Week 4: Recap Organization’s Environments Types External General and Task Internal External environment & uncertainty Corporate culture Adaptable, achievement, involvement & consistency

Managing in a Global Environment Week 5

A Borderless World Organizations and managers are not isolated from international forces: Trade barriers have fallen Communication is faster, cheaper Consumer tastes converge The difficulties and risks of a borderless world are matched by benefits and opportunities

Ranking of Countries on the Globalization Index

2012 KOF Index of Globalization - 208 Countries Global Index (convergence) Rank 94. Score 54.94 Economic globalization Rank 101. Score 53.02 Social globalization Rank 134. Score 35.40 134. Political globalization Rank 49. Score 85.41 Source 2012 KOF Index of Globalization Dreher, Axel; Noel Gaston and Pim Martens, 2008, Measuring Globalization - Gauging its Consequence , New York: Springer.

Four Stages of Globalization

Getting Started Internationally Global Outsourcing Exporting May choose licensing or direct investing

Strategies for Entering International Markets Franchising may be defined as a business arrangement which allows for the reputation, (goodwill) innovation, technical know-how and expertise of the innovator (franchisor) to be combined with the energy, industry and investment of another party (franchisee) to conduct the business of providing and selling of goods and services. A license arrangement is a business arrangement where a licensor via a monopoly right such as a Patent, a Trade Mark, a design or a copyright has to exclusive right which prevents others from exploiting the idea, design, name or logo commercially. The license allows the licensee to use make and sell, the product or name for a fee without censure. In a Trade Mark license, for example, the licensee will be granted full privilege to use the Trade Mark on goods or services provided that the use is in accordance with agreed signage protocols and quality guidelines. There is usually no training component, product development strategy and limited marketing support. Franchising is business. It is the buying and selling of goods and services and, like every business transaction, requires careful thought before the transaction action is completed. Buying a franchise is just the same as buying into any business. The purchase needs to be made in the cold light of day and not on impulse. Balance sheets need to be looked at and bottom lines investigated. The franchise should also be compared with similar franchises in similar areas so the at pears are compared with pears and realistic expectations and incomes ascertained. The most overlooked aspect of franchising and one that is invariably taken for granted is the Intellectual Property owned by the franchisor – or in some cases not owned by him. An essential factor of a franchise is its name. This is how franchises products and services are brought, sold and marketed. It is how its customers know the business. Particularly when entering into a new franchise system, or into a new area it is imperative that the monopoly position encompassed in the name of the franchise is investigated thoroughly. The brand and the exclusivity that it brings to a business will after all form a large part of the purchase price of the franchise and is one of the most attractive forces to potential customers. A name-brand availability search is therefore essential and should be performed by a professional search service. Other aspects of Intellectual Property such as patent ownership, copyright and marketing wishes should also be investigated and their ownership (right to use) determined. Just about all franchisees have a genuine passion for their products and the business that they are in – so it is important that when choosing a franchise that it is not chosen because you like the product but with an eye to the bottom line today and in the future. Conversely, a franchise shall not be chosen simply because the bottom line looks good. A form of foreign direct investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up. In addition to building new facilities, most parent companies also create new long-term jobs in the foreign country by hiring new employees. A greenfield strategy is to enter into a new market without the help of another business who is already there. An acquisition is the opposite of a greenfield entry.

The International Business Environment Planning, organizing, leading and controlling in multiple countries can be challenging It took McDonalds a year to figure that Hindus in India do not eat beef In Africa, the baby food includes pictures to aid illiterate consumers What about Ghana? Managers must be aware to operate in the highly competitive global environment

Key Factors in International Environment

The Economic Environment Economic Development Countries are either developed or developing Resource and Product Markets Companies must evaluate the market demand for their products Economic Interdependence It has become more obvious that countries are connected by events across the globe

World Economic Forum Global Competitiveness

Bearing the Economic Crisis (Misery Index) Misery Index is an economic indicator, created by economist Arthur Okun, and found by adding the unemployment rate to the inflation rate. It is assumed that both a higher rate of unemployment and a worsening of inflation create economic and social costs for a country

The Legal-Political Environment Political risk is defined as the risk of lost assets, earning power, or managerial control. Managers must be concerned with the political instability of global markets.

The Sociocultural Environment Social Values Communication Differences Other Cultural Characteristics Language, religion, social organization, education and attitudes

The Cultural Typologies Hofstede’s dimensions 4 dimensions GLOBE Project 7 dimensions

Hofstede’s Value Dimensions Power Distance Uncertainty Avoidance Individualism and Collectivism Masculinity and Femininity

Countries and Values

GLOBE Project Value Dimensions Uncertainty avoidance Gender differentiation Power distance Social collectivism Individual collectivism Assertiveness Future orientation Performance orientation Humane orientation

Assertiveness HIGH ASSERTIVENESS societies LOW ASSERTIVENESS societies Value competition, success, and progress.  Communicate directly and unambiguously. Try to have control over the environment. Expect subordinates to take initiative. Build trust on basis of calculation. LOW ASSERTIVENESS societies Value cooperation and warm relationships. Communicate indirectly; try to "save face." Try to be in harmony with the environment. Expect subordinates to be loyal. Build trust on basis of predictability.

Future orientation HIGH FUTURE ORIENTATION societies Propensity to save now for the future. Emphasize working for long-term success. Organizations tend to be flexible and adaptive. View material success and spiritual fulfillment as an integrated whole. LOW FUTURE ORIENTATION societies Propensity to spend now, rather than save. Prefer gratification as soon as possible. Organizations tend to be inflexible and maladaptive. View material success and spiritual fulfillment as separate, requiring trade-offs

PERFORMANCE ORIENTATION HIGH PERFORMANCE ORIENTATION societies Value competitiveness and materialism. View formal feedback as necessary for performance improvement. Value what one does more than who one is. Expect direct, explicit communication. LOW PERFORMANCE ORIENTATION societies Value societal and family relationships. Value harmony with the environment. View formal feedback as judgmental and discomfiting. Value who one is more than what one does. Expect indirect, subtle communication.

HUMANE ORIENTATION societies HIGH HUMANE ORIENTATION societies The interests of others are important. People are motivated primarily by a need for belonging and affiliation. Members of society are responsible for promoting the well-being of others. Child labor is limited by public sanctions. People are urged to be sensitive to all forms of racial discrimination. LOW HUMANE ORIENTATION societies One's own self-interest is important. People are motivated primarily by a need for power and material possessions. The state provides social and economic support for individuals' well-being. Child labor is an issue of low importance. People are not sensitive to all forms of racial discrimination.

Country Ranking on Selected GLOBE Value Dimensions

High-Context and Low-Context Cultures

Other Cultural Characteristics Language Religion Social Organization Education Attitudes Ethnocentrism – a tendency to regard your own culture as superior

Developing Cultural Intelligence Cultural intelligence – ability to use reasoning and observation skills Culturally flexible Adapt to new situations Cognitive, emotional and physical intelligence Managers must study the language and learn

International Trade Alliances General Agreement on Tariffs and Trade (GATT) 23 nations in 1947, a set of rules for fair trade World Trade Organization (WTO) Maturation of GATT into permanent global institute European Union 1957 Alliance to improve economic and social conditions among members; evolved to 27-nation European Union North American Free Trade Agreement (NAFTA) Merged the United States, Canada and Mexico into trading bloc

African Trade Alliances Economic Community of West African States (ECOWAS)[9] Economic Community of Central African States (ECCAS) African Free Trade Zone (AFTZ Common Market for Eastern and Southern Africa (COMESA) Southern African Development Community (SADC)

European Union

China and Southeast Asia Nations

Serving the Bottom of the Pyramid (BOP) Corporations can alleviate poverty and social ills by selling to the world’s poorest people More than 4 billion people who are the lowest on the economic “pyramid” These people have not traditionally been served Many companies are adopting BOP strategies

The Globalization Backlash 53% of American believe free trade has hurt the United States The United States’ primary concern is the loss of jobs Business leaders insist that economic benefits flow back to the U.S. economy Lower prices Expanded markets Increased profits and funds for innovation

An Asian View of Cultural Difference

Some questions to consider Why do you think many people are so frightened by globalization? Based on what is occurring in the world today, do you expect the globalization backlash to grow stronger or weaker over the next decade? How might the social value of low versus high power distance influence how you would lead and motivate employees? What about the value of low versus high performance orientation? THANK YOU, Any Questions?