1. Globalization and Management15
Globalization and Management

2. Learning Outcomes Follow this Learning Outline as you read and study this chapter.
What’s your global perspective?
Define parochialism.
Contrast ethnocentric, polycentric, and geocentric attitudes towards global business.
Understanding the global environment
Describe the current status of the EU, NAFTA, ASEAN and other Regional Trade Allowances.
Discuss the role of the WTO.

3. Learning Outcomes Doing business globally
Contrast multinational, multidomestic, global, transnational and born global organizations.
Describe the different ways organizations can go international.
Managing in a global environment
Explain how the global legal-political and economic environments affect managers.
Discuss Hofstede’s five dimensions for assessing cultures.
Describe the challenges of doing business globally in today’s world.

4. Learning Outcomes The role of Multinational Enterprises
Describe the ways to own foreign assets.
Explain the impact of MNEs on host and host countries.
Explain the role of cultural intelligence in managing multinational enterprises.

5. The Global Marketplace
Opportunities and Challenges
Coping with the sudden appearance of new competitors
Acknowledging cultural, political and economic differences
Dealing with increased uncertainty, fear and anxiety
Adapting to changes in the global environment
Avoiding parochialism

6. What’s Your Global Perspective?
Parochialism
Is viewing the world solely through one’s own eyes and perspectives.
Is not recognizing that others have different ways of living and working.
Is a significant obstacle for managers working in a global business world.
Is falling into the trap of ignoring others’ values and customs and rigidly applying an attitude of “ours is better than theirs” to foreign cultures.

7. Adopting a Global Perspective
Ethnocentric Attitude
The parochialistic belief that the best work approaches and practices are those of the home country.
Polycentric Attitude
The view that the managers in the host country know the best work approaches and practices for running their business.
Geocentric Attitude
A world-oriented view that focuses on using the best approaches and people from around the globe.

8. Regional Trading Agreements
The European Union (EU)
A unified economic and trade entity
Belgium, Denmark, France, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, the United Kingdom, Germany, Austria, Finland and Sweden
North American Free Trade Agreement (NAFTA)
Eliminated barriers to free trade (tariffs, import licensing requirements and customs user fees)
United States, Canada and Mexico

9. European Union

10. Regional Trading Agreements
U.S.-Central America Free Trade Agreement (CAFTA)
Free Trade Area of the Americas
Southern Cone Common Market (Mercosur)
Association of Southeast Asian Nations (ASEAN)
Trading alliance of 10 Southeast Asian nations
African Union
South Asian Association for Regional Cooperation (SARRC)

11. ASEAN Members

12. The World Trade Organization (WTO)
Evolved from the General Agreement on Tariffs and Trade (GATT) in 1995.
Functions as the only global organization dealing with the rules of trade among nations.
Has 149 member nations and 32 observer governments.
Monitors and promotes world trade.

13. Different Types of International Organizations
Multinational Corporation (MNC)
Maintains operations in multiple countries.
Multidomestic Corporation
Is an MNC that decentralizes management and other decisions to the local country.
Global Company
Is an MNC that centralizes its management and other decisions in the home country.

14. Different Types of International Organizations (cont.)
Transnational Corporation (Borderless Organization)
Is an MNC that has eliminated structural divisions that impose artificial geographic barriers and is organized along business lines that reflect a geocentric attitude.

15. How Organizations Go Global

16. Other Forms of Globalization
Strategic Alliances
Partnerships between organization and a foreign company in which both share resources and knowledge in developing new products or building new production facilities.
Joint Venture
A specific type of strategic alliance in which the partners agree to form a separate, independent organization for some business purpose.
Foreign Subsidiary
Directly investing in a foreign country by setting up a separate and independent production facility or office.

17. Managing in A Global Environment
The Legal Environment
Stability or instability of legal and political systems
Legal procedures are established and followed
Fair and honest elections held on a regular basis
Differences in the laws of various nations
Effects on business activities
Effects on delivery of products and services

18. The Economic Environment
Economic Systems
Free market economy
An economy in which resources are primarily owned and controlled by the private sector.
Planned economy
An economy in which all economic decisions are planned by a central government.
Monetary and Financial Factors
Currency exchange rates
Inflation rates
Diverse tax policies

19. The Cultural Environment
National Culture
Is the values and attitudes shared by individuals from a specific country that shape their behavior and their beliefs about what is important.
May have more influence on an organization than the organization culture.

20. What Are Indians Like?
Indians are informal. They do not say thank you, please, etc. as much as people say from other countries. They do not think that it is important to make an appointment before going to a friends place. If two people are talking to each other, a third will not think twice before joining the conversation. They will not be shy of asking a stranger about his or her personal information.
Indians are indirect. Indians will find ways of saying unpleasant things so that they do not sound rude.
Indians are both collectivistic and individualistic. Indians will depend on others to get their work done and will also help others in their needs. They do not believe that people control their own destiny and at the same time would not mind to be on their own to achieve their goals. •.

21. What Are Indians Like?
Indians view time as stretchable. Indians are not very upset if a meeting does not start on time. Time is defined by how long it takes to get something done
Indians have mostly external locus of control. A typical Indian will not blame oneself for all their failures. It is very common for them to say that this was because of their destiny.
Indians value relationships. Indians will go to great extent to build relationships and their view for relationships is long term. Family is a very important source of relationships for the Indians.

22. What Are Indians Like?
Indians are paternalistic. The head of the family is revered and respected. A leader or a boss is looked upon as the caretaker and father figure. A caring boss can get a lot of work done from the Indian subordinates. Whenever you go out to meet a family or for a formal business meeting, it is common to first greet the eldest or the senior-most person in the setting.
Indians value “keeping of word.” Once trust is established and a word is given, Indians will try hard to honor it. They might be late or a little slow to honor their word but will eventually come back to you and will keep their promise.

23. Hofstede’s Framework for Assessing Cultures

24. Hofstede’s Five Dimensions of National Culture
(1) Individualistic — people look after their own and family interests
Collectivistic — people expect group to look after and protect them
Individualistic Collectivistic
United States, Canada Japan Mexico, Thailand
Australia
(2) High power distance—Accepts wide differences in power, great deal of respect for those in authority
Low power distance—Plays down inequalities: employees are not afraid to approach nor are in awe of the boss
High power distance Low power distance
Mexico, Singapore, Italy, Japan United States, Sweden

25. Hofstede’s Five Dimensions of National Culture
(3) High uncertainty avoidance—Threatened with ambiguity and experience high levels of anxiety
Low uncertainty avoidance— Comfortable with risks; tolerant of different behavior and opinions
High uncertainty avoidance Low uncertainty avoidance
Italy, Mexico, France United Kingdom Canada, United States, Singapore
(4) Achievement—Values such as assertiveness, acquiring money and goods, and competition prevail
Nurturing—Values such as relationships and concern for others prevail
Achievement Nurturing
United States, Japan, Canada, Greece France, Sweden
Mexico

26. Hofstede’s Five Dimensions of National Culture
(5) Long-term orientation—People look to the future and value thrift and persistence
Short-term orientation — People value tradition and the past
Short-term thinking Long-term thinking
Germany, Australia, China, Taiwan, Japan
United States, Canada

27. GLOBE Highlights

28. The Role of Multinational Enterprises (MNE)
Ways to own foreign assets:
Foreign portfolio investment:
Purchase share in the companies that own those assets.
Such investment gives those companies and individuals a claim on profits, but no right to participate in management.
Direct investment: buying and management of foreign assets
It is through a multinational enterprise, a large corporation with operations and divisions spread over several countries but controlled by a central headquarters.
Three factors to be considered by managers before investment decisions:

29. The role of Multinational Enterprises (MNE)
Economies of different nations
Infrastructure: Transportation systems, schools, communication systems, hospitals, power plants and sanitary facilities
Political risk:
Possibility of political changes
Appropriateness of technology to different cultures
Production technology in one country may not work in another
Some governments may not encourage the technological changes.

30. Impact of MNEs on Host Countries
Not necessarily welcome participants in national economies around the world
Viewed with suspicion
Some potential benefits:
Transfer of capital, technology and entrepreneurship to the host country
Improved host country’s balance of payments

31. Impact of MNEs on Host Countries
Creation of local job and career opportunities
Improved competition in the local economy
Greater availability of products for local consumers
Some potential costs:
MNE may use local financing , thereby absorbing capital which may have financed indigenous companies.
Few well-advertised, standardized consumer products may drive many local produced products from the market, thereby reducing consumer choice.

32. Impact of MNEs on Home Countries
Less debatable due to absence of highly charged emotional issues as political interference, cultural disruption and economic dependence.
Drawbacks:
Outflow of foreign investments with reduced income from exports may weaken the national balance of payments.
Loss of technological advantage especially with joint ventures.
Loss of domestic jobs.

33. Managing in Global Environment
The Role of Cultural Intelligence
It is often seen that most of the expatriates fail or are not able to perform upto the mark.
One of the reasons given for the failure is lack of cultural intelligence.
Cultural intelligence refers to an individual’s capability to function effectively across cultures—this can include national, ethnic, organizational as well as other types of culture.

34. Managing in Global Environment
The role of cultural intelligence
It is often seen that most of the expatriates fail or are not able to perform upto the mark.
One of the reasons given for the failure is lack of cultural intelligence.

35. Managing in Global Environment
Cultural intelligence refers to an individual’s capability to function effectively across cultures—this can include national, ethnic, organizational as well as other types of culture.
It consists of metacognition and cognition (thinking, learning, and strategizing); motivation (efficacy and confidence, persistence, value congruence and affect for the new culture); and behavior (social mimicry and behavioral repertoire).
Cultural shock refers to frustration and anxiety that results from being constantly being subjected to strange and unfamiliar cues about what to do and how to do it.

36. Managing in Global Environment
Adaptation of Other Management Activities
Managers will have to be ‘customized’ as per the host country environment.
Expatriates or international managers will have to be extra sensitive or trained to ‘fit’ their style to the host country styles for effective management.

37. Terms to Know born globals global sourcing exporting importing
parochialism
ethnocentric attitude
polycentric attitude
geocentric attitude
European Union (EU)
Euro
North American Free Trade Agreement (NAFTA)
Association of Southeast Asian Nations (ASEAN)
World Trade Organization (WTO)
multinational corporations (MNCs)
multidomestic corporation
global company
transnational or borderless organization
born globals
global sourcing
exporting
importing
licensing
franchising
strategic alliances
joint venture
foreign subsidiary
market economy
command economy
national culture
GLOBE