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
2. Discuss the importance of regional trading alliances and global trade mechanisms.
4. Explain the relevance of the political/legal, economic, and cultural environments to
global business.
It’s Your Career
Developing Your Global Perspective—Working with People from Other Cultures
In Chapter 4, students will learn how to develop their global perspective. Human
Resource managers say that there is a great need for cross-cultural understanding and
savvy in business settings. Most executives, across the world, say that cross-cultural
leadership is their top management challenge.
During their career, students will work with individuals who were born in a different
country and don’t speak English as their first language. Their habits and customs will be
different and students may have a hard time understanding their behavior.
Chapter 4 suggests that students should increase their ability to work with people from
different cultures in the following ways:
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
6. Educate yourself on cross-cultural issues and approaches. Develop
international experience through traveling.
CHAPTER OUTLINE
WHO OWNS WHAT?
Students may be astonished to discover the country of ownership origin for many
products they use. In taking this quiz and discussing their scores, students may
also be surprised to learn that a significant number of well-known companies
derive more than half of their revenues from global operations.
4.1 WHAT’S YOUR GLOBAL PERSPECTIVE?
Most U.S. children study only English in school. It is not unusual for Germans,
Italians, and Indonesians to speak three or four languages. Americans tend to
think of English as the only international business language and see little need to
study other languages. How does the US’s monolingualism affect our view of
culture?
A. Parochialism is viewing the world solely through your own perspectives,
leading to an inability to recognize differences between people.
Parochialism is an obstacle for many U.S. managers and stems from
monolingualism.
B. Managers might have one of three perspectives or attitudes toward
international business:
1. An ethnocentric attitude is the parochialistic belief that the best
2. A polycentric attitude is the view that the managers in the host
4. To be a successful global manager, an individual needs to be
sensitive to differences in national customs and practices.
4.2 UNDERSTANDING THE GLOBAL 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.
A. Regional Trading Alliances.
Regional trading alliances are reshaping global competition. Competition
is no longer limited to country versus country, but region versus region.
1. The European Union (EU) is a union of 27 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
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
3. The Association of Southeast Asian Nations (ASEAN) is a
trading alliance of Southeast 10 Asian nations (see Exhibit 4-2).
a. In the future, the Southeast Asian region promises to be
one of the fastest-growing and increasingly influential
economic regions of the world.
b. The future economic impact of the Southeast Asian region
could rival that of both NAFTA and the EU.
LEADER MAKING A DIFFERENCE
Christine Lagarde is the Managing Director of the International Monetary Fund (IMF). She
was born in France and was a labor and antitrust attorney in the United States before
becoming France’s finance minister. She is the first woman to run the IMF. As a leader,
she believes in what she is doing and is completely engaged. She has implemented a
system for employees to identify goals and then be held accountable for what they have
done or not done.
What can you learn from this leader making a difference?
B. Global Trade Mechanisms.
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
(OCED)
The Organization for European Economic Cooperation,
4.3 DOING BUSINESS GLOBALLY
A. Different Types of International Organizations.
Business has been conducted internationally for many years (e.g.,
DuPont conducted business in China in 1863, H. J. Heinz manufacturing
their brands in the United Kingdom since 1905, and Ford established its
first overseas sales branch in France in 1908). Multinational corporations
did not become popular until the mid-1960s. Global organizations can be
classified in the following categories:
• The term multinational corporation (MNC) is a broad term that
Your students should keep in mind that neither the national origin of a
company nor the national origin of its employees is any longer a good
measure of where that company conducts business.
B. How Organizations Go International.
An organization that goes international typically progresses through three
stages, which are illustrated in Exhibit 4-3.
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
5. A joint venture (a specific type of strategic alliance) may be
undertaken to allow partners to form a separate, independent
organization for some business purpose.
6. Managers may decide to make a direct investment in a foreign
country by establishing a foreign subsidiary, in which a company
FUTURE VISION: The Internet, A Necessary Ingredient of the Global
World?
The Internet has made distances shorter and the
world smaller. This massive network of networks
connects millions of computers together globally and allows
anyone, anywhere to communicate by computer as long as both
(or all) are connected to the Internet. Statistics indicate that there
are 2.4 billion Internet users around the world, nearly one-third of
the world’s population. One of the challenges the many different
languages spoken by Internet users.
The following discussion questions are posed:
Talk About It 1: As the title says, is the Internet a necessary
ingredient of the global world? Why or why not?
Talk About It 2: As managers look to exploit the benefits of the
Internet, how might their geographic location have an impact?
4.4 MANAGING IN A GLOBAL ENVIRONMENT
Managing in a global environment entails challenges.
A. The Legal-Political Environment.
The legal-political environment does not have to be unstable or
revolutionary to be a challenge to managers. The fact that a country’s
political system differs from that of the United States is important to
recognize.
B. The Economic Environment.
The economic environment also presents many challenges to foreign–
based managers, including fluctuations in currency exchange rates,
inflation, and diverse tax policies.
2. In a planned economy, all economic decisions are planned by a
central government.
C. The Cultural Environment.
Countries have different cultures, just as organizations do. National
culture is the values and attitudes shared by individuals from a specific
An approach developed by Geert Hofstede serves as a valuable
framework for understanding differences between national cultures.
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
3. Uncertainty avoidance describes the degree to which people
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.
a. GLOBE began in 1993 and identified nine dimensions on
which national cultures differ: Assertiveness, future
D. GLOBAL MANAGEMENT IN TODAY’S WORLD.
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.
a. The increased threat of terrorism, economic
interdependence of trading countries, and significant
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:
knowledge of the culture, mindfulness (the ability to pay
ANSWERS TO REVIEW AND DISCUSSION
QUESTIONS
Student answers to these questions will vary.
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
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?
In a borderless organization, artificial geographic borders do not separate functions, divi-
sions, or activities. The managerial implications of such an organization are that it is
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
a Thai hospital or a government agency in Venezuela? Explain.
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.
The Mexican manager would have to become familiar with the legal, political, economic,
and cultural environments of the United States. The cultural environment would be
particularly challenging, since the national culture of Mexico varies greatly from the
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
PERSONAL INVENTORY ASSESSMENTS
Student answers to these questions will vary.
ETHICS DILEMMA
Student answers to these questions will vary.
Outsourcing production overseas has its advantages and disadvantages. In this
dilemma, students are asked to consider the implications of how overseas jobs in the
high tech industry have hurt workers: work shifts lasting up to 60 hours; factory
explosions killing numerous workers that resulted from a build-up of combustible dust;
repetitive motion injuries that are so bad workers lose the use of their hands. These are
what conditions are like for assembly workers in China who build Apple’s iPhones,
iPads, and iPods. In other locations, workers assembling products for tech companies
have committed suicide because of pressure and stress.
4-11. What do you think? Whose responsibility is it to ensure that workplaces are safe,
especially when work is outsourced?
4-12. Should managers even consider such issues as they navigate the global market?
Why or why not?
SKILLS EXERCISE: DEVELOPING YOUR
COLLABORATION SKILL
An important skill for any employee and new manager is collaboration. In this exercise
students work on building their own political skills based on the following steps: looking
for common points of interest, listening to others, checking for understanding, accepting
diversity, seeking additional information, and not becoming defensive. Students are
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
Manager’s Dilemma. Students are encouraged to think about what characteristics typify
a successful global manager. After the groups develop their list, they should share with
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)
• The U.K.-based company Kwintessential has several cultural awareness
• On the Kwintessential Web site, you’ll also find Country Etiquette 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
• Interview two or three professors or students at your school who are from other
countries. Ask them to describe what the business world is like in their country.
illustrating the history of NAFTA. (LO: 2 Discuss the importance of regional
• Take advantage of opportunities that you might have to travel to other countries,
either on personal trips or on school-sponsored trips. (LO: 4 Explain the
• 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
• 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,
• Steve’s and Mary’s suggested readings: Nancy J. Adler, International
Dimensions of Organizational Behavior, 5th edition (South-Western Publishing,
2008); Kenichi Ohmae, The Next Global Stage (Wharton School Publishing,
2005); John Hooker, Working Across Cultures (Stanford Business Books, 2003);
and Thomas L. Friedman, The Lexus and the Olive Tree (Anchor Books, 2000).
(LO: 1 Contrast ethnocentric, polycentric, and geocentric attitudes toward global
business, AACSB: Diverse and multicultural work environments)
ANSWERS TO CASE APPLICATION 1
QUESTIONS
Student answers to these questions will vary.
Dirty Little Secret
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?
While it is possible that students may have a variety of reactions to this question, it is
probable that the common reaction is that Walmart crossed the line and committed a
serious infraction by bribing public officials in Mexico. Students should agree that this
tradition of payments for preferential treatment might be acceptable in some cultures, but
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 Walmart’s managers here in the United States and in foreign
subsidiaries have done differently? Explain.
4-17. Walmart is not the only company to be linked to bribery. Find at least three other
examples and describe those.
Students can find examples from the OECD Web site in their annual reports or simply by
doing an Internet search on the topic. Students can also try the Web site for
ANSWERS TO CASE APPLICATION 2
QUESTIONS
Student answers to these questions will vary.
Global Stumble
4-18. What obvious cultural differences between Nomura and Lehman do you see in this
situation?
4-19. What global attitude do you think characterizes Nomura? Be specific in your
description. Do you see any evidence of that changing?
From the evidence in the case that Japanese-oriented policies from Nomura were forced
4-20. Do some cultural research on Japan and the United States. Compare those
cultural characteristics. What similarities and differences exist? How might these cultural
differences be affecting the situation at Nomura?
Students can find information on cultural differences from several sources including the
4-21. What could Nomura managers do to support, promote, and encourage cultural
awareness among employees? Explain.
4-22. What do you think the statement, “When your business is global, management
needs to be global,” is saying? In your opinion, is Nomura doing this?
