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Learning Goals
1. State the trends affecting organizations in a global economy
2. Describe how a country’s culture can affect an organization’s business practices
3. Explain how political—legal 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
International ManagementInternational Management
Managing Across the Globe: Why?Managing Across the Globe: Why?
Great opportunities in the international marketplace todayGreat opportunities in the international marketplace today
Other countries having population explosionsOther countries having population explosions
Strong profit potentialStrong profit potential
Growing trend – Across borders business relationshipsGrowing trend – Across borders business relationships
Slowdown in industrialized nationsSlowdown in industrialized nations
Growth in newly industrialized and developing countriesGrowth in newly industrialized and developing countries
Worldwidecommunication
Borderlessorganizations
Worldwide laborpool
ForeignExchange
rates
ExpandingNature of
trade
Globalsourcing of parts
Importanceof exports
and imports
“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
0
10
20
30
40
50
60
70
80
90
100
Pow er Distance Uncertainty Avoidance Individualism Gender-Role Orientation
Mexico
USA
Imp
orta
nce
of
Cu
ltu
ral O
rien
tati
on
Cultural Value Dimension
UncertaintyAvoidance Individualism Gender-Role
Orientation
Power Distance
Subordinates’ dependence needs
Consultation
Ideal superior
Moderate dependence on
supervisor
Expect to be consulted
Democratic leadership
Heavy dependence on
supervisor
Expect little consultation
A benevolent autocrat or
paternalistic father figure
United States MexicoIssue
Rules and regulations
Status symbols
IssueApply to all
Are accepted as symbols of
authority, but are not necessary
Supervisors are above rules and regulations and
take advantage of privileges
Are very important evidence of the
authority of superiors
United States Mexico
Characteristics
Decision making
Responsibility
Organization chart
United States Mexico
Participation, delegation to employees
Centralized, concentrated at top
Employees assume responsibility for their own lives
Employees expect close paternalistic supervisors
Indicative of unequalcompetencies;reflects information flow in organization
Indicative of unequal roles; reflects power relationships of key family members
Hiring criteria
Performance feedback
Leadership pattern
Planning process
Characteristics
Demonstrated performance
Family or personal ties
Employee accepts accountability
Critical feedback resented
Democratic leader Benevolent dictator
Long term, proactive, formal
Short term, reactive, unstructured
United States Mexico
Source: Adapted from T.H. Becker. Doing Business in the New Latin America. Westport, CT: Praeger, 2004, 135-136.
Examples of IndustriesAffected by Cultural
Distance Consumer foods Tobacco products Products that have high
linguistic content (TV) Auto (size, features)
Aspects of CulturalDistance
Different languages Different ethnicities Different religions Different social norms
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
Domestic instability
Foreign conflict
Political climate
Economic climate
Corruption
Low
Low
Low
Low
Low
High
High
High
High
High
*Score relates to degree of corrupt behaviors by analysts. Scores can range from 10 (not corrupt) to 0 (highly corrupt).
Country Rank Country Score*1 (least Corrupt)
2
14
17
2165
117
130
158 (Most Corrupt)
Iceland (9.7)
Finland and New Zealand (9.6)
Canada (8.4)
United States (7.6)
Japan and Chile (7.5)Mexico (3.5)
Philippines and Bolivia (2.5)
Venezuela (2.3)
Bangladesh and Chad (1.7)
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 country’s 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
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 doesn’t harm the payer in some way
Grease payments: small payments used to get lower level government employees to speed up required paperwork
“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 doesn’t 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
Represents 149 negotiated trade agreements among countries
Key FunctionsCooperating with other International Organizations
AdministeringWTO
agreement
Providing a forum for trade negotiations
Handling trade disputes between
nations
Monitoringnational trade
policies
Providingtechnical assistance and
training for people in developing countries
Benefits
Promotes peace by handling trade disputes
constructively
Rules make life easier for all organizations
to follow
Trade stimulates economic growth
and reduces the cost of living
Systemencourages good
government
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
Created a freer trade zone among Canada, Mexico, and United States
Maquiladora plants: foreign-owned plants located in Mexico that border the U.S.
removed and reduced barriers to trade, such as tariffs, quotas, and licenses
increased trade tightened intellectual property right protection
account for 40% of Mexico’s manufacturing wages range from $15 - $20 a day employ more than 1.2 million people
An organization with the goals of creating a single market among member nations and establishing the free movement of goods, people, services, and capital
Removes/Reduces:
Created the EURO as currency
currently 25 member countries
physical barriers at country borderstechnical barriers that prevent goods
produced in one country being sold in others
Fiscal barriers:red-tape and tax systems that hinder tradefinancial barriers that prevent/hinder free
movement of investment capital
Resource CommitmentLow High
Low
HighC
omp
lexi
ty
Exporting
Licensing
Franchising
Alliances
Multidomestic
Global
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
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
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 and
doesn’t perform services according to contract
Benefits: share costs and risks of capital intense projects desire for partners to learn from each other partners shape competition in the industry
An agreement between two or more organizations to pool physical, financial, and human resources to achieve common goals (e.g., Nestlé; L’Oreal)
Risks: political uncertainty partners can become competitors economic uncertainty partners develop different goals
Benefits: firm taps into country values for product customization marketing campaigns tailored to country firm understands local distribution system extending global brand name
Adjusting products, services, and practices to individual countries or regions (e.g., Pacific Rim versus Western Europe versus North America) (e.g., Domino’s Pizza; Procter & Gamble)
Risks: large financial investment required shared services high level of coordination needed across firm reliance on local managers to implement strategy
A.G. Lafley, CEO and President, Procter and Gamble
“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.”
Benefits: worldwide standards promotes brand recognition coordination of global manufacturing distribution advantages
Stresses worldwide consistency, standardization and relatively low cost (e.g., Black & Decker, Kodak)
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