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Managing in a Managing in a Global Global EnvironmentEnvironment

ChapterChapter

44

Management Stephen P. Robbins Mary Coulter

tenth edition

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The Global EnvironmentThe Global EnvironmentThe Global EnvironmentThe Global Environment

• In the past, managers have viewed In the past, managers have viewed the global sector as closed.the global sector as closed. Each country or market was assumed to be Each country or market was assumed to be

isolated from others.isolated from others. Firms did not consider global competition, Firms did not consider global competition,

exports.exports.

• Today’s environment is very different.Today’s environment is very different. Managers need to view it as an open market.Managers need to view it as an open market. Organizations buy and sell around the world.Organizations buy and sell around the world. Managers need to learn to compete globally.Managers need to learn to compete globally.

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The Global MarketplaceThe Global Marketplace

• Opportunities and ChallengesOpportunities and Challenges Coping with the sudden appearance of new Coping with the sudden appearance of new

competitorscompetitors Acknowledging cultural, political, and economic Acknowledging cultural, political, and economic

differencesdifferences Dealing with increased uncertainty, fear, and anxietyDealing with increased uncertainty, fear, and anxiety Adapting to changes in the global environmentAdapting to changes in the global environment Avoiding parochialismAvoiding parochialism

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What’s Your Global Perspective?What’s Your Global Perspective?

• ParochialismParochialism Is viewing the world solely through one’s own eyes Is viewing the world solely through one’s own eyes

and perspectives.and perspectives. Is not recognizing that others have different ways of Is not recognizing that others have different ways of

living and working.living and working. Is a significant obstacle for managers working in a Is a significant obstacle for managers working in a

global business world.global business world. Is falling into the trap of ignoring others’ values and Is falling into the trap of ignoring others’ values and

customs and rigidly applying an attitude of “ours is customs and rigidly applying an attitude of “ours is better than theirs” to foreign cultures.better than theirs” to foreign cultures.

E.g English is only needed to be learned by US and E.g English is only needed to be learned by US and UK PeopleUK People

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Adopting a Global PerspectiveAdopting a Global Perspective• Ethnocentric AttitudeEthnocentric Attitude

The parochialistic belief that the best work approaches The parochialistic belief that the best work approaches and practices are those of the and practices are those of the homehome country from where country from where the organization originthe organization origin

• Polycentric AttitudePolycentric Attitude The view that the managers in the The view that the managers in the hosthost country know the country know the

best work approaches and practices for running their best work approaches and practices for running their business.business.

• Geocentric AttitudeGeocentric Attitude A A world-orientedworld-oriented view that focuses on using the best view that focuses on using the best

approaches and people from around the globe.approaches and people from around the globe. E.g combining Chinese cost with Japanese quality, E.g combining Chinese cost with Japanese quality,

European design and American MarketingEuropean design and American Marketing

Tariff BarriersTariff BarriersTariff BarriersTariff Barriers

• A A tarifftariff is a barriers to trade. is a barriers to trade. Tariffs are taxes levied upon imports.Tariffs are taxes levied upon imports. These seek to protect jobs in the These seek to protect jobs in the

home country.home country. Other countries usually retaliate.Other countries usually retaliate.

• Free trade:Free trade: in a free trade in a free trade agreement, each country agreement, each country seeks to specialize in things seeks to specialize in things they make most efficiently.they make most efficiently. If India is more efficient in making If India is more efficient in making

textiles, and the USA in making textiles, and the USA in making computer software, then each country computer software, then each country should focus on these.should focus on these.

Distance & Culture BarriersDistance & Culture BarriersDistance & Culture BarriersDistance & Culture Barriers

• The second leading cause of trade barriers.The second leading cause of trade barriers. DistanceDistance closed the markets as far as some managers closed the markets as far as some managers

were concerned.were concerned. Communications could be difficult.Communications could be difficult. Languages and cultures were different.Languages and cultures were different.

• During the last 50 years, communications and During the last 50 years, communications and transportation technology has dramatically transportation technology has dramatically improved.improved. Jet aircraft, fiber optics, satellites have provided fast, Jet aircraft, fiber optics, satellites have provided fast,

secure communications and transportation.secure communications and transportation. These have also reduced cultural differences.These have also reduced cultural differences.

Free TradeFree TradeFree TradeFree Trade

NAFTA: NAFTA: North American Free Trade Agreement.North American Free Trade Agreement. Abolishes most tariffsAbolishes most tariffs on goods traded between on goods traded between

Mexico, Canada and the U.S.Mexico, Canada and the U.S. Allows unrestricted cross-border flows of resources.Allows unrestricted cross-border flows of resources. Many U.S. firms have now invested in Mexico.Many U.S. firms have now invested in Mexico.

• This is a manufacturing opportunity.This is a manufacturing opportunity. Wage costs are lower in Mexico.Wage costs are lower in Mexico. Can serve Mexico with a plant in Mexico and reduce Can serve Mexico with a plant in Mexico and reduce

freight.freight.• Managers face new opportunities and threats.Managers face new opportunities and threats.

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4–9

Regional Trading AgreementsRegional Trading Agreements• The European Union (EU)The European Union (EU)

A unified economic and trade entity A unified economic and trade entity Belgium, Denmark, France, Greece, Ireland, Italy, Belgium, Denmark, France, Greece, Ireland, Italy,

Luxembourg, the Netherlands, Portugal, Spain, the United Luxembourg, the Netherlands, Portugal, Spain, the United Kingdom, Germany, Austria, Finland, and SwedenKingdom, Germany, Austria, Finland, and Sweden

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Regional Trading AgreementsRegional Trading Agreements

• U.S.-Central America Free Trade Agreement (CAFTA)U.S.-Central America Free Trade Agreement (CAFTA)• Free Trade Area of the AmericasFree Trade Area of the Americas• Southern Cone Common Market (Mercosur)Southern Cone Common Market (Mercosur)• Association of Southeast Asian Nations (ASEAN)Association of Southeast Asian Nations (ASEAN)

Trading alliance of 10 Southeast Asian nationsTrading alliance of 10 Southeast Asian nations• African UnionAfrican Union• South Asian Association for Regional Cooperation South Asian Association for Regional Cooperation

(SARRC)(SARRC)

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Exhibit 4–2Exhibit 4–2 ASEAN MembersASEAN Members

Source: Based on J. McClenahen and T. Clark, “ASEAN at Work,” IW. May 19, 1997, p. 42.

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The World Trade Organization The World Trade Organization (WTO)(WTO)

• Evolved from the General Agreement on Tariffs Evolved from the General Agreement on Tariffs and Trade (GATT) in 1995.and Trade (GATT) in 1995.

• Functions as the only global organization Functions as the only global organization dealing with the rules of trade among nations.dealing with the rules of trade among nations.

• Has 149 member nations and 32 observer Has 149 member nations and 32 observer governments.governments.

• Monitors and promotes world trade.Monitors and promotes world trade.

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Different Types of International Different Types of International OrganizationsOrganizations

• Multinational Corporation (MNC)Multinational Corporation (MNC) Maintains operations in multiple countries.Maintains operations in multiple countries.

Multidomestic CorporationMultidomestic Corporation Is an MNC that decentralizes management and other Is an MNC that decentralizes management and other

decisions to the local country. decisions to the local country.

Example: Example: NestleNestle

Global CompanyGlobal Company Is an MNC that centralizes its management and other Is an MNC that centralizes its management and other

decisions in the home country.decisions in the home country.

Example: Example: SonySony

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Different Types of International Different Types of International Organizations (cont’d)Organizations (cont’d)

Transnational Corporation (Borderless Transnational Corporation (Borderless Organization)Organization) Is an MNC that has eliminated structural divisions that Is an MNC that has eliminated structural divisions that

impose artificial geographic barriers and is organized along impose artificial geographic barriers and is organized along business lines that reflect a geocentric attitude.business lines that reflect a geocentric attitude.

Example Ford, ABB etc. Example Ford, ABB etc.

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Exhibit 4–3Exhibit 4–3 How Organizations Go GlobalHow Organizations Go Global

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Going InternationalGoing International• Importing and ExportingImporting and Exporting:: the least complex the least complex

method of expansion.method of expansion. Exporting:Exporting: firm makes products and sells abroad. firm makes products and sells abroad. Importing:Importing: firm sells products made abroad. firm sells products made abroad.

• LicensingLicensing:: firm allows foreign organization to firm allows foreign organization to make and distribute goods for a fee.make and distribute goods for a fee. Helps the home firm since it does not have to set up a Helps the home firm since it does not have to set up a

complete production and distribution network.complete production and distribution network. Example: PEPSI Co.Example: PEPSI Co.

• FranchisingFranchising:: company sells a foreign company sells a foreign organization the rights to use brand name and organization the rights to use brand name and know-how in return for payment and profit know-how in return for payment and profit percentage.percentage. Example: Subway, MCDonaldsExample: Subway, MCDonalds

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Going InternationalGoing International• Strategic AlliancesStrategic Alliances

Partnerships between an organization and a foreign Partnerships between an organization and a foreign company in which both share resources and knowledge company in which both share resources and knowledge in developing new products or building new production in developing new products or building new production facilities. E.g Dewan Motors as distributor of BMW in facilities. E.g Dewan Motors as distributor of BMW in PakistanPakistan

• Joint VentureJoint Venture A specific type of strategic alliance in which the A specific type of strategic alliance in which the

partners agree to form a separate, independent partners agree to form a separate, independent organization for some business purpose.organization for some business purpose.

• Foreign SubsidiaryForeign Subsidiary Directly investing in a foreign country by setting up a Directly investing in a foreign country by setting up a

separate and independent production facility or officeseparate and independent production facility or office Multidomestic or global. Multidomestic or global.

Managing in A Global Specific Managing in A Global Specific EnvironmentEnvironment

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SuppliersSuppliers

DistributorsDistributors

Customers

CompetitorsCompetitorsForces yieldingForces yieldingOpportunities Opportunities

and threatsand threats

Suppliers & DistributorsSuppliers & DistributorsSuppliers & DistributorsSuppliers & Distributors

• Managers buy products from global suppliers or Managers buy products from global suppliers or make items abroad and supply themselves.make items abroad and supply themselves. Key is to keep quality high and costs low.Key is to keep quality high and costs low.

• Global outsourcing:Global outsourcing: firms buy inputs from firms buy inputs from throughout the world.throughout the world. GM might build engines in Mexico, transmissions in GM might build engines in Mexico, transmissions in

Korea, and seats in the U.S.Korea, and seats in the U.S. Finished goods become global products.Finished goods become global products.

• Distributors:Distributors: each country often has a unique each country often has a unique system of distribution.system of distribution. Managers must identify all the issues.Managers must identify all the issues.

Customers & CompetitorsCustomers & CompetitorsCustomers & CompetitorsCustomers & Competitors

• Formerly distinct national markets are merging Formerly distinct national markets are merging into a huge global market.into a huge global market. True for both consumer and business goods.True for both consumer and business goods. Creates large opportunities.Creates large opportunities.

• Still, managers often must customize products to Still, managers often must customize products to fit the culture.fit the culture. McDonald's sells a local soft drink in Brazil.McDonald's sells a local soft drink in Brazil.

• Global competitors present new threats.Global competitors present new threats. Increases competition abroad as well as at home.Increases competition abroad as well as at home.

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Managing in A Global General Managing in A Global General EnvironmentEnvironment

Political &Legal Systems

Economic system

SocioculturalSystem

Forces yieldingForces yieldingOpportunities Opportunities

and threatsand threats

Political-Legal Forces in Political-Legal Forces in EnvironmentEnvironmentPolitical-Legal Forces in Political-Legal Forces in EnvironmentEnvironment• The Legal EnvironmentThe Legal Environment

Stability or instability of legal and political systemsStability or instability of legal and political systems Legal procedures are established and followedLegal procedures are established and followed

Fair and honest elections held on a regular basisFair and honest elections held on a regular basis

Differences in the laws of various nationsDifferences in the laws of various nations Effects on business activitiesEffects on business activities

Effects on delivery of products and servicesEffects on delivery of products and services

Political-Legal ForcesPolitical-Legal ForcesPolitical-Legal ForcesPolitical-Legal Forces

• Results from diverse and changing nature of Results from diverse and changing nature of each countries’ political system.each countries’ political system.

• Representative democracies:Representative democracies: such as the U.S., such as the U.S., Britain, Canada. Britain, Canada. Citizens elect leadersCitizens elect leaders who make decisions for who make decisions for

electorate.electorate. Usually has a number of safeguards such as freedom Usually has a number of safeguards such as freedom

of expression, a fair court system, regular elections, of expression, a fair court system, regular elections, and limited terms for officials.and limited terms for officials.

Well defined legal systemWell defined legal system and economic freedom. and economic freedom.

• Totalitarian regimes:Totalitarian regimes: a single political party or a single political party or person monopolize power in a country.person monopolize power in a country. Typically do not recognize or permit opposition.Typically do not recognize or permit opposition. Most safeguards found in a democracy do not exist.Most safeguards found in a democracy do not exist. Examples include Iran, Iraq, and China.Examples include Iran, Iraq, and China.

• These are difficult to do business with given the These are difficult to do business with given the lack of economic freedom.lack of economic freedom.

• Further, Further, human rights issueshuman rights issues also cause managers also cause managers to avoid dealing with these countries.to avoid dealing with these countries.

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The Economic EnvironmentThe Economic Environment• Economic SystemsEconomic Systems

Free market economyFree market economy An economy in which resources are primarily owned and An economy in which resources are primarily owned and

controlled by the private sector.controlled by the private sector.

Planned/Command EconomyPlanned/Command Economy An economy in which all economic decisions are planned by An economy in which all economic decisions are planned by

a central government.a central government.

Mixed EconomyMixed Economy

• Monetary and Financial FactorsMonetary and Financial Factors Currency exchange ratesCurrency exchange rates Inflation ratesInflation rates Diverse tax policiesDiverse tax policies

Economic SystemsEconomic SystemsEconomic SystemsEconomic Systems

• Free market economy:Free market economy: production of goods and production of goods and services is in private ownership.services is in private ownership. Production is dictated by supply and demand. Production is dictated by supply and demand.

• Command economy:Command economy: decisions on what to produce, decisions on what to produce, how much, done by the government. how much, done by the government. Most command economies are moving away from the Most command economies are moving away from the

command economy.command economy.• Mixed economy:Mixed economy: certain economic sectors certain economic sectors

controlled by private business, others are controlled by private business, others are government controlled.government controlled. Many mixed countries are moving toward a free Many mixed countries are moving toward a free

enterprise system.enterprise system.

Recent TrendsRecent TrendsRecent TrendsRecent Trends

• Current shift away from totalitarian dictators toward Current shift away from totalitarian dictators toward democratic regimes.democratic regimes. Very dramatic example seen in the collapse of the Very dramatic example seen in the collapse of the

former Soviet Republic.former Soviet Republic. Also very pronounced in Latin America and Africa.Also very pronounced in Latin America and Africa.

• With this shift, has come a strong movement With this shift, has come a strong movement toward free market systems.toward free market systems. This provides great opportunities to business managers This provides great opportunities to business managers

on a global level.on a global level. Many businesses are investing millions in former Many businesses are investing millions in former

totalitarian countries to seize these opportunities.totalitarian countries to seize these opportunities.

Changing Political and Changing Political and Economic ForcesEconomic ForcesChanging Political and Changing Political and Economic ForcesEconomic Forces

Russia1985

Russia1995

Democratic

PoliticalFreedom

TotalitarianChina1985

China1995

Command MarketMixed

Economic Freedom

Britain1985

Britain1995

Hungary1985

Hungary1995

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The Social/Cultural Forces in The Social/Cultural Forces in EnvironmentEnvironment• National CultureNational Culture

Is the values and attitudes shared by individuals from Is the values and attitudes shared by individuals from a specific country that shape their behavior and their a specific country that shape their behavior and their beliefs about what is important.beliefs about what is important.

includes the values, norms, knowledge, beliefs, and includes the values, norms, knowledge, beliefs, and other practices that unite a country.other practices that unite a country.

May have more influence on an organization than the May have more influence on an organization than the organization culture.organization culture.

• Values:Values: abstract ideas about what a society believes to be good, abstract ideas about what a society believes to be good, desirable and beautiful.desirable and beautiful. Provides attitudes for democracy, truth, appropriate roles for men, and Provides attitudes for democracy, truth, appropriate roles for men, and

women.women. Usually not static but very slow to change.Usually not static but very slow to change.

• Norms:Norms: social rules prescribing behavior in a given social rules prescribing behavior in a given situation.situation. FolkwaysFolkways:: routine social conventions including dress codes and routine social conventions including dress codes and

manners.manners. MoresMores:: Norms that are central to functioning of society. much Norms that are central to functioning of society. much

more significant that folkways.more significant that folkways. More examples include theft, adultery, and are often enacted into More examples include theft, adultery, and are often enacted into

law.law.

• Norms vary from country to country.Norms vary from country to country.

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Exhibit 4–4Exhibit 4–4 What Are Americans Like What Are Americans Like

Americans are very informal.

Americans are direct.

Americans are competitive.

Americans are achievers.

Americans are independent and individualistic.

Americans are questioners.

Americans dislike silence.

Americans value punctuality.

Americans value cleanliness.Sources: Based on M. Ernest (ed.), Predeparture Orientation Handbook: For Foreign Students and Scholars Planning to Study in the United States (Washington, DC: U.S. Information Agency, Bureau of Cultural Affairs, 1984), pp. 103–05; A. Bennett, “American Culture Is Often a Puzzle for Foreign Managers in the U.S.,” Wall Street Journal, February 12, 1986, p. 29; “Don’t Think Our Way’s the Only Way,” The Pryor Report, February 1988, p. 9; and B.J. Wattenberg, “The Attitudes behind American Exceptionalism,” U.S. News & World Report, August 7, 1989, p. 25.

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Hofstede’s Framework for Hofstede’s Framework for Assessing CulturesAssessing Cultures

Individualismversus

Collectivism

Individualismversus

Collectivism

PowerDistance

PowerDistance

UncertaintyAvoidance

UncertaintyAvoidance

Achievement versus

Nurturing

Achievement versus

Nurturing

Long-Termversus

Short-Term Orientation

Long-Termversus

Short-Term Orientation

CultureCulture

Achievement vs NurtureAchievement vs NurtureAchievement vs NurtureAchievement vs Nurture

• Achievement oriented societiesAchievement oriented societies value value assertiveness, performance, success.assertiveness, performance, success. The society is results-oriented.The society is results-oriented.

• Nurturing-orientedNurturing-oriented value quality of life, personal value quality of life, personal relationships, service.relationships, service.

• The U. S. and Japan are achievement-oriented The U. S. and Japan are achievement-oriented while Sweden, Denmark are more nurturing-while Sweden, Denmark are more nurturing-oriented.oriented.

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Exhibit 4–5 Hofstede’s Five Dimensions of National Culture

(1) Individualistic — people look after their own and family interests Collectivistic — people expect group to look after and protect them Individualistic Collectivistic United States, Canada Japan Mexico, Thailand Australia

(2) High power distance—Accepts wide differences in power, great deal of respect for those in authority

Low power distance—Plays down inequalities: employees are not afraid to approach nor are in awe of the boss

High power distance Low power distance Mexico, Singapore, Italy, Japan United States, Sweden

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Exhibit 4–5 Hofstede’s Five Dimensions of National Culture

(3) High uncertainty avoidance—Threatened with ambiguity and experience high levels of anxiety

Low uncertainty avoidance— Comfortable with risks; tolerant of different behavior and

opinions High uncertainty avoidance Low uncertainty avoidance Italy, Mexico, France United Kingdom Canada, United States,

Singapore

(4) Achievement—Values such as assertiveness, acquiring money and goods, and competition prevail

Nurturing—Values such as relationships and concern for others prevail

Achievement Nurturing United States, Japan, Canada, Greece France,

Sweden Mexico

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Exhibit 4–5 Hofstede’s Five Dimensions of National Culture

(5) Long-term orientation—People look to the future and value thrift and persistence

Short-term orientation — People value tradition and the past Short-term thinking Long-term thinking

Germany, Australia, China, Taiwan, Japan

United States, Canada

Individualism Individualism v.v. Collectivism CollectivismIndividualism Individualism v.v. Collectivism Collectivism

• Individualism:Individualism: world view that values individual world view that values individual freedom and self-expression.freedom and self-expression. Usually has a strong belief in personal rights and need Usually has a strong belief in personal rights and need

to be judged by achievements.to be judged by achievements.

• Collectivism:Collectivism: world view that values the group over world view that values the group over the individual. the individual. Widespread in Communism.Widespread in Communism. Prevalent in Japan as well.Prevalent in Japan as well.

• Managers must understand how their workers Managers must understand how their workers relate to this issue.relate to this issue.

Power DistancePower DistancePower DistancePower Distance

• A society’s acceptance of differences in the well A society’s acceptance of differences in the well being of citizens due to differences in heritage, being of citizens due to differences in heritage, and physical and intellectual capabilities.and physical and intellectual capabilities. In high power distance societies, the gap between rich In high power distance societies, the gap between rich

and poor gets very wide.and poor gets very wide. In low power distance societies, any gap between rich In low power distance societies, any gap between rich

and poor is reduced by taxation and welfare programs.and poor is reduced by taxation and welfare programs. Most western cultures (U.S., Germany, United Kingdom) have Most western cultures (U.S., Germany, United Kingdom) have

relatively low power distance and high individualism.relatively low power distance and high individualism. Many economically poor countries such as Pakistan, India etc Many economically poor countries such as Pakistan, India etc

have high power distance and low individualism.have high power distance and low individualism.

Uncertainty AvoidanceUncertainty AvoidanceUncertainty AvoidanceUncertainty Avoidance

Societies and people differ on their willingness to Societies and people differ on their willingness to take on risk.take on risk.

• Low uncertainty avoidanceLow uncertainty avoidance (U.S., Hong Kong), (U.S., Hong Kong), value diversity, and tolerate differences.value diversity, and tolerate differences. Tolerate a wide range of opinions and beliefs.Tolerate a wide range of opinions and beliefs.

• High uncertainty avoidanceHigh uncertainty avoidance (Japan and France) (Japan and France) are more rigid and do not tolerate people acting are more rigid and do not tolerate people acting differently.differently. High conformity to norms is expected.High conformity to norms is expected.

Long Term OutlookLong Term OutlookLong Term OutlookLong Term Outlook

• Long-term outlookLong-term outlook is based on values of saving, is based on values of saving, and persistence.and persistence. Taiwan and Hong Kong are cultures that are long -term Taiwan and Hong Kong are cultures that are long -term

in outlook.in outlook.

• Short-term outlookShort-term outlook seeks the maintenance of seeks the maintenance of personal stability or happiness right now.personal stability or happiness right now. France and the U. S. are examples of this approach.France and the U. S. are examples of this approach.

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Exhibit 4–6Exhibit 4–6 GLOBE HighlightsGLOBE Highlights

Source: M. Javidan and R. J. House, “Cultural Acumen for the Global Manager: Lessons from Project GLOBE,” Organizational Dynamics, Spring 2001, pp. 289–305. Copyright © 2001. Reprinted with permission from Elsevier.

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Global Management in Today’s Global Management in Today’s WorldWorld

• ChallengesChallenges Openness associated with globalizationOpenness associated with globalization Significant cultural differences (e.g., Americanization)Significant cultural differences (e.g., Americanization) Adjusting leadership styles and management Adjusting leadership styles and management

approachesapproaches

• RisksRisks Loss of investments in unstable countriesLoss of investments in unstable countries Increased terrorismIncreased terrorism Economic interdependence Economic interdependence