The Global Environment

1
The Global Environment

• Globalization and the International Management
  Environment

Mark McKenna BUS 162, International and
Comparative Management San Jose State University
Chapters 1 and 2, Hodgetts, Luthans and Doh,
International Management Culture, Strategy and
Behavior , 6th edition (New York McGraw-Hill
Irwin, 2006) Adapted from PowerPoint slides by
R. Dennis Middlemist, Professor of Management,
Colorado State University
2
GLOBALIZATION

• Definitions
• Roots of Globalization
• Drivers of Globalization
• A Regional Perspective
• The Bottom of the Pyramid

3
Globalization Definitions

• Hodgetts, Luthans and Doh,
• Globalization is the process of social,
  political, economic, cultural, and technological
  integration among countries around the world (p.
  7)
• Robertson (Globalization Social Theory and
  Global Culture, 1992),

• Globalization in its most all-embracing form
  refers to both the compression of the world and
  the intensification of consciousness of the world
  as a whole (p. 8)

4
The Roots of Globalization

• When did globalization begin?
• Ancient trade routes barter trade
• Standard weights and measures
• Mercantilism the highways of the sea
• Post WWII institutions of global governance
• Past 1980s ICT, globalization defined
• Hodgetts, Luthans, and Doh,
• Contemporary globalization is a new branch of a
  very old tree whose roots were planted in
  antiquity (p. 8)

5
The Drivers of Globalization

• What drives globalization?
• Individual and social needs and aspirations
• Technological innovation
• Reduced technological and economic barriers to
  trade

• Sustaining forces
• Greater policy liberalization
• Greater efficiency of business
• Greater market access
• Increased flows of goods, services, and people

6
A Regional Perspective

• Developed Economies
• U.S. the European Union and Japan account for
  one-half of world trade
• Emerging and Transition Economies
• Economies in Latin America and Asia are
  increasingly important global players
• BRIC, economic powers with large internal markets
• Eastward expansion of the EU
• Less Developed Countries (LDCs)
• Some fast growing and increasingly open to the
  global system
• Others, notably in Africa, struggle to compete
  globally

7
Less Developed Countries (LDCs)

• Economic characteristics
• Low per capita GDP
• High un- or under-employment semi-skilled or
  unskilled workforce
• Considerable government intervention in the
  economy
• Political instability, corruption, weak
  infrastructure
• LDCs in Asia and Latin America
• Include important regional economic powers (e.g.
  China, India, Indonesia, Brazil, Argentina)
• Generally well integrated into the global economy

8
Less Developed Countries (LDCs)

• LDCs in the Middle East and Central Asia
• Large oil reserves
• Highly unstable geopolitical and religious forces
• LDCs in Africa
• Considerable natural resources
• Diverse populations
• Weak and unstable governments
• Economies negatively impacted by social and
  environmental factors (poverty, starvation,
  illiteracy, corruption, environmental
  degradation)
• Poorly integrated into the global economy

9
The Bottom of the Pyramid

• C.K. Prahalad has proposed that the global poor
  should be seen as not as victims, but as
  resilient and creative entrepreneurs and
  value-conscious consumers
• Engaging those at the bottom of the pyramid
  requires co-creative solutions involving new
  actors

• Addressing the needs of these consumers is about
  more than Corporate Social Responsibility

10
Questions

• Can the 4 billion people at the bottom of the
  pyramid be the drivers of the next expansion of
  global prosperity?
• What are the benefits and costs of globalization
  for different sectors of society (companies,
  workers, communities)?

11
Environmental Forces

• Economic environment
• Political environmental
• Legal/regulatory environment
• Socio-cultural environment
• Technological environment
• Convergence or Divergence?

12
Economic Environment

• Global and regional integration
• International agreements (GATT, WTO)
• Regional agreements (EU, ASEAN, NAFTA, CAFTA,
  FTAA, Mercosur)
• World trade and investment
• 80 of FDI contributed by developed economies
• U.S. exports/imports increased by 550 from 1983
  to 2003 (to 1.3 and 1.8 trillion)
• Trade within the EU increased sharply, to gt 2
  trillion annually

13
Political Environment

• Rapid and uncertain change
• Chinas transition to a market economy
• European expansion and integration
• Russias unstable political institutions
• The emergence of political Islam
• Significant differences across countries
• Less stable governments increase political risk
• Uncertain responses to democratization
• Assessing political risk becomes an ongoing
  activity (Chapter 10)

14
Legal/Regulatory Environment

• MNCs must
• Conform to national laws and standards
• Abide by the laws of their own countries
• Be aware of international treaties and
  obligations
• Differences in regulatory regimes
• Increase transaction costs
• Restrict and distort trade
• Can result in retaliatory practices or sanctions
• Four main legal traditions
• Common law
• Civil law
• Islamic law (theocratic law)
• Socialist law

15
Socio-Cultural Environment

• Ethics and social responsibility (Ch. 3)
• Business practices
• Labor standards and workers rights
• Corporate governance
• Intellectual property rights
• Values and culture (Part II)
• Responses to authority
• Individual vs. group recognition and
  responsibility
• Balance of work and family obligations
• Managing and resolving conflict

16
Technological Environment

• Changing at lightning speed
• Internet and telecommunications
• Increasing bandwidth/high-speed access
• Reduced costs of entry/leapfrogging
• E-business
• Customization (the long end of the tail)
• E-retailing and financial services
• Movement of money across borders
• E-cash a currency without a country
• Outsourcing and offshoring
• Information as a commodity
• The 24-hour office increased productivity/lower
  cost

17
Convergence or Divergence?
18
Implications for Managers

• Need for lifelong learning
• The most valuable asset is the ability to learn
  how to learn (Thomas Friedman, The World is
  Flat)
• Responsiveness
• be alert for changes and quick to respond
• Adaptability
• know how to work with others
• be comfortable with uncertainty and ambiguity
• Having a global perspective
• see the big picture (global economy/whole
  organization)
• Having a local perspective
• understand the details of operating at the local
  level