2Chapter

Managing in a Global Environment

Managing in a Global Environment

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Learning ObjectivesAfter reading this chapter, you should be able to:

Understand the landscape of the global market.Develop an awareness for the role of culture in international

management.Recognize the major options firms face when they choose a

global strategy and the conditions that make a strategic choice most appropriate.

Determine the best mode of entry into foreign markets given each firm’s unique characteristics.

Develop effective human resource practices for managing international subsidiaries.

Become aware of ethical issues in international operations.

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The Changing Pattern of International Business

Changing world output and world trade pictureThe U.S. no longer dominates the world economyLarge U.S. multinationals no longer dominate

international businessThe centrally planned communist economies that

made up roughly half the world suddenly become accessible to Western businesses

The global economy has become more knowledge-intensive

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The Changing Pattern of International Business (continued)

Lowered trade barriers General Agreement on Tariffs and Trade (GATT) World Trade Organization (WTO)

rules apply to over 90 percent of international trade has 144 member nations, including China moved from reducing tariffs to eliminating non tariff

barriers

Integrated Economic Markets

The European Union (EU) allows goods, services, capital, and human resources to

flow freely across national borders goal is to strengthen Europe as an economic superpower agreement to adopt a common European currency

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The Changing Pattern of International Business (continued)

Integrated Economic Markets The North American Free Trade Act

(NAFTA) an economic pact that combined the economies of

the U.S., Canada, and Mexico constitutes the world’s largest trading bloc provides access to previously protected markets in

each country

The Association of Southeast Asian Nations

(ASEAN)

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The Changing Pattern of International Business (continued)

Integrated Economic Markets The Asia Pacific Economic Cooperation

(APEC) trying to:

reduce trade barriers establish general rules for investment develop policies that encourage foreign investment

holds promise in facilitating and strengthening international business relationships

member countries represent 40 percent of the world’s population and 50 percent of the world’s economic output

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The Changing Pattern of International Business (continued)

Global consumer preferencesTastes and preferences are converging

Presence of mass media, exposure to

goods from various countries, and

standardized products

Globalized productionCost efficiency

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Example of Globalized Production

Of the $20,000 sticker price of a General Motors Automobile LeMans:$6,000 goes to South Korea, where the car was assembled$3,000 goes to Japan for sophisticated high-tech parts

(engines, transaxles, electronics)$800 goes to Taiwan, Singapore, and Japan for small

parts$500 goes to Great Britain for advertising and marketing

services$1,000 goes to Ireland for data processing$7,600 goes to GM and its external professional firms in

the United States

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The Changing Pattern of International Business (continued)

Technological innovations Advances in communications, information

processing, and transportation technology

Fiber optics, wireless technology, the Internet

and World Wide Web, and satellite technology

Management across cultures Adaptation to business strategies, structures,

operational policies, and human resource

programs

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Major Factors Affecting International Business

General business environment

Legal system

Economic environment

Cultural environmentCulture shock

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Dimensions of Culture

Power Distance

Individualism

Uncertainty Avoidance

Masculinity / Femininity

Long-term/ Short-term Orientation

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Hofstede’s Framework

Power Distance • Degree to which influence/control are unequally distributed

among individuals within a particular culture

Uncertainty Avoidance• Degree to which members of a society attempt

to avoid ambiguity, risk, and indefinitenessof future

Individualism / Collectivism• Extent to which society expects people to take

care of themselves and their immediate families • The degree to which individuals believe

they are masters of their own destiny

3.5

Hofstede’s Framework (cont.)

• Tendency of group members to focus on the common welfare and feel loyalty toward one another

Masculinity/Femininity• Degree to which acquisition of money

and material things is valued versus

quality of life

Long-term/Short-term Orientation

orientation toward future versus past or present

3.6

POWER DISTANCE

HIGH – Malaysia, Mexico, Venezuela, Arab Countries, India, Singapore

MODERATE – Thailand, Portugal, Greece, South Korea, Taiwan, Spain, Japan

LOW – United States (38/53), Finland, Norway, Sweden, New Zealand, Denmark

UNCERTAINTY AVOIDANCE

HIGH – Greece, Portugal, Belgium, Japan, Peru, France

MODERATE – Taiwan, Arab Countries, Thailand, Iran, Finland

LOW – United States (43/53), India, Great Britain, Sweden

INDIVIDUALISM/COLLECTIVISM

HIGH – United States (1/53), Australia, Great Britain, New Zealand, Denmark, Sweden, France

MODERATE – Japan, Iran, Brazil, Arab Countries, Greece

LOW – Columbia, Venezuela, Panama, Guatamala

MASCULINITY/FEMININITY

HIGH (Masculinity) – Japan, Austria, Venezuela, Italy, Mexico, United States (15/53)

MODERATE – Canada, Malaysia, Pakistan, Brazil, Singapore, Israel

LOW (Femininity)– Denmark, Netherlands, Norway, Sweden

INDIVIDUALISM-COLLECTIVISM Please indicate you level of agreement or disagreement with each of the following statements using the following scale:  Strongly Disagree Neither Disagree nor Agree Strongly Agree ` 1 2 3 4 5 6  _____ 1. I would rather struggle through a personal problem by myself than discuss it with my friends. _____ 2. I do my own things without minding about my colleagues/co-workers, when I am among them. ______3. I like to live close to my close friends. ______4. I would pay absolutely no attention to my close friends’ views when deciding what kind of work to do.

______5. We ought to develop the character of independence among students, so that they do not rely upon other students’ help in their schoolwork. ______6. It is a personal matter whether I worship money or not. Therefore, it is not necessary for my friends to give my advice. ______7. There is everything to gain and nothing to lose for classmates to group themselves together for study and discussion. ______8. Classmates’ assistance is indispensable to getting a good grade at school. ______9. If you work, and you have to choose between (A) getting along very well with your co-workers, and (B) being very competent and efficient in doing the job, what combination of the two aspects would you like best? (Use the scale below to make your response for this question.)  1 = 100% A 2 = 80% A, 20%B 3 = 60% A, 40%B

4 = 40% A, 60%B 5 = 20% A, 80%B 6 = 100% B

_____10. Man is a social animal that cannot flourish and grow without identifying himself with some group. _____11. Some of life’s greatest satisfactions are found in working cooperatively with others. _____12. Individuals do not really fulfill their human potentials unless they involve themselves deeply in some group. _____13. It is often more gratifying to work for the accomplishment of a goal held by a group to which one belongs than to work for the attainment of a purely personal goal. _____14. In life an individual should for the most part “go it alone’ assuring oneself of privacy, having time to oneself, attempting to resist being influenced by others. _____15. It is just as important to work toward group goals and adhere to the established rules of the group as it is to gratify one’s individual desires. 

COLLECTIVISM SCORING

ITEMS 1, 2, 4, 5, 6, 9, AND 14 ARE REVERSED SCORED 6 = 1 5 = 2 4 = 3 3 = 4 2 = 5 1 = 6

CULTURAL VALUES

Variable United States Taiwan

Collectivism 57.72 66.78 Femininity 4.47 4.77 Masculinity 4.95 4.65 Power Distance 2.19 1.98 Uncertainty Avoidance 3.18 3.56

Entry Strategy and Strategic Alliances

Four key decisions of a firm contemplating foreign expansion:Which countries to enterWhen to enterScale of involvementHow to enter

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Choosing Foreign Countries

The appeal of a particular country is likely to be greater when:

The size of the domestic market is large

The present wealth of consumers in that market is high and projected to grow in the future

The needed resources are readily available

The firm’s product offerings are suitable to a particular market

A positive business environment exists

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When to Enter Foreign Countries and Scale of Involvement

When to EnterFirst-mover advantagesPioneering costs

Scale of InvolvementLowest if the firm simply decides to export its products to

the foreign locationHighest if the firm decides to have a wholly owned

subsidiary in the foreign country

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Modes of Entry

Exporting Turnkey Project

Licensing

Franchising

Strategic Alliance

Joint VentureWholly Owned

Subsidiary

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Advantages and Disadvantages of Various Modes of Entry Choices

Loss of competitive advantage

Potential quality control problems

Limited ability to use profits in one country to increase competition in another country

Quick expansion

Lower development costs and risks

Lower political risk

Franchising

Loss of competitive advantage

Limited ability to use profits in one country to increase competition in another country

Quick expansion

Lower expenses and risks

Lower political risk

Licensing

Competition from local client

Loss of competitive advantage

Access to closed marketsTurnkey Project

No low cost sales

High transportation costs

Potential tariffs

Economies of scale

Lower foreign expensesExporting

DisadvantagesAdvantagesMode of Entry

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Advantages and Disadvantages of Various Modes of Entry Choices

(continued)

Loss of competitive advantage

Potential overestimation of partner’s capabilities

Access to closed markets

Pooled resources increase partner’s capabilities

Complementary skills & assets

Strategic Alliance

Large capital outlay

Lack of local knowledge

Increased risk

Maximum control over proprietary knowledge/ technology

Greater strategic flexibility

Efficiencies of global production system

Wholly Owned Subsidiary

Potential for conflict of interest

Loss of competitive advantage

Knowledge of local markets

Lower development costs and risk

Access to closed markets

Joint Venture

DisadvantagesAdvantagesMode of Entry

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Examples of Strategic Alliances

General Electric – Snecma of France

Toshiba – IBMMitsui – General ElectricToyota – GM, TRWCanon – Hewlett-PackardMitsubishi – Caterpillar

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Automobile Companies

Ford – Astin-Martin, Jaguar, Land Rover, Mazda, Volvo

Daimler-Chrysler – Mercedes-Benz, Jeep (Mitsubishi)

GM – Fiat, Hummer, Isuzu, Opel, Saab, Subaru, Suzuki, (Toyota)

Basic Approaches to Managing an International Subsidiary

Ethnocentric Approach

Polycentric Approach

Geocentric Approach

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Why International Assignments End in Failure

Career blockage

Culture shock

Lack of pre-departure cross-cultural training

Overemphasis on technical qualifications

Getting rid of a troublesome employee

Family problems

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Key Human Resource Management Factors for Global Firms

SelectionSelection criterion should include cultural sensitivity

TrainingLength of assignment determines depth of trainingCross-cultural training is critical to success

Career Development International assignments should be part of career

advancement plan

Compensation and Benefits Incentives and quality-of-life concerns

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Three approaches to cross-cultural training

Impression Approach

Affective Approach

Information-Giving Approach

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Ethics and Social Responsibility

Globalization greatly increases the possibility that managers will face an ethical dilemma.

Different cultures have different notions of right and wrong.

U.S. Foreign Corrupt Practice Act (1977).

Many firms and industry groups have developed their own codes of conduct for foreign operations.

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Applications of Management Perspectives—

For the Manager

Firms are prevented from capitalizing on business opportunities overseas by a lack of awareness of:How to enter foreign marketsHow to operate in diverse national settings

By developing a better appreciation of the unique challenges that may confront them, managers can learn how to function well overseas.

Groom managers for their role in globalization.

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Applications of Management Perspectives—

For Managing Teams

Many firms are entering joint ventures with companies in other countries.

Joint ventures usually require teams made up of employees from different nations.

The ability of international teams to work together in a climate of mutual respect is a key to success.

This requires: Cross-cultural sensitivity. Understanding of the international context in which the firm

operates.

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Applications of Management Perspectives—

For Individuals

The career mobility of employees is likely to be enhanced if they have international skills.

International savvy is increasingly valued.

Many firms require employees to have international experience before they can move into the upper management ranks.

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