Chapter 3: Global Management

Managing Across Borders

Globalization
You & International Management
Why & How Companies Expand Internationally
Economic & Political-Legal Differences
Regional Economic Cooperation
Cultural Differences

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3.1 Globalization: The Collapse Of

Time & Distance
WHAT IS GLOBALIZATION?
Globalization is the trend of the world economy
toward becoming a more interdependent system
Today, we are witnessing a shrinking of time and
space as air travel and the electronic media have
made it easier for people around the world to
communicate with each other
We call this the global village
Kinicki/Williams, Management: A Practical Introduction 3e 2008, McGraw-Hill/Irwin
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3.1 Globalization: The Collapse Of

Time & Distance
IS GLOBALIZATION A GOOD THING?
The global economy refers to the increasing tendency of the
economies of the world to interact with one another as one
market instead of many national markets
Growth in jobs and income in one country means growth in
jobs and income in other countriesa win-win situation
However, global interdependency can be negative when
negative events in one country generate negative events in
other countries
Outsourcing jobs also brings negative effects to the country
that loses the jobs
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3.1 Globalization: The Collapse Of

Time & Distance
WHY SHOULD YOU LEARN ABOUT
INTERNATIONAL MANAGEMENT?
You need to learn about international management because
you may find yourself in any of the following situations:
dealing with customers or partners from different cultures
buying components, raw materials, or services from foreign
suppliers
working for a superior from a foreign country
working in a foreign subsidiary or for a foreign firm located in
another country
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3.2 You & International Management

There are three primary attitudes among international
managers:
managers who believe that their native country, culture,
language, and behavior are superior to all others are
ethnocentric managers
managers who believe native managers in foreign offices
best understand native personnel and practices, and so the
home office should leave them alone are polycentric
managers
Geocentric managers accept that there are differences and
similarities between home and foreign personnel and
practices, and that they should use whatever techniques are
most effective
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3.3 Why & How Companies

Expand Internationally
WHY DO COMPANIES EXPAND
INTERNATIONALLY?
Firms expand internationally to take advantage of:
1. Availability of supplies
2. New markets
3. Lower labor costs
4. Access to finance capital
5. Avoidance of tariffs & import quotas
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3.3 Why & How Companies

Expand Internationally
HOW DO COMPANIES EXPAND
INTERNATIONALLY?
There are five ways to expand internationally:
1. Global outsourcing
2. Importing, exporting, and countertrading
3. Licensing and franchising
4. Joint ventures
5. Wholly-owned subsidiaries

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3.4 Economic & Political-Legal Differences

HOW CAN MANAGERS ADJUST TO ECONOMIC
DIFFERENCES IN OTHER COUNTRIES?
Managers need to consider economic systems,
economic development, infrastructure and resources,
and currency exchange rates in foreign markets

There are three types of economic systems: free

market, command, and mixed
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3.4 Economic & Political-Legal Differences

There are two levels of economic development:
Countries with high levels of economic development and
generally high average incomes are developed countries
Developing or less developed countries include countries
with low economic development and low average incomes
A countrys infrastructure consists of the physical facilities
that form the basis for its level of economic development
The rate at which one countrys currency can be exchanged
for another countrys currency is the exchange rate

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3.4 Economic & Political-Legal Differences

HOW CAN MANAGERS ADJUST TO POLITICALLEGAL DIFFERENCES IN OTHER COUNTRIES?
Managers need to be aware of governmental
systems and the potential for political risk
Democratic governments rely on free elections and
representative assemblies
Totalitarian governments are ruled by a dictator, a
single political party, or a special-membership group
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3.4 Economic & Political-Legal Differences

The risk that political changes will cause loss of a
companys assets or impair its foreign operations is
called political risk
Firms need to plan for instability and expropriation
(government seizure of a foreign countrys assets)
Companies need to be aware of laws that could
affect how they do business in other countries like
the U.S. Foreign Corrupt Practices Act which makes
it illegal for employees of U.S. companies to bribe
political decision makers in foreign nations

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3.5 The World Of Free Trade:

Regional Economic Cooperation
WHAT IS FREE TRADE AND REGIONAL
ECONOMIC COOPERATION?
Free trade means that goods and services move
among nations without political or economic
obstruction
When governments use regulations such as tariffs,
import quotas, and embargoes to limit the import of
goods and services, they are being protectionist
Governments use barriers to protect domestic
industries from foreign competition
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3.5 The World Of Free Trade:

Regional Economic Cooperation
There are three main types of trade barriers:
1. Trade barriers in the form of a customs duty, or tax, levied
mainly on imports are called tariffs
2. Trade barriers that limit the numbers of a product that can
be imported are import quotas
3. Embargoes are complete bans on the import or export of
certain products

Groups of nations within a geographic region that have

agreed to remove trade barriers with one another are called
trading blocs or economic communities
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3.5 The World Of Free Trade:

Regional Economic Cooperation
There are four major trading blocs:
1. The North American Free Trade Agreement or NAFTA was
formed in 1994 between the U.S., Canada, and Mexico
2. The European Union was originally formed in 1957 and now
includes 25 European countries
3. The group of 21 Pacific Rim countries whose purpose is to
improve economic and political ties is called the Asia-Pacific
Economic Cooperation or APEC
4. Mercosur is the largest trade bloc in Latin America and has
four core membersArgentina, Brazil, Paraguay, and
Uruguay, and two associate members, Chile and Bolivia

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3.5 The World Of Free Trade:

Regional Economic Cooperation
Three organizations facilitate international trade:
1. The World Trade Organization (WTO) is designed
to monitor and enforce trade agreements
2. The World Bank was established in 1944 to help
rebuild Europe
3. The International Monetary Fund (IMF) is designed
to assist in smoothing the flow of money between
nations

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3.6 The Importance Of Understanding

Cultural Differences
WHY SHOULD MANAGERS UNDERSTAND
CULTURAL DIFFERENCES BETWEEN
COUNTRIES?
Culture is the shared set of beliefs, values, knowledge, and
patterns of behavior common to a group of people
Misunderstandings and miscommunications in international
business often occur because of cultural misunderstandings
In low-context cultures like Germany and the U.S., shared
meanings are primarily derived from written and spoken words
In high-context cultures like Japan and China, people rely
heavily on situational cues for meaning when communicating
with others
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3.6 The Importance Of Understanding

Cultural Differences
Geert Hofstede identified four dimensions along which
national cultures vary
1. individualism/collectivism describes how loosely or tightly
people are socially bonded
2. power distance refers to how much people accept inequality
in power
3. uncertainty avoidance describes how strongly people desire
uncertainty
4. masculinity/femininity refers to how much people embrace
stereotypical male or female traits

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3.6 The Importance Of Understanding

Cultural Differences
The GLOBE project is an ongoing cross-cultural
investigation of nine cultural dimensions involved in
leadership and organizational processes
1. institutional collectivism - how much should
leaders encourage and reward loyalty to the social
unit
2. in-group collectivism - how much pride and loyalty
should people have for their family or organization
3. power distance - how much unequal distribution of
power should there be in society and organizations
4. uncertainty avoidance - how much should people
rely on social norms and rules to avoid uncertainty
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3.6 The Importance Of Understanding

Cultural Differences
5. gender differentiation - how much should society
maximize gender role differences
6. assertiveness - how confrontational and dominant
should individuals be in social relationships
7. future orientation - how much should people delay
gratifications by planning and saving for the future
8. performance orientation - how much should
individuals be rewarded for improvement and
excellence
9. humane orientation - how much should society
encourage and reward people for being kind, fair,
friendly, and generous
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3.6 The Importance Of Understanding

Cultural Differences
Managers need to bridge cross-cultural gaps by
understanding basic cultural across four areas
1. Language - more than 3,000 different languages are
spoken in the world
2. Interpersonal space - how close people should be when
communicating varies by culture
3. Time orientation - time orientation varies by culture
4. Religion - Christianity has the largest following with 2.1
billion adherents, Islam is next with 1.3 billion followers, then
Hinduism, Buddhism, and Judaism

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Seatwork
What is the difference between doing the
right thing and doing the thing right?
What is globalization?
What is underemployment? What do you
think is the reason of underemployment?
How can we solve this issue in our country?

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