Managing in the Global Environment chapter six Managing in the Global Environment McGraw-Hill/Irwin Contemporary Management, 5/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives Explain why the ability to perceive, interpret, and respond appropriately to the global environment is crucial for managerial success Differentiate between the global task and global general environments Identify the main forces in both the global task and general environments, and describe the challenges that each force presents to managers McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives Explain why the global environment is becoming more open and competitive and identify the forces behind the process of globalization that increases the opportunities, complexities, challenges, and threats that managers face

Learning Objectives Discuss why national cultures differ and why it is important that managers be sensitive to the effects of falling trade barriers and regional trade associations on the political and social systems of nations around the world

Global Organizations Organizations that operate and compete not only domestically, but also globally Uncertain and unpredictable

Global Environment Set of forces and conditions in the world outside the organization’s boundaries that affect the way it operates and shape its behavior Changes over time Presents managers with opportunities and threats

Task Environment Set of forces and conditions that originate with suppliers, distributors, customers, and competitors Affect an organization’s ability to obtain inputs and dispose of its outputs Most immediate and direct effect on managers

Forces in the Organizational Environment

The Task Environment Suppliers Individuals and organizations that provide an organization with the input resources that it needs to produce goods and services Raw materials, component parts, labor (employees)

The Task Environment Suppliers Relationships with suppliers can be difficult due to materials shortages, unions, and lack of substitutes. Suppliers that are the sole source of a critical item are in a strong bargaining position to raise their prices. Managers can reduce these supplier effects by increasing the number of suppliers of an input.

Suppliers It’s important that managers recognize the opportunities and threats associated with managing the global supply chain

Suppliers Gaining access to low-cost products made abroad represents an opportunity for U.S. companies to lower their input costs Managers who fail to utilize low-cost overseas suppliers create a threat and put their organizations at a competitive disadvantage

Global Outsourcing Process by which organizations purchase inputs from other companies or produce inputs themselves throughout the world to lower production costs and improve the quality or design of their products

The Task Environment Distributors Organizations that help other organizations sell their goods or services to customers Powerful distributors can limit access to markets through its control of customers in those markets. Managers can counter the effects of distributors by seeking alternative distribution channels.

The Task Environment Customers Individuals and groups that buy goods and services that an organization produces Identifying an organization’s main customers and producing the goods and services they want is crucial to organizational and managerial success.

The Task Environment Competitors Organizations that produce goods and services that are similar to a particular organization’s goods and services Vs. Vs.

The Task Environment Potential Competitors Organizations that presently are not in the task environment but could enter if they so choose

The Task Environment Rivalry between competitors is potentially the most threatening force that managers deal with Strong competitive rivalry results in price competition, and falling prices reduce access to resources and lower profits

The Task Environment Barriers to Entry Factors that make it difficult and costly for the organization to enter a particular task environment or industry

Barriers to Entry Economies of scale Brand loyalty Cost advantages associated with large operations Brand loyalty Customers’ preference for the products of organizations currently existing in the task environment. Government regulations that impede entry

Barriers to Entry and Competition Figure 6.2

General Environment Economic Socio-cultural Technological Forces Demographic Political and Legal

The General Environment Economic Forces Interest rates, inflation, unemployment, economic growth, and other factors that affect the general health and well-being of a country or world region

Economic Forces Successful managers: Realize the important effects that economic forces have on their organizations Pay close attention to what is occurring in the national and regional economies to respond appropriately

The General Environment Technology Combination of tools, machines, computers, skills, information, and knowledge that managers use in the design, production, and distribution of goods and services

The General Environment Technological Forces Outcomes of changes in the technology that managers use to design, produce, or distribute goods and services

The General Environment Technological Forces Results in new opportunities or threats to managers Often makes products obsolete very quickly Changes are altering the very nature of work itself, including the manager’s job

The General Environment Sociocultural Forces Pressures emanating from the social structure of a country or society or from the national culture Social structure: the arrangement of relationships between individuals and groups in society National culture: the set of values that a society considers important and the norms of behavior that are approved or sanctioned in that society.

The General Environment Sociocultural Forces Societies differ substantially in the values and norms they emphasize. Effective managers are sensitive to differences between societies and adjust their behaviors accordingly

The General Environment Demographic Forces Outcomes of change in, or changing attitudes toward, the characteristics of a population, such as age, gender, ethnic origin, race, sexual orientation, and social class

The General Environment Demographic Forces Most industrialized nations are experiencing the aging of their populations as a consequence of failing birth and death rates and the aging of the baby-boom generation Organizations need to find ways to motivate and utilize the skills and knowledge of older employees

The General Environment Political and Legal Forces Outcomes of changes in laws and regulations, such as the deregulation of industries, the privatization of organizations, and increased emphasis on environmental protection Increasingly nations are joining together into political unions that allow for the free exchange of resources and capital

The Global Environment Figure 6.3

The Changing Global Environment Managers now recognize that companies exist and compete in a truly global market Managers constantly confront the challenges of global competition Establishing operations in a country abroad Obtaining inputs from suppliers abroad Challenges of managing in a different national culture

Process of Globalization Set of specific and general forces that work together to integrate and connect economic, political, and social systems across countries, cultures, or geographical regions Result is that nations and peoples become increasingly interdependent

Process of Globalization Four principal forms of capital that flow between countries are: Human capital Financial capital Resource capital Political capital

Declining Barriers to Trade and Investment Tariff A tax that government imposes on imported or, occasionally, exported goods. Intended to protect domestic industry and jobs from foreign competition Other countries usually retaliate their own tariffs, actions that eventually reduce the overall amount of trade and impedes economic growth.

GATT and the Rise of Free Trade Free-Trade Doctrine The idea that if each country specializes in the production of the goods and services that it can produce most efficiently, this will make the best use of global resources If India is more efficient in making textiles, and the United States is more efficient in making computer software, then each country should focus on their respective strengths and trade for the other’s goods.

Declining Barriers of Distance and Culture Markets were essentially closed because of the slowness of communications over long distances. Culture Language barriers and cultural practices made managing overseas businesses difficult Changes in Distance and Communication Improvement in transportation technology and fast, secure communications have greatly reduced the barriers of physical and cultural distances.

Effects of Free Trade on Managers Declining Trade Barriers Opened enormous opportunities for managers to expand the market for their goods and services. Allowed managers to now both buy and sell goods and services globally. Increased intensity of global competition such that managers now have a more dynamic and exciting job of managing.

Effects of Free Trade on Managers North American Free Trade Agreement (NAFTA) Abolishes 99% of tariffs on goods traded between Mexico, Canada and the United States Unrestricted cross-border flows of resources Increased investment by U.S. firms in Mexican manufacturing facilities due lower wage costs in Mexico Opportunities and Threats The opportunity to serve more markets Increased competition from NAFTA competitors

Effects of Free Trade on Managers CAFTA Regional trade agreement designed to eliminate tariffs on products between the United States and all countries in Central America Approved by Dominican Republic, El Salvador, Guatemala, Nicaragua, and Honduras

The Role of National Culture Values Ideas about what a society believes to be good, desirable and beautiful. Provide the basic underpinnings for notions of individual freedom, democracy, truth, justice, honesty, loyalty, love, sex, marriage, etc.

The Role of National Culture Norms Unwritten rules and codes of conduct that prescribe how people should act in particular situations. Folkways—routine social conventions of daily life (e.g., dress codes and social manners) Mores—behavioral norms that are considered central to functioning of society and much more significant than folkways (e.g., theft and adultery), and they are often enacted into law. Many differences in mores from one society to another

Hofstede’s Model of National Culture Figure 6.4

Hofstede’s Model of National Culture Individualism A worldview that values individual freedom and self-expression and adherence to the principle that people should be judged by their individual achievements rather their social background. Collectivism A worldview that values subordination of the individual to the goals of the group and adherence to the principle that people should be judged by their contribution to the group

Hofstede’s Model of National Culture Power Distance A society’s acceptance of differences in the well being of citizens due to differences in heritage, and physical and intellectual capabilities (individualism).

Hofstede’s Model of National Culture Achievement versus Nurturing Orientation Achievement-oriented societies value assertiveness, performance, and success and are results-oriented. Nurturing-oriented cultures value quality of life, personal relationships, and service. The United States and Japan are achievement-oriented; Sweden and Denmark are more nurturing-oriented.

Hofstede’s Model of National Culture Uncertainty Avoidance Societies and people differ in their tolerance for uncertainty and risk. Low uncertainty avoidance cultures (e.g., U.S. and Hong Kong) value diversity and tolerate a wide range of opinions and beliefs. High uncertainty avoidance societies (e.g., Japan and France) are more rigid and expect high conformity in their citizens’ beliefs and norms of behavior.

Hofstede’s Model of National Culture Long Term Outlook Cultures with a long-term orientation rest on values such as thrift and persistence in achieving goals Cultures with a short-term orientation are concerned with maintaining personal stability or happiness and living for the present

National Culture and Global Management Management practices that are effective in one culture often will not work as well in another culture Managers must be sensitive to the value systems and norms of an individual’s country and behave accordingly