BUSINESS.MANAGEMENT

CHAPTER 6

:

INTE

RNATIONAL

MANAGEM

ENT

AND

GLOBALI

ZATION

Why is it important to import and export products?

Why do we trade with other countries?

How are companies impacted by our global economy?

How does global trade affect me?

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NOTE GLOBE!

GLOBALIZATION (INTERNATIONAL BUSINESS)

Globalization:•Is the flow of goods and services, capital, and knowledge across country bordersAdvantages:•Enhances economic interdependence among countries and organizations•Allows both small and large firms from developed and less developed economies to compete 3

WHAT IS INTERNATIONAL BUSINESS?

International Business: all business activities needed to create, ship, and sell goods and services across national boarders. Also called: global business, international trade, and foreign trade.

Domestic Business: making, buying, and selling goods within a country

INTERNATIONAL TRADE

Exchange of goods and services by different countries

We purchase chocolate from Belgium and Blue jeans from China

WHY WE TRADE

One country might not be able to produce a good it wantsSome countries have an advantage over other countries in producing particular goods and servicesE.g. France cannot produce oil because it has no oil fields

Absolute Advantage

Ability to produce more of a good than another producer with the same quantity of inputs

Different countries are endowed with different resources

Comparative Advantage

Producers should produce goods they are most efficient at producing

Purchase from others goods they are less efficient at producing

ADVANTAGES

COUNTRY’S INSTITUTIONAL ENVIRONMENT:ECONOMIC DIMENSION

Economies are classified as either:•Developed economies–Larger economies with effective capital markets

•Emerging economies–Rapidly growing with underdeveloped capital markets

•Developing economies–Weak economies with little capital available for growth

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COUNTRY’S CULTURE

• Culture

–Learned set of assumptions, values, and behaviors

–Accepted as successful

–Passed on to newcomers• Begins when a group of people

faces a set of challenges• Evolves and changes with time

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CULTURAL DIMENSIONS

GenderFocus

Individualism/Collectivism

UncertaintyAvoidance

PowerDistance

CulturalDimensions

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Extent to which people accept power and authority differences among people

High power distance = people accept power differences

Low power distance = people like to regard themselves as more or less equal

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CULTURAL DIMENSIONS: POWER DISTANCE

PowerDistance

CulturalDimensions

Extent to which people can accept uncertainty or ambiguity

High uncertainty avoidance = prefer clear norms that govern behavior (i.e., avoid uncertainty)

Low uncertainty avoidance = have fewer rules and are comfortable in ambiguous situations (i.e., can accept uncertainty)

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CULTURAL DIMENSIONS: UNCERTAINTY AVOIDANCE

CulturalDimensions

UncertaintyAvoidance

Individualism:

Extent to which people’s identities are self-oriented; people take care of themselves and immediate family

High emotional independence

Emphasize and reward individual achievement

Collectivism:

Extent to which a people’s identities are a function of the group(s) to which they belong (family firm, community, etc.)

Emotional dependence on institutions

Emphasize group membership

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CULTURAL DIMENSIONS: INDIVIDUALISM/COLLECTIVISM

CulturalDimensions

Individualism/Collectivism

Extent to which people in a country value masculine or feminine traits

Masculine = activities leading to success, money, possessions

Feminine = activities showing caring of others and enhancing quality of life

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CULTURAL DIMENSIONS: GENDER FOCUS

CulturalDimensions

GenderFocus

CULTURAL VALUES AND SCORES

Country Power Distance

(a)

Uncertainty Avoidance

(b)

Individualism/Collectivism

(c)

Gender Focus

(d)

Brazil 5.33 3.60 3.83 3.31

Canada 4.82 4.58 4.38 3.70

China 5.04 4.94 4.77 3.05

England 5.15 4.65 4.27 3.67

France 5.28 4.43 3.93 3.64

India 5.47 4.15 4.38 2.90

15Adapted from Exhibit 3.2

(a) Higher scores indicate higher power distance(b) Higher scores suggest more uncertainty avoidance(c) Higher scores indicate greater collectivism(d) Higher scores suggest greater gender equality; lower scores indicate

male domination

CULTURAL VALUES AND SCORES (CONT.)

Country Power Distance

(a)

Uncertainty Avoidance

(b)

Individualism/Collectivism

(c)

Gender Focus

(d)

Japan 5.11 4.07 5.19 3.19

Mexico 5.22 4.18 4.06 3.64

Netherlands 4.11 4.70 4.46 3.50

Poland 5.10 3.62 4.53 4.02

Russia 5.52 2.88 4.50 4.07

United States 4.88 4.15 4.20 3.34

16Adapted from Exhibit 3.2

(a) Higher scores indicate higher power distance(b) Higher scores suggest more uncertainty avoidance(c) Higher scores indicate greater collectivism(d) Higher scores suggest greater gender equality; lower scores indicate

male domination

HOW CULTURE IMPACTS…ASSIGNMENT

LIZZIE’S MORNING STORY Read Individually

BASED ON THE CULTURE VALUE AND SCORES TABLE ABOVE, GET IN PARTNER PAIRS AND PICK ONE OF THE 12 COUNTRIES

LOCATE 2 POPULAR PRODUCTS IN THAT COUNTRY CURRENTLY

BASED ON YOUR RESEARCH, CONNECT WHY THIS PRODUCT IS SUCCESSFUL TO THEIR SCORES ON THE VALUES TABLE.

BE PREPARED TO PRESENT IN CLASS

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Brazilian Flag with Coffee Beans…WHY?Notes Flag!

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US/Cuba Embargo Article

Brief discussion

GLOBAL AND INTERNATIONAL PRODUCT DECISIONS

Global Product: a standardized item offered in the same form in all countries in which it is sold (e.g. cameras, film, home appliances)

International Product: product that is customized or adapted to the culture, tastes, and social trends of a country

INTERNATIONAL MARKET ENTRY STRATEGIES

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LicensingLicensing

Strategic AlliancesStrategic Alliances

ExportingExporting

Cross-Border AcquisitionsCross-Border Acquisitions

Wholly-Owned SubsidiariesWholly-Owned Subsidiaries

Less RiskLess Risk

More RiskMore Risk

Advantages:Low costLow risk to licensorDisadvantages:Potential trade barriersEstablishment of marketing and distributing systems in foreign marketTransportation costsSmaller returns 22

ExportingExporting

Manufacturing Manufacturing products in a firm’s products in a firm’s home country and home country and shipping them to a shipping them to a foreign market.foreign market.

Manufacturing Manufacturing products in a firm’s products in a firm’s home country and home country and shipping them to a shipping them to a foreign market.foreign market.

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LicensingLicensing

Advantages:

Less capital investment

Least amount of risk

Disadvantages:

Licensor has little control over product and use of brand

Smaller returns

Advantages:

Less capital investment

Least amount of risk

Disadvantages:

Licensor has little control over product and use of brand

Smaller returns

Arrangements that allow alocal firm in the new marketto manufacture and distribute a firm’s product.

Arrangements that allow alocal firm in the new marketto manufacture and distribute a firm’s product.

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Advantages::

Share costs and risks between Share costs and risks between partnerspartners

Access to resources not Access to resources not previously availablepreviously available

Learn capabilities from partnerLearn capabilities from partner

Disadvantages::

Management disagreementManagement disagreement

Share profitsShare profits

New types of alliances:New types of alliances:

OutsourcingOutsourcing

OffshoringOffshoring

Advantages::

Share costs and risks between Share costs and risks between partnerspartners

Access to resources not Access to resources not previously availablepreviously available

Learn capabilities from partnerLearn capabilities from partner

Disadvantages::

Management disagreementManagement disagreement

Share profitsShare profits

New types of alliances:New types of alliances:

OutsourcingOutsourcing

OffshoringOffshoring

Cooperative arrangements between two firms in which they agree to share resources to accomplish a mutually desirable goal.

Cooperative arrangements between two firms in which they agree to share resources to accomplish a mutually desirable goal.

Strategic AlliancesStrategic Alliances

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Cross-Border AcquisitionsCross-Border Acquisitions

Advantages:

Fast way to enter foreign market

Can start operations immediately

Disadvantages:

Can cause controversy in local public

Integrating two previously independent companies can be challenging

Advantages:

Fast way to enter foreign market

Can start operations immediately

Disadvantages:

Can cause controversy in local public

Integrating two previously independent companies can be challenging

Acquisitions of local firms made by foreign firms to enter a new international market.

Acquisitions of local firms made by foreign firms to enter a new international market.

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Advantages:

Maximum control over operations

Buffer assets from competitors in the market

Disadvantages:

Complex, risky and expensive to launch

Must establish relationships with suppliers, buyers, etc.

Must learn about culture and institutional environment on your own

Advantages:

Maximum control over operations

Buffer assets from competitors in the market

Disadvantages:

Complex, risky and expensive to launch

Must establish relationships with suppliers, buyers, etc.

Must learn about culture and institutional environment on your own

Direct investments to establish a business in a foreign market in which the business is 100% owned and controlled by the focal firm; also called Greenfield Venture.

Direct investments to establish a business in a foreign market in which the business is 100% owned and controlled by the focal firm; also called Greenfield Venture.

Wholly-Owned SubsidiariesWholly-Owned Subsidiaries

LOW- AND HIGH-CONTEXT CULTURES

Cultural context: degree to which a situation influences behavior or perception of “appropriateness”

Neither high- nor low-context cultures are right or wrong, just different

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HIGH-CONTEXT

People pay close attention to the situation and its

various elements in assessing appropriate

behavior

HIGH-CONTEXT

People pay close attention to the situation and its

various elements in assessing appropriate

behavior

LOW-CONTEXT

Situation may or may not make a difference in what is considered appropriate behavior

LOW-CONTEXT

Situation may or may not make a difference in what is considered appropriate behavior

LOW- AND HIGH-CONTEXT CULTURES EXAMPLES

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HIGH-CONTEXT

AmericanCanadianGermanSwiss

ScandinavianEnglish

HIGH-CONTEXT

AmericanCanadianGermanSwiss

ScandinavianEnglish

LOW-CONTEXT

VietnameseChinese

JapaneseKorean

ArabGreek

LOW-CONTEXT

VietnameseChinese

JapaneseKorean

ArabGreek

Adapted from Exhibit 3.3

MANAGING MULTI-CULTURAL TEAMS

Challenges to managing multi-cultural teams:

• Dependence on electronic communication (virtual teams)

• Basic communication issues

• Building trust among team members with different values (swift trust: rapid development of trust in teams about task activities)

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DEVELOPING A GLOBAL MINDSET

Global mindset: cognitive attributes that allow an individual to influence individuals, groups, and organizations from diverse socio-cultural and institutional environments

Not being ethnocentric!!!

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MANAGING GLOBALIZATION

Arguments FOR globalization:

• Creates a more peaceful society

• Promotes interest in local traditions and history

• Facilitates development of cultural sensitivity and understanding

• Cultural change = gain and creativity

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MANAGING GLOBALIZATION

Arguments AGAINST globalization:

Promotes homogeneity of cultures

Encourages one bland, uniformed identity for all cultures

Cultural change = loss and destruction

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X

HOW THE GOVERNMENT DISCOURAGES INTERNATIONAL BUSINESSTariffs: a tax placed on products that are traded internationally

Quotas: limit on the quantity, or monetary amount of a product that can be imported from a given country

Embargos: total ban on the import of a good from a particular country (e.g. US embargo on Cuba)

Licensing Requirements: controlling imports by requiring that certain countries have a government import license

HOW THE GOVERNMENT ENCOURAGES INTERNATIONAL BUSINESS

Free trade zone: designated area, usually around a where products can be imported duty-free, and then stored, assembled, and then used during manufacturing. Only when the product leaves the zone does the importer pay duty.

Most favored nation: allows a country to export into the granting country under the lowest country duty rates.

Free trade agreements: member countries agree to eliminate duties and trade barriers on products traded among members.

Common markets: members eliminate duties and other trade barriers, allow companies to invest freely in each member’s country, and allow countries to move freely across borders.

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