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Chapter

Principles of
Management
Managing in the
Global Arena
Course Instructor: Saba Gulzar

Globalization

Expansion of business across the geographical


boundaries.

Globalization describes a process by which


regional economies, societies, and cultures have
become integrated through a global network of
communication, transportation, and trade.

The Global Marketplace

Opportunities and Challenges


Coping

with the sudden appearance of new


competitors
Acknowledging cultural, political, and economic
differences
Dealing with increased uncertainty
Adapting to changes in the global environment

Adopting a Global Perspective

Ethnocentric Attitude
The

belief that the best work approaches and practices are


those of the home country.

Polycentric Attitude
The

view that the managers in the host country know the


best work approaches and practices for running their
business.

Geocentric Attitude
A world-oriented

view that focuses on using the best


approaches and people from around the globe.

Different Types of International


Organizations

Multinational Corporation (MNC)

Maintains operations in multiple countries.

(Sony, Nike, Addidas etc)

Multidomestic Corporation

Is an MNC that decentralizes management and other decisions


to the local country. (Uniliver, P & G)

Global Company

Is an MNC that centralizes its management and other decisions


in the home country. (Microsoft, Apple Computer, Airline
Companies)
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Forms of Globalization

Strategic Alliances

Partnerships between and organization and a foreign company


in which both share resources and knowledge in developing
new products or building new production facilities. (Mercedes &
General Tyres, Intel & Computer companies)

Joint Venture

A specific type of strategic alliance in which the partners agree


to form a separate, independent organization for some
business purpose. Sony-Ericsson, Pak-Suzuki

Exporting:
Making products at home and selling them abroad. Sports
Goods, Textile Products, Surgical Instruments etc
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Importing:
Is the buying of products made in other countries for use or
resale in ones own country. Vehicles and spare parts, edible
oil, plastic material etc
Licensing:
Allowing the foreign organization to take charge of
manufacturing a product in its country or world region in
return for a negotiated fee. GSK, Johnson & Johnson ,Drugs and

tobacco products

Franchising:
A specialized licensing selling a foreign organization the right
to use a brand name and operating know how in return for a
lump-sum payment. McDonalds, KFC, Pizza Hut etc

Managing in a Global
Environment
Managers must be sensitive to cultural values
Personal challenges
Managing Cross-culturally

Leading
Decision making
Motivating
Controlling

Managers must be culturally flexible and easily


adapt to new situations
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The Economic Environment

Economic environment
i.

Economic development

ii.

Infrastructure

Resource and product markets


Monetary and Financial Factors
iii.

Currency

exchange rates
Inflation rates
Diverse tax policies

The Cultural or Social Environment

National Culture
Is

the values and attitudes shared by individuals from


a specific country that shape their behavior and their
beliefs about what is important.

May

have more influence on an organization than the


organization culture.

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The Legal & Political Environment


Stability

or instability of legal and political systems

Legal procedures are established and followed

Fair and honest elections held on a regular basis

Differences

in the laws of various nations

Effects on business activities

Effects on delivery of products and services

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International Trade Agreements

Most visible changes in legal-political factors


grow out of international trade agreements:

General Agreement on Tariffs and Trade(GATT)


World Trade Organization (WTO)
European Union (EU)
North American Free Trade Agreement (NAFTA)

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General Agreement on Tariffs and Trade


(GATT)

Signed by 23 nations in 1947 as a set of rules


Ensured nondiscrimination, clear procedures,
negotiation of disputes, and participation of lesser
developed countries in international trade.
Today, 147 member countries abide by the rules
Primary tools WTO uses on tariff concessions,
countries agree to limit level of tariffs on imports
from other WTO members

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World Trade Organization (WTO)

Goal, is to guide and sometimes urge the


nations of the world toward free trade and
open markets

Encompasses GATT and all of its agreements

Has legal authority to arbitrate disputes on


400 trade issues

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European Union (EU)

Formed in 1957 to improve economic and social


conditions

Has grown to 25-nation alliance

Biggest expansion in 2004 10 new members from


southern and eastern Europe

EUs monetary revolution, introduction of the Euro

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North American Free Trade Agreement (NAFTA)

Went into effect on January 1, 1994


Merged the United States, Canada, and Mexico with
more that 421 million consumers
Breaks down tariffs and trade restrictions on most
agriculture and manufactured products
August 12, 1992 agreements in number of key areas
include: agriculture, autos, transport, & intellectual
property

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