Managing in the global environmentTopic 11

Dr Hugh Bainbridge

L E A R N I N G O U T L I N E1. What is your global perspective?

Explain how the global economy creates opportunities and threats for managers Contrast ethnocentric, polycentric, and geocentric attitudes to global business. Discuss why it’s important for managers to be sensitive to global differences.

2. Understanding the global environment Explain why many countries have become part of regional trading alliances. Describe ASEAN, European Union, NAFTA and other regional trade alliances Discuss the role of the WTO.

3. Doing business globally Contrast MNCs, TNCs, and borderless organisations. Describe the three stages organisations go through as they go global. Describe foreign subsidiaries, joint ventures, strategic alliances, licensing, and

franchising.4. Managing in a global environment

Explain how the global legal-political environment affects managers. Describe the Hofstede and GLOBE dimensions for assessing cultures. Outline the adjustment challenges faced by a manager on global assignments

The globalisation of business Infrastructures have been developed Trade barriers reduced Global market windows have opened Competition has intensified How can any organisation in Australia and New Zealand, or

anywhere, avoid the effects of globalisation?

3 views of international business:Ethnocentricism Ethnocentric attitude:

– Narrow view of the world with an inability to recognise differences between people

– Parochialism: A belief that the best work approaches and practices are those of the home country.

Polycentricism Polycentric attitude:

– The view that the managers in the host country know the best work approaches and practices for running their business. Home country: The country in which the firm was established

Host country: The country that the firm has expanded into

Geocentrism Geocentric attitude

– A world-oriented view that focuses on using the best approaches and people from around the globe.

Trade agreements Bilateral training agreements Multilateral trading agreements

– Regional trading agreements EU, NAFTA, SAFTA

– World trading agreements WTO

Bilateral free trade agreements Australian bilateral free trade agreements

– Aust-NZ Closer Economic Relations Agreement

– Also with USA, Singapore, Thailand and China

Regional trading alliances Americas

– North American Free Trade Agreement (NAFTA) United States, Canada, and Mexico

– Southern Common Market (Mercosur) Argentina, Brazil, Paraguay, Uruguay, and Venezuela; with Bolivia

– Free Trade Area of the Americas

European Union (EU)– A unified economic and trade entity

Belgium, Denmark, France, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, the United Kingdom, Germany, Austria, Finland, and Sweden

– Economic and monetary union (Euro)

The European Union (EU)

Regional trading agreements (cont’d) Africa

– African Union

Asia– Association of Southeast Asian Nations (ASEAN)

Initial members: Indonesia, Malaysia, the Philippines, Singapore and Thailand.

Membership has expanded to include Brunei, Burma (Myanmar), Cambodia, Laos, and Vietnam.

600 million people

Approximately 9% of the world’s population

ASEAN members

Multilateral agreements - World Trade Organisation (WTO) Multilateral trading system involving 151 countries Functions as the only global organisation dealing with the rules

of trade among nations. Monitors and promotes world trade. Evolved from the General Agreement on Tariffs and Trade

(GATT) in 1995. Helps businesses in these countries conduct efficient and

effective trading relationships

Types of international organisations Multinational corporation (MNC)

– All types of international companies that maintain operations in multiple countries

Multidomestic corporation– An MNC that decentralises management and other decisions to the local

country – polycentric approach

Types of international organisations Global

– An MNC that centralises management and other decisions in the home country – ethnocentric approach

Transnational or borderless corporation– Reflects a geocentric approach

Born global– International new ventures committing resources to doing business in

several countries

How organisations go global

Foreign subsidiary Directly investing in a foreign country by setting up a separate

and independent production facility or office– Greenfield investment

– Acquisition Advantages

Disadvantages

Strategic alliance Partnerships between an organisation and a foreign company

partner(s) in which both share resources and knowledge in developing new products or building production facilities

– Advantages

– Disadvantages

Joint venture A business agreement in which the parties agree to develop, for

a finite time, a new entity and new assets by contributing equity. Reasons for formation

– Risk sharing

– Economies of scale

– Market access

– Geographical constraints

– Funding constraints

– Acquisition barriers; Prelude to acquisition

International licensing and franchising Licensing

– An organisation gives another organisation the right to make or sell its products using its technology or product specifications

Franchising– An organisation gives another organisation the right to use its name and

operating methods

How Australian and NZ companies go global Approach somewhat different to the conventional model. Why?

– Small domestic markets

– Geographically distant foreign markets

– Less tradeable products

Thus, may use slightly different strategies

Managing in a global environment Legal / Political environment

– Stability or instability of legal and political systems Legal procedures are established and followed

Fair and honest elections held on a regular basis

– Differences in the laws of various nations Effects on business activities

Effects on delivery of products and services

Managing in a global environment Economic environment

– Type of economic system Market or command

Monetary and financial factors– Currency exchange rates

– Inflation rates

– Diverse tax rates

Impact of cultural dimensions in IB Cultural dimensions are psychological dimensions, or value

constructs, which can be used to describe a specific culture. Most famous cultural theorists:

– Geert Hofstede (5 Cultural Dimensions)

– Fons Trompenaars (7 Cultural Dimensions frameworks)

– Stuart Hall (Cultural Factors e.g. High Context vs low context)

Over 200 different cultural dimension frameworks Understanding national cultures

– GLOBE (Global Leadership and organisational behaviour effectiveness) framework

– Strength of national culture over organisational culture

– Legal, political and economic influences on culture

Understanding national cultures Hofstede’s cultural framework

– Individualism-collectivism

– Power distance

– Uncertainty avoidance

– Quantity vs Quality of life (Achievement versus nurturing)

– Time orientation

Examples of Hofstede’s cultural dimensions

Based on Hofstede, G. (1980) “Motivation, Leadership, and organisation: Do American Theories Apply Abroad?” Organisational Dynamics, Summer, 42-63.

International adjustment: 1) Pre-assignment Individual

– Training

– Prior experience - > Accurate expectations

Organisational– Selection criteria

– Support systems

2) In-country adjustment Individual factors Organisational factors

– Job

– Organisational socialisation

– Organisational culture

Non-work factors– E.g., Family / Spouse support

Contribute to adjustment– Work adjustment

– Interaction adjustment

– General adjustment

L E A R N I N G R E V I E W1. What is your global perspective?

Opportunities and threats of the global economy Ethnocentric, polycentric, and geocentric attitudes.

2. Understanding the global environment Explain why countries become part of regional trading alliances. WTO, ASEAN, EU, NAFTA and other regional trade alliances.

3. Doing business globally MNCs, TNCs, and borderless organisations. 3 stages organisations go through as they go global. Exporting, importing, licensing, and franchising. Global strategic alliances, joint ventures, and foreign subsidiaries.

4. Managing in a global environment The global legal-political environment affects managers. Hofstede’s five dimensions, 9 GLOBE dimensions for assessing cultures. Adjustment challenges faced by global managers.