1. Managing the Global Environment
Chapter 3
Managing the Global Environment
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

2. LEARNING OUTLINE Follow this Learning Outline as you read and study this chapter.
What’s Your Global Perspective?
Contrast ethnocentric, polycentric, and geocentric attitudes toward global business.
Explain why it’s important for managers to be sensitive to global differences.
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

3. LEARNING OUTLINE (cont’d) Follow this Learning Outline as you read and study this chapter.
Understanding the Global Environment
Describe the current composition and currency situation of the European Union.
Discuss the North American Free Trade Agreement and other regional trade alliances in Latin America.
Define the Association of Southeast Asian Nations.
Explain the interdependence that globalization involves.
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

4. LEARNING OUTLINE (cont’d) Follow this Learning Outline as you read and study this chapter.
Understanding the Global Environment (cont’d)
Discuss the role of the World Trade Organization.
Contrast multinational corporations, transnational corporations, and borderless organizations.
Describe the different ways that organizations can go global.
Define exporting, importing, licensing, and franchising.
Describe global strategic alliances, joint ventures, and foreign subsidiaries.
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

5. LEARNING OUTLINE (cont’d) Follow this Learning Outline as you read and study this chapter.
Managing in a Global Environment
Explain how the global legal-political environment affects managers.
Explain the nine GLOBE dimensions for assessing cultures.
Discuss the challenges of doing business globally in today’s world.
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

6. What’s Your Global Perspective?
Ethnocentric Attitude
Belief that home country has the best work approaches and practices
Polycentric Attitude
View that managers in host country know the best approaches and practices
Geocentric Attitude
A world-oriented view that focuses on using the best approaches and people from around the globe
It’s not unusual for Germans, Italians, or Indonesians to speak three or four languages. On the other hand, Canadians tend to think of English as the only international business language and they don't see a need to study other languages.
A. Parochialism is defined as a selfish, narrow view of the world and an inability to recognize differences between people. Parochialism is an obstacle for many managers working in the global business world. These attitudes often stem from monolinguism .
B. Managers might have one of three perspectives or attitudes toward international business (see Exhibit 3.1).
1) An ethnocentric attitude is the parochialistic belief that the best work approaches and practices are those of the home country (the country in which the company’s headquarters are located).
2) A polycentric attitude is the view that the managers in the host country (the foreign country where the organization is doing business) know the best work approaches and practices for running their business.
3) A geocentric attitude is a world-oriented view that focuses on using the best approaches and people from around the globe.
4) To be a successful global manager, you need to be sensitive to differences in national customs and practices.
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

7. Exhibit 3.1 Global Attitudes
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

8. Regional Trading Alliances
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
Economic and monetary union (Euro)
North American Free Trade Agreement (NAFTA)
Eliminated barriers to free trade (tariffs, import licensing requirements, and customs user fees)
United States, Canada, and Mexico
Several significant forces are reshaping the global environment that managers face. Two important features of the global environment are regional trading alliances and the different types of global organizations.
A. Regional Trading Alliances. Regional trading alliances are reshaping global competition. It’s no longer country versus country, but region against region.
1. The European Union (EU) is a union of 25 European nations created to eliminate national barriers to travel, employment, investment, and trade (see Exhibit 3.2).
a. The primary motivation for the creation of the EU (in February 1992) was to allow these nations to reassert their position against the indus trial strength of the United States and Japan.
b. The EU took an enormous step toward full unification in 1999 when 12 of the 15 countries became part of the EMU—the economic and monetary union, the formal name for the system where participating countries share the same currency, the Euro.
c. In 2004, the EU added 10 new members (Cyprus, Malta, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia). Two other countries could join by 2007.
2. The North American Free Trade Agreement (NAFTA) is an agreement among the Mexican, Canadian, and U.S. governments in which all barriers to free trade will eventually be eliminated.
a. NAFTA went into effect on January 1, 1994.
b. The signing of NAFTA had both critics and champions.
c. Eliminating the barriers to free trade (tariffs, import licensing requirements, customs user fees) has resulted in a strengthening of the economic power of all three countries.
d. Colombia, Mexico, and Venezuela signed an economic pact eliminating import duties and tariffs in 1994.
e. Now 34 countries in the Caribbean region, South America, and Central America are negotiating a Free Trade Area of the Americas (FTAA) trade agreement, which will be operational no later than 2005.
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

9. Exhibit 3.2 European Union Countries
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

10. Regional Trading Alliances (cont’d)
Free Trade Area of the Americas (FTAA)
Southern Cone Common Market (Mercosur)
Association of Southeast Asian Nations (ASEAN)
Trading alliance of 10 Southeast Asian nations
African Union
3. The Association of Southeast Asian Nations (ASEAN) is a trading alliance of 10 Asian nations (see Exhibit 3.3).
a. In the future, the Asian region promises to be one of the fastest-growing economic regions of the world.
b. The economic impact could eventually rival that of both NAFTA and the EU.
4. Other Trade Alliances. The 53-nation African Union came into existence in July Members plan to achieve greater economic development and unity among Africa’s nations.
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

11. Exhibit 3.3 ASEAN Members
Source: Based on J. McClenahen and T. Clark, “ASEAN at Work,” IW. May 19, 1997, p. 42.
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

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 147 member nations
Monitors and promotes world trade
Formed in 1995 evolving from GATT. The only global organization dealing with the rules of trade among nations.
Membership consists of 147 countries as of April 2004.
WTO appears to play an important role even though there are vocal critics.
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

13. Different Types of Global Organizations
Multinational Corporation (MNC)
A firm that maintains operations in multiple countries but manages from the home country
Transnational Corporation (TNC)
A firm that maintains operations in several countries but decentralizes management to the local country
Borderless Organization
A firm that organizes along business lines without consideration to artificial geographic barriers
Although international business has been around a long time (DuPont did business in China in 1863; Ford set up its first overseas sales branch in France in 1908), the popularity of multinational corporations really didn’t occur until the mid-1960s. What are the various types of global organizations?
1. A multinational corporation (MNC) is a company that maintains significant operations in multiple countries simultaneously, but manages them all from one base in a home country. It reflects the ethnocentric attitude.
2. A transnational corporation (TNC) is a company that maintains significant operations in more than one country simultaneously, but decentralizes management to the local country. It reflects the polycentric attitude.
3. Another type of global organization is the borderless organization that is a global type of organization in which artificial geographical barriers are eliminated so that the management structure can be more effectively globalized. It reflects the geocentric attitude.
Keep in mind, however, that a company’s national origin is no longer a good measure of where it does business or of the national origin of its employees.
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

14. Exhibit 3.4 How Organizations Go Global
Exporting to
Hiring foreign
Licensing/
Strategic
Foreign
or importing
representation
Franchising
Alliances
Subsidiary
from foreign
or contracting
countries
with foreign
managers
Low
Degree of Risk and Investment
High
Organizations have different ways of going global, as illustrated in Exhibit 3.4.
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

15. How Organizations Go Global
Exporting
Making products at home and selling them overseas
Importing
Selling products at home that are made overseas
Organizations have different ways of going global, as illustrated in Exhibit 3.4.
Importing and Exporting. A relatively low-investment strategy is to go global by exporting the organization’s products to other countries—that is, by making products at home and selling them overseas. In addition, an organization can go global by importing products, selling products at home that are made overseas. Both exporting and importing are small steps toward being a global business and involve minimal investment and minimal risk.
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

16. How Organizations Go Global (cont’d)
Internal Sales or Manufacturing
Selling or having products made in foreign factories with no physical presence
Licensing and Franchising
Giving another organization the right to use brand name, technology, or product specifications
Licensing (manufacturing organizations)
Franchising (service organizations)
Internal Sales or Manufacturing. This involves managers making more of an investment by committing to sell products in foreign countries or to having them made in foreign factories. However, there is still no physical presence of company employees outside the company’s home country.
Licensing and Franchising. An organization can give another organization the right to use its brand name, technology, or product specifications in return for a lump-sum payment or a fee usually based on sales through licensing or franchising. The only difference is that licensing is primarily used by manufacturing organizations and franchising is used by service organizations.
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

17. How Organizations Go Global (cont’d)
Strategic Alliance
Partnership between an 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
Strategic Alliance. Strategic alliances are partnerships between an organization and a foreign company in which both share resources and knowledge in developing new products or building production facilities. The partners also share the risks and rewards of this alliance.
1. A specific type of strategic alliance in which the partners agree to form a separate, independent organization for some business purpose is called a joint venture.
Foreign Subsidiaries. Managers can make a direct investment in a foreign country by setting up a foreign subsidiary, a separate and independent production facility or office.
1. This subsidiary can be managed as an MNC (domestic control), a TNC (foreign control), or as a borderless organization (global control).
2. This arrangement involves the greatest commitment of resources and poses the greatest amount of risk.
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

18. Managing in a Global Environment
The Legal-Political 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
There are many challenges associated with managing in a global environment.
A. The Legal-Political Environment. The legal-political environment doesn’t have to be unstable or revolutionary to be a challenge to managers. It is important to recognize that a country’s political system differs from Canada’s.
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

19. Managing in a Global Environment (cont’d)
The Economic Environment
Economic Systems
Market economy
An economy in which resources are primarily owned and controlled by the private sector
Command 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
B. The Economic Environment. Also presents many challenges to foreign-based managers. Obviously, currency rate fluctuations, inflation, and diverse tax policies are economic challenges to managers.
Market economy — resources are primarily owned by the private sector
Command economy — where all economic decisions are planned by a central government
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

20. Managing in a Global Environment (cont’d)
The Cultural Environment
National Culture
Values and attitudes shared by individuals from a specific country that shape their behaviour and their beliefs about what is important
May have more influence on an organization than the organization culture
C. The Cultural Environment. The cultural environment involves cultural differences between nations. National culture is the values and attitudes shared by individuals from a specific country that shape their behaviour and their beliefs about what is important.
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

21. The GLOBE* Framework for Assessing Cultures
Assertiveness
Future orientation
Gender differentiation
Uncertainty avoidance
Power distance
Individualism/collectivism
In-group collectivism
Performance orientation
Humane orientation
The GLOBE Framework for Assessing Cultures. Exhibit 3.5 shows how different countries rank on the following nine dimensions.
Assertiveness. The degree to which a society encourages people to be tough, confrontational, assertive, and competitive versus modes and tender.
Future orientation. The degree to which a society encourages and rewards future-oriented behaviours such as planning, investing in the future, and delaying gratification.
Gender differentiation. The degree to which a society maximizes gender-role differences as measured by how much status and how many decision-making responsibilities women have.
Uncertainty avoidance. The degree to which a society relies on social norms and procedures to alleviate the unpredictability of future events.
Power distance. The degree to which members of a society expect power to be unequally shared.
Individualism versus collectivism. The degree to which individuals are encouraged by societal institutions to be integrated into groups within organizations and society.
In-group collectivism. The degree to which members of a society take pride in membership in small groups.
Performance orientation. The degree to which a society encourages and rewards group members for performance improvement and excellence.
Humane orientation. The degree to which a society encourages and rewards individuals for being fair. Altruistic, generous, caring, and kind to others.
*Global Leadership and Organizational Behaviour Effectiveness
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

22. Exhibit 3.5 Globe Rankings
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.

23. The Challenge of Global Management
Increased threat of terrorism
Economic interdependence of trading
Dealing with increased uncertainty, fear, and anxiety
Acknowledging cultural, political, and economic differences
Avoiding parochialism
1. Uncertainty after 9/11 has had a profound impact on business. Managers face serious challenges arising from globalization and from significant cultural differences.
2. Intense underlying and fundamental cultural differences create a very complicated environment in which to manage.
3. Successful global managers will have incredible sensitivity and understanding.
4. Need to adjust leadership styles and management approaches to accommodate culturally diverse views.
Some have predicted that globalization is dead, including philosopher John Ralston Saul.
a. However, Joel Bakan, a University of British Columbia law professor who wrote The Corporation and coproduced the documentary of the same name, claims “It’s overly optimistic to say globalization is dead.” (J. Bakan, The Corporation (Toronto: Big Picture Media Corporation, 2003))
b. In support of Bakan’s view, consulting firm A.T. Kearney concluded, based on a 2002 survey of the situation, that overall, globalization remained a strong force, even if there has been some slowdown.
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc.