Globalization

Declining Barriers to Trade Free-Trade Doctrine: Everyone is better off if each country specializes in what it can produce most efficiently Tariffs declining globally (GATT, regional trading alliances) Trends to democracy and free-market policies open markets Barriers of distance and culture diminish as transportation and communications technologies improve National borders are increasingly irrelevant as barriers to trade

Regional Trading Alliances Build size of market and reduce costs of trade in group: The European Union - created 1992 A single, rich market without barriers to travel, employment, investment, and trade North American Free Trade Agreement (NAFTA) Eliminated barriers to free trade such as tariffs, import licensing requirements, customs user fees between U.S., Mexico, Canada Mercosur (South America) Association of Southeast Asian Nations (ASEAN)

Effects of Free Trade on Managers Managers need to learn to compete globally Declining trade barriers = huge opportunities: Expand markets Opportunities to (out)source globally Declining trade barriers = huge challenges: Intense competition: Anyone, anywhere Managing and operating in foreign countries Global legal-political environments differ (e.g., stability) Global economic environments differ (e.g., inflation) Employment Dislocation

Global Perspectives on Management There are fundamentally different perspectives that managers have about the right way to manage: Parochialism: Managers view the world solely through its own eyes and perspectives, do not recognize differences Ethnocentric Attitude: Managers believe home country knows best; centralize, hold key decisions / technology close Polycentric Attitude: Managers believe host-country managers know best; decentralize, let each country manage own unit Geocentric Attitude: Managers try to transcend barriers and use the best from around the globe, regardless of location

Global Perspectives and Organizational Models: Exxon Mobil Nestle ABB Organization: Multinational Transnational Borderless Economy of scale and efficiency Exhibit 4.2

How Organizations Go Global Stage I Passive Response Stage II Initial Overt Entry Stage III Established International Operations Learning & Resources Foreign Subsidiary More Risk and Investment Joint Ventures Exporting to foreign countries Strategic Alliances Put a big arrow about learning Hiring foreign representation or contracting with foreign manufacturers Importing from foreign countries Licensing/ Franchising Exhibit 4.7

The International Environment Legal-political Differences Stable/Unstable Economic Currency fluctuations Taxes National Cultural

National Cultural Environments National Culture: The values and attitudes shared by individuals from a specific country what a society believes to be good, desirable and beautiful. Provides conceptual support for democracy, truth, appropriate roles for men and women. Usually not static but very slow to change. Influences employees more than organizational culture But not necessarily easy to find out (taken for granted)

Hofstede’s Model of National Cultural Values Dimensions along which national cultures vary: Power distance – influence and control unequally distributed Uncertainty avoidance – Avoidance of ambiguity and risk, conformity to norms Individualism – expectation that people take care of themselves / masters of own destiny. Compared to Collectivism, expectation that others in the group will look after them and should be looked after. Quantity of Life – assertiveness, acquisition of money, indifference to others Compared with Quality of Life, valuing relationships and showing sensitivity and concern for the welfare of others.

Relative Ranking of Four Countries On Cultural Values 5 c r e s 50 40 30 20 10 Cultural Value Dimension Power Distance Uncertainty Avoidance Individualism Quantity /Quality Confucian Dynamics Rank Numbers: 1 = Highest; 50 = Lowest Canada USA Taiwan Japan high low See Also Exhibit 4.9 Source: Adapted from G. Hofstede and M. H. Bond. The Confucius connection: From cultural roots to economic growth. Organization Dynamics, Spring 1988, pp. 12-13

How Cultural Values Affect Organizations (Examples) Power distance: Manager-subordinate relationships Uncertainty avoidance: Receptiveness to new ideas, changing rules, competition “Most organizations would be better off if conflict could be eliminated forever” “If you want a competent person to do a job properly, it is often best to provide him or her with very precise instructions on how to do it”

How Cultural Values Affect Organizations (Examples) Individualism & Collectivism Individual merit & incentive pay systems (Individual vs. group merit pay, seniority systems) Managers Hot Seat Video (relationship & task)

How Cultural Values Affect Organizations (Examples) Quantity v. Quality of Life: Attitudes to downsizing, benefits, competition Dutch engineer applying to US firm story (assertiveness)