1 FOM GLOBAL ENVIRONMENTGLOBAL ENVIRONMENT What is meant by the term? Customers Resources Manufacturing Emerging Borderless World What are signs of this Borderless Business Environment? What factors are facilitating this Environment?

2 FOM GLOBAL ENVIRONMENTGLOBAL ENVIRONMENT Domestic Stage Control: Home Country Production: Home Country Marketing: Home Country Managers: Home Country International Stage (Exporting) Control: Home Country Production: Home Country Marketing: Home Country (Directed by International divison) Managers: Home Country Levels Of Globalization Multinational Stage Control: Home Country Production: Multiple Countries locations Marketing: Multiple Countries locations Managers: Home or Host Country Global Stage Control: Multiple Countries Production: Multiple Countries locations Marketing: Multiple Countries locations Managers: Global

3 FOM GLOBAL ENVIRONMENTGLOBAL ENVIRONMENT Internal Business Environment Does the Basic Management Functions Change? Financing Production Distribution Does the Basic Management Functions Change? Planning Organizing Motivating Control What Does Change? Perceptions Expectations Norms

4 FOM GLOBAL ENVIRONMENTGLOBAL ENVIRONMENT Economic Environment Economic Development Market Feasibility Labor availability LDCs Per Capita Income Infrastructure Def: Physical facilities that support economic activity. Phones, Electricity, Transportation, Housing, Mail Service, Internet? Resources & Product Market Location of Production is based on Availability of Raw materials, Customers, Labor or Political If host country does not have necessary resources and in place then organization will have to add to accommodate business model. Supply base, Schools, Intermediate goods

5 FOM GLOBAL ENVIRONMENTGLOBAL ENVIRONMENT Exchange Rate Def: Rate of one country currency in exchange for another. How does this impact the organization? Exporting Product: Home Currency goes up in value then sales in Importing Country goes: Down Why? Production & Resources in Host Country: Home Currency goes up in value then sales in Importing Country goes: No Change Why? Potential impact on organization is in transfer of profits to Home country. There are ways to minimize the impact

6 FOM GLOBAL ENVIRONMENTGLOBAL ENVIRONMENT Legal / Political Environment Political Risk Def: Risk of loss of assets, earnings, power or managerial control due to politically based events or acts by the host government. Gov’t nationalization of industries Gov’t sanctioned riots actions against company as the result of company or home government decisions. Political Instability Civil war Laws & Regulations Transfer of profits Ownership Product related Taxation

7 FOM GLOBAL ENVIRONMENTGLOBAL ENVIRONMENT Trade Alliances Def: Agreements between countries that are designed to stimulate trade between members. Current & Past Alliances: European Union (EU) North America Free Trade Agreement (NAFTA) 1989 Economic Community of West African States (ECOWAS) 1992 Association of South East Asian Nations (ASEAN) 1978 Latin American Free Trade Association (LAFTA) 1960 Impact on External Organizations Barriers to entry for new organizations Expansion of large global organizations

8 FOM GLOBAL ENVIRONMENTGLOBAL ENVIRONMENT Types of Trade Alliances 1) Free Trade Areas (FTA) Requires nations to remove all tariffs among members 2) Customs Unions Have a common external tariff policy for non members 3) Common Market Permit free flow of all factors of production (capital, labor, technology) 4) Economic Union Pursues common monetary & fiscal policies 5) Political Union Same political position, merging into one nation

9 FOM GLOBAL ENVIRONMENTGLOBAL ENVIRONMENT Sociocultural Environment Culture: Shared knowledge, beliefs and values as well as modes of behavior and ways of thinking. If organizations and managers acknowledge the importance of considering the host country culture when doing business. Then why don’t they get it right? Difficulty in applying the cultural information in all situations. Perceptions and bias of source of cultural information. Ethnocentrism: Regarding one’s own culture to be superior Use of past practices that gave successful results.

10 FOM GLOBAL ENVIRONMENTGLOBAL ENVIRONMENT Cultural Characteristics That Influence International Organizations Geert Hofstede Research: 1) Power Distance:Degree to which people accept inequality in power. Low : People expect equality in power High: People do not expect equality in power 2) Uncertainty Avoidance: Intolerance for uncertainty or ambiguity. Low: High tolerance for uncertainty High: Uncomfortable with uncertainty 3) Individualism & Collectivism Individualism reflects a value where the individual takes care of themselves. Collectivism reflects values where each member looks out for other members interest. 4) Masculinity / Femininity Masculinity reflects preferences for achievement, heroism, assertiveness, and work centered. Femininity reflect preferences towards relationships, cooperation, group decision making & quality of life.

11 FOM GLOBAL ENVIRONMENTGLOBAL ENVIRONMENT Other Influences on International Organizations 1) Religion Sacred objects philosophical attitudes towards life taboos & beliefs 2) Social Organization Social Status Family relationships Social mobility 3) Education Literacy Qualified Employees

12 FOM GLOBAL ENVIRONMENTGLOBAL ENVIRONMENT Getting Started Internationally 1) Outsourcing Work Adv: Lower labor &/or raw materials Disadv: Lose some production control 2) Exporting Adv: retain control, minimal risk, easy way to gain international experience Disadv: Subject to currency fluctuations 3) Licensing & Franchising Adv: Requires little capital; only way to tap into some countries; Provides life extension for mature products; good alternative to foreign production & marketing; Royalties are guaranteed. Disadv: No control over production & marketing; Must have a distinctive product or technology; Royalties are small compare to potential profits; potential development of competition. 4) Joint Venture Adv: Takes advantage of each partners strengths ( technology, capital. Disadv: Personal conflicts; has weaknesses of each partner

13 FOM GLOBAL ENVIRONMENTGLOBAL ENVIRONMENT Getting Started Internationally 5) Wholly Owned Foreign Affliiate: Adv: Complete control; established distribution; established production & marketing; host country managers Disadv: More capital risk; Seen as outsiders 6) Barter Def: transfer of goods and services for other goods and services Adv: no currency exchange issues; Good for countries with no hard currency Disadv: converting goods for currency; uncertain profit margins 7) Co-Production Def: Selling a product to a customer with the intent for the customer to pay in full or partially by making components for the product being sold or a like product. Adv: Allows the sale of expensive products or to countries with insufficient capital. Disadv: Has a limitation on what can be produced ( technology transfer or finite amount of work)

14 FOM GLOBAL ENVIRONMENTGLOBAL ENVIRONMENT Managing A Global Environment Focus on sensitivity to cultural subtleties and understand ways to provide proper leadership, decision making, motivation & control. What do you think are factors facing managers on an international assignment? Language Shared Experience Loneliness Homesickness What factors should you have or look for in a manager for an international assignment? Adventurous Adaptability Accepting

15 FOM GLOBAL ENVIRONMENTGLOBAL ENVIRONMENT Preparation for Assignment How do members of the host country relate to typical areas of management? Leading Decision Making Motivation Controlling How should a company ensure the readiness of a Manager for an international assignment? Language training Assignment to position in the International division of the home office. Networking Knowledge of issues Problem resolution Short trips to host country Culture training Mentoring by host country manager