Its not unusual for Germans, Italians, or Indonesians to speak three or four

languages. On the other hand, Canadians tend to think of English as the only
international business language and they don't see a need to study other
languages.
A. Parochialism is defined as a selfish, narrow view of the world and an inability to
recognize differences between people. Parochialism is an obstacle for many
managers working in the global business world. These attitudes often stem from
monolinguism .
B. Managers might have one of three perspectives or attitudes toward international
business (see Exhibit 3.1).
1)
An ethnocentric attitude is the parochialistic belief that the best work
approaches and practices are those of the home country (the country in which the
companys headquarters are located).
2)
A polycentric attitude is the view that the managers in the host country
(the foreign country where the organization is doing business) know the best work
approaches and practices for running their business.
3)
A geocentric attitude is a world-oriented view that focuses on using the
best approaches and people from around the globe.
4)
To be a successful global manager, you need to be sensitive to differences in
national customs and practices.
Several significant forces are reshaping the global environment that managers face.
Two important features of the global environment are regional trading alliances and
the different types of global organizations.
A. Regional Trading Alliances. Regional trading alliances are reshaping global
competition. Its no longer country versus country, but region against region.
1. The European Union (EU) is a union of 25 European nations created to
eliminate national barriers to travel, employment, investment, and trade (see
Exhibit 3.2).
a. The primary motivation for the creation of the EU (in February 1992) was to
allow these nations to reassert their position against the indus trial strength of the
United States
and Japan.
b. The EU took an enormous step toward full unification in 1999 when 12 of
the 15 countries became part of the EMUthe economic and monetary union, the
formal name for
the system where participating countries share the same
currency, the Euro.

c. In 2004, the EU added 10 new members (Cyprus, Malta, the Czech

Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia). Two
other countries could
join by 2007.
2. The North American Free Trade Agreement (NAFTA) is an agreement
among the Mexican, Canadian, and U.S. governments in which all barriers to free
trade will eventually be eliminated.
a. NAFTA went into effect on January 1, 1994.
b. The signing of NAFTA had both critics and champions.
c. Eliminating the barriers to free trade (tariffs, import licensing requirements,
customs user fees) has resulted in a strengthening of the economic power of all
three countries.
d. Colombia, Mexico, and Venezuela signed an economic pact eliminating
import duties and tariffs in 1994.
e. Now 34 countries in the Caribbean region, South America, and Central
America are negotiating a Free Trade Area of the Americas (FTAA) trade agreement,
which will be
operational no later than 2005.
3. The Association of Southeast Asian Nations (ASEAN) is a trading alliance of
10 Asian nations (see Exhibit 3.3).
a.
In the future, the Asian region promises to be one of the fastest-growing
economic regions of the world.
b.

The economic impact could eventually rival that of both NAFTA and the EU.

4. Other Trade Alliances. The 53-nation African Union came into existence in July
2002. Members plan to achieve greater economic development and unity among
Africas nations.
5.
Formed in 1995 evolving from GATT. The only global organization dealing with
the rules of trade among nations.
Membership consists of 147 countries as of April 2004.
WTO appears to play an important role even though there are vocal critics.
Although international business has been around a long time (DuPont did business
in China in 1863; Ford set up its first overseas sales branch in France in 1908), the
popularity of multinational corporations really didnt occur until the mid-1960s.
What are the various types of global organizations?

1. A multinational corporation (MNC) is a company that maintains significant

operations in multiple countries simultaneously, but manages them all from one
base in a home country. It reflects the ethnocentric attitude.
2. A transnational corporation (TNC) is a company that maintains significant
operations in more than one country simultaneously, but decentralizes
management to the local country. It reflects the polycentric attitude.
3. Another type of global organization is the borderless organization that is a
global type of organization in which artificial geographical barriers are eliminated so
that the management structure can be more effectively globalized. It reflects the
geocentric attitude.
Keep in mind, however, that a companys national origin is no longer a good
measure of where it does business or of the national origin of its employees.
Internal Sales or Manufacturing. This involves managers making more of an
investment by committing to sell products in foreign countries or to having them
made in foreign factories. However, there is still no physical presence of company
employees outside the companys home country.
Licensing and Franchising. An organization can give another organization the
right to use its brand name, technology, or product specifications in return for a
lump-sum payment or a fee usually based on sales through licensing or franchising.
The only difference is that licensing is primarily used by manufacturing
organizations and franchising is used by service organizations.
Strategic Alliance. Strategic alliances are partnerships between an organization
and a foreign company in which both share resources and knowledge in developing
new products or building production facilities. The partners also share the risks and
rewards of this alliance.
1. A specific type of strategic alliance in which the partners agree to form a
separate, independent organization for some business purpose is called a joint
venture.

Foreign Subsidiaries. Managers can make a direct investment in a foreign country

by setting up a foreign subsidiary, a separate and independent production facility
or office.
1. This subsidiary can be managed as an MNC (domestic control), a TNC (foreign
control), or as a borderless organization (global control).
2. This arrangement involves the greatest commitment of resources and poses the
greatest amount of risk.

There are many challenges associated with managing in a global

environment.
A. The Legal-Political Environment. The legal-political environment doesnt
have to be unstable or revolutionary to be a challenge to managers. It is
important to recognize that a countrys political system differs from Canadas
B. B. The Economic Environment. Also presents many challenges to foreignbased managers. Obviously, currency rate fluctuations, inflation, and diverse
tax policies are economic challenges to managers.
C. Market economy resources are primarily owned by the private sector
D. Command economy where all economic decisions are planned by a
central government
E. C. The Cultural Environment. The cultural environment involves cultural
differences between nations. National culture is the values and attitudes
shared by individuals from a specific country that shape their behaviour and
their beliefs about what is important.