Managing in a Global Environment

Chapter 4
 Importance of International Business

If you are not thinking

international,

you are not thinking

business management

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 Global Environment and Chapter 4
International Managers Topics

 Difficulties Operating in Borderless World

 Challenges

– Economic
– Legal-political
– Socio-cultural
 Multinational Corporations
 Foreign Markets - Entrance
Managers’ Challenge: Wal-Mart Managers

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 A Borderless World

 Business is becoming a unified, global field

 Companies that think globally have a
competitive edge
 Domestic markets are saturated for many
companies
 Consumers can no longer tell from which
country they are buying
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 Four Stages of Globalization
Domestic stage:
market potential is limited to the home country
production and marketing facilities located at home
International stage:
exports increase
company usually adopts a multi-domestic approach
Multinational stage:
marketing and production facilities located in many countries
more than 1/3 of its sales outside the home country
Global (or stateless) stage:
making sales and acquiring resources in whatever country
offers the best opportunities and lowest cost
ownership, control, and top management tend to be dispersed
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 4 Stages of Globalization
1. Domestic 2. International 3. Multinational 4. Global

Strategic Orientation Domestically Export- Oriented Multinational Global

Oriented multi-domestic

Stage of Development Initial foreign Competitive Explosion of Global

involvement positioning international
operations

Cultural Sensitivity Of little Very important Somewhat Critically

importance important important

Manager Assumptions “One best “Many good “The least-cost “Many good
way” ways” way” ways”
SOURCE: Based on Nancy J. Adler, International Dimensions of Organizational Behavior, 4th ed. (Cincinnati, Ohio: South-Western, 2002),
8-9.

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 Global (stateless) Corporations

 Number is increasing
 Awareness of national borders decreasing
 Rising managers expected to know a 2nd or 3rd
language
 Corporate Example – Nestle (Swiss)
– CEO Peter Brabeck–Letmathe (Austrian)
– Half of general managers (non-Swiss)
– Strong faith in regional managers who are native to the
region

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 The International
Business Environment

 International management is management of business

operations conducted in more than one country
 Fundamental tasks do not change
 Basic management functions
– are the same - domestic or international
– Greater difficulties and risks when performing on an
international scale

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 International Environment Factors

Economic Legal-Political
•Economic
•Political risk
development
•Infrastructure •Government
•Resource and takeovers
product markets •Tariffs, quotas, taxes
•Per capita
Organization
•Terrorism, political
Income
instability
•Exchange rates
•Laws, regulations
•Economic
conditions Sociocultural
•Socio values, beliefs
•Language
•Religion (objects, taboos, holidays)
•Kinship patterns
•Formal education, literary
•Time orientation

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 Economic Environment Factors
 Economic development
 Infrastructure
 Resource and product markets
 Exchange rates
 Inflation
 Interest rates
 Economic growth
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 Economic Development

● Countries categorized as “developing” or “developed”

● Criterion used to classify is per capita income
● Developing countries have low per capita incomes
● LDCs located in Asia, Africa, and South America
● Developed are North America, Europe, & Japan
● Driving global growth in Asia, Eastern Europe, & Latin
America

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 Infrastructure

A country’s physical facilities that support

economic activities

 Airports,
highways, and railroads
 Energy-producing facilities
 Communication facilities

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 Resource and Product Markets

When operating in another country...

– Managers must evaluate market demand
– To develop plants, resource markets must be
available – raw materials and labor

Corporate Example – McDonald

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 Exchange Rates

 Rate at which one country’s

currency is exchanged for
another country’s
 Has become a major concern for
companies doing business
internationally
 Changes in the exchange rate
can have major implications for
profitability of international
operations

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 The Legal-Political Environment

 Political Risk– due to events or actions by host

governments
● Loss of assets
● Loss of earning power
● Loss of managerial control
● Government takeovers
● Acts of violence

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 Political Instability

 Events such as riots, revolutions, or

government upheavals that affect the
operations of an international company

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 Laws and Regulations

 Government laws and regulations differ from

country to country
 Make doing business a true challenge for
international firms
 Internet has increased impact of foreign laws
on U.S. companies – expands potential for
doing business on global basis

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 Sociocultural Environment

 Culture – shared knowledge, beliefs, values, common

modes of behavior, and ways of thinking among
members of a society
– Intangible
– Pervasive
– Difficult for outsider to learn

 Managers need to understand difference in social

values to comprehend local cultures and deal with them
effectively

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 Hofstede’s Value Dimensions

 Research = national value systems influence organizational

and employee working relationships
– Power distance (high = accept inequality)
– Uncertainty avoidance (uncomfortable with uncertainty)
– Individualism and collectivism (Individualism take care of
themselves)
– Masculinity/femininity (preference for achievement/assertiveness;
femininity for relationship)
– Long-term/short-term orientation = 5th dimension

Ethical Dilemma: The Problem in Asia

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 Four Dimensions of National Value

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 GLOBE Value Dimensions
Global Leadership and Organizational Behavior Effectiveness project

More comprehensive view of cultural

similarities and differences
– Assertiveness – Power distance
– Future orientation – Societal collectivism
– Uncertainty avoidance – Individual collectivism
– Gender differentiation – Performance orientation
– Humane orientation

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 International Cultural Influences

 Other Cultural Characteristics

– Language
– Religion
– Attitudes
– Social Organization
– Education
 Linguistic pluralism – several languages exist
 Ethnocentrism – regard own culture superior

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 International Trade Agreements
 Most visible changes in legal-political
factors grow out of international trade
agreements:
– GATT
– WTO
– EU
– NAFTA

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 International Trade Alliances

 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
 Most favored nation clause
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 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
 Partly responsible for backlash against global
trade

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 European Union
 Formed in 1957 to improve economic and social
conditions
 Has grown to 25-nation alliance
 Initiative Europe ’92 called for creation of open markets
for Europe’s 340 million consumers
 Biggest expansion in 2004 – 10 new members from
southern and eastern Europe
 Observers feared EU would become a trade barrier
 EU’s monetary revolution, introduction of the Euro
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 Nations of The EU

*Joined in
2004
*
*
* *
* *
*
*

* *
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 North American Free Trade Agreement

● 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
● January, 2004 -10th anniversary = success and failure
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 Strategies for Entering
HighInternational Markets

Greenfield
Venture
Foreign Operations

Acquisition
Ownership of

Joint Venture

Franchising
Licensing

Exporting
Low Low Cost to Enter Foreign Operations High
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 Multinational Corporations (MNC)

 Receives >25% total sales revenues from

operations outside parent company’s home
country
– Managed as integrated worldwide business system
– Controlled by single management authority
– Top managers exercise global perspective

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 Managing in a Global Environment

Managers must be sensitive to cultural subtleties

 Personal challenges – culture shock
 Managing Cross-culturally
– Leading
– Decision making
– Motivating
– Controlling
Managers must be culturally flexible and easily
adapt to new situations
Experiential Exercise: Rate your Global
Management Potential
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