than 25 percent of its total sales revenues from operations outside the parent’s

home country. MNCs also have the following distinctive characteristics:

• MNCs are managed as integrated worldwide business systems in which foreign affiliates

act in close alliance and cooperation with one another.

• MNCs are ultimately controlled by a single management authority that makes key

strategic decisions relating to the parent and all affiliates.

• MNC top managers are presumed to regard the entire world as one market for strategic

decisions, resource acquisition, and location of production, advertising, and marketing

efficiency.

Ethnocentric companies place emphasis on their home countries. Polycentric companies are

oriented toward the markets of individual foreign host countries. Geocentric companies are truly

world oriented and favor no specific country.

Discussion Question #6: Should a multinational corporation operate as a tightly integrated,

worldwide business system, or would it be more effective to let each national subsidiary operate

autonomously? Why?

Managing in a Global Environment •

NOTES________________________________________________________________________

______________________________________________________________________________

A. A Globalization Backlash

1. As the world becomes increasingly interconnected, a backlash over globalization is

occurring. The loss of jobs as companies export work to countries with lower wages

is a primary concern.

2. Activists charge that globalization not only hurts Americans who lose their jobs but

also contributes to worldwide environmental destruction and locks people into

poverty. In the end, it is not whether globalization is good or bad, but how business

and government can work together to ensure that global advantages are shared fairly.

B. Serving the Bottom of the Pyramid

1. Although large, multinational organizations are accused of many negative

contributions to society, they also have the resources needed to do good things in the

world. The bottom of the pyramid (BOP) concept proposes that corporations can

alleviate poverty and other social ills, as well as make significant profits, by selling to

the world’s poorest people. The term bottom of the pyramid refers to the more than

four billion people who make up the lowest level of the world’s economic “pyramid”

as defined by per-capita income.

2. Although the BOP concept has gained significant attention recently, the basic idea is

nothing new. Unilever (formerly Lever Brothers) has been working for many years to

prevent the spread of disease in poor areas of the world by introducing very

inexpensive soap products to the people there. In this way, the profit motive goes

hand-in-hand with the desire to make a contribution to humankind.

NOTES________________________________________________________________________

______________________________________________________________________________

IV. GETTING STARTED INTERNATIONALLY Exhibit 3.3

Organizations can become involved internationally in a couple of different ways. One way is to

seek cheaper sources of material or labor offshore, which is called offshoring or global

outsourcing. Another way is to implement market entry strategies such as exporting, licensing,

and direct investment. These market entry strategies represent alternative ways to sell products

and services in foreign markets.

A. Exporting

1. Exporting is a strategy in which the corporation maintains its production facilities

within the home nation and transfers its products for sale in foreign countries.

Managing in a Global Environment •

Exporting enables a company to market its products in other countries at modest

resource cost and with limited risk.

2. Exporting does entail numerous problems based on physical distances, government

regulations, foreign currencies, and cultural differences, but it is less expensive than

committing the firm’s own capital to build plants in host countries.

B. Outsourcing

1. Global outsourcing, or offshoring, means engaging in the international division of

labor so that work activities can be done in countries with the cheapest sources of

labor and supplies.

a. The most recent trend is outsourcing core processes such as auditing or chemistry

research.

C. Licensing

1. Licensing is a strategy in which the corporation (the licensor) in one country makes

certain resources available to companies in another country (the licensees). These

resources can include technology, managerial skills, and/or patent and trademark

rights that enable the licensee(s) to produce and market a product similar to what the

licensor has been producing.

a. Franchising is a special form of licensing that occurs when the franchisee buys a

complete package of materials and services, including equipment, products,

product ingredients, trademark and trade name rights, managerial advice, and a

standardized operating system.

D. Direct Investing

1. Direct investing is a strategy in which the corporation is involved in managing the

productive assets, which distinguishes it from other entry strategies that permit less

managerial control. The most popular form of direct investment is to engage in

strategic alliances and partnerships.

a. In a joint venture, a company shares costs and risks with another firm, typically

in the host country, to develop new products, build a manufacturing facility, or set

up a sales and distribution network.

b. A second option for direct investing is to create a wholly owned foreign affiliate,

over which the company has complete control. Direct acquisition of an affiliate

may provide cost savings over exporting by shortening distribution channels and

reducing storage and transportation costs.

c. The most costly and risky direct investment is a greenfield venture, which occurs

when a company builds a subsidiary from scratch in a foreign country. The

advantage is that the subsidiary is exactly what the company wants and has the

potential to be highly profitable. The disadvantage is the company has to acquire

all market knowledge, materials, people, and know-how in a different culture, and

mistakes are possible.

Notes_________________________________________________________________________

______________________________________________________________________________

_____________________________________________________________________________

V. THE INTERNATIONAL BUSINESS ENVIRONMENT Exhibit 3.4

International management is the management of business operations conducted in more than

one country. The fundamental tasks of business management do not change in any substantive

way when a firm is transacting business across international borders; however, managers will

experience greater difficulties and risks when performing these management functions on an

international scale. The economic, legal-political, and sociocultural sectors present the greatest

difficulties in comparing one country to another.

VI. THE ECONOMIC ENVIRONMENT

A. Economic Development Exhibit 3.5

1. Economic development differs widely among the countries and regions of the world,

and countries can be categorized as developing or developed countries. Developing

countries are referred to as less-developed countries (LDCs). The criterion

traditionally used to classify countries is per capita income. Most international firms

are headquartered in economically advanced countries; however, many companies are

investing in Asia, Eastern Europe, and Latin America.

2. Infrastructure refers to a country’s physical facilities support economic activities

such as transportation, energy producing facilities, and communications. Companies

operating in LDCs must contend with lower levels of technology and perplexing

logistical, distribution, and communication problems.

B. Economic Interdependence Exhibit 3.6

1. The recent financial crisis has made it abundantly clear just how economically

interconnected the world is. Although the recent crisis may seem atypical, savvy

international managers realize that their companies will probably be buffeted by

similar crises fairly regularly. The Asian financial crisis of 1997–1998 affected firms

in North America, Europe, and other parts of the world. More recently, Greece’s

inability to make payments on its debt sparked a panic that devalued the euro and

threatened the stability of financial markets worldwide.

VII. THE LEGAL-POLITICAL ENVIRONMENT

A. Political risk is a company’s risk of loss of assets, earning power, or managerial control

due to politically -based events or actions by host governments. It includes government

Managing in a Global Environment •

takeovers of property and acts of violence directed against a firm’s properties or

employees.

B. Political instability refers to events such as riots, revolutions, civil disorders, or

government upheavals that affect the operations of an international company. A

revolutionary wave of protests in the Arab world that began in the late 2010, known as

the Arab Spring, has created a tumultuous environment for businesses operating in the

region.

C. Government laws and regulations differ from country to country and present a challenge

for international firms.

NOTES________________________________________________________________________

______________________________________________________________________________

VIII. THE SOCIOCULTURAL ENVIRONMENT

A. Social Values

1. A nation’s culture includes the shared knowledge, beliefs, and values, as well as the

common modes of behavior and ways of thinking among members of a society. One

way managers can comprehend local cultures is to understand differences in social

values. American managers are regularly accused of an ethnocentric attitude that

assumes that the American way is the best way. Ethnocentrism is an attitude,

which means that people have a tendency to regard their own culture as superior and

to downgrade other cultures. Strong ethnocentric attitudes within a country make it

difficult for foreign firms to operate there. There are four dimensions of national

social value systems as well as other cultural characteristics that influence

organizational and employee working relationships.

a. Hofstede’s Value Dimensions Exhibit 3.7

• Power distance. High power distance means people accept inequality in

power among institutions, organizations, and people. Countries that value

high power distance include Malaysia and the Philippines. Low power

distance means people expect equality in power. Countries that value low

power distance include Denmark and Israel.

• Uncertainty avoidance. High uncertainty avoidance means that members of

a society feel uncomfortable with uncertainty and ambiguity and thus support

beliefs that promise certainty and conformity. Countries that value high

uncertainty avoidance include Greece, Portugal, and Uruguay. Low

uncertainty avoidance means people have high tolerance for the unstructured

and unpredictable. Countries that value low uncertainty avoidance include

Singapore and Jamaica.

• Individualism and Collectivism. Individualism reflects a value for a loosely

knit social framework in which individuals are expected to take care of

themselves. Countries with individualist values include the United States,

Managing in a Global Environment •

Canada, and Great Britain. Collectivism is a preference for a tightly knit

social framework in which individuals look after one another and

organizations protect their members’ interests. Countries with collectivist

values are Guatemala, Ecuador, and Panama.

• Masculinity and Femininity. Masculinity stands for preference for

achievement, heroism, assertiveness, work centrality (with resultant high

stress), and material success. Societies with strong masculine values are

Japan, Italy, Mexico, and Germany. Femininity reflects the values of

relationships, modesty, caring for the weak, and quality of life. Countries

with feminine values include Sweden, Norway, Costa Rica and France. Both

men and women subscribe to the dominant value in masculine and feminine

cultures.

• A fifth dimension, long-term orientation and short-term orientation, was

developed later. Long-term orientation includes a greater concern for the

future and highly values thrift and perseverance. Short-term orientation is

more concerned with the past and the present and places a high value on

tradition and meeting social obligations.

2. GLOBE Project Value Dimensions Exhibit 3.8

a. Research by the GLOBE Project (Global Leadership and Organizational Behavior

Effectiveness) used data collected from 18,000 managers in 62 countries. They

collected data on nine dimensions.

• Assertiveness is the extent to which a society encourages toughness,

assertiveness, and competitiveness.

• Future orientation refers to the extent to which a society encourages planning

for the future over short-term results.

• Gender differentiation refers to the extent to which a society maximizes

gender role differences.

• Performance orientation is the extent to which a society places emphasis on

performance and rewards people for improvement.

• Humane orientation refers to the degree to which a society encourages and

rewards people for being fair, altruistic, generous, and caring.

b. GLOBE research provides a more comprehensive view of cultural similarities and

differences than Hofstede’s.

3. Social values have great influence on organizational functioning and management

styles.

Discussion Question #10: How might the social value of low versus high power distance

influence how you would lead and motivate employees? What about the value of low versus high

performance orientation?