Management ch 04 managing in a global environment

Importance of International BusinessIf you are not thinking international, you are not thinking business management... A Borderless World Business is becoming a unified, global field 

Managing in a Global Environment

Importance of International Business

If you are not thinking international,

you are not thinking business management

Global Environment and

A Borderless World

 Business is becoming a unified, global field

 Companies that think globally have a competitive

edge

 Domestic markets are saturated for many companies

 Consumers can no longer tell from which country

they are buying

Four Stages of Globalization

Multinational stage:

marketing and production facilities located in many countries more than 1/3 of its sales outside the home country

Global (or stateless) stage:

making sales and acquiring resources in whatever country offers the best opportunities and lowest cost

Export- Oriented multi-domestic

Global

Initial foreign involvement

Competitive positioning

Explosion of international operations

Of little importance

“One best way”

Very important

“Many good ways”

Somewhat important

“The least-cost way”

Critically important

“Many good ways”

Global (stateless) Corporations

 Number is increasing

 Awareness of national borders decreasing

 Rising managers expected to know a 2nd or 3rd

language

 Corporate Example – Nestle (Swiss)

– CEO Peter Brabeck–Letmathe (Austrian)

– Half of general managers (non-Swiss)

– Strong faith in regional managers who are native to the region

The International Business Environment

 International management is management of

business operations conducted in more than one country

 Fundamental tasks do not change

– are the same - domestic or international

– Greater difficulties and risks when performing on an international scale

International Environment Factors

Organization

Economic

•Economic development

•Infrastructure

•Resource and product markets

•Per capita Income

•Exchange rates

•Economic conditions

Legal-Political

•Political risk

•Government takeovers

•Tariffs, quotas, taxes

•Terrorism, political instability

Economic Environment Factors

Economic Development

● Countries categorized as “developing” or “developed”

● Criterion used to classify is per capita income

● Developing countries have low per capita incomes

● LDCs located in Asia, Africa, and South America

● Developed are North America, Europe, & Japan

● Driving global growth in Asia, Eastern Europe, & Latin

America

Resource and Product Markets

When operating in another country

– Managers must evaluate market demand

– To develop plants, resource markets must be available – raw materials and labor

Corporate Example – McDonald

Exchange Rates

 Rate at which one country’s

currency is exchanged for another country’s

 Has become a major concern for companies doing business

internationally

 Changes in the exchange rate can have major implications for profitability of international

operations

The Legal-Political Environment

 Political Risk– due to events or actions by host governments

● Loss of assets

● Loss of earning power

● Loss of managerial control

● Government takeovers

● Acts of violence

Political Instability

 Events such as riots, revolutions, or government upheavals that affect the operations of an

international company

Laws and Regulations

 Government laws and regulations differ from country

Sociocultural Environment

 Culture – shared knowledge, beliefs, values,

common modes of behavior, and ways of thinking among members of a society

– Intangible

– Pervasive

– Difficult for outsider to learn

 Managers need to understand difference in social values to comprehend local cultures and deal with them effectively

Hofstede’s Value Dimensions

 Research = national value systems influence

organizational and employee working relationships

– Power distance (high = accept inequality)

– Uncertainty avoidance (uncomfortable with uncertainty)

– Individualism and collectivism (Individualism take care of themselves)

– Masculinity/femininity (preference for achievement/assertiveness; femininity for relationship)

– Long-term/short-term orientation = 5 th dimension

Four Dimensions of National Value

GLOBE Value Dimensions

Global Leadership and Organizational Behavior Effectiveness project

More comprehensive view of cultural similarities and differences

International Cultural Influences

 Other Cultural Characteristics

 Linguistic pluralism – several languages exist

 Ethnocentrism – regard own culture superior

International Trade Agreements

 Most visible changes in legal-political factors grow out of international trade agreements:

– GATT

– EU

– NAFTA

International Trade Alliances

 Signed by 23 nations in 1947 as a set of rules

 Ensured nondiscrimination, clear procedures, negotiation of disputes, and participation of lesser developed countries in international trade

 Today, 147 member countries abide by the rules

 Primary tools WTO uses on tariff concessions, countries agree to limit level of tariffs on imports from other WTO members

 Most favored nation clause

 Goal, is to guide and sometimes urge the nations of the world toward free trade and open markets

 Encompasses GATT and all of its agreements

 Has legal authority to arbitrate disputes on

400 trade issues

 Partly responsible for backlash against global trade

European Union

 Formed in 1957 to improve economic and social conditions

 Has grown to 25-nation alliance

 Initiative Europe ’92 called for creation of open markets for Europe’s 340 million consumers

 Biggest expansion in 2004 – 10 new members from southern and eastern Europe

 Observers feared EU would become a trade barrier

 EU’s monetary revolution, introduction of the Euro

North American Free Trade Agreement

● Went into effect on January 1, 1994

● Merged the United States, Canada, and Mexico with more that 421 million consumers

● Breaks down tariffs and trade restrictions on most agriculture and manufactured products

● August 12, 1992 agreements in number of key areas include: agriculture, autos, transport, & intellectual property

● January, 2004 -10th anniversary = success and failure

Strategies for Entering International Markets

Acquisition

Greenfield Venture

Multinational Corporations (MNC)

 Receives >25% total sales revenues from operations outside parent company’s home country

– Managed as integrated worldwide business system

– Controlled by single management authority

– Top managers exercise global perspective

Managing in a Global Environment

Managers must be sensitive to cultural subtleties

 Personal challenges – culture shock