Managing in the Global Environment chapter six lecture 1 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives 1.Explain why the ability to perceive, interpret, and respond appropriately to the global environment is crucial for managerial success 2.Differentiate between the global task and global general environments 3.Identify the main forces in both the global task and general environments, and describe the challenges that each force presents to managers 6-2

Learning Objectives (cont.) 4.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 5.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 6-3

Global Organizations – Organizations that operate and compete not only domestically, but also globally – Uncertain and unpredictable 6-4

What Is the Global Environment? 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 6-5

Forces in the Global Environment 6-6 Figure 6.1 Page 212

What Is the Global Environment? Task Environment – Set of forces and conditions that originate with suppliers, distributors, customers, and competitors – Affects an organization’s ability to obtain inputs and dispose of its outputs – Most immediate and direct effect on managers 6-7

What Is the Global Environment? General environment – The wide-ranging global, economic, technological, sociocultural, demographic, political, and legal forces that affect an organization and its task environment. 6-8

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) 6-9

Global Outsourcing – The purchase or production of inputs or final products from overseas suppliers to lower costs and improve product quality or design. 6-10

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. 6-11

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. 6-12

The Task Environment Competitors – Organizations that produce goods and services that are similar to a particular organization’s goods and services Rivalry between competitors is potentially the most threatening force that managers deal with 6-13

The Task Environment Barriers to Entry – Factors that make it difficult and costly for the organization to enter a particular task environment or industry 6-14

Barriers to Entry Economies of scale – 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 6-15

Barriers to Entry and Competition 16 Figure 6.2 Page 219

The General Environment Economic Forces – Interest rates, inflation, unemployment, economic growth, and other factors that affect the general health and well-being of a nation or the regional economy of an organization. 6-17

The General Environment Technology – The combination of skills and equipment that managers use in designing, producing, and distributing goods and services. Technological Forces – Outcomes of changes in the technology that managers use to design, produce, or distribute goods and services 6-18

The General Environment Sociocultural Forces – Pressures emanating from the social structure of a country or society or from the national culture 6-19

Sociocultural Forces 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. 6-20

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 6-21

The General Environment Political and Legal Forces – Outcomes of changes in laws and regulations, such as deregulation of industries, privatization of organizations, and increased emphasis on environmental protection. 6-22

The Global Environment Figure

Process of Globalization Globalization – The set of specific and general forces that work together to integrate and connect economic, political, and social systems across countries, cultures, or geographical regions so that nations become increasingly interdependent and similar. 6-24

Principal Forms of Capital that Flow Between Countries 6-25 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 6-26

USITC The United States International Trade Commission is an “independent, quasi-judicial Federal agency with broad investigative responsibilities on matters of trade.” The Commission also serves as a Federal resource where trade data and other trade policy-related information are gathered and analyzed. 7-27

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 and will result in lower prices – General Agreement on Tariffs and Trade 6-28

Declining Barriers of Distance and Culture - Unilever Distance – 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. 6-29

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. 6-30

The Role of National Culture Values – Ideas about what a society believes to be good, right, desirable and beautiful. – Provide the basic underpinnings for notions of individual freedom, democracy, truth, justice, honesty, loyalty, love, sex, marriage, etc. 6-31

The Role of National Culture Norms – Unwritten rules and codes of conduct that prescribe how people should act in particular situations. – Folkways, mores – Many differences in mores from one society to another 6-32

Hofstede’s Model of National Culture 6-33 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 6-34

Hofstede’s Model of National Culture Power Distance – Degree to which societies accept the idea that inequalities in the power and well-being of their citizens are due to differences in individuals’ physical and intellectual capabilities and heritage 6-35

Hofstede’s Model of National Culture Achievement orientation – A worldview that values assertiveness, performance, success, and competition Nurturing orientation – A worldview that values the quality of life, warm personal friendships, and services and care for the weak. 6-36

Hofstede’s Model of National Culture Uncertainty Avoidance – The degree to which societies are willing to tolerate uncertainty and risk. – Low uncertainty avoidance cultures value diversity and tolerate a wide range of opinions and beliefs. – High uncertainty avoidance societies are more rigid and expect high conformity in their citizens’ beliefs and norms of behavior. 6-37

Hofstede’s Model of National Culture Long-term orientation – A worldview that values thrift and persistence in achieving goals. Short-term orientation – A worldview that values personal stability or happiness and living for the present. 6-38