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Mgmt 371Chapter Five

The Global Environment

Much of the slide content was created by Dr, Charlie Cook, Houghton Mifflin, Co.©

http://faculty.bus.olemiss.edu/brobinson

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Figure 5.1: Levels of International Business Activity

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The Meaning of International Business

Domestic Business acquires all of its resources and sells all of

its products or services within a single country.

International Business is primarily based in a single country yet

acquires a meaningful share of its resources and/or revenues from other countries.

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The Meaning of International Business

Multinational Business transcends national boundaries and buys

raw materials, borrows money, and manufactures and sells its products in a world-wide marketplace.

Global Business transcends national boundaries and is not

committed to a single home country.

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Trends in International Business

Economic Recovery Industrialized nations in Europe and Asia have rebuilt

their economic systems that were devastated in WWII. Decreasing Isolation from Foreign

Competition U.S. consumer goods markets are open to overseas

competitors.

Increasing Globalization of World Markets Volume of international trade has increased more than

3,000% from 1960 to 2000. This includes labor markets.

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Table 5.1: Advantages and Disadvantages of Different Approaches to Internationalization

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The Structure of the Global Economy Mature Market Economies and Systems

Based on the private ownership of business and allows market factors to determine business strategy.

A mature economy, well-developed infrastructures, and individual wealth.

Primarily concentrated in North America and Europe.

Compare to High Potential/High Growth Economies.

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The Structure of the Global Economy Trade Agreements

North American Free Trade Agreement (NAFTA) covering the United States, Mexico, and Canada.

European Union (EU) 27 member states in Europe.

Association of Southeast Asian Nations (ASEAN) 10 members in Southeast Asia.

South Asian Association for Regional Cooperation (SAARC) 8 members in South Asia

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The Global Economy

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Market Economies and Systems

High Potential/High Growth Economies Underdeveloped and immature markets with a weak

industrial base, weak currency, and poor consumers People’s Republic of China, India, Vietnam, Brazil,

Russia Challenges to market development:

The need for large investments in distribution systems

The need to educate/train consumers in product usage

A lack of infrastructure for support operations Unfavorable policy changes affecting investments

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Market Economies and Systems

Other Economies Economies that defy classification due to their

possession of critical and valuable resources or other social or political factors which distort their internal economies and markets.

Challenges of other economies Political instability Cultural differences Ethnic violence

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The Role of the GATT and the WTO General Agreement on Tariffs and Trade

(GATT) Promoted international trade by reducing trade

barriers and making it easier for all nations to compete.

Most Favored Nation (MFN) principle

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The Role of the GATT and the WTO The World Trade Organization (WTO)

Organization (replacing GATT) with the goals of:

Promoting trade flows by encouraging nations to adopt nondiscriminatory and predictable trade policies

Reducing remaining trade barriers through multilateral negotiations

Establishing impartial procedures for resolving trade disputes among its members

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Environmental Challenges of International Management

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Controls on International Management

Tariffs Taxes collected on goods

shipped across national boundaries.

Quotas Limits placed on the number

or value of goods that can be traded as exports or imports.

Export restraint agreements Voluntary limits on the

volume or value of goods exported to or imported from another country.

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Social Orientation

Individualism v. Collectivism - self-explanatory In individualistic societies you are expected to

take care of yourself (the lower the score, the more individualistic).

Self expression and individual achievement is valued.

US, Canada.

Collectivistic societies expect you to subordinate your interests to those of your group or society

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Power Orientation

Power Distance - the degree to which people accept the idea that disparities in power and well-being among members of society are due to each individual’s physical and intellectual abilities.

The higher the power distance score, the greater the acceptance of inequality (Power Respect).

Latin America, Asia. The lower the power distance score, the less

the acceptance of inequality (Power Tolerance).

US, UK, Netherlands, Western Europe.

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Uncertainty Orientation

Uncertainty Avoidance - tolerance for risk and ambiguity.

Measures resistance to change and preference for structured situations.

Uncertainty Avoidance = Japan, France.

Uncertainty Acceptance = US, UK, India.

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Goal Orientation

Aggressive Goal Orientation (Masculinity) v. Passive Goal Orientation (Femininity)- the degree to which a society divides its roles and jobs along gender lines. Aggressive Goal Orientation societies have

clearly defined “male” and “female” roles. Value assertiveness, performance, material

success, and competition. Japan, US. Passive Goal Orientation societies have few or

no social distinctions based on sex. Value personal relationships, quality of life, and

care of the weak. Scandinavia

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Time Orientation

Short-Term Orientation – the cultural dimension that measures the value societies put on personal stability,living for the present, and immediate gratification. (U.S., France, Canada)

Long-Term Orientation – the cultural dimension that measures the value societies put on the future (i.e., thrift and persistence), as opposed to a short-term focus on the present. (Taiwan, Japan, India).

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Competing in a Global Economy

Globalization and Organization Size Multinational Corporations (MNCs)

Adopt a global perspective and compete in the global marketplace.

Medium-Size Businesses Remain primarily domestic organizations that may

buy and sell abroad through trade specialists and compete with foreign companies in local markets.

Small Businesses Participate in global markets when they serve as

local suppliers for MNCs.

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Top 10 Largest MNCs

Exxon/Mobil* Wal-Mart Royal Dutch Shell* BP* General Motors Chevron Daimler Benz Toyota Ford Conoco Phillips*

General Electric Total* ING Group** Citicorp** AXA** Allianz** Volkswagen Fortis** Credit Agricole** AIG**

*Petroleum** Banking, Insurance, Financial Services

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Management Challengesin a Global Economy Planning in a Global Economy

Understanding of both environmental issues and competitive issues.

Organizing in a Global Economy Addressing issues of creating and managing

operations on a world-wide scale. Leading in a Global Economy

Learning how to interact with and motivate persons of different cultural, social, and economics backgrounds.

Controlling in a Global Economy Integrating global operations that encompass time-

zone differences, cultural factors, and varying communication methods.