MGT 301

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Chapter 4
Managing Globally

• MGT 301

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Managing Globally
Learning Goals

1. State the trends affecting organizations in a
   global economy
2. Describe how a countrys culture can affect an
   organizations business practices
3. Explain how politicallegal forces impact global
   business
4. Discuss how three major international trade
   agreements affect global competition and
   cooperation
5. Describe six strategies used by organizations to
   grow globally

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The Global Economy Global Economic Trends
Borderless organizations
Worldwide labor pool
Worldwidecommunication
Foreign Exchange rates
Expanding Nature of trade
Globalsourcing of parts
Importanceof exportsand imports
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International Management

• Managing Across the Globe Why?
• Great opportunities in the international
  marketplace today
• Other countries having population explosions
• Strong profit potential
• Growing trend Across borders business
  relationships
• Slowdown in industrialized nations
• Growth in newly industrialized and developing
  countries

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The Global Economy Snapshot
It is now possible for more people than ever to
collaborate and compete in real time with more
people on different kinds of work from different
corners of the planet and on more equal footing
than at any previous time in the history of the
world using computers, e-mail, teleconferencing
and dynamic software.
Thomas L. Friedman, Author, The World is Flat
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Cultural Forces Five Aspects of Culture
Cultural Distance
Culture
Value Systems
Social Change
Language
Time Orientation
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Value Systems Cultural Values in Mexico and the
United States
Importance of Cultural Orientation
UncertaintyAvoidance
Power Distance
Gender-Role Orientation
Individualism
Cultural Value Dimension
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Value Systems Managerial Implications of Power
Distance Differences
United States
Issue
Mexico
Subordinates dependence needs
Moderate dependence on supervisor
Heavy dependence on supervisor
Consultation
Expect to be consulted
Expect little consultation
Ideal superior
Democratic leadership
A benevolent autocrat or paternalistic father
figure
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Value Systems Managerial Implications of Power
Distance Differences
(cont'd)
Issue
United States
Mexico
Rules and regulations
Apply to all
Supervisors are above rules and regulations and
take advantage of privileges
Status symbols
Are accepted as symbols of authority, but are not
necessary
Are very important evidence of the authority of
superiors
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Value Systems Values and Managerial
Characteristics
Characteristics
United States
Mexico
Participation, delegation to employees
Centralized, concentrated at top
Decision making
Responsibility
Employees assume responsibility for their own
lives
Employees expect close paternalistic supervisors
Organization chart
Indicative of unequalcompetenciesreflects
information flow in organization
Indicative of unequal roles reflects power
relationships of key family members
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Value Systems Values and Managerial
Characteristics
(cont'd)
Characteristics
United States
Mexico
Demonstrated performance
Family or personal ties
Hiring criteria
Performance feedback
Employee accepts accountability
Critical feedback resented
Leadership pattern
Democratic leader
Benevolent dictator
Planning process
Long term, proactive, formal
Short term, reactive, unstructured
Source Adapted from T.H. Becker. Doing Business
in the New Latin America. Westport, CT Praeger,
2004, 135-136.
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Value Systems Cultural Distance and Examples of
Industries Impacted
Examples of Industries Affected by
Cultural Distance
Aspects of CulturalDistance

• Consumer foods
• Tobacco products
• Products that have high linguistic content (TV)
• Auto (size, features)

• Different languages
• Different ethnicities
• Different religions
• Different social norms

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Political-Legal Forces Political Risk

• Political risk probability that governmental
  decisions or events in a country will negatively
  affect the long-term profitability of an
  investment

• Major Dimensions of political risk

High
Low

• Domestic instability

High
Low

• Foreign conflict

Low
High

• Political climate

Low
High

• Economic climate

Low
High

• Corruption

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Political Risk Examples of Perceptions of
Country Corruption
Country Rank
Country Score
1 (least Corrupt)
Iceland (9.7)
2
Finland and New Zealand (9.6)
14
Canada (8.4)
17
United States (7.6)
21
Japan and Chile (7.5)
65
Mexico (3.5)
117
Philippines and Bolivia (2.5)
130
Venezuela (2.3)
158 (Most Corrupt)
Bangladesh and Chad (1.7)
Score relates to degree of corrupt behaviors by
analysts. Scores can range from 10 (not corrupt)
to 0 (highly corrupt).
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Political-Legal Forces Political Mechanisms
Protectionism is designed to help home-based
industries or firms avoid (or reduce) potential
(or actual) competitive threats from abroad

• Tariff a government tax on goods or services
  entering the country
• Quota a restriction on the quantity of a
  countrys imports and sometimes exports
• Subsidy a direct or indirect payment by a
  government to domestic firms to make selling or
  investing abroad cheaper for them
• Cartel an alliance of producers engaged in the
  same type of business that is formed to limit or
  eliminate competition and control production and
  prices

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Political Mechanisms Related to Various Degrees
of Corruption

• Bribe an improper payment made to induce the
  recipient to do something for the payer

• Extortion a payment made to ensure that the
  recipient doesnt harm the payer in some way

• Grease payments small payments used to get lower
  level government employees to speed up required
  paperwork

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International Trade Agreements Snapshot
Every morning in Africa, a gazelle wakes up and
knows it must run faster than a lion or it will
be killed. Every morning a lion wakes up and
knows that it must outrun the slowest gazelle or
it will starve to death. It doesnt matter
whether or not you are a gazelle or lion. When
the sun comes up, you better start running.
Jack Perkowski, Chairman and CEO, ASIMCO
Technologies
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Major International Trade Agreements World Trade
Organization (WTO)

• Represents 149 negotiated trade agreements among
  countries

Key Functions
Cooperating with other International Organizations
Providing a forum for trade negotiations
Handling trade disputes between nations
AdministeringWTOagreement
Monitoringnational tradepolicies
Providingtechnical assistance and training
for people in developing countries
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Major International Trade Agreements WTO
Benefits
Promotes peace by handling trade disputes
constructively
Rules make life easier for all organizations to
follow
Benefits
Trade stimulates economic growth and reduces the
cost of living
Systemencourages good government
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Major International Trade Agreements WTO
Fundamental Principles

• Most favored nation principle when country A
  grants a tariff concession to country B, the same
  concession automatically applies to all other
  countries that are members of WTO

• Reciprocity principle each member country will
  not be forced to reduce tariffs unilaterally. A
  tariff concession is made only in return for
  comparable concessions from the other countries

• Transparency principle tariffs are to be readily
  visible to all countries

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Major International Trade Agreement North
American Free Trade Agreement (NAFTA)

• Created a freer trade zone among Canada, Mexico,
  and United States

• removed and reduced barriers to trade, such as
  tariffs, quotas, and licenses
• increased trade
• tightened intellectual property right protection

• Maquiladora plants foreign-owned plants located
  in Mexico that border the U.S.

• account for 40 of Mexicos manufacturing
• wages range from 15 - 20 a day
• employ more than 1.2 million people

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Major International Trade Agreement European
Union

• An organization with the goals of creating a
  single market among member nations and
  establishing the free movement of goods, people,
  services, and capital

• currently 25 member countries

• Removes/Reduces

• physical barriers at country borders
• technical barriers that prevent goods produced in
  one country being sold in others

• Fiscal barriers

• red-tape and tax systems that hinder trade
• financial barriers that prevent/hinder free
  movement of investment capital

• Created the EURO as currency

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Strategies for International Business
High
Global
Multidomestic
Alliances
Complexity
Franchising
Licensing
Exporting
Low
Low
High
Resource Commitment
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Exporting Strategy
Maintaining facilities within a home country and
shipping goods and services abroad for sale in
foreign markets (e.g., California Sunshine
Thomson Publishing)

• Benefits

• no cash outlays
• extends products/services to other countries
• most sales done via Internet

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Licensing Strategy
Firm (the licensor) in one country giving other
domestic or foreign firms (licensees) the right
to use a patent, trademark, technology,
production process, or product in return for the
payment of a royalty or fee (e.g., Coca-Cola
PepsiCo)

• Benefits

• little financial risk
• increase market awareness
• no production plants

• Risks

• violation of intellectual property rights
• licensee fails to pay royalty or fee
• licensee steals technology

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Franchising Strategy
Parent organization (the franchiser) granting
other companies or individuals (franchisees) the
right to use its trademarked name and to produce
and sell its goods or services (e.g., KFC,
Marriott)

• Benefits

• parent company maintains control of brand image,
  manufacturing and services
• increase global presence
• franchisee tailors marketing to local area(s)

• Risks

• need to monitor franchisee
• franchisee operates independently anddoesnt
  perform services according to contract

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Alliance Strategy
An agreement between two or more organizations to
pool physical, financial, and human resources to
achieve common goals (e.g., Nestlé LOreal)

• Benefits

• share costs and risks of capital intense projects
• desire for partners to learn from each other
• partners shape competition in the industry

• Risks

• political uncertainty
• partners can become competitors
• economic uncertainty
• partners develop different goals

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Multidomestic Strategy
Adjusting products, services, and practices to
individual countries or regions (e.g., Pacific
Rim versus Western Europe versus North America)
(e.g., Dominos Pizza Procter Gamble)

• Benefits

• firm taps into country values for product
  customization
• marketing campaigns tailored to country
• firm understands local distribution system
• extending global brand name

• Risks

• large financial investment required
• shared services
• high level of coordination needed across firm
• reliance on local managers to implement strategy

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Multidomestic Strategy Snapshot
Procter and Gamble chose a multidomestic
strategy because we believe that this leads to
superior understanding of consumers and their
needs and it develops close relationships with
suppliers. This structure also enables product
divisions to share information and key
activities.
A.G. Lafley, CEO and President, Procter and Gamble
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Global Strategy
Stresses worldwide consistency, standardization
and relatively low cost (e.g., Black Decker,
Kodak)

• Benefits

• worldwide standards
• promotes brand recognition
• coordination of global manufacturing
• distribution advantages

• Risks

• assumes customers needs are similar across globe
• high level of financial investment in plants and
  equipment
• national currency fluctuations
• loss of flexibility between plants