GLOBAL GLOBAL MANAGEMENTMANAGEMENT

Chapter 6Chapter 6MGMT 370MGMT 370

GLOBAL ENVIRONMENTGLOBAL ENVIRONMENT The global economy is dominated by The global economy is dominated by

countries in three regions: countries in three regions: North North America, Western EuropeAmerica, Western Europe,, andand Asia Asia..

Other developing countries and Other developing countries and regions represent important areas for regions represent important areas for economic growtheconomic growth

GLOBAL ECONOMYGLOBAL ECONOMY

GLOBAL MANAGEMENTGLOBAL MANAGEMENT

Global economy and Global economy and globalizationglobalization

International managementInternational management Global managersGlobal managers

International Business FormsInternational Business Forms Market Entry StrategiesMarket Entry Strategies

•Global sourcingGlobal sourcing•OffshoringOffshoring•Exporting and ImportingExporting and Importing•Licensing agreementLicensing agreement•FranchisingFranchising

International Business FormsInternational Business Forms

Direct Investment StrategiesDirect Investment Strategies• Joint venturesJoint ventures•Foreign subsidiaryForeign subsidiary

Organizational ModelsOrganizational Models

Organizational ModelsOrganizational Models Multinational modelMultinational model

• consists of the subsidiaries in each country in consists of the subsidiaries in each country in which a company does business, with which a company does business, with ultimate control exercised by the parent ultimate control exercised by the parent company.company.

Global modelGlobal model• consisting of a company’s overseas consisting of a company’s overseas

subsidiaries and characterized by centralized subsidiaries and characterized by centralized decision making and tight control by the decision making and tight control by the parent company over most aspects of parent company over most aspects of worldwide operations worldwide operations

Managing Across BordersManaging Across Borders

ExpatriatesExpatriates• Parent-company nationals who are sent to Parent-company nationals who are sent to

work at a foreign subsidiarywork at a foreign subsidiary Host-country nationalsHost-country nationals

• Natives of the country where an overseas Natives of the country where an overseas subsidiary is locatedsubsidiary is located

Third-country nationalsThird-country nationals• Natives of a country other than the home Natives of a country other than the home

country or the host country of an overseas country or the host country of an overseas subsidiary.subsidiary.

Managing GloballyManaging Globally 15% of all employee transfers are to 15% of all employee transfers are to

internationalinternational locations locations Failure rate ranges from 20%-70%Failure rate ranges from 20%-70% Failure rate Failure rate

• the number of expatriate managers of the number of expatriate managers of an overseas operation who come home an overseas operation who come home earlyearly

• Communication is key to reducing the Communication is key to reducing the failure ratefailure rate

Identifying International Identifying International ExecutivesExecutives

How to Prevent Failed Global How to Prevent Failed Global AssignmentsAssignments

Organizational ModelsOrganizational Models Transnational modelTransnational model

• characterized by centralizing certain characterized by centralizing certain functions in locations that best achieve functions in locations that best achieve cost economiescost economies

• basing other functions in the company’s basing other functions in the company’s national subsidiaries to facilitate greater national subsidiaries to facilitate greater local responsivenesslocal responsiveness

• fostering communication among fostering communication among subsidiaries to permit transfer of subsidiaries to permit transfer of technological expertise and skills.technological expertise and skills.

Comparison of Entry ModesComparison of Entry Modes

Comparison of Entry ModesComparison of Entry Modes

Advantages of exportingAdvantages of exporting:: Provides Provides scale economies scale economies by by

avoiding the costs of manufacturing avoiding the costs of manufacturing in other countries in other countries

Consistent with a pure Consistent with a pure global global strategystrategy

Organizational ModelsOrganizational Models International licensing International licensing

• an arrangement by which a licensee in an arrangement by which a licensee in another country buys the rights to another country buys the rights to manufacture a company’s product in its manufacture a company’s product in its own country for a negotiated fee own country for a negotiated fee (typically, royalty payments on the (typically, royalty payments on the number of units sold).number of units sold).

Global OrganizationsGlobal Organizations

Ethical IssuesEthical Issues•CorruptionCorruption•SweatshopsSweatshops•Child laborChild labor•SustainabilitySustainability

Regional Economic AlliancesRegional Economic Alliances European UnionEuropean Union

• Europe is integrating Europe is integrating economicallyeconomically to form the to form the biggest market in the worldbiggest market in the world

• Certain structural issues within Europe need to Certain structural issues within Europe need to be corrected for the be corrected for the EUEU to function effectively. to function effectively.

North American Free Trade North American Free Trade Agreement (NAFTA)Agreement (NAFTA)• An econoAn economic pact that combined the economies mic pact that combined the economies

of the United States, Canada, and Mexico into of the United States, Canada, and Mexico into one of the world’s largest trading blocone of the world’s largest trading bloc

U.S. Trading PartnersU.S. Trading PartnersBased on Total Imports and ExportsBased on Total Imports and Exports

GLOBAL ENVIRONMENTGLOBAL ENVIRONMENT Legal EnvironmentLegal Environment

•World Trade Organization World Trade Organization (WTO)(WTO)

•Most favored nationMost favored nation•ProtectionismProtectionism

CONSEQUENCES OF A CONSEQUENCES OF A GLOBAL ECONOMYGLOBAL ECONOMY

1.1. ExpansionExpansion of international trade of international trade2.2. Foreign direct investment (FDI) is Foreign direct investment (FDI) is

playing an ever-increasing role in the playing an ever-increasing role in the global economyglobal economy

3.3. Imports are penetrating Imports are penetrating deeperdeeper into the into the world’s largest economiesworld’s largest economies

4.4. Companies are finding their home Companies are finding their home markets markets under attack under attack from foreign from foreign competitorscompetitors

Growing Proportion ofGrowing Proportion ofGoods Being ExportedGoods Being Exported

Consequences of a Global Consequences of a Global EconomyEconomy

Opportunities are greaterOpportunities are greater Environment is more complex and Environment is more complex and

competitivecompetitive

Relative Growth in Relative Growth in World Merchandise TradeWorld Merchandise Trade

Culture and Global DiversityCulture and Global Diversity

EthnocentrismEthnocentrism Culture shockCulture shock Cultural IntelligenceCultural Intelligence Culture typesCulture types

• Low-context vs. high-contextLow-context vs. high-context• Monochronic vs. polychronicMonochronic vs. polychronic• ProxemicsProxemics

Values and Societal CulturesValues and Societal Cultures

Power distancePower distance Uncertainty avoidanceUncertainty avoidance Individualism vs. CollectivismIndividualism vs. Collectivism Masculinity vs. FemininityMasculinity vs. Femininity Short vs. Long-term FocusShort vs. Long-term Focus

PROJECT GLOBE ON CULTUREPROJECT GLOBE ON CULTURE Power distancePower distance Uncertainty avoidanceUncertainty avoidance Gender egalitarianismGender egalitarianism Future orientationFuture orientation Institutional collectivismInstitutional collectivism In-group collectivismIn-group collectivism AssertivenessAssertiveness Performance orientationPerformance orientation Humane orientationHumane orientation

Understanding Cultural Understanding Cultural IssuesIssues

InpatriateInpatriate• A foreign national brought in to work at A foreign national brought in to work at

the parent company.the parent company. Regardless of nationality or religion, most Regardless of nationality or religion, most

people embrace a set of people embrace a set of five core valuesfive core values: : compassion, fairness, honesty, responsibility, compassion, fairness, honesty, responsibility, and respect for others. and respect for others. • These values lie at the heart of These values lie at the heart of human rights human rights issues issues

and seem to transcend other differences among and seem to transcend other differences among Americans, Europeans, and AsiansAmericans, Europeans, and Asians

MANAGING ACROSS CULTURESMANAGING ACROSS CULTURES Comparative managementComparative management Hofstede studiesHofstede studies

•Are management theories Are management theories universal?universal?

•Global organizational learningGlobal organizational learning