The Global Context

of Management
Mei Leen D. Danieles
Outline:

I. Globalization
II. Understanding the Global Environment
III. What’s your Global Perspective?
IV. Stages of Globalization
V. Doing Business Globally
VI. Managing in a Global Environment
 I. Globalization
• The recognition by organizations that
business must have a global, not a local
focus.

• Proximity, location and attitude (Stoner,

1995)
• New perspective or attitude about
relationship with other people in other
nations

• Unprecedented scope, shape, number and

complexity of business relationship
conducted across international boundaries
(Stoner, 1995)
 Competitiveness

• Relative standing of one competitor

against other competitors can refer to
an organization or to a nation.

• Government can influence

competitiveness between nations
through economic climate,
institutions and policies. (Stoner,
1995)
II. Understanding the
Global Environment
 Regional Trading Alliances

• Global competition was once considered country against country.

• Global competition is shaped by regional trading agreements

including the EU, NAFTA, ASEAN and others (Robbins &
Coulter, 2012)
 1. European Union (EU)
• A union of 27 European nations created as a unified economic and trade entity

• Was formed to reassert the region’s economic position against the United States
and Japan

• Create a powerful single market system for Europe’s millions of consumers,

allowing people, goods and services to move freely

• common European currency, the euro, was adopted (Robbins & Coulter, 2012)
2. North American Free Trade Agreement (NAFTA)

• An agreement among the Mexican, Canadian, and US governments in which

barriers to trade have been eliminated

• Eliminating the barriers to free trade strengthened the economic power of all three
countries (Robbins & Coulter, 2012)
 3. Association Of Southeast Asian Nations (ASEAN)

• trading alliance of 10 Southeast Asian nations

• leaders from a group dubbed ASEAN+3, which include China, Japan, and South
Korea, have met to discuss trade issues.

• Also, leaders from India, Australia, and New Zealand have participated in trade
talks (Robbins & Coulter, 2012)
 4. Other Trade Alliances

a) African Union
b) East African Community
c) South Asian Association for Regional
Cooperation
 a. African Union (AU)
• 53-nation union that came into existence in 2002

• has the vision of “building an integrated, prosperous and peaceful Africa.”

• gain economic, social, cultural, and trade benefits from their association (Robbins
& Coulter, 2012)
 b. East African Community (EAC)

• Five east African nations—Burundi, Kenya, Rwanda, Tanzania, and Uganda

• goods can be sold across borders without tariffs (Robbins & Coulter, 2012)
 C. South Asian Association for Regional
Cooperation (SAARC)
• composed of eight member states (India, Pakistan, Sri Lanka, Bangladesh, Bhutan,
Nepal, the Maldives, and Afghanistan)

• began eliminating tariffs in 2006.

• allow free flow of goods and services (Robbins & Coulter, 2012)
 Global Trade Mechanisms

• Global trade systems ensure that trade

continues efficiently and effectively.

• governmental interventions and trade and

financial mechanisms helped avert a
potential crisis (Robbins & Coulter, 2012)
• is a global organization of 153 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), a trade agreement in effect since the end of World War II (Robbins
& Coulter, 2012)
• only global organization that deals with trade rules among nations.

• to help countries conduct trade through a system of rules.

• monitoring, promoting, and protecting global trade (Robbins & Coulter, 2012)
 2. International Monetary
Fund (IMF)
• is an organization of 185 countries

• provides member countries with policy

advice, temporary loans, and technical
assistance to establish and maintain
financial stability and to strengthen
economies (Robbins & Coulter, 2012)
• group of five closely associated institutions, all owned by its member countries, that
provides assistance to developing countries around the world
• goal is to promote long-term economic development and poverty reduction by
providing members with technical and financial support(Robbins & Coulter, 2012)
 4. Organization For Economic Cooperation And
Development (OECD)

• forerunner of the OECD, the Organization for European Economic Cooperation,

was formed in 1947 to administer American and Canadian aid under the Marshall
Plan for the reconstruction of Europe after World War II

• An international economic organization that helps its 30 member countries achieve

sustainable economic growth and employment (Robbins & Coulter, 2012)
III. What’s your Global
Perspective?
 Three Possible Global
Perspective
1. Ethnocentric attitude
2. Polycentric attitude
3. Geocentric attitude
 Parochialism

• Viewing the world solely through your own

perspectives, leading to an inability to
recognize differences between people

• ignore others’ values and customs

• “ours is better than theirs” attitude to

foreign cultures (Robbins & Coulter, 2012)
 Ethnocentric attitude

• parochialistic belief that the best work

approaches and practices are those of the
home country
• they don’t trust foreign employees with key
decisions or technology (Robbins &
Coulter, 2012)
 Polycentric attitude

• the view that employees in the host country

know the best work approaches and
practices for running their business
(Robbins & Coulter, 2012)
 Geocentric attitude

• a world-oriented view that focuses on using

the best approaches and people from
around the globe

• requires eliminating parochial attitudes and

developing an understanding of cross-
cultural differences

• type of approach successful managers will

need in today’s global environment
(Robbins & Coulter, 2012)
IV. Stages of Globalization

1) Domestic stage
2) International stage
3) Multinational stage
4) Global or stateless stage
V. Doing Business
Globally
 Multinational corporation
(MNC)
• is any type of international company that
maintains operations in multiple countries
(Robbins & Coulter, 2012)
 Types

1) Multidomestic Corporation
2) Global company
3) Transnational or borderless organization
 1. Multidomestic
Corporation
• reflects the polycentric attitude

• local employees typically are hired to

manage the business and marketing
strategies are tailored to that country’s
unique characteristics

• adapt their products to meet the needs of

local markets (Robbins & Coulter, 2012)
 2. Global company

• centralizes its management and other

decisions in the home country.

• reflects the ethnocentric attitude.

• management decisions with company-wide

implications are made from headquarters
in the home country
• (Robbins & Coulter, 2012)
3. Transnational/Borderless
Organization
• use an arrangement that eliminates
artificial geographical barriers

• reflects a geocentric attitude

• choose this approach to increase efficiency

and effectiveness in a competitive global
marketplace
 How Organizations Go
International
1) Global sourcing
2) Exporting and Importing
3) Licensing or Franchising
4) Direct investing
a) Joint Venture
b) Wholly owned foreign affiliate
c) Greenfield venture
 1. Global sourcing
• Purchasing materials or labor from around
the world wherever it is cheapest (Robbins
& Coulter, 2012)
2. Exporting and Importing

• Exporting - making products domestically

and selling them abroad

• Importing - acquiring products made

abroad and selling them domestically

(Robbins & Coulter, 2012)

3. Licensing or Franchising

• Licensing - an organization gives another

organization the right to make or sell its
products using its technology or product
specifications

• Franchising - an organization gives another

organization the right to use its name and
operating methods (Robbins & Coulter,
2012)
 4. Direct investing

• the company is involved in managing the

productive assets, which distinguishes it
from other entry strategies that permits less
managerial control (Daft, 2011)
 a. Joint Venture

• the partners form a separate, independent

organization for some business purpose

• company shares costs and risks with

another firm, typically in the host country,
to develop new products build a
manufacturing facility, or set up a sales and
distribution network (Daft, 2011)
• reduce costs
• enhance their competition position in the
international environment
• increase knowledge on a global scale (Daft,
2011)
 b. Wholly owned foreign
affiliate
• company has complete control, direct
acquisition of an affiliate

• may provide cost savings over exporting by

shortening distribution channels and
reducing storage and transport costs (Daft,
2011)
 c. Greenfield venture

• a company builds a subsidiary from scratch

in a foreign country

• most costly and risky type of direct

investment (Daft, 2011)
• advantage – the subsidiary is exactly what
the company wants and has the potential to
be highly profitable

• disadvantage – the company has to acquire

all market knowledge, materials, people
and know-how in a different culture, and
mistakes are possible
VI. Managing in a Global
Environment
International Management

• is the management of business operations

conducted in more than one country
(Robbins & Coulter, 2012)
Key Factors in
Economic
International * Economic Legal-Political

Environment development
*Infrastructure
*Political risks
*Government
*resource and product takeovers
markets *Tariffs, quotas, taxes
*per capita income *Terrorism, political
*exchange rates instability
*economic *Laws, regulation
conditions Sociocultural
*Social values, beliefs
*Language
*Religion (objects, taboos,
holidays)
*Kinship patterns
*Formal education, literacy
*Time orientation
 1. The Political/Legal Environment

• 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 (Robbins & Coulter, 2012)

• Political risk - risk of loss assets, earning power or managerial role due to politically-
based events or actions by host government (Daft, 2011)
 2. The Economic
Environment
a) Economic system
b) Exchange rate
c) Inflation
d) Tax policies
e) Economic development
 3. The Cultural
Environment
• National culture includes the values and
attitudes shared by individuals from a
specific country that shape their behavior
and their beliefs about what is
important.

• Hofstede’s Framework For Assessing

Cultures & GLOBE Framework For
Assessing Cultures
 Hofstede’s Framework For
Assessing Cultures
• Geert Hofstede developed one of the
most widely referenced approaches to
helping managers better understand
differences between national cultures.
 GLOBE Framework For
Assessing Cultures
• GLOBE research program extended
Hofstede’s work by investigating cross-
cultural leadership behaviors

• gives managers additional information to

help them identify and manage cultural
differences.

• identified nine dimensions on which

national cultures differ
 1) Power distance - the degree to which members of a society
expect power to be unequally shared

2) Uncertainty avoidance - a society’s reliance on social

norms and procedures to alleviate the unpredictability
of future events

3) Assertiveness - the extent to which a society encourages

people to be tough, confrontational, assertive, and
competitive rather than modest and tender.
4) Humane orientation - the degree to which a society
encourages and rewards individuals for being fair, altruistic,
generous, caring, and kind to others.

5) Future orientation - the extent to which a society

encourages and rewards future-oriented behaviors such as
planning, investing in the future, and delaying
gratification.

6) Institutional collectivism - the degree to which individuals

are encouraged by societal institutions to be integrated into
groups within organizations and society.
7) Gender differentiation - the extent to which a society
maximizes gender role differences as measured by how
much status and decision-making responsibilities women
have.

8) In-group collectivism - the extent to which members of a

society take pride in membership in small groups, such as
their family and circle of close friends, and the
organizations in which they’re employed.

9) Performance orientation - the degree to which a society

encourages and rewards group members for performance
improvement and excellence.
 High Context Culture Low Context Culture
use communication primarily to build personal use communication to exchange facts and
social relationships information

meanings derived from context – setting, status meaning is derived primarily from words
and nonverbal behavior, more than from explicit
words

relationship and trust are more important than business transactions are important than
business building relationships and trust

welfare and harmony of the group are valued individual welfare and achievement are more
important than the group
Global Management in
Today’s World
 Cultural intelligence

• ability to use reasoning and observation

skills to interpret unfamiliar gestures and
situations and devise appropriate
behavioral responses
Components of Cultural Intelligence

1) Cognitive – observational and learning skills

and the ability to pick up clues to
understanding
 2) Emotional – self-confidence and self-
motivation to move quickly through
initial period of culture shock
Culture shock – frustration and anxiety
that result from constantly being subjected
to strange and unfamiliar cues about what
to do and how to do it

3) physical – ability to shift his or her

speech pattern, expressions and body
language to be in tune with people
from a different culture
Advantages of a Borderless World

• Business has become a unified, global field.

• Virtual connection enable close, rapid coordination

among people working in different parts of the world, so
it is no longer necessary to keep everything in one place
(Daft, 2011)
• Organizations can go whenever they want to find the lowest
costs or the best brainpower.

• Many companies outsource certain functions to contractors in

other countries as easily as if the contractor were located right
the next door (Daft, 2011)
Challenges of Managing a
Global Workforce
increased threat of terrorism

economic interdependence of trading countries

intense underlying and fundamental cultural differences

Hackers can steal secrets from one company or unleashes viruses,

worms or other rogue programs to destroy the computer systems of
corporations and governments around the world.
 To manage effectively,
managers need cultural
intelligence or cultural
awareness and sensitivity
skills.
Three main dimensions of cultural intelligence
1) knowledge of culture as a concept—how cultures vary and how
they affect behavior

2) mindfulness— the ability to pay attention to signals and reactions

in different cross-cultural situations

3) behavioral skills—using one’s knowledge and mindfulness to

choose appropriate behaviors in those situations
Global mindset - attributes
that allow a leader to be
effective in cross-cultural
environments
 Attributes:

1) Intellectual capital: Knowledge of international business and the

capacity to understand how business works on a global scale

2) Psychological capital: Openness to new ideas and experiences

3) Social capital: Ability to form connections and build trusting

relationships with people who are different from you
 Conclusion

• Successfully managing in today’s global

environment will require incredible
sensitivity and understanding.

• Managers will need to adjust their

leadership styles and management
approaches to accommodate diverse
views, and at the same time be as efficient
and effective as possible in reaching the
organization’s goals.
 Sources:

• Daft, R. (2011). Managing in a Global

Environment. In R. L. Daft, New Era of
Management Concepts and Applications
(5th ed., pp. 99-124). Stanford, USA.
• Robbins, S. P., & Coulter, M. (2012).
Managing in a Global Environment. In S. P.
Robbins, & M. Coulter, Management (11th
ed., pp. 68-88). New Jersey: Prentice Hall.
• Stoner, J. A. (1995). Globalization and
Management. In J. A. Stoner, Management
(6th ed., pp. 127-150). New Jersey: Prentice
Hall.