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Managing the Global Environment


The Changing Global Environment

• Global Organization operates and competes in more than one country

• The challenges of Global Competition• Establishing operations in a foreign country• Obtaining material from foreign suppliers• Managing in a foreign culture

• The Global environment is open meaning companies are free to buy and sell goods and services in various countries


Declining Barriers to Trade

• Tariff- A tax that government imposes on imported or occasionally exported goods. This is intended to protect domestic industry and jobs from foreign competition. Other countries retaliate with their own tariffs.


Declining Barriers to Trade

• Free Trade Doctrine- the idea that if each country specializes in the goods that it can produce most efficiently, the remaining product produced will be used to export in exchange for products that the country lacks.

• GATT- General Agreement of Tariffs and Trades. 117 countries reduced tariffs from 40% to 3% between 1948-2000


Declining Barriers of Distance and Culture

• Distance- Markets were closed due to slowness of communications over long distances

• Culture- Language barriers and lack of understanding in cultural practices made business difficult overseas

• Improvement in transportation (FedEx) and the internet reduced barriers


North American Free Trade Agreement (NAFTA)

• Abolishes 99% of tariffs on goods traded between Mexico, Canada and the U.S.

• Increased investment by U.S. firms in Mexican manufacturing facilities due to lower wage costs in Mexico

• Increased the market size for business

• Increased competition for U.S. companies


Global Task Environment

• Suppliers- problem in developing a network of global suppliers to keep costs down and quality up

• Global Outsourcing- manufacturing overseas to keep costs down.

• Distributors- Each country has different custom and legal restraints


Global Task Environment

• Customers- create large opportunities for new customers. Products must be customized to fit different cultures

• Competitors- Increased competition abroad and strong local markets. Entry of foreign competitors into home markets

• Read Li & Fung Supply Chain Mgt. page 192.


Global General Environment

• Political Forces– Representative Democracy- representatives

elected by citizens to make decisions on their behalf. (Freedom of expression, court system and regular elections)

– Totalitarian Regimes- a single party holds all political power and does not permit opposition. Human rights issues and lack of

court system make it difficult to due business in these countries



• Economic Forces– Free market economy- private business

controls production of goods and services– Command economy- government controls all

factors of production and sets prices– Mixed economy- Certain businesses

controlled by private business, others are government controlled. (socialism)

– Read Global Car Manufacturing on page 198



• Sociocultural forces- – National culture- set of values and beliefs that

unite citizens of a country– Values- ideas about what a society believes

to be good (roles of men, women, government)

– Norms- unwritten rules and code of conduct on how people should act.Folkways-routine social conventions (dress and manners.

Mores- behavioral norms (theft, adultery)


Hofstede’s Model of National Culture

• A model of national culture developed into five dimensions for comparing different countries. (Review figure 6.5 on page 201

• Individualism-values individual freedom and self-expression judged by achievements vs. social background.

• Collectivism- Values subordination of the individual to the goals of the group. Japan and communist countries support this value


Hofstede’s Model

• Power Distance- Society’s acceptance of differences in the well being of citizens– High power distance- gap between rich and

poor becomes very wide – Low power distance- gap is reduced by

taxation and welfare programs (U.S. Germany)


Hofstede’s Model

• Achievement- Countries value assertiveness and success and are results oriented (U.S. Japan)

• Nurturing- value quality of live, personal relationships, and service (Sweden and Denmark)


Hofstede’s Model

• Uncertainty Avoidance-Societies differ in their tolerance for uncertainty and risk– Low uncertainty- value diversity and wide

range of opinions and beliefs (U.S.)– High uncertainty- expect high conformity in

their citizens beliefs and behavior (Japan, France)


Hofstede’s Model

• Long Term Outlook- how countries view economy and quality of life issues– Long Term outlook- value saving and

persistence (Asian cultures)– Short term outlook- seek to maintain stability

and happiness in the present (U.S.)– Research Hofstede’s model for 6 select

countries from www.cyborlink.com and report results vs. that of the U.S.


Global Management

• Management practices that are effective in one culture often will not work as well in another culture

• Culture shock- the feeling of surprise and disorientation people feel when they do not understand the values that guide a particular culture

• Extatriate Managers- manager who go abroad to work for a global organization


Four ways of expanding Internationally

• Importing and Exporting- The least risky and least complex of global operations– Exporting- making products at home and

selling them abroad– Importing- selling products at home that are

made abroad.

• Research the U.S. trade gap between exports and imports at

www.econedlink.org/lessons/econedlink



• Licensing-allowing a foreign organization to take charge of manufacturing and distributing a product in its country in return for a fee. The Licensor reduces cost of investing in fixed assets but risks exposing its technological know-how

• Franchising-selling the rights to use a brand name and use of technology in return for a lump sum payment and % of profit. Cost of expanding is reduced but risk of reputation if not done correctly.



• Strategic Alliances- companies poor or share their resources with a foreign company both sharing the rewards and risks of the new venture. U.S. company maintain controls of operation– Joint venture- a strategic alliance among two

companies that agree to jointly establish and share the ownership of a new business.



• Wholly-Owned foreign subsidiary- production operations are established in a foreign country independent of any local direct involvement1. Required a high level of investment

2. Higher degree of control of operations

3. Potential for high return on investment

4. Protects the firm’s technology and know how


Impediments to an Open Global Environment

• Administrative barriers (non-tariff) policies and regulations to impede or block foreign competitors entry into local market

• Self-Imposed Ethical Impediments– Respect for worker rights– Respect for the environment

• Read American Rice invades Japan and saving the amazon Jungle on page 208


Global Project

• Research Apple computer’s global strategy for entry into China and India

• Each team of 10 students will research the task and general environment issues facing Apple computer as it prepares to enter both China and India.

• You will report back to the Board of Directors for Apple as to what issues to consder as they enter each market

free powerpoint templates page 1 free powerpoint templates managing the global environment

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