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Navigating The Global Environment: Chapter Summary
Navigating The Global Environment: Chapter Summary
Griffin
CHAPTER 5
Navigating the Global Environment
CHAPTER SUMMARY
This chapter focuses on international issues in management. After introducing students to the nature of
international business, the chapter discusses the structure of the global economy. Various challenges
regarding the economic, political/legal, and cultural environment of international business are described.
The chapter continues with a discussion of how firms compete in a global economy. Finally, the chapter
concludes by characterizing the managerial functions of planning and decision making, organizing,
leading, and controlling as management challenges in a global economy.
It is important to remember it is no longer feasible to segregate a discussion of “international”
management from a discussion of “domestic” management as if they were unrelated activities. Though
this chapter highlights the central issues of international management, global issues, examples,
opportunities, and challenges appear throughout the text.
LEARNING OBJECTIVES
After covering this chapter, students should be able to:
1. Describe the nature of international business, including its meaning, recent trends, management of
globalization, and competition in a global market.
2. Discuss the structure of the global economy and describe the GATT and the WTO.
3. Identify and discuss the environmental challenges inherent in international management.
4. Describe the basic issues involved in competing in a global economy, including organization size
and the management challenges in a global economy.
MANAGEMENT IN ACTION
Into Africa
The opening case covers the rise of the middle class in Africa and the accompanying rise in the demand
for American brand names. Harley Davidson is a popular brand. Harley began to target Africa’s rising
middle class in 1996 and began Africa Bike Week in South Africa, a Harley-sponsored annual event
drawing 110,000 enthusiasts in 2014. The Elephant’s Bikers club, based in the Ivory Coast, draws people
from each small town they pass through. One club member says people respond positively to them
because they are sharing a pleasure, a dream and people identify with that.
Management Update: According to a December 2014 report by The Freedonia Group, a
market research group, world demand for motorcycles will rise 5.9 percent yearly to
132.4 million units in 2018, valued at $119.5 billion. The report also predicts that E-
bikes and other electric motorcycles will capture market share from internal combustion
engine models in most countries. Harley-Davidson has an electric motorcycle. The bike
is not yet for sale but the company is touring the U.S, Canada, and Europe, letting riders
try out the bike and provide feedback.
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Chapter 5: Navigating the Global Environment
LECTURE OUTLINE
International business is a pervasive process that touches virtually every sector of the economy and
every business in the world.
People around the world use products on a daily basis that are imported from countries thousands of
miles away.
Group Exercise: Have students generate a list of the ten products they use most
frequently. Then have them research the national origin of the companies that make them.
Discussion Starter: Ask students to predict which products made in the United States are
most likely and least likely to be successful abroad.
A. The Meaning of International Business
There are four forms of international business.
1. A domestic business acquires essentially all of its resources and sells all of its products
or services within a single country.
2. An international business is primarily based in a single country but acquires some
meaningful share of its resources or revenues (or both) from other countries.
3. A multinational business has a worldwide marketplace from which it can buy raw
materials, borrow money, and manufacture products and to which it subsequently sells its
products. Such companies are often called multinational corporations, or MNC’s.
4. A global business transcends national boundaries and is not committed to a single home
country.
Teaching Tip: Stress for students that these four categories of international business fall
along a continuum.
B. Trends in International Business
After World War II, U.S. firms dominated the markets for automobiles, electronic equipment,
machine tools, and most other industrial products.
Increased population spurred by the baby boom and increased affluence resulting from the
postwar economic boom greatly raised the average person’s standard of living and
expectations. U.S. consumers wanted new and better products while U.S. companies failed to
meet those expectations.
However, after war-torn Germany and Japan rebuilt their factories, they began to invade the
U.S. markets. U.S. firms are now finding that to be competitive, they must think globally.
Extra Example: The text identifies countries and the number of Global 500 companies
located within their borders. The text uses numbers from 2011. To show the difference,
here are 2015 numbers: 128 of the world’s largest 500 businesses were U.S. firms, 54 in
Japan, 31 in France, 28 in Germany, and 98 in China. While the other countries have
fewer corporations on the list, China has more than doubled its number. (Fortune’s
Global 500 List, available at www.fortune.com)
Extra Example: Wal-Mart Stores was the world’s biggest firm in 2015, with revenues in
excess of $485 billion.
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Management 12e by Ricky W. Griffin
Teaching Tip: Although the U.S. steel industry has declined greatly since the 1970s,
today it is experiencing a revival by importing raw steel from Brazil and other makers
and transforming it into value-added customized products for American manufacturers.
2. Licensing is an arrangement whereby one company allows another to use its brand
name, trademark, technology, patent, copyright, or other assets in exchange for a royalty
based on sales.
3. Strategic alliances occur when two or more firms jointly cooperate for mutual gain. A
joint venture is a special type of strategic alliance in which the partners share ownership
in a new enterprise.
4. Direct investment occurs when a firm headquartered in one country builds or purchases
operating facilities or subsidiaries in a foreign country.
Maquiladoras are light-assembly plants built in northern Mexico close to the U.S.
border. These plants receive tax breaks from the Mexican government, and there is a
large population of workers willing to work for low wages.
Global Connection: The passage of the North American Free Trade Agreement has
increased the importance of maquiladoras to firms doing business in Mexico.
Teaching Tip: Stress the fact that large firms use multiple methods of international
business. For example, Ford ships cars made in the United States to Canada (exporting),
contracts with Mazda to manufacture part of the Ford Escort (licensing), jointly develops
the Mercury Villager minivan with Nissan (strategic alliance), and owns several
manufacturing plants in other countries (direct investment).
Teaching Tip: Use Table 5.1 to describe the advantages and disadvantages of the four
different approaches to internationalization.
D. Competing in a Global Market
The functions performed by a firm are the same, whatever the level of international
involvement. However, the complexity is greater for international firms.
The key question is whether to operate as one global, integrated firm, or to allow each regional
branch to operate more independently with little regard for the overall organization. Most
MNC’s use both global and local activities as they search for the optimal answer.
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Chapter 5: Navigating the Global Environment
Discussion Starter: Ask students for their opinion of NAFTA. For example, ask whether
they think it is generally a good or a bad thing for each of the three major partners.
Still another mature market system located in Southeast Asia is Pacific Asia (Japan, China,
Thailand, Malaysia, Singapore, Indonesia, South Korea, Taiwan, the Philippines, and
Australia).
Discussion Starter: Ask students which countries in Europe and Asia they have visited.
Then ask how similar to or different from the United States each country was.
B. High Potential/High Growth Economies
High potential/high growth economies are found in countries whose economies are just now
beginning to emerge as important business centers. They are generally characterized as
recently having weak industry, weak currency, and relatively poor consumers, but they are
currently experiencing strong development and growth. China and India fall into this category
today. Additional developing countries include: Brazil, Vietnam, Russia, and South Africa.
Global Connection: Although China and India represent the world’s two largest
countries in terms of population, American firms experience a significant risk in moving
into those markets based on political, economic, and cultural differences.
C. Other Economies
The Middle East defies classification as a market or developing economy due to their mixed
models of resource allocation, property ownership, and development of an infrastructure.
These countries hold tremendous wealth but political instability and tremendous cultural
differences combine to make doing business in many parts of the Middle East both very risky
and very difficult.
Additionally, the countries that are involved in political or ethnic violence (including Peru, El
Salvador, Turkey, Columbia, and Northern Ireland) are poor business risks.
Cuba presents special challenges due to their long insulation from the outside world. Now that
the U.S. and Cuba have taken steps to normalize their relationship, Cuba may quickly become
an important business center.
D. The Role of the GATT and the WTO
The General Agreement on Tariffs and Trade (GATT) is a trade agreement intended to
promote international trade by reducing trade barriers and making it easier for all nations to
compete in international markets. GATT arose after WW II in an effort to avoid trade wars
that would benefit rich nations and harm poorer ones.
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Management 12e by Ricky W. Griffin
One key component of the GATT was the identification of the so-called most favored nation
(MFN) principle. If a country extends preferential treatment to any nation that signed the
agreement, they must offer the same treatment to any other nation who signed the agreement.
The World Trade Organization (WTO) currently includes 140 member nations and 32
observer countries and requires members to open their markets to international trade and
follow WTO rules. Began in 1995, the WTO replaced the GATT and absorbed its mission.
The WTO has three basic goals:
1. To promote trade flows by encouraging nations to adopt nondiscriminatory and
predictable trade policies.
2. To reduce remaining trade barriers through multilateral negotiations.
3. To establish impartial procedures for resolving trade disputes among its members.
Extra Example: Following its victory in Baghdad, American and coalition forces teamed
up with local citizens to begin the task of rebuilding Iraq’s infrastructure.
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Chapter 5: Navigating the Global Environment
Extra Example: Although the government of Cuba has been relatively stable for years
(under the regime of Fidel Castro first and now his brother, Raul), many observers
believe that communism will eventually collapse in that country. Fidel Castro is getting
on in years and there is no evidence of a strong second tier of leadership who will have
the same impact as did Fidel Castro. Following a period of turmoil, Cuba is eventually
expected to become an important market in the Caribbean.
2. Incentives for international trade—Many countries offer incentives to foreign businesses
to attract them to these countries. Such incentives can take a variety of forms. Some
examples of these incentives include reduced interest rates on loans, construction
subsidies, and tax breaks.
3. Controls on international trade—A government can impose a variety of barriers to
international trade to protect domestic businesses.
A tariff is a tax collected on goods shipped across national boundaries. Tariffs may be
collected by the exporting country, countries through which goods pass, and the
importing country. Import tariffs are the most common.
Under the Byrd Amendment, if U.S. companies can demonstrate a foreign company is
dumping (selling for less than fair-market value) its products in the U.S. market, those
products will receive a tariff.
Teaching Tip: The stiff trade barriers employed by Japan continue to be a point of
contention between that country and the United States. U.S. firms argue that there are so
many trade barriers in place in Japan, that it results in unfair competition for them.
Quotas are a limit on the number or value of goods that can be traded. The most
common form of trade restriction.
Export restraint agreements are agreements that convince other governments to
voluntarily limit the volume or value of goods exported to or imported from a particular
country. They are, in effect, export quotas.
“Buy national” legislation gives preference to domestic producers through content or
price restrictions. Several countries have this type of legislation.
4. Economic communities are sets of countries that have agreed to significantly reduce or
eliminate trade barriers among its member nations (a formalized market system).
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Management 12e by Ricky W. Griffin
Extra Example: A current joint venture between IBM (a U.S. firm), Toshiba (a Japanese
firm), and Siemens (a German firm) headquartered in New York has faced several
problems stemming from cultural differences. For example, the Germans are unhappy
that the offices do not have windows, while the Japanese are unhappy that the offices are
too small for large groups to gather. Meanwhile, the U.S. managers are unhappy because
they feel that the Germans and the Japanese speak their native languages too often rather
than communicating with each other in English.
Language can also be a barrier in international management. Not only the words that are
spoken, but the nonverbal aspects of language can pose a problem to managers in a
foreign country.
2. Individual behaviors across cultures
Geert Hofstede, a Dutch researcher, identified five important dimensions of individual
differences. Figure 5.4 illustrates the differences.
Social orientation—a person’s beliefs about the relative importance of the individual
versus groups to which the individual belongs. Two opposing beliefs are individualism
(the person comes first) and collectivism (the group comes first).
Power orientation—a person’s beliefs about the appropriateness of power and authority
differences in hierarchies. Power respect recognizes authority, while power tolerance
suggests less emphasis on authority.
Uncertainty orientation—feelings held by individuals about uncertain and ambiguous
situations. People with uncertainty acceptance accept change and thrive on new
opportunities. People with uncertainty avoidance dislike and avoid ambiguity.
Goal orientation—manner in which people are motivated to work toward goals. Those
with aggressive goal behavior seek money, possessions, and assertiveness, while passive
goal behavior tends to value quality of life, relationships, and concern for others.
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Chapter 5: Navigating the Global Environment
Teaching Tip: Have your students locate the most recent list of the Global 500 (Fortune
publishes the list each year around midsummer, or it is available online at
www.fortune.com.). Compare new lists with this table and note the changes.
2. Medium-size organizations are still primarily domestic organizations that buy and sell
products made abroad and compete with businesses from other countries in their own
domestic market. They are increasingly expanding into foreign markets.
Extra Example: Many medium-size firms are finding it relatively easy—and quite
profitable—to export to foreign markets.
3. Small organizations are benefiting from a global economy by being able to sell their
products and services to a much larger organization without having to change many, if
any, of their current work procedures.
B. Management Challenges in a Global Economy
1. Planning and decision making in a global economy
Managers need a broad understanding of the environment and competition in a global
economy in order to plan effectively. The amount of information required to make sound
business decisions also is greater in a global economy.
Cross-Reference: Note that the international implications for planning are integrated
throughout Chapters 6–9.
2. Organizing in a global economy
The degree of control allowed the local managers in a global economy will influence the
difficulty of organizing. If little control is provided to managers, they must frequently
travel to or communicate with the corporation in order to determine what to do;
managers with more control can simply organize the business in the way they think it
should be done.
Cross-Reference: Note that the international implications for organizing are integrated
throughout Chapters 10–13.
3. Leading in a global economy
In order to lead effectively, managers must understand how cultural factors affect
individuals, how motivational processes vary across cultures, how the role of leadership
changes in different cultures, how communication varies across cultures, and how
interpersonal and group processes depend on cultural background.
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Management 12e by Ricky W. Griffin
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Chapter 5: Navigating the Global Environment
involvement, both because they still have domestic expansion opportunities and because they may
have more limited resources for foreign investment. However, mid-size and small firms can use
strategies such as exporting, licensing, franchising, or alliances in order to extend their resources.
Also, the rise of e-commerce has reduced the cost of international trade for firms of all sizes,
creating international opportunities for smaller firms.
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Management 12e by Ricky W. Griffin
Students should not have trouble finding an example. Of course, answers will depend on the
company that is chosen. Goals might include quick access to local expertise, a locally-known brand
name, a way to get around limits on foreign direct investment, and sharing of financial risk. Firms
that are likely to accomplish their goals chose their partners wisely, adopted a strategy that
encourages trust and cooperation between the partners, assigned managers that were skilled in joint
venture implementation, and made realistic assumptions about success.
9. Assume that you are the CEO of Walmart. What are the basic environmental challenges you
face as your company continues its globalization efforts? Give some specific examples that
relate to Walmart.
A look at Wal-Mart’s web page (www.walmart.com) indicates the extent of the company’s global
operations. As it expands internationally, it faces numerous environmental challenges in each of the
countries it operates. Students will find out, for example, the problems Wal-Mart faces as it enters
India through an alliance with a local player. Local laws as it pertains to foreign ownership are
distinct in India as also the market challenges.
10. Review the following chart of Hofstede’s cultural dimensions. Based on the chart, tell which
country you would most like to work in and why. Tell which country you would like least to
work in and why.
Power Distance Individualism Uncertainty
Range: 11–104 Range: 6–91 Avoidance Aggressiveness
Range: 8–112 Range: 5-95
Germany 35 67 65 66
India 77 48 40 56
Israel 13 54 81 47
U.K. 35 89 35 66
U.S.A. 40 91 46 62
Adapted from: Geert Hofstede, Cultures and Organizations: Software of the Mind: Intercultural
Cooperation and its Importance for Survival, London: HarperCollins, 1994, 26, 55, 84, 113.
Students’ answers will vary, of course, depending on their individual preferences. In general, some
may prefer a cultural environment that is very similar to that of the United States. These students
may prefer the U.K., for example. On the other hand, some students will prefer a cultural
environment that is quite different from the United States along one or more dimensions and may
prefer Israel or India, for example. For some students, a single dimension may be most important,
while for others, the combination of factors has the greatest impact.
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Chapter 5: Navigating the Global Environment
This exercise must be done outside of class if there is not sufficient classroom Internet access. It can
be effectively completed by an individual or a small group of students, and it should take about 20–
30 minutes to complete.
III. Follow-Up
A. List the five countries in the world that projected to have the largest populations in 2050.
Explain how the list will have changed since 2009.
In 2009 China had 1.3 billion people, India had 1.157 billion, the U.S. had 307 million,
Indonesia had 240 million, and Brazil had 199 million. In 2050, the U.S. Census Bureau
estimates that India will 1.6 billion, China will have 1.4 billion, the U.S. will have 439 million,
Indonesia will have 313 million, and Ethiopia will have 278 million.
B. List the five countries that export the most products to the U.S.
In 2009, it was China, Canada, China, Japan, and Germany, respectively.
C. List the five countries that currently import the most products from the U.S.
In 2009, it was Canada, China, Mexico, Japan, and Germany, respectively.
D. Life span is a measure of individual prosperity in a country. What is the average life span in
each of the five largest countries in the world? In each of the five largest exporters to the
United States? In each of the five largest importers from the United States?
In 2009, the current figures were: Brazil–64 years; Canada–80 years; China–72 years,
Germany–78 years; India–63 years; Indonesia–68 years; Japan–81 years; Mexico–72 years;
Nigeria–51 years; and the U.K.–78 years. (The U.S. average life span is 77 years.)
E. Gross domestic product (GDP) is a measure of a country’s economic health. What is the GDP
per capita, in U.S. dollars, of each of the five largest countries? Of each of the five largest
exporters to the United States? Of each of the five largest importers from the United States?
In 2008, the current figures were: Brazil–$10,100; Canada–$39,300; China–$6,000; Germany–
$34,800; India–$2,800; Indonesia–$3,900; Japan–$34,200; and Mexico–$14,200. (The U.S.
GDP per Capita is $47,000.)
F. What are the implications for your firm? What, for example, do the data suggest about the
desirability of various countries as current trading partners? What do the data suggest about
the desirability of the same countries as future trading partners?
Students will see that U.S. multinational firms need to have information about current standard
of living, economy, and population for countries around the world, but even more importantly,
they need to look at future estimates of each of these items. For example, developing countries
such as China and India will be growing in population in the future and will assume added global
importance as they do. Desirable trading partners today might include Japan, Germany, and
Canada, but these countries are likely to lose importance as their population ceases to grow.
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Management 12e by Ricky W. Griffin
There are no follow-up questions for this exercise. Students will have a variety of answers,
depending upon their opinions and assumptions. Point out to students that even though
communication technology has dramatically improved the ease of international communication,
there are still some very real barriers to communicating internationally.
Other areas that might impact international communication include language barriers and the
unequal distribution of communication equipment in different areas of the world. For example,
managers at remote locations may not have 24-hour communication access if they don’t have phone
service at their residences.
Another concern will be the differing customs surrounding international communication. For
example, managers in some parts of the world may not be willing to stay at work late for an
important call, or they may have religious duties at certain times of the day or week that cannot be
rescheduled, or they may not be willing to conduct business communication from their homes.
MANAGEMENT AT WORK
Nano Technology and Other Innovations
The closing case discusses reverse innovation and disruptive technology. Reverse innovation is
innovation that appears first in the developing world and then spreads to more developed markets. This is
illustrated through examples of medical practices in India now exporting those processes to the U.S.
Disruptive technology creates new markets and value networks by disrupting existing markets and
networks. An example in the case study is India’s Tata Motors which has disregarded all current
practices of car assembly and builds the world’s cheapest car at $2,500.
Discussion Starter: How do students react to the price discrepancies of a medical
procedure costing $600 U.S. dollars in India but they can charge American patients
$4,000 for the same procedure. Does this seem fair? Who is to blame for the difference?
1. Case Question 1: Let’s say that you’re the CEO of a publicly owned company in the United States
and you’re interested in getting involved in the Indian Market. You’ve found an innovative Indian
company whose success stems from its willingness to prioritize longer-term innovation goals over
shorter-term financial goals. The company would make a good partner on some level, and you need
to decide which sort of globalization strategy would work best for you: exporting, joint venture (or
some other form of strategic alliance), or direct investment. Generally speaking, what are the pros
and cons of each option?
Exporting is the easiest option as it holds little risk, the company can sell the products without
modification and export with a relatively small outlay of capital. However, exports are taxed, subject
to tariffs, and have higher transportation expenses. If products are not adapted to the local culture,
they may not appeal to customers, and some products may be restricted. Strategic alliances allow
quick entry into a foreign market and are an effective way to gain access to technology or raw
materials. They allow the firms to share the risk and costs. That sharing may also be a disadvantage
as it limits the control and return each company receives. Other issues involve government stability in
the region and the blending of two corporate cultures. A joint venture would create a new enterprise
and would lock the company into a long-term commitment. Managerial control is more complete in a
direct investment and profits are not shared as in a joint venture. Purchasing an existing facility allows
companies to take advantage of cheaper labor costs without having the costs of building a facility.
The additional complexity in decision making, the economic and political risks, and other challenges
may outweigh the advantages of direct investment.
2. Case Question 2: Here are a few facts about work and management in India, each of which
naturally reflects elements of the country’s cultural environment – attitudes, values, beliefs, and so
forth:
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Chapter 5: Navigating the Global Environment
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