Chapter 4

Managing in a Global Environment

 A Borderless World

Organizations and managers are not isolated from

international forces:
– Trade barriers have fallen
– Communication is faster, cheaper
– Consumer tastes converge‫ت تالقي‬

The difficulties and risks of a borderless world are

matched by benefits and opportunities

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4.2 Four Stages of Globalization

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 International Market Strategies

• Exporting – transferring products for sale to foreign

countries
• Outsourcing – also called off shoring, work activities are
done in countries with cheap labor
• Licensing – enabling a company to produce and market a
product in another country
– Franchising is licensing that provides a complete package of
materials and services
• Direct Investing – high level of involvement, company
manages and controls assets
– Joint venture and other types of partnerships are common

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 4.3 Strategies for Entering the
International Arena

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 China Inc.

 China manufacturers many products for U.S. companies

 China is also a growing consumer market
 Regulations and government policies make doing
business in China a challenge
 India is a service giant, growing in software design and
engineering
 Brazil is a country that is gaining the attention of
American managers

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 The International Business Environment

• Planning, organizing, leading, and controlling in

multiple countries can be challenging
– It took McDonalds a year to figure out that Hindus in
India do not eat beef
– In Africa, the baby food includes pictures to aid
illiterate consumers
• Managers must be mindful in the global
marketplace

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 4.4 Key Factors in
International Environment

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 The Economic Environment

• Economic Development - Countries are categorized as either developed

or developing based on per capita income
– Per capita income= The income generated by the nation’s production of
goods and services/ total populations
– Government Policies
– Market Size
– Financial Markets
– Infrastructure
• Resource and Product Markets
– Companies must evaluate market demand
The current economic crisis has highlighted how interconnected
economies are around the world
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• Exchange rate is the rate at which one country’s
currency is exchanged for another country’s.
• For example: assume USD is exchanged for .8 Euros.
If the USD increase in value to .9 Euros, US goods
will be more expensive in France because it will take
more Euros to buy US goods. It will be more difficult
to export US goods to France and profit will be slim.
• In contrast, if the dollar drops to a value of .7 Euros,
US goods will be cheaper in France and can be
exported at a profit.

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• A country’s physical facilities that support
economic development, which includes
transportation facilities such as airport,
highways, energy producing facilities,
communication facilities.
• Government laws and regulations differ from
country to country and make doing business a
true challenge for international firms.

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 The Legal-Political Environment

• Political risk is defined as the risk of lost assets,

earning power, or managerial control

• Managers must be concerned with the political

instability of global markets

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 The Sociocultural Environment

The values and behaviors that govern U.S.

business do not always translate
– Social Values
– Communication Differences
– Other Cultural Characteristics
→ Language
→ Religion
→ Social organization
→ Education
→ Attitudes
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 Hofstede’s Value Dimensions

A nation’s culture includes the shared

knowledge , beliefs, and values as well as the
common modes of behavior and ways of
thinking among members of a society.
 Power Distance
 Uncertainty Avoidance
 Individualism and Collectivism
 Masculinity‫ ذكورة‬and Felinity
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 GLOBE Project Value Dimensions

• Assertiveness • Social collectivism

• Future orientation • Individual collectivism
• Uncertainty avoidance • Performance
• Gender differentiation orientation
• Power distance • Humane orientation

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 – Research by the GLOBE Project (Global Leadership and
Organizational Behavior Effectiveness) used data
collected from 18,000 managers in 62 countries. They
collected data on nine dimensions.
•  GLOBE research provides a more comprehensive
view of cultural similarities and differences than
Hofstede’s.
• Social values have great influence on
organizational functioning and management
styles.
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• Power distance: The extent to which the members of a
society expect power to be distributed equally.
• Uncertainty Avoidance: The extent to which individuals
in a society rely on social norms, rules, and procedures
to ease the unpredictability of future events.
• Future Orientation: The extent to which individuals
engage in future-oriented behaviors such as delaying
gratification, planning, and investing in the future.

• Institutional Collectivism: The degree to which

organizational and societal institutional practices
encourage and reward collective distribution of
resources and collective action.

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• In-Group Collectivism: The extent to which individuals
express pride, loyalty, and cohesiveness in their
organizations or families.

• Humane Orientation: The degree to which a collective

encourages and rewards individuals for being fair,
generous, caring, and kind to others.

• Performance Orientation: The extent to which a collective

encourages and rewards group members for performance
improvement and excellence.

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• Gender Egalitarian: The extent to which a
collective minimizes gender inequality.
• Assertiveness: The degree to which individuals
are assertive, confrontational, and aggressive in
their relationships with others.

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4.8 Country Ranking on Selected
GLOBE Value Dimensions

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 4.9 High-Context and
Low-Context Cultures

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 Developing Cultural Intelligence

• Cultural intelligence – ability to use reasoning

and observation skills
– Culturally flexible
– Adapt to new situations

• Managers must study the language and learn

• Cognitive, emotional, and physical intelligence

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 International Trade Alliances

• General Agreement on Tariff and Trade (GATT)

– 23 nations in 1947, a set of rules for fair trade
• World Trade Organization (WTO)
– Maturation of GATT into permanent global institute
• European Union
– 1957 Alliance to improve economic and social conditions
among members; evolved to 27-nation European Union
• North American Free Trade Agreement (NAFTA)
– Merged the United States, Canada, and Mexico into
trading bloc

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 4.10 European Union

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 China-ASEAN Free Trade Area

 Trading alliance of ten countries

 World’s third largest free-trade area
 1.9 billion people and $45 trillion in
trade
 Remove all tariffs between China and
ASEAN (The Association
of Southeast Asian Nations)countries
by 2015

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 The Impact of Multinational
Corporations (MNC)

• The size and volume of international business is

LARGE
– Companies have revenue = GDP of small country
– Move assets from country to country
– 25% or more of its profit comes from outside parent
country
• MNC is managed as an integrated whole
• Controlled by one management authority
• MNC managers must have a global perspective

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 The Globalization Backlash

• 68% of Americans say other countries benefit the most

from free trade
– 53% believe free trade has hurt U.S.
• The United States’ primary concern is the loss of jobs
– $136 billion in wages will shift from the U.S.

• Business leaders insist that economic benefits flow back to

the U.S. economy
– Lower prices and expanded markets
– Increased profits and funds for innovation

• But American shoppers say they would pay higher prices

to keep down foreign competition
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 Serving the Bottom
of the Pyramid (BOP)

 An approach for multinationals to do good

 Corporations can alleviate problems (solve) and
make large profits by selling to the world’s poor
 There are more than 4 billion people at the
lowest level of the economic pyramid
 Many companies are adopting BOP strategies

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 EU & Greece

• Greece – not ready to level with big economy like

Germany
• EU – single monetary, controlled by big economy
like Germany
• Greece – unable to implement any economic
policy effectively – monetary & fiscal policy; e.g.,
exchange rate manipulation

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 US Company’s Mistakes in Foreign
Countries – Japan Case

• No product modification (US arrogance):

– ft vs. meter;
– left-wheel vs. right-wheel (FORD Mistakes in 1980s);
– size (US medium = Japan large; clothing), etc.
• No understanding of Japan business culture
• Japan automobile dealers – personal relationship,
personal visit at customer’s home, life-long CRM
• Gift culture – visit gift; purchase gift; rebates‫;ا لحسومات‬
follow-ups with gifts (holiday gifts, etc.)

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