HAS 3260

Week Three

Spring 2006

Dr. Burton

The Global Economy

• The New Europe– European Union (EU)

• grouping of 25 Western European countries who have agreed to support mutual economic growth

• 12 have agreed to adopt the Euro (common currency)

Austria €Belgium €Denmark Finland €France €Germany €Greece €Ireland €Italy €Luxembourg €Netherlands €Portugal €Spain €Sweden United Kingdom of Great Britain and Northern Ireland Ten countries have joined the EU on 2004-05-01:Cyprus (Greek part), the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia.

European Union Members€ - Adopted the Euro

The Global Economy

• The Americas– North American Free Trade

Agreement (NAFTA)• Agreement for free flow of

goods and services between the U.S., Canada and Mexico

– Free Trade of the Americas (FTAA) is a possibility

– Other agreements• MERCOSUR

• Andrean Pact

• CARICOM

The Global Economy

• Maquiladoras– foreign manufacturing plants allowed to

operate in Mexico• allowed special privileges in exchange for hiring

Mexican labor– import materials, components and equipment with duty

paid are “value added”

The Global Economy

• Maquiladoras– advantages

• increased employment and prosperity

– disadvantages• social costs in border towns• exploitation of less expensive Mexican labor

The Global Economy

• Asia and the Pacific Rim– Asia and Pacific Rim economies are expected

to be larger than those of the EU– China is the world’s largest single-country

marketplace• Population >1.2 Billion

– Japanese companies account for many Fortune 500 companies

People’s Republic of China

Population:Population: 1,306,313,812 (July 2005 est.) (July 2005 est.)

Age structure:Age structure: 0-14 years:0-14 years: 21.4% (male 148,134,928/female 131,045,415) 21.4% (male 148,134,928/female 131,045,415) 15-64 years:15-64 years: 71% (male 477,182,072/female 450,664,933) 71% (male 477,182,072/female 450,664,933) 65 years and over:65 years and over: 7.6% (male 47,400,282/female 7.6% (male 47,400,282/female 51,886,182) (2005 est.) 51,886,182) (2005 est.)

India

• Population: >1Billion• 25% below the

poverty line• Approx. 20% are

middle class• >26 million Cell

Phones

The Global Economy

• Africa– beckons international

business– increased attention to

stable countries

Environmental Challenges in the Global Economy

• Economic Systems– Central-planning

• government makes basic economic decisions for entire country

– Free-market• operate under capitalism

Environmental Challenges in the Global Economy

• General Agreement on Tariffs and Trade (GATT)/World Trade Organization (WTO)– international accords in which member

nations agree to ongoing negotiations and reduction of tariffs and trade restrictions

Environmental Challenges in the Global Economy

• Laws vary between countries– common legal problems

• incorporation practices• negotiating contracts• protecting patents, trademarks and copyrights• foreign exchange restrictions

Environmental Challenges in the Global Economy

• Human resource concerns– illiteracy– absence of appropriate skills– shortage of labor supplies

Environmental Challenges in the Global Economy

• Pros of MNCs– larger tax bases– increased employment opportunities– technology transfers– introduction of new industries– development of local resources

Environmental Challenges in the Global Economy

• Cons of MNCs– extract excessive profits– dominate local economy– do not respect local customs and laws– fail to help domestic firms develop– do not transfer most advanced technology

Environmental Challenges in the Global Economy

• Ethical Issues in Multinational Operations– Foreign Corrupt Practices Act– Sweatshops– Environmental protection

Culture and Global Diversity

• Culture– shared set of beliefs, values and patterns of

behavior common to a group of people

Culture and Global Diversity

• Culture shock – discomfort a person feels in an unfamiliar

culture

• Ethnocentrism– tendency to view one’s own culture as

superior to others

Culture and Global Diversity

• Popular Dimensions of Culture– language– use of space– time orientation– religion– role of contracts

Culture and Global Diversity

• Language– varies throughout world– same language varies in usage from one

region to another– language training is increasingly important to

U.S. managers

Culture and Global Diversity

• Spoken Language– Low context

• Explicit spoken and written word• Examples: US, Germany

– High context• Words convey part of the message• Examples: Middle East, Asia

Culture and Global Diversity

• Use of Space (Proxemics)– interpersonal distance used in communication

• Latin Americans tend to be close• Americans value more space

Culture and Global Diversity

• Time Orientation– Monochronic

• time is allotted do one thing at a time

– Polychronic• time is allotted to do many things at once

Culture and Global Diversity• Religion

– may influence business practices– source of ethical and moral teaching

Theism Pantheism AtheismJudaism

ChristianityIslam

HinduismBuddhismNew Age

NaturalismHumanism

Marxism/LeninismNihilism

Christianity: 2.1 billion*Islam: 1.3 billionSecular/Nonreligious/Agnostic/Atheist: 1.1 billionHinduism: 900 millionChinese traditional religion: 394 millionBuddhism: 376 millionprimal-indigenous: 300 millionAfrican Traditional & Diasporic: 100 millionSikhism: 23 millionJuche: 19 millionSpiritism: 15 millionJudaism: 14 millionBaha'i: 7 millionJainism: 4.2 millionShinto: 4 millionCao Dai: 4 millionZoroastrianism: 2.6 millionTenrikyo: 2 millionNeo-Paganism: 1 millionUnitarian-Universalism: 800 thousandRastafarianism: 600 thousandScientology: 500 thousand

World Distribution of Religious Beliefs

*The following website argues that the real Muslim population worldwide isgreater than 1.79 Billion in 2006 http://www.islamicpopulation.com/index.html

Culture and Global Diversity

• Role of Contracts– some cultures view as final and binding– others view as a starting point– some expect contracts to be written– others accept “word” as binding

Culture and Global Diversity

• Are Management Theories Universal?– U.S. management

theories may be ethnocentric

• emphasis on participation and individual performance is not applicable to other cultures

Culture and Global Diversity

• Values and National Cultures (Hofstede)– Power Distance– Uncertainty avoidance– Individualism-collectivism– Masculinity-femininity– Short-term – Long-term orientation

Culture and Global Diversity

• Are Management Theories Universal?– Japanese management practices

• lifetime employment• job rotation and broad career experience• shared information• collective decision-making• quality emphasis

– These practices are not easy to translate

Culture and Global Diversity

• Global Organizational Learning– cultural awareness facilitates more informed

transfers of management practices

Self Assessment Link