Chapter 4: Managing in a Global Environment

Saturday, October 19, 2019

3:06 PM

Global managerial perspective:

We have 3 attitudes toward global management:
1. Ethnocentric attitude: A parochialistic belief that the best work
approaches and practices are those of the home country. People in
foreign countries do not have the needed skills, knowledge or experience
to make the best business decisions. This attitude does not trust foreign
employees with key decisions or technology.

2. Polycentric attitude: This attitude considers the host country in which

the organization is doing business has the best approaches and practices
to run their business. In this attitude, managers consider that operating
in each foreign country is different and difficult to understand. So they
let employees in the host country figure out the best way to do things.

3. Geocentric attitude: This is a world-oriented attitude that focuses on

using the best approaches and practices from around the globe
regardless of the origin. This attitude requires eliminating parochial
attitudes and developing great understanding of cross-cultural
differences.
This is the attitude that managers need to successfully manage globally
in today's world.

Understanding the global environment:

One of the most important features of today's global environment is global

trade, which is shaped today by two forces: regional trading alliances and
trade agreements negotiated through the World Trade Organization.

Doing Business Globally

Today, few businesses do not do operate globally.

There are many ways to classify international companies, we will use the
following:
Multinational, Multidomestic, Global, and Transnational.

A Multinational Corporation (MNC) is any company that maintains

operations in many countries.

One type of a MNC is a Multidomestic Corporation:

• Decentralizes management and decisions to the foreign countries.
• Reflects the polycentric attitude.
• Adapts their products to meet the local markets.

Another type of a MNC is a Global Company:

• Centralizes management and decisions in one home country, in the
headquarters.
• Reflects the ethnocentric attitude.
• Treats the market as an integrated whole, and focus on global efficiency.

Another type of a MNC is a Transnational / Borderless Organization:

• Eliminates artificial geographic barriers.
• Reflects a geocentric attitude.
• Organized in industry groups.
• This strategy increases efficiency and effectiveness in the competitive
global marketplace.

How organizations go International:

There are different approaches that businesses use to go International.

Managers decide which one to use based on how much investment and risk
they are willing to take.

• Outsourcing: (minimal investment & risk)

It consists of purchasing material or labor from around the globe based
on lowest cost. It offers competitive advantage to organizations.

• Importing / Exporting: (minimal to moderate investment & risk)

 Exporting: Manufacturing domestically and selling abroad. Widens the
company customer exposure which increases sales.
Importing: Purchasing products made abroad and Selling them
domestically.

3. Licensing or Franchising: (minimal to moderate investment & risk)

One organization giving another organization the right to use its: brand,
name, technology or product specifications in return for a fixed
payment or fee.

Licensing: Used in manufacturing companies that make or sell another

company's products.
Franchising: Used in service companies that use another company's
name and operating methods.

4. Strategic Alliance, Joint Venture, and Foreign Subsidiary: (direct

investments with high risk)

Strategic Alliance: Partnership between two or more organizations in

which all parties share resources and knowledge for the benefit of all.

Joint Venture: When in a strategic alliance, parties involved agree to

form a separate independent organization, they create a Joint Venture.

Foreign Subsidiary: When managers of a company decide to directly

invest in a foreign country as an independent facility or office
(multidomestic organization or global organization).

Managing in a Global Environment

Any manager who finds himself in a foreign country faces challenges

1. Political/Legal Environment

Managers must stay informed about the specific laws in countries where they
do business.
Also, some countries have risky political climates: dramatic uncertainty,
political interference, government controls.
However, a country's political/legal environment does not have to be risky or
unstable to be a concern. The sole fact that it is different across countries is
important, and managers should understand these differences to understand
constraints and opportunities that exist.

2. Economic Environment

• Understand the country's economic system: Free market economy or

Planned economy:
Free market economy is an economy in which resources are owned and
controlled by the private sector.
Planned economy is an economy in which economic decisions are
planned by the central government, or public sector.
In real, no economy is purely Free Market or purely Planned.

• Understand currency exchange rates, inflation rates, interest rates and

tax policies.

• Cultural Environment

National Culture is the set of values and attitudes shared by individuals in a

specific country that shape their behavior and beliefs about what is
important.
National Culture has a greater effect on employees than organizational
culture.

Getting information about cultural differences is not easy, due to the difficulty
faced by natives to describe their unique characteristics.

Hofstede developed the five dimensions that national culture vary on:

1. Individualistic vs Collectivistic.
Individualistic: People look over their own and family interest (Australia)
Collectivistic: People expect group to look after them (Mexico)
 2. High Power Distance vs Low Power Distance.
High Power Distance (HPD): Accepts power differences, great respect for
authority (Arab World)
Low Power Distance (LPD): Employees are not afraid to approach nor are
in awe of the boss. (Sweden)

3. High Uncertainty Avoidance vs Low Uncertainty Avoidance:

High Uncertainty Avoidance: Ambiguity, High Levels of Anxiety (Italy)
Low Uncertainty Avoidance: Comfortable with risks: tolerate of different
behavior and opinion (USA)

4. Achievement vs Nurturing:
Achievement: Values of acquiring money, competition prevail (USA)
Nurturing: Values of relationships and concern prevail (Sweden)

5. Long-Term Orientation vs Short-Term Orientation:

LT Orientation: People look at the future and persistence (Germany)
ST Orientation: People value tradition and past (UK)

In addition, GLOBE research program extended on Hofstede work, and it

assesses national culture based on the following dimensions:

• Power Distance: same as Hofstede

• Uncertainty avoidance: same as Hofstede
• Assertiveness Vs Human Orientation (Achieving vs Nurturing): same as
Hofstede
• Institutional Collectivism (Individualistic vs Collectivistic): same as
Hofstede
• Future Orientation (ST vs LT Orientation): same as Hofstede
• Gender Differentiation: How much status and decision-making
responsibilities women have
• In-group Collectivism: The extent to which members of a society take
membership in small groups (families, friends)
• Performance Orientation: the degree to which a society encourages and
rewards performance improvement and excellence.
Global Management in Today's World

Doing business globally is not easy.

Globalization Issues
• Political and security risks: Opening up means being open to the good
and bad.
• Economic Interdependence: One country's economy failure, affects
other countries
• Cultural Differences: Most important for managers

Solution:
Managers should be aware how of their decisions will be viewed from
supporters and opposition of these decisions.
Hence, they should adjust their managerial approaches, yet stay efficient and
effective.
A manager managing globally should have:

• Cultural Intelligence:
o Knowledge of culture as a concept: how cultures vary and affect
behaviors
o Mindfulness: The ability to pay attention to signals and reactions in
different cross-cultural situations.
o Behavioral Skills: Choosing appropriate behaviors in these situations

• Global mindset with the following attributes:

o Intellectual capital: Knowledge of international business.
o Psychological capital: Openness to new ideas and experiences.
o Social capital: Ability to make connections and build trustworthy
relationships with people with different backgrounds.