Managing in a Global Environment

Importance of International Business

If you are not thinking international,

you are not thinking business management

Global Environment and International Managers

Difficulties Operating in Borderless World

Challenges Economic Legal-political Socio-cultural

Multinational Corporations Foreign Markets - Entrance

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

Four Stages of Globalization

Domestic stage:market potential is limited to the home countryproduction and marketing facilities located at home

International stage:exports increasecompany usually adopts a multi-domestic approach

Multinational stage:marketing and production facilities located in many countriesmore 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

4 Stages of Globalization1. Domestic 2. International 3. Multinational 4. Global

Strategic Orientation

Stage of Development

Cultural Sensitivity

Manager Assumptions

Domestically Oriented

Export- Oriented multi-domestic

Multinational Global

GlobalInitial foreign involvement

Competitive positioning

Explosion of international operations

Of little importance

“One best way”

Very important

“Many good ways”

Somewhat important

“The least-cost way”

Critically important

“Many good ways”

SOURCE: Based on Nancy J. Adler, International Dimensions of Organizational Behavior, 4 th ed. (Cincinnati, Ohio: South-Western, 2002), 8-9.

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

The InternationalBusiness 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

International Environment Factors

Organization

Economic•Economic development•Infrastructure•Resource and product markets•Per capita Income•Exchange rates•Economic conditions

Legal-Political

•Political risk

•Government takeovers

•Tariffs, quotas, taxes

•Terrorism, political instability

•Laws, regulations

Sociocultural•Socio values, beliefs•Language•Religion (objects, taboos, holidays)•Kinship patterns•Formal education, literary•Time orientation

Economic Environment Factors

Economic development

Infrastructure

Resource and product markets

Exchange rates

Inflation

Interest rates

Economic growth

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

Infrastructure

A country’s physical facilities that support economic activities

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

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

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

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

Political Instability

Events such as riots, revolutions, or

government upheavals that affect the

operations of an international

company

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

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

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

Four Dimensions of National Value

GLOBE Value Dimensions

Assertiveness Future orientation Uncertainty

avoidance Gender

differentiation

Power distance Societal collectivism Individual collectivism Performance

orientation Humane orientation

Global Leadership and Organizational Behavior Effectiveness project

More comprehensive view of cultural similarities and differences

International Cultural Influences

Other Cultural Characteristics Language Religion Attitudes Social Organization Education

Linguistic pluralism – several languages exist Ethnocentrism – regard own culture superior

International Trade Agreements Most visible changes in legal-

political factors grow out of international trade agreements: GATT WTO EU NAFTA

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

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

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

Nations of The EU

*

**

**

*

*

*

**

*Joined in 2004

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

Strategies for EnteringInternational Markets

Exporting

High

HighLow Low

Ow

ne

rsh

ip o

f F

ore

ign

Op

erat

ion

s

Cost to Enter Foreign Operations

Licensing

Franchising

Joint Venture

Acquisition

GreenfieldVenture

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

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

Are you ready for a Global Role? If you're looking for a job with a more international view or you're

considering taking an overseas assignment, be sure you have these three components of a global mind-set:

Intellectual capital. This is your capacity to understand how business works on a global level and includes a strong grasp on how the industry operates worldwide, as well as the ability to piece together multiple scenarios.

Psychological capital. To be a global leader you need to have a passion for diversity, a thirst for adventure, and the self-confidence to succeed in a culture completely different than your own.

3. Social capital. You need to be able to build productive relationships with people from other parts of the world. To do this, you'll need intercultural empathy and strong diplomacy skills.