1. Managing in a Global Environment
Chapter4

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2
Importance of International Business
If you are not thinking
international,
you are not thinking
business management

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3
Global Environment and
International Managers
 Difficulties Operating in Borderless World
 Challenges
– Economic
– Legal-political
– Socio-cultural
 Multinational Corporations
 Foreign Markets - Entrance
Chapter 4
Topics
Managers’ Challenge: Wal-Mart Managers

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A Borderless World
 Business is becoming a unified, global field
 Companies that think globally have a
competitive edge
 Domestic markets are saturated for many
companies
 Consumers can no longer tell from which
country they are buying

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Four Stages of Globalization
Domestic stage:
market potential is limited to the home country
production and marketing facilities located at home
International stage:
exports increase
company usually adopts a multi-domestic approach
Multinational stage:
marketing and production facilities located in many countries
more than 1/3 of its sales outside the home country
Global (or stateless) stage:
making sales and acquiring resources in whatever country
offers the best opportunities and lowest cost
ownership, control, and top management tend to be dispersed

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4 Stages of Globalization
1. Domestic 2. International 3. Multinational 4. Global
Strategic Orientation
Stage of Development
Cultural Sensitivity
Manager Assumptions
Domestically
Oriented
Export- Oriented
multi-domestic
Multinational Global
GlobalInitial foreign
involvement
Competitive
positioning
Explosion of
international
operations
Of little
importance
“One best
way”
Very important
“Many good
ways”
Somewhat
important
“The least-cost
way”
Critically
important
“Many good
ways”
SOURCE: Based on Nancy J. Adler, International Dimensions of Organizational Behavior, 4th ed. (Cincinnati, Ohio: South-Western, 2002), 8-
9.

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Global (stateless) Corporations
 Number is increasing
 Awareness of national borders decreasing
 Rising managers expected to know a 2nd or 3rd
language
 Corporate Example – Nestle (Swiss)
– CEO Peter Brabeck–Letmathe (Austrian)
– Half of general managers (non-Swiss)
– Strong faith in regional managers who are native to the
region

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The International
Business Environment
 International management is management
of business operations conducted in more
than one country
 Fundamental tasks do not change
 Basic management functions
– are the same - domestic or international
– Greater difficulties and risks when performing on
an international scale

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International Environment Factors
Organization
Economic
•Economic
development
•Infrastructure
•Resource and
product markets
•Per capita
Income
•Exchange rates
•Economic
conditions
Legal-Political
•Political risk
•Government
takeovers
•Tariffs, quotas, taxes
•Terrorism, political
instability
•Laws, regulations
Sociocultural
•Socio values, beliefs
•Language
•Religion (objects, taboos, holidays)
•Kinship patterns
•Formal education, literary
•Time orientation

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Economic Environment Factors
 Economic development
 Infrastructure
 Resource and product markets
 Exchange rates
 Inflation
 Interest rates
 Economic growth

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Economic Development
● Countries categorized as “developing” or “developed”
● Criterion used to classify is per capita income
● Developing countries have low per capita incomes
● LDCs located in Asia, Africa, and South America
● Developed are North America, Europe, & Japan
● Driving global growth in Asia, Eastern Europe, & Latin
America

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Infrastructure
A country’s physical facilities that support
economic activities
 Airports, highways, and railroads
 Energy-producing facilities
 Communication facilities

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Resource and Product Markets
When operating in another country...
– Managers must evaluate market demand
– To develop plants, resource markets must be
available – raw materials and labor
Corporate Example – McDonald

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Exchange Rates
 Rate at which one country’s
currency is exchanged for
another country’s
 Has become a major concern for
companies doing business
internationally
 Changes in the exchange rate
can have major implications for
profitability of international
operations

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The Legal-Political Environment
 Political Risk– due to events or actions by host
governments
● Loss of assets
● Loss of earning power
● Loss of managerial control
● Government takeovers
● Acts of violence

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Political Instability
 Events such as riots, revolutions, or
government upheavals that affect the
operations of an international company

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Laws and Regulations
 Government laws and regulations differ from
country to country
 Make doing business a true challenge for
international firms
 Internet has increased impact of foreign laws
on U.S. companies – expands potential for
doing business on global basis

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Sociocultural Environment
 Culture – shared knowledge, beliefs, values,
common modes of behavior, and ways of thinking
among members of a society
– Intangible
– Pervasive
– Difficult for outsider to learn
 Managers need to understand difference in social
values to comprehend local cultures and deal with
them effectively

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Hofstede’s Value Dimensions
 Research = national value systems influence
organizational and employee working relationships
– Power distance (high = accept inequality)
– Uncertainty avoidance (uncomfortable with uncertainty)
– Individualism and collectivism (Individualism take care
of themselves)
– Masculinity/femininity (preference for
achievement/assertiveness; femininity for relationship)
– Long-term/short-term orientation = 5th dimension
Ethical Dilemma: The Problem in Asia

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Four Dimensions of National Value

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GLOBE Value Dimensions
– Assertiveness
– Future orientation
– Uncertainty avoidance
– Gender differentiation
– Power distance
– Societal collectivism
– Individual collectivism
– Performance orientation
– Humane orientation
Global Leadership and Organizational Behavior Effectiveness project
More comprehensive view of cultural
similarities and differences

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International Cultural Influences
 Other Cultural Characteristics
– Language
– Religion
– Attitudes
– Social Organization
– Education
 Linguistic pluralism – several languages exist
 Ethnocentrism – regard own culture superior

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International Trade Agreements
 Most visible changes in legal-political
factors grow out of international trade
agreements:
– GATT
– WTO
– EU
– NAFTA

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International Trade Alliances
 General Agreement on Tariffs and Trade (GATT)
 Signed by 23 nations in 1947 as a set of rules
 Ensured nondiscrimination, clear procedures,
negotiation of disputes, and participation of lesser
developed countries in international trade
 Today, 147 member countries abide by the rules
 Primary tools WTO uses on tariff concessions,
countries agree to limit level of tariffs on imports
from other WTO members
 Most favored nation clause

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WTO
 Goal, is to guide and sometimes urge the
nations of the world toward free trade and
open markets
 Encompasses GATT and all of its agreements
 Has legal authority to arbitrate disputes on
400 trade issues
 Partly responsible for backlash against global
trade

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European Union
 Formed in 1957 to improve economic and social
conditions
 Has grown to 25-nation alliance
 Initiative Europe ’92 called for creation of open markets
for Europe’s 340 million consumers
 Biggest expansion in 2004 – 10 new members from
southern and eastern Europe
 Observers feared EU would become a trade barrier
 EU’s monetary revolution, introduction of the Euro

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Nations of The EU
*
*
*
*
*
*
*
*
*
*
*Joined in
2004

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North American Free Trade Agreement
● Went into effect on January 1, 1994
● Merged the United States, Canada, and Mexico with
more that 421 million consumers
● Breaks down tariffs and trade restrictions on most
agriculture and manufactured products
● August 12, 1992 agreements in number of key areas
include: agriculture, autos, transport, & intellectual
property
● January, 2004 -10th anniversary = success and failure

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Strategies for Entering
International Markets
Exporting
High
HighLow Low
Ownershipof
ForeignOperations
Cost to Enter Foreign Operations
Licensing
Franchising
Joint Venture
Acquisition
Greenfield
Venture

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Multinational Corporations (MNC)
 Receives >25% total sales revenues from
operations outside parent company’s home
country
– Managed as integrated worldwide business system
– Controlled by single management authority
– Top managers exercise global perspective

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Managing in a Global Environment
Managers must be sensitive to cultural subtleties
 Personal challenges – culture shock
 Managing Cross-culturally
– Leading
– Decision making
– Motivating
– Controlling
Managers must be culturally flexible and easily
adapt to new situations
Experiential Exercise: Rate your Global
Management Potential