Introduction to

Management
Dr. Menatallah Darrag & Dr. Dalia Abdelwahab

Lecture
5
Chapter 4: Managing in a Global Environment
 Learning Objectives

 Differentiate between ethnocentric, polycentric, and geocentric attitudes toward global business

 Discuss the importance of regional trading alliances and global trade mechanisms

 Describe the structures and techniques organizations use as they go international

 Explain the relevance of the political, legal, economic, and cultural environments to global business
Why companies go global?
 Why do companies Go Global?

Market-Seeking Cost Reduction Strategic Motives

Motives Motives

 Local markets are saturated
 Short product life cycle (PLC)
 Local markets are small
Cheap labor is the strongest incentive

Eliminating transportation cost (must be

traded off against economies of scale in
home country)
 Avoiding environmental regulations
 Strategic decisions are those that are
made to maintain or enhance the
competitive position of a company in an
industry or a market
 Firms may follow their customers or their
competitors (known as the “bandwagon
effect”).
 Cross subsidization: is using profits
generated in one market to compete in
another one.
 Other motives (first mover advantage,
vertical integration, export to a third country)
Most Powerful Egyptian MNCs in 2023

https://www.forbesmiddleeast.com/lists/top-50-companies-in-egypt-2023/
 14 Egyptian Companies Gone Global

- Libya, Sudan, Dubai, Kuwait, Bahrain,

Saudi Arabia, and Malaysia.

- Travco Group is a travel and tourism company in Egypt. The

company is one of the largest travel and tourism companies in
the Middle East. Travco Group provides transport, ranging from air
travel to cruises as well as accommodation for tourists.
Travco Group owns 157 hotels, resorts and cruise ships and handles
more than 1.3 million tourists annually.

https://egyptianstreets.com/2018/07/20/14-egyptian-companies-gone-global/
Mansour Group is an Egyptian multinational conglomerate, with
operations across the globe. The company is the second largest
company in Egypt by revenue. It is the largest General Motors dealer
in the world, and the fifth largest distributor of Caterpillar
Inc. products globally. It also has contracts in Egypt to represent a
range of international brands, including McDonald's, Chevrolet, Red
Bull, UPS and Imperial Brands. It operates Egypt’s largest supermarket
chain, Metro Markets, and the Kheir Zaman discount chain. The
company also has a private investment firm, Man Capital, based in
London.
The company reported 2016 revenues of $6B US, with 60,000
employees and operations in 120 countries.
 It’s a semiconductor
company that provides
sensing products & timing
solutions. It has offices in
France & USA as well.

Giza Systems premises, offering advanced

digital fabrication equipment and caters for
multiple industries (power, oil & gas, etc.). It
has multiple office in KSA, Qatar, UAE, Kenya,
Uganda, Tanzania & Nigeria.

https://egyptianstreets.com/2018/07/20/14-egyptian-companies-gone-global/
 Okhtein ships worldwide
with the exception of Syria,
- Azza Fahmy launched its new Qatar, Libya & Cuba and
London boutique Australia.
(1 MARCH 2018)
- Azza Fahmy opened its first
US pop-up boutique
1 JANUARY 2019
What’s Your Global Perspective?
Parochialism:
• It is viewing the world solely through one’s own eyes and
perspectives.
• People with a parochial attitude do not recognize that
others have different ways of living and working.
• They ignore others’ values and customs and rigidly apply
an attitude of “ours is better than theirs” to foreign
cultures.
• Monolingualism is one sign that a nation suffers from
parochialism.
Three Possible Global Attitudes

Polycentric:
Ethnocentric: view that managers in Geocentric:
view that home country the host country know
world-oriented view;
has best work practices. the best approaches
wants to use best
Managers with an know the best work
practices from around
ethnocentric attitude approaches and practices
the globe. Managers with
believe that people in for running their
this type of attitude have
foreign countries don’t business. Managers with
a global view and look
have the needed skills, this attitude view every
for the best approaches
expertise, knowledge, or foreign operation as
and people regardless of
experience to make the different and hard to
origin.
best business decisions understand. Thus, they’re
as people in the home likely to let employees
country do. there figure out how best
to do things.
Global Trade Mechanisms

 World Trade Organization (WTO): global organization of 159 countries that deals with the
rules of trade among nations
 Formed in 1995
 The WTO evolved from the General Agreement on Tariffs and Trade (GATT) after the World War II
 Its goal is to help countries conduct trade through a system of trade rules
 It has played an important role in keeping trade active during the global economic crisis
 Trade agreements and disputes are negotiated through the WTO
• The simplest way to economically
cooperate for nearby countries is to
venture into international trade together
via Regional Integration or Regional
Trading Alliances.
• Regional integration is conducted via an
economic bloc, where a group of countries
located in the same geographic area cooperate
• The Benefits of Integration:
1. Appearance of the benefits of the
Economies of Scale (lower cost per unit as
production size increases)
2. Increased Competition (allowing for
specialization and trade based on
comparative advantage)
3. Shifting of resources from inefficient to more
efficient firms as barriers fall & further
markets’ growth.

• Neighboring countries tend to ally with

one another because of:
 their proximity,
 their somewhat similar tastes,
 the relative ease of establishing channels of
distribution,
 and a willingness to cooperate with one
another for the greater benefit of all parties.
Regional Trading Alliances
 Global competition and the global economy are shaped by regional trading agreements,
including:
European Union (EU):
a union of 28
democratic European
nations created as a
unified economic and
trade entity with the
Euro as a single
common currency,
which went down to
27 in 2020
North American Free
Trade Agreement
(NAFTA): an agreement
among the Mexican,
Canadian, and U.S.
governments in which
barriers to trade have
been eliminated
Association of
Southeast Asian
Nations (ASEAN): a
trading alliance of 10
Southeast Asian
nations (Brunei,
Cambodia, Indonesia,
Laos, Malaysia,
Myanmar, the
Philippines, Singapore,
Thailand, and Vietnam).
 Regional Trade Agreements (RTAs) embed integration, which is confined to a region involving
more than two countries. Thus, geographic proximity is an important reason for economic integration with
the main purpose of increasing the market size.

These agreements come in two forms, in addition to a more extended form :

1. Free Trade Agreements (FTAs): economic blocs in which all internal barriers to trade are abolished
amongst member nations, but each member determines its own external trade barriers beyond the
bloc. Almost 90% of RTAs are FTAs. (e.g. North America Free Trade Agreement (NAFTA)).
2. Customs Unions: economic blocs in which all barriers to trade are abolished amongst member
nations, and common external barriers are levied against non-member countries. Less than 10% of
RTAs (e.g. European Union (EU))
3. Common Market: is an economic bloc which also permits the free flow of capital and labor. It
requires integration/harmonization of legal, political and monetary policies to succeed. It’s a more
extensive type of RTAs (e.g. Common Market of Eastern and Southern Africa (COMESA)) (customs
union plus factor mobility).
Example on a Free Trade Agreement: North American Free
Trade Agreement (NAFTA):

NAFTA:
• was preceded by the Canada-U.S. Free Trade Agreement of 1989 &
then Mexico approached USA to have an FTA, that eventually included
Canada.
• incorporates Canada, Mexico, and the United States into a regional
trade bloc.
• became effective on January 1, 1994 & as of January 2008, all tariffs &
quotas were eliminated on U.S. exports to the other two member
countries.
• addresses free trade in goods and services and investment rules or in
other words facilitates:
 market access via the elimination of tariff and nontariff
barriers
 the harmonization of trade rules
 the liberalization of restrictions on services and foreign
investment
 the enforcement of intellectual property rights
 a dispute settlement process
 regional labor laws and standards
 strengthened environmental standards
NAFTA has two rationales:
Geographic location (proximity)
Trading Importance (U.S.-Canadian trade is the largest
bilateral trade worldwide & U.S. is Mexico’s & Canada’s largest
trading partner)
NAFTA stipulates (Rule of Origin) condition, which requires
identifying the origin as the country where the products
acquired most of its value.
NAFTA stipulates (Rule of Regional Content) condition, which
requires at least 50% of the net cost for most products to be
from the region, and 62.5% for autos.
A major challenge facing NAFTA is the illegal immigration of labor
from Mexico to U.S. due to loss of jobs in the agricultural sector
as a result of U.S. competition in that field.
Example on a Custom Union:
The European Union (EU):
• It represents the most advanced regional trade and
investment bloc in the world today, labeled as the most
successful & largest regional trade group found.
• It evolved from the European Coal and Steel Community to
the European Economic Community (EEC) to the European
Community (EC) to the European Union (EU).
• It has grown from 6 members in 1951 to 25 member nations
in 2004, with 28 countries on board as of 2013 & 27 as of
2020.
• It has been moving toward a single market since the passage
of the Single European Act of 1987.
• In 1992, the members of the EU signed the ‘Treaty of
Maastricht’ in part to establish a monetary union. Moving to
the (euro) replacing multiple currencies at the time, had
eliminated the currency as a trade barrier, excluding
Denmark, UK & Sweden who opted out of the common
currency option that came into effect in 1999.
• It has its own common currency (euro), uses common
external tariff & provides free trade of goods, services, capital
and people.
• The United Kingdom withdrew from the European Union on
31 January 2020.
• MNCs need to understand the mechanisms & political
environment of the EU to be able to address and conduct
trade with the largest trading partner worldwide, where the
EU’s main bodies are:
• European Council: designed to lead the EU [proposes
legislation, monitors compliance]
• European Commission: functions as the EU’s draftsman
and servant [sets priorities, gives direction, and resolves
issues]
• European Parliament: the EU’s sounding board
[considers legislation, controls the EU budget, and
supervises decisions]
• European Court of Justice: the supreme appeals court for
EU law
• These governance bodies set the parameters under which
MNCs must operate within the EU, where corporate strategies
need to be amended to adapt accordingly by:
• Determining where to produce products (e.g. produce in
central Europe to reduce transportation cost, but bearing
the highest production costs!)
• Determine what their entry strategy will be (e.g. new
investment, or expand an existing one, or set a joint
venture, or via merger & acquisition)
Exhibit 4-1 European Union Map

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Example on a Common Market:
Common Market for Eastern and Southern Africa
(COMESA)

• The aim of the COMESA agreement is to establish a free

trade area and to develop a common market for the
member countries. COMESA (as defined by its Treaty) was
established ‘as an organization of free independent
sovereign states which have agreed to co-operate in
developing their natural and human resources for the good • The African Development bank provided
of all their people’ and as such it has a wide-ranging series of financial help to promote exports for the
objectives which necessarily include in its priorities the African countries
promotion of peace and security in the region. • There were encouragements for investment
• The history of COMESA began in December 1994 when it cooperation according to the article 158 of the
was formed to replace the former Preferential Trade Area COMESA agreement
(PTA) which had existed from the earlier days of 1981. • The agreement provided more advanced
However, due to COMESA’s economic history and information systems for the member countries
background its main focus is on the formation of a large
economic and trading unit that is capable of overcoming • There were more cooperation in the fields of
some of the barriers that are faced by individual states.. industry, agriculture, communication, and
transport
• With its 19 (now 21 since 18 July 2018) Member States,
population of over 540 million and global trade in goods
worth US$ 235 billion COMESA forms a major market place
for both internal and external trading.
• The agreement was signed by Egypt in 1998, and the
exemptions of import for member countries started in 1999.
Map 8.5: Regional Economic Integration in Africa
Regional Trading Alliances in the Middle East &
MENA regions
The Council of Arab
Economic Unity (CAEU):
Established by Egypt, Iraq,
Jordan, Kuwait, Libya,
Mauritania, Palestine,
Somalia, Sudan, Tunisia,
Syria, United Arab Emirates
and Yemen in June 1957.
The organization aims to
achieve economic
integration, promoting an
environment of free
movement of labor, capital,
and services.
‫مجلس الوحدة االقتصادية العربية‬
The Greater Arab Free Trade
Area (GAFTA):
Is a pact made by the Arab
League to achieve a
complete Arab economic
bloc that can compete
internationally.
The project was adopted in
the Arab League Summit of
Amman in 1997, with 17 Arab
League members signing
the pact. The agreement
aims at reaching full
liberalization of trade among
member states and
facilitating commercial
activities.
‫منطقة التجارة الحرة العربية الكبرى‬
The Gulf Cooperation
Council (GCC)
Created in 1981, it comprises
the Arabian Gulf states of
Bahrain, Kuwait, Oman,
Qatar, Saudi Arabia and the
United Arab Emirates.
The objectives are to “effect
coordination, integration
and interconnection in all
fields, strengthening ties
between their peoples,
formulating similar
regulations as well as
fostering scientific and
technical progress …, and
encouraging cooperation of
the private sector.”
‫مجلس التعاون الخليجي‬
 Exhibit 4–2 GCC Countries

How many member nations belong to the African Union (AU)? 58) ______
A) 53 B) 67 C) 46 D) 62
Answer: A

The World Trade Organization evolved from which of the following? 60) ______
A) GATT B) Marshall Plan C) UNIDIR D) Mercosur
Answer: A

•Sources: “Map of the countries comprising GCC,” Doing Business in GCC Countries, http://www. gcccountries-business.com, 2007.
Will regional integration be the wave of the future, or will the WTO
become the focus of global economic integration?

• The answer is that regional integration might actually help the WTO achieve its goals.
• Regional integration could help the WTO
• Regionalism can lead to liberalization of issues not covered by the WTO
• Regionalism is more flexible
• Regional deals lock in liberalization
Different Types of International Organizations

Global Company
Is an MNC that centralizes its management
and other decisions in the home country-
ethnocentric

Multidomestic Corporation
Is an MNC that decentralizes management
and other decisions to the local country-
polycentric.

European multinational firms commonly use a ________ approach because they are operating in
multiple
countries with different institutional environments.
123) _____
A) multidomestic approach B) global approach
C) transnational D) supply chain
Answer: A
 Different Types of International Organizations

 Transnational or borderless organization

 Is an MNC that uses an arrangement that eliminates
artificial geographic barriers INCREASES EFFECIENCY
 It reflects the geocentric attitude

 Multinational Corporation (MNC)

 Maintains operations in multiple countries.

Research indicates that organizational culture has a stronger impact on employees than does
national culture. FALSE

Mexico is an example of a collectivist nation. 27) ______

Answer: True

28) The United States is an example of a country with smaller power distance. 28) ______
 Exhibit 4–3 How Organizations Go Global

•MAP source: http://www.gcccountries-business.com/_mgxroot/page_10769.html

In an attempt to be more aggressive, a company might export and import more. These steps
usually require ________.
A) conducting business in a polycentric manner
B) the establishment of strategic alliances
C) minimal investment and minimal risk
D) abnormal operations for a geocentric organization
Answer: C
How Organizations Go International
Going Global: Global Sourcing and Exporting

 Global (out)sourcing: purchasing materials or

(labor) from around the world wherever it is
cheapest
 Call centers staffed with low-cost English speaking workers
in the Philippines and Pakistan and India

 Exporting: making products domestically and

selling them abroad
Going Global: Licensing and Franchising

 Licensing: an organization gives another

organization the right to make or sell its products
using its technology or product specifications.
 Licensing is primarily used by manufacturing organizations
that make or sell another company’s products

 Franchising: an organization gives another

organization the right to use its name and
operating methods
 Franchising is primarily used by service organizations that
want to use another company’s name and operating
methods.
Walt Disney Company world's is leading licensor
with $61.7B in licensed products in 2023

https://www.licenseglobal.com/rankings-lists/top-150-leading-licensors
Going Global: Strategic Alliances

 Strategic Alliance: partnership between an

organization and foreign company partner(s)
in which both share resources and knowledge
in developing new products or building
production facilities

 Examples of strategic alliances:

 Honda Motor and General Electric teamed up to
produce a new jet engine.
 Microsoft & Nokia (software partnership for Nokia’s
Windows)
 Starbucks and Barnes & Nobel
 BMWi8 & LV.
Going Global: Joint Ventures
 Joint Venture: A specific type of strategic alliance in which the partners agree to form a
separate, independent organization for some business purpose.

 Examples:
 SonyEricsson for mobile phones. Sony a Japanese electronic company and Ericson is a Swedish
telecommunication company. Sonyecrison is created to develop & produce mobile phones

 Hewlett-Packard has had numerous joint ventures with various suppliers around the globe to develop
different components for its computer equipment.

 British automaker Land Rover and Chinese automaker Chery created a JV to combine the experience of
Britain’s luxury vehicle manufacturer with Chery’s deep understanding of the Chinese markets and
customer preferences. These partnerships provide a relatively easy way for companies to compete
globally.

 Also, UBER and the heavy vehicle manufacturer Volvo

created a JV. The joint venture goal was to produce
driverless cars. The ratio of the ownership is 50%-50%.
The business worth was $350 million as per the
agreement in the joint venture.
 Going Global: Foreign Subsidiary

 Foreign Subsidiary: directly investing in a foreign country by setting up a separate and

independent production facility or office.
 This subsidiary can be managed as a multidomestic organization (local control) or as a global organization
(centralized control).

Foreign subsidiaries are usually managed ________.

A) through centralized control only
C) through local control only
Answer: B

B) through local or centralized control

D) none of the above
 • Companies could have different internationalization
stages/levels in different countries, based on two dimensions:
• Degree of control the company has on its activities abroad
• Extent of resource commitment

Entry Modes Degree of control on Degree of resource

activities commitment

Exporting Lowest Lowest

Licensing Low Low
Franchising Low-Medium Low
Strategic Alliances Medium Medium
Joint Ventures Medium-High Medium-High
Wholly-owned Highest Highest
subsidiaries
What challenges will a manager face in a new country?
Managing in a Global Environment
Political/Legal Environment

 Some managers are accustomed to a stable legal and political system

 Managers must stay informed of the specific laws in countries where they do
business
 Managers must recognize these differences if they hope to understand the
constraints and opportunities that exist.
 Some countries have risky political climates.
 E.g. BP could have warned Exxon about the challenges of doing business in
Russia. During its long involvement in the country, BP has “had so many police
run-ins that its stock price often nudges up or down in response to raids or the
arrests of employees.”
Managing in a Global Environment
Economic Environment

 Free Market Economy: an economic system in which resources are primarily owned and
controlled by the private sector. This is more like the US & Canadian economies.
 Planned Economy: an economic system in which economic decisions are planned by a central
government. The economies of Vietnam and North Korea are more planned. China is also a
more planned economy, but until recently had been moving toward being a more free market
economy
 Monetary and Financial Factors
 Currency exchange rates
 Inflation rates
 Diverse tax policies
Managing in a Global Environment
Cultural Environment

 National Culture is the values and attitudes shared by individuals from a specific country that
shape their behavior and beliefs about what is important.
 Getting information about cultural differences isn’t quite that easy, as it’s difficult for natives to
explain their country’s unique cultural characteristics to someone else.
Hofstede’s Cultural Framework
 Geert Hofstede launched this research in the 1970s to study work-related values of IBM company’s
managers & related cultures.
 Hofstede identified five dimensions of national culture:
• Power distance
• Uncertainty avoidance
• Individualism vs collectivism
• Masculinity vs femininity
• Short-term vs long-term orientation
• 1. Power Distance is the extent to which a society accepts that power in institutions and organizations
is distributed unequally.

Low distance High distance

• Relatively equal power between those with • Extremely unequal power distribution between
status/wealth and those without status/wealth those with status/wealth and those without
status/wealth
2-
39
Hofstede’s Cultural Framework

2. Individualism vs Collectivism
Individualism
The degree to which people prefer to act as
individuals rather than a member of a group.
Collectivism
A tight social framework in which people expect
others in groups of which they are a part of to look
after them and protect them.

3. Masculinity vs Femininity (achievement/nurturing)

Masculinity Femininity
The extent to which society values the work roles of The extent to which there is little differentiation
achievement, power, and control, and where assertiveness between roles for men and women.
and materialism are also valued.
Hofstede’s Cultural Framework

4. Uncertainty avoidance is the extent to which a society feels threatened by uncertain and
ambiguous situations and tries to avoid them.

High Uncertainty Avoidance: Low Uncertainty Avoidance:

Society does not like ambiguous situations and Society does not mind ambiguous situations and
tries to avoid them. embraces them.

5. Time Orientation: Long vs Short-term

Long-term Orientation Short-term Orientation
A national culture attribute that emphasizes A national culture attribute that emphasizes
the future, thrift, and persistence. the present and the here and now.

© Pearson Education 2012 2-

41
Hofstede’s Dimensions in the Arab World
 The assessment of these cultural dimensions identifies styles of interaction of
intercultural managers.
 In other words, it clarifies & facilitates issues for those individuals sent out to work
in other countries & helps them how to interact with the locals.
 Arab countries studied had been (Egypt, KSA, Iraq, Kuwait, Lebanon, Libya &
UAE).

• Can you deduce findings found for power distance (PDI), uncertainty avoidance
(UAI), individualism(IDV) & masculinity (MAS)?

18-
42
Hofstede’s Dimensions in the Arab World
 PDI in the Arab world scored 80. This is quite a high-end, where it shows that the Arab
world exhibits inequalities in power & wealth distribution, and these variances are even
increasing.
 UAI in the Arab world scored 68. This shows that the Arab world exhibits very low tolerance
and acceptance of ambiguity/uncertainty. Accordingly, strict rules, regulations, laws &
policies must be developed, effected & further implemented. Thus, the tendency to control
everything to avoid change & uncertainty is quite evident. In conclusion, Arabs don’t accept
change easily.
 Arabs had been found to be collectivistic in their mindsets with long-term commitment to
their group memberships which enhances loyalty. Nonetheless, an earlier first reflection
might make one assess Arabs to be more on the individualistic side.
 The Arab world is a collectivist society because of strong social ties.
 The Arab world is a masculine society because the male figure is ‘the head of the house’.
 The Arab world is found to be dominated by tradition & culture.

18-
43
Exhibit 4-6 Hofstede’s Five Dimensions of National Culture

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Global Management in Today’s World

 The Challenge of Openness

 Increased threat of terrorism
 Economic interdependence of trading countries
 Intense fundamental cultural differences
 Cultural Intelligence: cultural awareness and sensitivity skills
 Global Mind-Set: attributes that allow a leader to be effective
in cross-cultural environments

The GLOBE framework for assessing cultures is similar to Hofstede's framework, but measures
fewer dimensions.
 Exhibit 4-7A Global Mind-Set

Intellectual capital: Knowledge of international business and

the capacity to understand how business
works on a global scale
Psychological Openness to new ideas and experiences
capital:

Social capital: Ability to form connections and build

trusting relationships with people who
are different from you

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved
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