1. Managing in a Global Environment
Chapter 3
Managing in a Global Environment
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2. Copyright © 2016 Pearson Canada Inc.
Learning Outcomes:
Compare and contrast the ethnocentric, polycentric, and geocentric attitudes toward global business.
Discuss the importance of regional trading alliances and global trade mechanisms that affect trade relations among countries in the world.
Describe the structures and techniques organizations use as they become global.
Explain the relevance of the legal–political, economic, and cultural environments to global business.
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3. What’s Your Global Perspective?
Parochialism:
Viewing the world solely through your own perspective, leading to an inability to recognize differences among people.
Learning Outcome 1: Compare and contrast the ethnocentric, polycentric, and geocentric attitudes toward global business.
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 .
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4. What’s Your Global Perspective?
Ethnocentric Attitude:
The belief that the best work approaches and practices are those of the home country.
Learning Outcome 1: Compare and contrast the ethnocentric, polycentric, and geocentric attitudes toward global business.
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.
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5. What’s Your Global Perspective?
Polycentric Attitude:
View that managers in the host country know the best approaches and practices for running their businesses.
Learning Outcome 1: Compare and contrast the ethnocentric, polycentric, and geocentric attitudes toward global business.
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6. What’s Your Global Perspective?
Geocentric Attitude:
A world-oriented view that focuses on using the best approaches and people from around the globe.
Learning Outcome 1: Compare and contrast the ethnocentric, polycentric, and geocentric attitudes toward global business.
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7. Exhibit 3-1 Key Information About Three Global Attitudes
Learning Outcome 1: Compare and contrast the ethnocentric, polycentric, and geocentric attitudes toward global business.
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8. Understanding the Global Environment
Regional Trading Alliances
Several years ago, global competition was best descried in terms of country against country….this is not longer the case!
Learning Outcome 2: Discuss the importance of regional trading alliances and global trade mechanisms that affect trade relations among countries in the world.
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 industrial 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.
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9. Understanding the Global Environment
The European Union (EU)
A union of 27 European countries that forms an economic and political entity.
Barriers to travel, employment, investment, and trade prevented European companies from developing economic efficiencies. Now, these barriers have been removed.
Learning Outcome 2: Discuss the importance of regional trading alliances and global trade mechanisms that affect trade relations among countries in the world.
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 industrial 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.
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10. Exhibit 3-2: European Union Countries
Learning Outcome 2: Discuss the importance of regional trading alliances and global trade mechanisms that affect trade relations among countries in the world.
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11. Understanding the Global Environment
North American Free Trade Agreement (NAFTA)
An agreement among the Canadian, American, and Mexican governments in which barriers to free trade were reduced.
As of 2012, it is the second-largest trade bloc in the world in terms of combined GDP of its members.
Learning Outcome 2: Discuss the importance of regional trading alliances and global trade mechanisms that affect trade relations among countries in the world.
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.
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12. Understanding the Global Environment
US-Central America Free Trade Agreement (CAFTA)
Free Trade Area of the Americas (FTAA)
Learning Outcome 2: Discuss the importance of regional trading alliances and global trade mechanisms that affect trade relations among countries in the world.
Canada-EU Trade Agreement (CETA)
Trans-Pacific Partnership (TPP)
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13. Understanding the Global Environment
Association of Southeast Asian Nations (ASEAN)
Trading alliance of 10 Southeast Asian
Countries
Learning Outcome 2: Discuss the importance of regional trading alliances and global trade mechanisms that affect trade relations among countries in the world.
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.
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14. Exhibit 3-3 ASEAN Members
Learning Outcome 2: Discuss the importance of regional trading alliances and global trade mechanisms that affect trade relations among countries in the world.
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15. Understanding the Global Environment
Other Trade Alliances
53-Nation African Union (AU)
East African Community (EAC)
South Asian Association for Regional Cooperation (SAARC)
Learning Outcome 2: Discuss the importance of regional trading alliances and global trade mechanisms that affect trade relations among countries in the world.
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16. Understanding the Global Environment
Four Important Global Trade Mechanisms
The World Trade Organization
International Monetary Fund
World Bank Group
Organization for Economic Cooperation and Development
Learning Outcome 2: Discuss the importance of regional trading alliances and global trade mechanisms that affect trade relations among countries in the world.
We’re going to look at four important global trade mechanisms: the World Trade Organization, the International Monetary Fund, the World Bank Group, and the Organisation for Economic Cooperation and Development.
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17. Understanding the Global Environment
The World Trade Organization
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
Learning Outcome 2: Discuss the importance of regional trading alliances and global trade mechanisms that affect trade relations among countries in the world.
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.
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18. Understanding the Global Environment
International Monetary Fund
Organization of 188 countries that promotes international monetary cooperation and provides member countries with policy advice, temporary loans, and technical assistance to establish and maintain financial stability and to strengthen economies.
Learning Outcome 2: Discuss the importance of regional trading alliances and global trade mechanisms that affect trade relations among countries in the world.
an organization of 188 countries that promotes international monetary cooperation and provides member countries with policy advice, temporary loans, and technical assistance to establish and maintain financial stability and to strengthen economies.37 During the global financial turmoil of the last few years, the IMF has been on the forefront of advising countries and governments in getting through the difficulties.
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19. Understanding the Global Environment
World Bank Group
A group of five closely associated institutions, all owned by its member countries, that provides vital financial and technical assistance to developing countries around the world.
Learning Outcome 2: Discuss the importance of regional trading alliances and global trade mechanisms that affect trade relations among countries in the world.
a group of five closely associated institutions, all owned by its member countries, that provides vital financial and technical assistance to developing countries around the world. The goal of the World Bank Group is to promote long-term economic development and poverty reduction by providing members with technical and financial support.
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20. Understanding the Global Environment
Organization for Economic Co-operation and Development
A Paris-based international economic organization whose mission is to help its 34 member countries achieve sustainable economic growth and employment
Raise the standard of living in member countries while maintaining financial stability in order to contribute to the development of the world economy.
Learning Outcome 2: Discuss the importance of regional trading alliances and global trade mechanisms that affect trade relations among countries in the world.
The Organization for Economic Co-operation and Development is a Paris-based international economic organization whose mission is to help its 34 member countries achieve sustainable economic growth and employment and raise the standard of living in member countries while maintaining financial stability in order to contribute to the development of the world economy.41 When needed, the OECD gets involved in negotiations with OECD countries so they can agree on “rules of the game” for international cooperation. One current focus is combating small-scale bribery in overseas commerce.
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21. Doing Business Globally
Types of International Organizations
Multinational Corporation (MNC)
Multidomestic Corporations
Global Company
Transnational or Borderless Organizations
Learning Outcome 3: Describe the structures and techniques organizations use as they become global.
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22. Doing Business Globally
Multinational Corporation (MNC):
A firm that maintains operations in multiple countries but manages from the home country.
Learning Outcome 3: Describe the structures and techniques organizations use as they become global.
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23. Doing Business Globally
Multidomestic Corporation:
An international company that decentralizes management and other decisions to the local country.
Learning Outcome 3: Describe the structures and techniques organizations use as they become global.
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24. Doing Business Globally
Global Company:
An international company that centralizes management and other decisions in the home country.
Learning Outcome 3: Describe the structures and techniques organizations use as they become global.
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25. Doing Business Globally
Transnational/Borderless Organization:
A type of international company in which artificial geographical barriers are eliminated.
Born Globals are international companies that choose to go global from inception.
Learning Outcome 3: Describe the structures and techniques organizations use as they become global.
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26. Exhibit 3-4 How Organizations Go International
Learning Outcome 3: Describe the structures and techniques organizations use as they become global.
Organizations have different ways of going global, as illustrated in Exhibit 3-4.
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27. Doing Business Globally
Exporting:
Making products at home and selling them abroad.
Importing:
Acquiring products made abroad and selling them at home.
Learning Outcome 3: Describe the structures and techniques organizations use as they become global.
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.
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28. Doing Business Globally
Licensing:
Giving another organization the right to use its brand name, technology, or product specifications.
Franchising:
Learning Outcome 3: Describe the structures and techniques organizations use as they become global.
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.
A service organization gives a person or group the right to sell a product, using specific business methods and practices that are standardized.
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29. Doing Business Globally
Strategic Alliance:
Partnership between an domestic and a foreign company in which both share resources and knowledge in developing new products or building new production facilities.
Learning Outcome 3: Describe the structures and techniques organizations use as they become global.
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.
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30. Doing Business Globally
Joint Venture:
A specific type of strategic alliance in which the partners agree to form a separate, independent organization for some business purpose.
Learning Outcome 3: Describe the structures and techniques organizations use as they become global.
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31. Doing Business Globally
Foreign Subsidiaries:
An approach that involves a direct investment in a foreign country by setting up a separate and independent production facility or office.
Learning Outcome 3: Describe the structures and techniques organizations use as they become global.
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.
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32. 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
Learning Outcome 4: Explain the relevance of the legal–political, economic, and cultural environments to global business.
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.
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33. Managing in a Global Environment
The Legal-Political Environment
Differences in the laws of various nations
Effects on business activities
Effects on delivery of products and services
Learning Outcome 4: Explain the relevance of the legal–political, economic, and cultural environments to global business.
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.
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34. Managing in a Global Environment
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
Learning Outcome 4: Explain the relevance of the legal–political, economic, and cultural environments to global business.
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
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35. Managing in a Global Environment
The Economic Environment
Monetary and Financial Factors
Currency exchange rates
Inflation rates
Diverse tax policies
Learning Outcome 4: Explain the relevance of the legal–political, economic, and cultural environments to global business.
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36. Managing in a Global Environment
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.
Learning Outcome 4: Explain the relevance of the legal–political, economic, and cultural environments to global business.
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.
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37. Managing in a Global Environment
Hofstede’s Framework for Assessing Cultures (Exhibit 3-5)
Individualism vs. Collectivism
Power Distance
Uncertainty Avoidance
Achievement vs. Nurturing
Long-Term vs. Short-Term Orientation
Learning Outcome 4: Explain the relevance of the legal–political, economic, and cultural environments to global business.
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38. Examples of Hofstede’s Cultural Dimensions
Learning Outcome 4: Explain the relevance of the legal–political, economic, and cultural environments to global business.
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39. Managing in a Global Environment
The GLOBE Framework For Assessing Cultures
Assertiveness
Future orientation
Gender differentiation
Uncertainty avoidance
Power distance
Individualism/collectivism
In-group collectivism
Performance orientation
Humane orientation
Learning Outcome 4: Explain the relevance of the legal–political, economic, and cultural environments to global business.
The GLOBE Framework for Assessing Cultures. Exhibit 3-6 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
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40. Exhibit 3-6 A Global Mind-Set
Learning Outcome 4: Explain the relevance of the legal–political, economic, and cultural environments to global business.
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41. Managing in a Global Environment
Advocates praise the economic and social benefits
Potential domino effect
A euphemism for “Americanization”?
Environmental, social, and economic costs to globalization.
Globalization encourages the efficient use of natural resources
Learning Outcome 4: Explain the relevance of the legal–political, economic, and cultural environments to global business.
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.
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42. Summary and Implications
Compare and contrast the ethnocentric, polycentric and geocentric attitudes toward global business.
Ethnocentric - the best work approaches and practices are those of the home country .
Polycentric - managers in the host country know the best work approaches and practices
Geocentric - best approaches and people from around the globe.
Learning Outcome 1
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43. Summary and Implications
Discuss the importance of regional trading alliances and global trade mechanisms that affect trade relations among countries in the world.
Regional trading alliances and the agreements negotiated through the WTO.
Regional trading alliances include the EU, NAFTA, and ASEAN.
Learning Outcome 2
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44. Summary and Implications
Describe the structures and techniques organizations use as they become global.
Multinational corporations, multi-domestic corporations, global companies, transnational or borderless organizations.
Learning Outcome 3
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45. Summary and Implications
Explain the relevance of the legal–political, economic, and cultural environments to global business.
When managers do business in other countries, they will be affected by the countries constraints, opportunities and restrictions.
Learning Outcome 4
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