Global Environment

Chapter #6

Chapter #6 Learning Objectives

By the conclusion of this discussion you will understand: What the global environment is and

how and why it is changing. The different components of the

global task and general environment. The opportunities for international

expansion that exist as well as the limitations to global expansion.

The Global Environment

Global Organizations: operate and compete in more than one country

Different environment: open market buy and sell around the world compete globally

Declining Barriers

Tariff : taxes levied upon imports protect jobs in the

home country retaliation

Free trade: each country seeks to specialize in things they make most efficiently.

Declining Barriers

Distance & Culture Barriers: Distance closed markets Communications difficult Different languages and cultures

Advancements in communication and transportation technology have dramatically reduced these barriers.

Effects on Managers Great opportunities:

Buy resources and sell goods and services globally

Global customers/market Increased Threats

Global competition Regulations

NAFTA: North American Free Trade Agreement

Abolishes most tariffs on goods traded between Mexico, Canada and the U.S.

Allows unrestricted cross-border flows of resources.

Manufacturing opportunity Wage costs are lower in Mexico. Can serve Mexico with a plant in

Mexico and reduce freight.

Global Task Environment

SuppliersSuppliers

DistributorsDistributors

Customers

CompetitorsCompetitorsForces yieldingForces yieldingOpportunities Opportunities

and threatsand threats

Figure 4.2

Suppliers & Distributors

Managers buy products from global suppliers or make items abroad and supply themselves. Key is to keep quality high and costs

low. Global outsourcing: firms buy

inputs from throughout the world. Distributors: each country often has

a unique system of distribution.

Customers & Competitors

Formerly distinct national markets are merging into a huge global market.

Must customize products to fit the culture.

Global competitors present new threats. Increases competition abroad and at

home.

Forces in the Global General Environment

Political &Legal Systems

Economic system

SocioculturalSystem

Forces yieldingOpportunities

and threats

Figure 4.3

Political-Legal Forces

Diverse and changing nature of each countries’ political system.

Totalitarian regimes: a single political party or person monopolize power in a country.

Economic Systems

Free market economy: production of goods and services dictated by supply and demand.

Command economy: decisions on what to produce, how much, done by the government.

Mixed economy: certain economic sectors controlled by private business, others are government controlled.

Changing Political and Economic ForcesChanging Political and Economic Forces

Russia1985

Russia1995

Democratic

PoliticalFreedom

TotalitarianChina1985

China1995

Command MarketMixedEconomic Freedom

Britain1985

Britain1995

Hungary1985

Hungary1995

Figure 4.4

Sociocultural Forces

National culture: includes the values, norms, knowledge, beliefs, and other practices that unite a country.

Values: abstract ideas about what a society believes to be good, desirable and beautiful. Provides attitudes for democracy, truth,

appropriate roles for men, and women. Usually not static but very slow to change.

Hofstede’s Model of National CultureHofstede’s Model of National Culture

Individualism

Low PowerDistance

AchievementOriented

Low UncertaintyAvoidance

Short TermOrientation

Collectivism

High PowerDistance

NurturingOriented

High UncertaintyAvoidance

Long TermOrientation

Fig

ure

4.5

International Expansion

Importing and Exporting: the least complex Exporting: firm makes products and sells

abroad. Importing: firm sells products made abroad.

Licensing: firm allows foreign organization to make and distribute goods for a fee.

Franchising: company sells a foreign organization the rights to use brand name and know-how in return for payment and profit percentage.

International Options

Strategic Alliances: managers pool resources with a foreign firm and both organizations share the rewards and risks.

Wholly-owned foreign subsidiary: firm invests in production operations in a foreign country.

International ExpansionInternational Expansion

ImportingExporting

LicensingFranchising

Joint VenturesStrat. Alliances

Wholly-owned For. Subsidiary

Low HighLevel of Foreign involvement and investment needed by a global organization

Figure 4.6

Global Barriers

Government regulations with loopholes

Administrative barriers Ethical barriers

Human rights Health and safety issues Environmental protection

Conclusion

The global marketplace is where big business needs to be to maintain market share.

The decrease of trade barriers and the improvements in communication and technology have made the global marketplace possible.

The global marketplace brings both opportunities and threats and increased concern for ethical behavior.