2 chapter managing in a global environment managing in a global environment mcgraw-hill© 2004 the...
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2Chapter
Managing in a Global Environment
Managing in a Global Environment
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Learning ObjectivesAfter reading this chapter, you should be able to:
Understand the landscape of the global market.Develop an awareness for the role of culture in international
management.Recognize the major options firms face when they choose a
global strategy and the conditions that make a strategic choice most appropriate.
Determine the best mode of entry into foreign markets given each firm’s unique characteristics.
Develop effective human resource practices for managing international subsidiaries.
Become aware of ethical issues in international operations.
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
The Changing Pattern of International Business
Changing world output and world trade pictureThe U.S. no longer dominates the world economyLarge U.S. multinationals no longer dominate
international businessThe centrally planned communist economies that
made up roughly half the world suddenly become accessible to Western businesses
The global economy has become more knowledge-intensive
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The Changing Pattern of International Business (continued)
Lowered trade barriers General Agreement on Tariffs and Trade (GATT) World Trade Organization (WTO)
rules apply to over 90 percent of international trade has 144 member nations, including China moved from reducing tariffs to eliminating non tariff
barriers
Integrated Economic Markets
The European Union (EU) allows goods, services, capital, and human resources to
flow freely across national borders goal is to strengthen Europe as an economic superpower agreement to adopt a common European currency
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The Changing Pattern of International Business (continued)
Integrated Economic Markets The North American Free Trade Act
(NAFTA) an economic pact that combined the economies of
the U.S., Canada, and Mexico constitutes the world’s largest trading bloc provides access to previously protected markets in
each country
The Association of Southeast Asian Nations
(ASEAN)
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The Changing Pattern of International Business (continued)
Integrated Economic Markets The Asia Pacific Economic Cooperation
(APEC) trying to:
reduce trade barriers establish general rules for investment develop policies that encourage foreign investment
holds promise in facilitating and strengthening international business relationships
member countries represent 40 percent of the world’s population and 50 percent of the world’s economic output
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The Changing Pattern of International Business (continued)
Global consumer preferencesTastes and preferences are converging
Presence of mass media, exposure to
goods from various countries, and
standardized products
Globalized productionCost efficiency
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Example of Globalized Production
Of the $20,000 sticker price of a General Motors Automobile LeMans:$6,000 goes to South Korea, where the car was assembled$3,000 goes to Japan for sophisticated high-tech parts
(engines, transaxles, electronics)$800 goes to Taiwan, Singapore, and Japan for small
parts$500 goes to Great Britain for advertising and marketing
services$1,000 goes to Ireland for data processing$7,600 goes to GM and its external professional firms in
the United States
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The Changing Pattern of International Business (continued)
Technological innovations Advances in communications, information
processing, and transportation technology
Fiber optics, wireless technology, the Internet
and World Wide Web, and satellite technology
Management across cultures Adaptation to business strategies, structures,
operational policies, and human resource
programs
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Major Factors Affecting International Business
General business environment
Legal system
Economic environment
Cultural environmentCulture shock
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Dimensions of Culture
Power Distance
Individualism
Uncertainty Avoidance
Masculinity / Femininity
Long-term/ Short-term Orientation
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Hofstede’s Framework
Power Distance • Degree to which influence/control are unequally distributed
among individuals within a particular culture
Uncertainty Avoidance• Degree to which members of a society attempt
to avoid ambiguity, risk, and indefinitenessof future
Individualism / Collectivism• Extent to which society expects people to take
care of themselves and their immediate families • The degree to which individuals believe
they are masters of their own destiny
3.5
Hofstede’s Framework (cont.)
• Tendency of group members to focus on the common welfare and feel loyalty toward one another
Masculinity/Femininity• Degree to which acquisition of money
and material things is valued versus
quality of life
Long-term/Short-term Orientation
orientation toward future versus past or present
3.6
POWER DISTANCE
HIGH – Malaysia, Mexico, Venezuela, Arab Countries, India, Singapore
MODERATE – Thailand, Portugal, Greece, South Korea, Taiwan, Spain, Japan
LOW – United States (38/53), Finland, Norway, Sweden, New Zealand, Denmark
UNCERTAINTY AVOIDANCE
HIGH – Greece, Portugal, Belgium, Japan, Peru, France
MODERATE – Taiwan, Arab Countries, Thailand, Iran, Finland
LOW – United States (43/53), India, Great Britain, Sweden
INDIVIDUALISM/COLLECTIVISM
HIGH – United States (1/53), Australia, Great Britain, New Zealand, Denmark, Sweden, France
MODERATE – Japan, Iran, Brazil, Arab Countries, Greece
LOW – Columbia, Venezuela, Panama, Guatamala
MASCULINITY/FEMININITY
HIGH (Masculinity) – Japan, Austria, Venezuela, Italy, Mexico, United States (15/53)
MODERATE – Canada, Malaysia, Pakistan, Brazil, Singapore, Israel
LOW (Femininity)– Denmark, Netherlands, Norway, Sweden
INDIVIDUALISM-COLLECTIVISM Please indicate you level of agreement or disagreement with each of the following statements using the following scale: Strongly Disagree Neither Disagree nor Agree Strongly Agree ` 1 2 3 4 5 6 _____ 1. I would rather struggle through a personal problem by myself than discuss it with my friends. _____ 2. I do my own things without minding about my colleagues/co-workers, when I am among them. ______3. I like to live close to my close friends. ______4. I would pay absolutely no attention to my close friends’ views when deciding what kind of work to do.
______5. We ought to develop the character of independence among students, so that they do not rely upon other students’ help in their schoolwork. ______6. It is a personal matter whether I worship money or not. Therefore, it is not necessary for my friends to give my advice. ______7. There is everything to gain and nothing to lose for classmates to group themselves together for study and discussion. ______8. Classmates’ assistance is indispensable to getting a good grade at school. ______9. If you work, and you have to choose between (A) getting along very well with your co-workers, and (B) being very competent and efficient in doing the job, what combination of the two aspects would you like best? (Use the scale below to make your response for this question.) 1 = 100% A 2 = 80% A, 20%B 3 = 60% A, 40%B
4 = 40% A, 60%B 5 = 20% A, 80%B 6 = 100% B
_____10. Man is a social animal that cannot flourish and grow without identifying himself with some group. _____11. Some of life’s greatest satisfactions are found in working cooperatively with others. _____12. Individuals do not really fulfill their human potentials unless they involve themselves deeply in some group. _____13. It is often more gratifying to work for the accomplishment of a goal held by a group to which one belongs than to work for the attainment of a purely personal goal. _____14. In life an individual should for the most part “go it alone’ assuring oneself of privacy, having time to oneself, attempting to resist being influenced by others. _____15. It is just as important to work toward group goals and adhere to the established rules of the group as it is to gratify one’s individual desires.
COLLECTIVISM SCORING
ITEMS 1, 2, 4, 5, 6, 9, AND 14 ARE REVERSED SCORED 6 = 1 5 = 2 4 = 3 3 = 4 2 = 5 1 = 6
CULTURAL VALUES
Variable United States Taiwan
Collectivism 57.72 66.78 Femininity 4.47 4.77 Masculinity 4.95 4.65 Power Distance 2.19 1.98 Uncertainty Avoidance 3.18 3.56
Entry Strategy and Strategic Alliances
Four key decisions of a firm contemplating foreign expansion:Which countries to enterWhen to enterScale of involvementHow to enter
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Choosing Foreign Countries
The appeal of a particular country is likely to be greater when:
The size of the domestic market is large
The present wealth of consumers in that market is high and projected to grow in the future
The needed resources are readily available
The firm’s product offerings are suitable to a particular market
A positive business environment exists
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When to Enter Foreign Countries and Scale of Involvement
When to EnterFirst-mover advantagesPioneering costs
Scale of InvolvementLowest if the firm simply decides to export its products to
the foreign locationHighest if the firm decides to have a wholly owned
subsidiary in the foreign country
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Modes of Entry
Exporting Turnkey Project
Licensing
Franchising
Strategic Alliance
Joint VentureWholly Owned
Subsidiary
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Advantages and Disadvantages of Various Modes of Entry Choices
Loss of competitive advantage
Potential quality control problems
Limited ability to use profits in one country to increase competition in another country
Quick expansion
Lower development costs and risks
Lower political risk
Franchising
Loss of competitive advantage
Limited ability to use profits in one country to increase competition in another country
Quick expansion
Lower expenses and risks
Lower political risk
Licensing
Competition from local client
Loss of competitive advantage
Access to closed marketsTurnkey Project
No low cost sales
High transportation costs
Potential tariffs
Economies of scale
Lower foreign expensesExporting
DisadvantagesAdvantagesMode of Entry
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Advantages and Disadvantages of Various Modes of Entry Choices
(continued)
Loss of competitive advantage
Potential overestimation of partner’s capabilities
Access to closed markets
Pooled resources increase partner’s capabilities
Complementary skills & assets
Strategic Alliance
Large capital outlay
Lack of local knowledge
Increased risk
Maximum control over proprietary knowledge/ technology
Greater strategic flexibility
Efficiencies of global production system
Wholly Owned Subsidiary
Potential for conflict of interest
Loss of competitive advantage
Knowledge of local markets
Lower development costs and risk
Access to closed markets
Joint Venture
DisadvantagesAdvantagesMode of Entry
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Examples of Strategic Alliances
General Electric – Snecma of France
Toshiba – IBMMitsui – General ElectricToyota – GM, TRWCanon – Hewlett-PackardMitsubishi – Caterpillar
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Automobile Companies
Ford – Astin-Martin, Jaguar, Land Rover, Mazda, Volvo
Daimler-Chrysler – Mercedes-Benz, Jeep (Mitsubishi)
GM – Fiat, Hummer, Isuzu, Opel, Saab, Subaru, Suzuki, (Toyota)
Basic Approaches to Managing an International Subsidiary
Ethnocentric Approach
Polycentric Approach
Geocentric Approach
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Why International Assignments End in Failure
Career blockage
Culture shock
Lack of pre-departure cross-cultural training
Overemphasis on technical qualifications
Getting rid of a troublesome employee
Family problems
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Key Human Resource Management Factors for Global Firms
SelectionSelection criterion should include cultural sensitivity
TrainingLength of assignment determines depth of trainingCross-cultural training is critical to success
Career Development International assignments should be part of career
advancement plan
Compensation and Benefits Incentives and quality-of-life concerns
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Three approaches to cross-cultural training
Impression Approach
Affective Approach
Information-Giving Approach
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Ethics and Social Responsibility
Globalization greatly increases the possibility that managers will face an ethical dilemma.
Different cultures have different notions of right and wrong.
U.S. Foreign Corrupt Practice Act (1977).
Many firms and industry groups have developed their own codes of conduct for foreign operations.
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Applications of Management Perspectives—
For the Manager
Firms are prevented from capitalizing on business opportunities overseas by a lack of awareness of:How to enter foreign marketsHow to operate in diverse national settings
By developing a better appreciation of the unique challenges that may confront them, managers can learn how to function well overseas.
Groom managers for their role in globalization.
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Applications of Management Perspectives—
For Managing Teams
Many firms are entering joint ventures with companies in other countries.
Joint ventures usually require teams made up of employees from different nations.
The ability of international teams to work together in a climate of mutual respect is a key to success.
This requires: Cross-cultural sensitivity. Understanding of the international context in which the firm
operates.
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Applications of Management Perspectives—
For Individuals
The career mobility of employees is likely to be enhanced if they have international skills.
International savvy is increasingly valued.
Many firms require employees to have international experience before they can move into the upper management ranks.
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