1. PowerPoint slides by Susan A. Peterson, Scottsdale Community College PowerPoint slides by Susan A. Peterson, Scottsdale Community College Chapter 3: International Management and Globalization Chapter 3: International Management and Globalization m a n a g e m e n t 2e H i t t / B l a c k / P o r t e r

2. © 2008 Prentice-Hall Business Publishing 2 Learning Objectives After studying this chapter, you should be able to:  Explain what globalization is and how it affects firms and countries.  Identify and differentiate the two major elements of the global environment.  Name and explain the three major dimensions of an institutional environment  Define the term culture and identify four primary cultural dimensions.  Describe the five international market entry strategies and explain when each should be used. After studying this chapter, you should be able to:  Explain what globalization is and how it affects firms and countries.  Identify and differentiate the two major elements of the global environment.  Name and explain the three major dimensions of an institutional environment  Define the term culture and identify four primary cultural dimensions.  Describe the five international market entry strategies and explain when each should be used.

3. © 2008 Prentice-Hall Business Publishing 3 Learning Objectives  Explain the three types of international organization focus  Discuss the benefits and challenges of managing across cultures  Describe how to effectively manage multicultural teams  Define the term global mindset and explain its importance for managers  Explain the three types of international organization focus  Discuss the benefits and challenges of managing across cultures  Describe how to effectively manage multicultural teams  Define the term global mindset and explain its importance for managers

4. © 2008 Prentice-Hall Business Publishing 4 Globalization Globalization:  Is the flow of goods and services, capital, and knowledge across country borders  Enhances economic interdependence among countries and organizations  Allows both small and large firms from developed and less developed economies to compete

5. © 2008 Prentice-Hall Business Publishing 5 Country’s Institutional Environment Institutional environment: the country’s rules, policies, and enforcement processes Three dimensions:  Economic development dimension  Political-legal dimension  Physical infrastructure dimension Institutional environment: the country’s rules, policies, and enforcement processes Three dimensions:  Economic development dimension  Political-legal dimension  Physical infrastructure dimension

6. © 2008 Prentice-Hall Business Publishing 6 Country’s Institutional Environment: Economic Dimension Economies are classified as either:  Developed economies  Larger economies with effective capital markets  Emerging economies  Rapidly growing with underdeveloped capital markets  Developing economies  Weak economies with little capital available for growth Economies are classified as either:  Developed economies  Larger economies with effective capital markets  Emerging economies  Rapidly growing with underdeveloped capital markets  Developing economies  Weak economies with little capital available for growth

7. © 2008 Prentice-Hall Business Publishing 7 Country’s Institutional Environment: Political-Legal Dimension  Includes country’s political risk, regulations, laws, and enforcement  Governments develop laws to govern behavior of citizens and organizations  Some “rules” are excessive and discourage foreign investment  Intellectual property rights  Includes country’s political risk, regulations, laws, and enforcement  Governments develop laws to govern behavior of citizens and organizations  Some “rules” are excessive and discourage foreign investment  Intellectual property rights

8. © 2008 Prentice-Hall Business Publishing 8 Country’s Institutional Environment: Physical Infrastructure Dimension  Includes amount and quality of roads and highways, telephone lines, and airports  Poor infrastructure makes it difficult for foreign firms to distribute products  Countries wanting foreign investment must develop infrastructure  Includes amount and quality of roads and highways, telephone lines, and airports  Poor infrastructure makes it difficult for foreign firms to distribute products  Countries wanting foreign investment must develop infrastructure

9. © 2008 Prentice-Hall Business Publishing 9 Country’s Institutional Environment Clusters ClusterDescriptionExamples 1 Developing and transitional economies. High in regulatory control and low in political rights. Brazil, Russia, Nigeria 2 Emerging market countries that are more advanced than Cluster 1 but still need to develop institutional dimensions. Higher on political rights but lowest on monetary policy and second highest on investment restrictions. China, India, Netherlands, Singapore 3 Second highest regulatory controls but high on political rights. Strong physical infrastructures. Finland, France, Germany 4 Most developed institutional infrastructure with balanced regulatory controls and political rights and strong economic and physical infrastructure. Japan, the U.S. Adapted from Exhibit 3.1

10. © 2008 Prentice-Hall Business Publishing 10 Country’s Culture  Culture  Learned set of assumptions, values, and behaviors  Accepted as successful  Passed on to newcomers  Begins when a group of people faces a set of challenges  Evolves and changes with time  Culture  Learned set of assumptions, values, and behaviors  Accepted as successful  Passed on to newcomers  Begins when a group of people faces a set of challenges  Evolves and changes with time

11. © 2008 Prentice-Hall Business Publishing 11 Cultural Dimensions Cultural Dimensions Power Distance Uncertainty Avoidance Individualism/ Collectivism Gender Focus

12. © 2008 Prentice-Hall Business Publishing 12 Cultural Dimensions: Power Distance  Extent to which people accept power and authority differences among people  High power distance = people accept power differences  Low power distance = people like to regard themselves as more or less equal Power Distance Cultural Dimensions

13. © 2008 Prentice-Hall Business Publishing 13 Cultural Dimensions: Uncertainty Avoidance  Extent to which people can accept uncertainty or ambiguity Cultural Dimensions Uncertainty Avoidance  High uncertainty avoidance = prefer clear norms that govern behavior (i.e., avoid uncertainty)  Low uncertainty avoidance = have fewer rules and are comfortable in ambiguous situations (i.e., can accept uncertainty)

14. © 2008 Prentice-Hall Business Publishing 14 Cultural Dimensions: Individualism/Collectivism Individualism:  Extent to which people’s identities are self-oriented; people take care of themselves and immediate family  High emotional independence  Emphasize and reward individual achievement Individualism:  Extent to which people’s identities are self-oriented; people take care of themselves and immediate family  High emotional independence  Emphasize and reward individual achievement Collectivism:  Extent to which a people’s identities are a function of the group(s) to which they belong (family firm, community, etc.)  Emotional dependence on institutions  Emphasize group membership Cultural Dimensions Individualism/ Collectivism

15. © 2008 Prentice-Hall Business Publishing 15 Cultural Dimensions: Gender Focus  Extent to which people in a country value masculine or feminine traits Cultural Dimensions  Masculine = activities leading to success, money, possessions  Feminine = activities showing caring of others and enhancing quality of life Gender Focus

16. © 2008 Prentice-Hall Business Publishing 16 Cultural Values and Scores CountryPower Distance (a) Uncertainty Avoidance (b) Individualism/ Collectivism (c) Gender Focus (d) Brazil5.333.603.833.31 Canada4.824.584.383.70 China5.044.944.773.05 England5.154.654.273.67 France5.284.433.933.64 India5.474.154.382.90 Adapted from Exhibit 3.2 (a)Higher scores indicate higher power distance (b)Higher scores suggest more uncertainty avoidance (c)Higher scores indicate greater collectivism (d)Higher scores suggest greater gender equality; lower scores indicate male domination

17. © 2008 Prentice-Hall Business Publishing 17 Cultural Values and Scores (cont.) CountryPower Distance (a) Uncertainty Avoidance (b) Individualism/ Collectivism (c) Gender Focus (d) Japan5.114.075.193.19 Mexico5.224.184.063.64 Netherlands4.114.704.463.50 Poland5.103.624.534.02 Russia5.522.884.504.07 United States4.884.154.203.34 Adapted from Exhibit 3.2 (a)Higher scores indicate higher power distance (b)Higher scores suggest more uncertainty avoidance (c)Higher scores indicate greater collectivism (d)Higher scores suggest greater gender equality; lower scores indicate male domination

18. © 2008 Prentice-Hall Business Publishing 18 International Market Entry Strategies Licensing Strategic Alliances Exporting Cross-Border Acquisitions Wholly-Owned Subsidiaries Less Risk More Risk

19. © 2008 Prentice-Hall Business Publishing 19 International Market Entry Strategies Advantages:  Low cost  Low risk to licensor Disadvantages:  Potential trade barriers  Establishment of marketing and distributing systems in foreign market  Transportation costs  Smaller returns Exporting Manufacturing products in a firm’s home country and shipping them to a foreign market.

20. © 2008 Prentice-Hall Business Publishing 20 International Market Entry Strategies Licensing Advantages:  Less capital investment  Least amount of risk Disadvantages:  Licensor has little control over product and use of brand  Smaller returns Advantages:  Less capital investment  Least amount of risk Disadvantages:  Licensor has little control over product and use of brand  Smaller returns Arrangements that allow a local firm in the new market to manufacture and distribute a firm’s product. Arrangements that allow a local firm in the new market to manufacture and distribute a firm’s product.

21. © 2008 Prentice-Hall Business Publishing 21 International Market Entry Strategies Strategic Alliances Advantages:  Share costs and risks between partners  Access to resources not previously available  Learn capabilities from partner Disadvantages:  Management disagreement  Share profits New types of alliances:  Outsourcing  Offshoring Advantages:  Share costs and risks between partners  Access to resources not previously available  Learn capabilities from partner Disadvantages:  Management disagreement  Share profits New types of alliances:  Outsourcing  Offshoring Cooperative arrangements between two firms in which they agree to share resources to accomplish a mutually desirable goal.

22. © 2008 Prentice-Hall Business Publishing 22 International Market Entry Strategies Cross-Border Acquisitions Advantages:  Fast way to enter foreign market  Can start operations immediately Disadvantages:  Can cause controversy in local public  Integrating two previously independent companies can be challenging  Targeted acquisitions may cost a premium Advantages:  Fast way to enter foreign market  Can start operations immediately Disadvantages:  Can cause controversy in local public  Integrating two previously independent companies can be challenging  Targeted acquisitions may cost a premium Acquisitions of local firms made by foreign firms to enter a new international market.

23. © 2008 Prentice-Hall Business Publishing 23 International Market Entry Strategies Wholly-Owned Subsidiaries Advantages:  Maximum control over operations  Buffer assets from competitors in the market Disadvantages:  Complex, risky and expensive to launch  Must establish relationships with suppliers, buyers, etc.  Must learn about culture and institutional environment on your own Advantages:  Maximum control over operations  Buffer assets from competitors in the market Disadvantages:  Complex, risky and expensive to launch  Must establish relationships with suppliers, buyers, etc.  Must learn about culture and institutional environment on your own Direct investments to establish a business in a foreign market in which the business is 100% owned and controlled by the focal firm; also called Greenfield Venture.

24. © 2008 Prentice-Hall Business Publishing 24 Managing International Operations: Global Focus Global Focus  Important decisions made at home office  Subsidiaries follow same strategies Advantage:  Economies of scale Disadvantage:  No flexibility for subsidiaries to make local market decisions Home Office Subsidiary Country A Subsidiary Country B Subsidiary Country C Subsidiary Country D Subsidiary Country E Centralized to home office

25. © 2008 Prentice-Hall Business Publishing 25 Managing International Operations: Region-Country Focus Region-Country Focus  Important decisions made by subsidiaries in local markets Advantage:  Allows subsidiaries to react quickly to changes in marketplace Disadvantage:  Expensive; difficult for home office to oversee Home Office Subsidiary Country A Subsidiary Country B Subsidiary Country C Subsidiary Country D Subsidiary Country E Decentralized to subsidiaries

26. © 2008 Prentice-Hall Business Publishing 26 Managing International Operations: Transnational Focus Transnational Focus  Both home office and subsidiaries make important decisions Advantages:  Good combination of global efficiency and local responsiveness  Outperforms other approaches Home Office Subsidiary Country A Subsidiary Country B Subsidiary Country C Subsidiary Country D Subsidiary Country E Centralized and decentralized

27. © 2008 Prentice-Hall Business Publishing 27 Low- and High-Context Cultures Cultural context: degree to which a situation influences behavior or perception of “appropriateness” Neither high- nor low-context cultures are right or wrong, just different Cultural context: degree to which a situation influences behavior or perception of “appropriateness” Neither high- nor low-context cultures are right or wrong, just different HIGH-CONTEXT People pay close attention to the situation and its various elements in assessing appropriate behavior HIGH-CONTEXT People pay close attention to the situation and its various elements in assessing appropriate behavior LOW-CONTEXT Situation may or may not make a difference in what is considered appropriate behavior LOW-CONTEXT Situation may or may not make a difference in what is considered appropriate behavior

28. © 2008 Prentice-Hall Business Publishing 28 Low- and High-Context Cultures Examples HIGH-CONTEXT American Canadian German Swiss Scandinavian English HIGH-CONTEXT American Canadian German Swiss Scandinavian English LOW-CONTEXT Vietnamese Chinese Japanese Korean Arab Greek LOW-CONTEXT Vietnamese Chinese Japanese Korean Arab Greek Adapted from Exhibit 3.3

29. © 2008 Prentice-Hall Business Publishing 29 Managing Multi-Cultural Teams Challenges to managing multi- cultural teams:  Dependence on electronic communication (virtual teams)  Basic communication issues  Building trust among team members with different values (swift trust: rapid development of trust in teams about task activities) Challenges to managing multi- cultural teams:  Dependence on electronic communication (virtual teams)  Basic communication issues  Building trust among team members with different values (swift trust: rapid development of trust in teams about task activities)

30. © 2008 Prentice-Hall Business Publishing 30 Developing a Global Mindset Global mindset: cognitive attributes that allow an individual to influence individuals, groups, and organizations from diverse socio-cultural and institutional environments

31. © 2008 Prentice-Hall Business Publishing 31 Managing Globalization Arguments FOR globalization:  Creates a more peaceful society  Promotes interest in local traditions and history  Facilitates development of cultural sensitivity and understanding  Cultural change = gain and creativity Arguments FOR globalization:  Creates a more peaceful society  Promotes interest in local traditions and history  Facilitates development of cultural sensitivity and understanding  Cultural change = gain and creativity

32. © 2008 Prentice-Hall Business Publishing 32 Managing Globalization Arguments AGAINST globalization:  Promotes homogeneity of cultures  Encourages one bland, uniformed identity for all cultures  Cultural change = loss and destruction Arguments AGAINST globalization:  Promotes homogeneity of cultures  Encourages one bland, uniformed identity for all cultures  Cultural change = loss and destruction X