© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 6 The Global Environment

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives Describe the nature of the global environment, including its meaning, recent trends, managing internationalization, and managing in an international market. Discuss the structure of the international economy and how it affects international management.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives Identify and discuss the basic challenges inherent in international management. Describe the basic issues involved in competing in an international economy, including organization size and the management challenges in a global economy.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Influence of the Global Environment We have all become part of a global village. We have a global environment in which no organization is insulated from effects of foreign markets and competition. More firms viewing themselves as international or multinational businesses.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Influence of the Global Environment International Business Defined – Domestic business: acquires essentially all of its resources and sells all of its products or services within a single country. – International business: primarily based in a single country but acquires some meaningful share of its resources or revenues from other countries.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Influence of the Global Environment International Business Defined – Multinational business: worldwide marketplace where it buys raw materials, borrows money, manufactures its products, sells its products. – Global business: transcends national boundaries; isn’t committed to a single home country.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Influence of the Global Environment The Growth of International Business – After World War II, the United States was the dominant economic force in world. – Many countries in Europe and Asia devastated. – The United States became “breadbasket of the world” through its exports of grains and other foodstuffs. – Companies in war-torn countries had to rebuild; poised for growth.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Influence of the Global Environment The Growth of International Business – U.S. firms no longer isolated from global competition or global market. – U.S. dominance of global economy is past. – U.S. firms finding international operations are increasingly important element of sales and profits.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Influence of the Global Environment Managing the Process of Internationalization – Exporting: making product in firm’s domestic marketplace and selling it in another country. – Importing: when a good, service, or capital is brought into home country from abroad. – Licensing agreement: company permits a foreign company to manufacture and/or market its products.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Influence of the Global Environment Managing the Process of Internationalization – Joint venture: when two firms in control and ownership of new enterprise. – Strategic alliance: cooperative agreement that does not necessarily involve ownership. – Direct investment: when firm headquartered in one country builds or purchases operating facilities or subsidiaries in foreign country.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Influence of the Global Environment Managing the Process of Internationalization – Outsourcing (global sourcing): transferring production to locations where labor is cheap. – Maquiladoras: light-assembly plants built in northern Mexico close to U.S. border.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Influence of the Global Environment Managing in International Markets – Manager must address whether to focus on globalization or regionalism. – Regionalism: managing within each region with less regard to overall organization.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The International Economy Mature Market Economies and Systems – Market economy Based on private ownership of business. Allows market factors such as supply and demand to determine business strategy. – Market systems: clusters of countries that engage in high levels of trade with each other.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The International Economy Mature Market Economies and Systems – European Union (EU): mature market system. – Pacific Rim: mature market system. – North American Free Trade Agreement (NAFTA).

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The International Economy Developing Economies – Relatively underdeveloped and immature. – Weak industry and currency; poor consumers. – Government working to strengthen economy by opening its doors to foreign investment and promoting international trade. – Lack of wealth of potential consumers. – Underdeveloped infrastructure.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The International Economy Other Economies – Oil-exporting countries: mixed models of resource allocation, property ownership, development of infrastructure. – Risks to business: politically and ethnically motivated violence.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Challenges of International Management Economic Challenges – Economic system Private ownership: individuals and companies (not government) own and operate companies that conduct business. Public ownership: government directly owns companies that manufacture and sell products.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Challenges of International Management Economic Challenges – Natural resources: very broad range of resource availability in different countries. – Infrastructure: schools, hospitals, power plants, railroads, highways, ports, communication systems, air fields, commercial distribution systems. – Purchasing power: ability of consumers in a country to purchase goods and services.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Challenges of International Management Political/Legal Challenges – Government stability – Incentives for multinational trade – Controls on international trade Tariff: tax on goods shipped across national boundaries. Quota: limit on number or value of goods traded. Export restraint agreements. “Buy national” legislation.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Challenges of International Management Political/Legal Challenges – Influence of economic communities on international trade Trade agreement (pact): legal arrangement between two or more nations that they will work together cooperatively in terms of trade. International economic community: set of countries that agrees to reduce or eliminate trade barriers among its member nations.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Challenges of International Management Sociocultural Challenges – Values, symbols, and beliefs Cultural values and beliefs often unspoken. Cultural differences between countries can have direct impact on business practice. – Language Barriers posed by people who speak different languages. Subtle differences in meaning.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managing in the International Economy The Influence of Organization Size – Multinational organizations – Medium-size organizations – Smaller organizations

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managing in the International Economy Management Functions in a Global Economy – Planning – Organizing – Leading – Controlling

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter Summary International business: important feature of world’s economy. Businesses: domestic, international, multinational, or global in scope. Mature market economies and systems dominate global economy today. Developing economies: bigger roles in future. Oil-exporting economies important.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter Summary Economic, political/legal, sociocultural challenges of international management are critical. Issues of competing in international economy vary according to whether organization is a MNE, medium-size organization, smaller organization. Basic managerial functions of planning, organizing, leading, controlling must all be addressed.