Strategic Management

Chapter 4

Managing in a Global Environment

With national borders becoming increasingly more meaningless the potential for organisations to grow and expand in almost unlimited

Mangers must deal with cultural, economic and political differences

– Successful global management requires enhanced sensitivity in national customs and practices

Global perspective on management requires rejection of parochialism and a carefully developed understanding of cultural differences

The Globalisation of business

Change in Australia and NZ orientation to the rest of the world in past 30 years

– More focussed on Asia-Pacific region Result of development of EU resulting in losing

traditional markets in Europe Coming of age – more focussed goals Changing immigration policies – allowing greater

numbers from south-east Asia– Developing closer relationships with more immediate

neighbours Led to greater opportunities and challenges

– Global marketplace is now very competitive Due to development of infrastructure and reduction of trade

barriers = opportunities to expand domestic markets Karpin Report – no company whether big or small is immune to

the influence of global competition

Who Owns What?

5 November 07 PetroChina, Asia’s top oil and gas producer became the world’s largest company by market value.

– Underlines the ongoing boom in the Chinese market Companies of all sizes are increasingly taking advantages of the

opportunities that a new global market has generated

The globalisation of business is putting many organisations to the test, identifying whether they have the management, talent, resources, products and services that will make them competitive on the world market

What is Your Global Perspective?

Once everyone speaks English, competitive advantage can only be determined by speaking multiple languages

Language is the key to understanding culture Important to managers to consider learning another language

– Particular from Asia-Pacific trading areas– Language skills will be invaluable when it comes to

making contacts with new business partners in the Asia-Pacific region.

Monolinguism is a sign that a nation suffers from parochialism– Parochialism = viewing the world solely though your

own perspectives leading to an in ability to recognise differences between people.

It is a significant difficulty to overcome for managers working in a global business world.

Find it difficult to compete with managers and organisations around the world that are seeking to understand foreign customs and market differences

Ethnocentric attitude– The parochialist belief that the best work approaches

and practices are those of the home country. Believe that people in foreign countries do not

have expertise, knowledge or experience– Don’t trust foreign employees

Polycentric attitude– The view that the managers in the host country know

the best work approaches and practices for running their business

– View every foreign operation as difficult to understand Geocentric attitude

– A world-orientated view that focuses on using the best approaches and people from around the globe.

Need to have a global view both at the organisations headquarters and at various foreign work venues

The Risk of Cross-Culture Blunders

Successful global marketing requires enhanced sensitivity to differences in national customs and practices

– = Geocentrism

Understanding the Global Environment

Features of the global environment– Global trade

Central to human health, prosperity and social welfare

When trade is allowed to flow freely countries benefit from economic growth and productivity gains as they specialize in producing the goods they are best at and importing foods that are more efficiently produced elsewhere

Global trade = shaped by 2 forces– 1. Regional Trading Alliances– 2. Agreements negotiated with World Trade

Organisation (WTO) Regional Trading Alliances

– International competition use to be described in country-country

– Reshaped by the creation of either bilateral agreements or by regional trading and cooperation agreements

The Australia-New Zealand Closer Economic Relations Agreement (CER)

– 1983 to coordinate business regulation and competition policy and to remove all trade barriers

o facilitating freer trade between Aus and NZ

o both countries have small domestic markets

Australian bilateral free trade agreements– Singapore- Aus

o Aimed to further strengthen trade and investment links

o Eliminated tariffso Guaranteed increase market access

for Australian services US – on free trade 2005

– Expected to generate about 6 billion in economic benefit for Australia

Association of Southeast Asian Nations (ASEAN)– A trading alliance of ten southeast Asian

nations– Economic Free-trade area

o Indonesiao Singaporeo Philippines

o Malaysiao Bruneio Vietnamo Cambodiao Laoso Myanmar

The European Union– A union of 27 European nations created as a

unified economic and trade entity– 1992 Maastricht Treaty– 12 countries – Belgium , Denmark, Italy,

France, Germany, Greece, Ireland, Luxembourg, UK

– No national barriers to travel, trade, employment or investment

– To reassert economic position against US and Japan

North American Free Trade Agreement (NAFTA)– An agreement between the Mexican,

Canadian and US governments in which barriers to free trade have been eliminated

World Trade Organization– Systems and mechanism are needed so that efficient

and effective trading relationships can develop– WTO = a global organisation of 151 countries that deals

with the rules of trade among nations– Goal of WTO is to help businesses conduct their

business

Doing Business Globally

Different types of International Organisations– Multinational corporations (MNC)

A broad term that refers to any and all types of international companies that maintain operations in multiple countries

– Multi-domestic Corporation An international company that decentralises

management and other decisions to the local country

– Reflects polycentric attitude– Global company

An international company that centralises management and other decisions in the home country

– Focus on the need for global efficiency

– Ethnocentric attitude o Sony

– Transnational or borderless organisation A global type of organisation in which artificial

geographical barriers are eliminated– Increases efficiency and effectiveness

– Born Global An international company that chooses to go

global from inception– International New Ventures (INV)

– Essentially a company’s national origin is no longer an accurate gauge of where it does business or the national origin of its products and employees

How organisations go International– Depends on whether they are just starting out or

whether they have been doing business internationally for awhile

– During the initial stages of going international managers look at ways to get into a global market without having to invest a lot of capital

– Start with global (out) sourcing Purchasing materials or labour from around world

wherever it is cheapest– Next go international by exporting

Making products domestically and selling them overseas