CH 4- Managing in the Global Environment PDF

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CH 4- Manang in the Global Environment ● GENERAL INFO Global Organizations are organizations that operate and compete in more than one country. The Global Environment is a set of forces and conditions in the world outside an organization’s boundary that affect how it operates and shape its behaviour. These forces change over time and present managers with opportunities and threats. Opportunities: The development of efficient new production technology, lower cost components, and the opening of new global markets create opportunities for managers to make and sell more products, and obtain more resources and capitals and strengthen their organization. Threats: A global economic recession, oil shortages, and other threats can devastate organizations if managers are unable to sell its products. Managerial understanding about these forces affect company performance. → The Task Environment is the set of forces originate with global suppliers, global distributors, global customers and competitors. These forces affect an organization’s ability to obtain inputs, and sell outputs. The task environment contains the forces that have the most immediate and direct effect on managers because they pressure and influence managers. Task Environment

Competitors

Suppliers

Distributors

Customers

General Environment

Technological Forces

Sociocultural Forces

Demographic Forces

Political and Legal Forces & Economic Forces

→ The General Environment includes global, economic, technical, sociocultural, demographic, political and legal forces that affect the organization and its task environment. Changes in these

forces can have major impacts on managers and their organizations, but because they’re more large scale, they are sometimes harder to identify.

● TASK ENVIRONMENT Forces in the task environment result from the actions of suppliers, distributors, customers, and competitors in the U.S. and abroad. These forces affect a manager’s ability to obtain resources and dispose of outputs daily, weekly, and monthly and have significant impacts on short-term decision making. 1. Suppliers are the individuals and organizations that provide an organization with the input resources (raw materials) it needs to produce goods and services. It is important that manager’s insure a reliably supply of input resources. Changes in the nature, number, or type of suppliers produce opportunities and threats to which managers must respond. A major supplier-related threat arises when suppliers have such a strong bargaining position that they can raise prices. A supplier’s bargaining position is especially strong when 1) the supplier is the sole source of an input and 2) the input is vital to an organizations. When an organization has many suppliers for a particular input, it is in a relatively strong bargaining position with those suppliers and can demand low-cost, high-quality inputs. It is important that managers recognize the opportunities and threats associated with with managing the global supply chain. A common problem facing managers of large global countries is managing the development of a global supplier network that allows companies to keep costs down and qualities high. The purchasing activities of global companies have become more complicated as a result of the development of a whole range of skills and competencies in different countries in the world. It is in companies’ interests to search out the lowest cost, best-quality suppliers. Global Outsourcing occurs when a company contracts with suppliers in other countries to reduce costs and improve quality. Global outsourcing has grown to take advantage of national differences in the cost and quality of resources. This can reduce manufacturing costs or increase product quality. In recent years, however, some companies have been insourcing to protect their product quality .

2. Distributors are organizations that help other organizations sell their goods or services to customers. The decisions managers make about how to distribute their products can have important effects on organizational performance. The changing nature of distributors can bring opportunities and threats to managers. If distributors become so large and powerful that they can control customers’ access to organizational goods, they can threaten the organization by demanding that it reduces the prices of goods/services. It is illegal for distributors to collaborate to keep prices high and maintain their power over buyers; however, this happens a lot. 3. Customers are individuals that buy the goods and services that organizations produce. Changes in the number and types of customers present opportunities and threats. An organization’s success depends on its responsiveness to customers. An opportunity associated with expanding into the global environment is the prospect of selling goods/services to customers in different countries. 4. Competitors are organizations that produce goods and services that are similar and comparable to a particular organization's goods and services. Competitors are organizations that are trying to attract the same customers as other organizations. Rivalry between competitors is potentially the most threatening force managers must deal with. A high level of rivalry typically results in price competition-- which is better for customers. Potential Competitors are organizations that are not presently in the task environment, but have the resources to enter if they want. In general, the potential for new competitors to enter a task environment is difficult because of barriers to entry. Barriers to Entry are factors that make it difficult and costly for a company to enter a particular task environment or industry. The higher the barriers to entry, the fewer the competitors in an organization’s task environment and the lower the competition.

Barriers to entry result from 3 things: A- Economies of Scale: The cost advantages associated with large corporations. Economies of Scale result from factors such as manufacturing products in large quantities and buying inputs in bulk. B- Brand Loyalty: Customers’ preferences for the products of organizations currently in the task environment. C- Government Regulations: In many cases, governmental regulations function as a barrier to trade at the industry and country level. When industries are deregulates, new companies can enter the industry which forces existing industries to be more effective/efficient. Intense rivalries among competitors creates a task environment that is threatening, and is making it difficult for managers to gain access to resources. Low rivalry amongst competitors allow managers more opportunities to get resources.

● GENERAL ENVIRONMENT Economic, technological, sociocultural, demographic, political, and legal forces in the general environment often have important effects on forces in the task environment that affect an organization's ability to obtain resources. Managers must continuously analyze forces in the general environment because these forces affect ongoing decision making and planning. 1. Economic Forces: Economic forces affect the general health and well-being of a country or world region. These include interest rates, inflation, unemployment, and economic growth. Economic forces produce many opportunities and threats for managers. Low levels of unemployment and falling interest rates give people more money to spend, and as a result organizations can sell more goods/services. Good economic times affect the supply of resources that become easier to obtain, and organizations can flourish. Bad economic times pose a major threat because they can reduce an organization’s ability to obtain resources. Poor economic conditions make the environment more complex and managers’ jobs more difficult. Successful managers realize the important effects that the economic forces have on their organization, and pay close attention to what is happening in their nation and on a global scale.

2. Technological Forces: outcomes of change in technology, which is defined as a combination of tools, machines, computers, skills, information and knowledge that managers use to design, produce, and distribute goods. Technological advancement has accelerated in recent years b/c technological advancements such as computers and hard drives. Technological forces are important to managers. Although technological advancement can threaten an organization, it also provides many opportunities. Changes in IT are altering the nature of work within organizations. Telecommuting, videoconferencing, and text messaging are everyday activities that allow communication within and between organizations. 3. Sociocultural Forces: pressures that come from the social structure of a country or society. Pressures from these sources can constrain or change organizations. Social Structure is the traditional system of relationships b/w people in a society. Different societies have different social cultures. (Think lower, middle, and upper class, and how the classes interact. National Culture is the set of values that a society considers important and the norms of behavior that are approved in each society. Social structure and national culture differ across societies and can change within societies. Managers must respond to social changes within a society. (ie: the U.S. “health trend”) 4. Demographic Forces are outcomes of changes in, or changing attitudes toward the characteristics of a population. (ie: changing age, gender, ethnic origin, race, sexual orientation, social class, etc.) Like all the other forces in the general environment, demographic forces present managers with opportunities and threats. Today, most industrialized nations are experiencing the aging of their populations because of falling birth rates and the aging of the baby boomer generation. 5. Political/Legal Forces are outcomes of changes in laws and regulations. They result from political and legal developments that take place within a nation, or across the world. Political processes shape a nation’s laws and the international laws that govern the

relationships between nations. Laws constrain the operations of organizations and create opportunities and threats. Another important political and legal force is the political integration of countries that has been taking place in the last decade. Nations are forming political unions that allow free exchange of resource and capital. The growth of the European Union (EU) is one example. The North American Free Trade Agreement (NAFTA) abolishes the tariffs on 99% of the goods traded b/w Mexico, Cana, and the United states. ItS unrestricted access to the Mexican marketplace. International Agreements to abolish laws and regulations that restrict trade between companies are important. Deregulation, privatization, and the removal of legal barriers to trade are just a few of the many ways in which changing political and legal forces can challenge organizations. Other examples include increased emphasis on environmental protection and the preservation of endangered species, increased emphasis on workplace safety, and legal constraints concerning race, gender, and age.

THE CHANGING GLOBAL ENVIRONMENT Managers must recognize that companies compete in a global marketplace. The result of falling trade barriers is that managers view the global environment. Companies are free to compete against each other to attract worldwide customers. All large companies must establish an international network of operations to build global competitive advantage. Globalization is the set of specific and general forces that work together to connect economic, political, and social systems across all countries. The result of globalization is that nations and peoples become increasingly interdependent  (reliant on each other) because the same forces affect them in similar ways. The fates of peoples in different countries become interlinked as the world’s markets and business become interconnected. What drives globalization? A: The path of globalization is shaped by the flow of capital, or wealth-generating assets that people move through companies, countries, and world regions to seek greater profits. Companies and managers are motivated to try to profit by making products for customers around the world. The four principal forms of capital that flow b/w countries are these: 1. Human Capital: the flow of people around the world through immigration, migration, and emigration.

2. Financial Capital: the flow of money capital across world markets through overseas investment, credit, lending, and aid. 3. Resource Capital: the flow of natural resources between companies and countries such as metals, minerals, lumber, energy, food products, and auto parts. 4. Political Capital: the flow of power and influence around the world using diplomacy, persuasion, aggression, and force of arms to protect the right or access of a country. Most of the economic advances associated with globalization are the result of these four capital flows and the interactions between them. FACTORS THAT INCREASE THE RATE AT WHICH CAPITAL FLOWS B/W COMPANIES AND COUNTRIES → In a positive sense, the faster the flow, the more capital is being utilized where it can create the most value. → In a negative sense, a fast flow of capital also means that individual countries can find themselves in trouble when companies/investors move their capital to invest it in more productive ways in other countries. When capital leaves a country, the results are higher unemployment, recession, and a lower standard of living for its people. 1. Declining Barriers to Trade and Investment One of the main factors that has speeded globalization by freeing the movement of capital has been the decline  in barriers to trade and investment. In the 1920s/30s, many countries created barriers in the form of tariffs that made out of nation trade difficult, and often impossible. Tariffs are taxes that governments impose on goods imported into another country or sold to another. The aim of import tariffs is to protect domestic industries and jobs. The reason for removing tariffs is that when one country imposes a tariff, other countries often do the same. Governments that raise tariffs ultimately reduce employment undermine the economic growth of their countries because capital and resources will always move to their most highly valued use. Free trade, rather than tariff barriers, is the best way to foster a healthy domestic economy and low unemployment. The free-trade doctrine predicts that if each country agrees to specialize in the production of goods/services that it can produce more efficiently, this will make the best use of global capital resources and will result in lower prices. For example, if Indian companies are efficient in the production of textiles and U.S. companies are efficient in the production of computer software, then under the free-trade doctrine, capital would move to India to be invested in textile, and capital would move to the U.S. to be invested

in computer software. This would result in lower prices for textiles and computer software. Countries that accept this free-trade doctrine remove barriers to the free flow of goods, services, and capital between countries. The General Agreement on Tariffs and Trade (GATT) is an international treaty which is aimed at removing barriers. The World Trade Organization (WTO) replace GATT, and continues to reduce trade barriers. 2. Declining Barriers of Distance and Culture Historically, barriers of distance and culture also closed the global environment and kept managers focused on their domestic market. Different countries have different sets of national beliefs, values, and norms. Management practices must therefore be tailored to suit each country. Since the end of WW2, advances in communications and transportation technology has reduced barriers of distance and communication. One of the most important innovations in transportation technology that has opened the global environment has been the growth of commercial jet travel. Modern communications and transportation technologies have helped reduce the cultural distance b/w countries. 3. Effects of Free Trade on Managers The lowering of barriers to trade and investment and the decline of distance and culture barriers has created opportunities for companies to expand the market for their goods through exports and investments in overseas companies. The shift towards a more open global economy has created more opportunities to sell goods/services abroad and also the opportunity to buy from other countries. The growth of regional trade agreements (such as the North American Free Trade Agreement (NAFTA)) and the Central Free Trade Agreement (CAFTA) also presents opportunities and threats to managers. ● NAFTA is aimed to abolish tariffs on most goods traded b/w Mexico, Canada, and the U.S. ● The establishment of free-trade areas creates an opportunity for manufacturers because it lets them reduce their costs. They can do this by shifting production to the lowest-cost location, or by serving the whole region in the free-trade area, instead of just one location. ● Some managers, however, view regional free-trade agreements as a threat because they expose a company based on one member of the organization and increase competitions from companies.

● CAFTA is a regional trade agreement designed to eliminate tariffs on products moving b/w the US and all countries in Central America. ● CAFTA is seen as a step towards establishing the Free Trade Area of the Americas (FTAA), which is aimed at establishing free trade which would benefit the Americas.

THE ROLE OF NATIONAL CULTURE The cultures of different countries countries value widely because of vital differences in their values, norms, and attitudes. National culture includes the values, norms, knowledge, beliefs, moral principles, laws, customs, and other practices that unite the citizens of a country. National culture shapes individual behaviour by specifying appropriate and inappropriate behaviour and interactions with other people. Cultural Values and Norms Values are beliefs about what a society considers to be good, right, desirable, or beautiful. Values are deeply embedded in society but aren’t static. Change is often long. Norms are unwritten, informal codes of conduct that prescribe appropriate behaviour in particular situations and are considered important by most members of a group. They shape the behaviour of people towards one another. There are 2 types of norms: - Mores: Norms that are considered to be very important to the functioning of society/life. Mores include proscriptions against murder, theft, adultery, and incest. Violation of mores can have serious retributions. - Folkways: are the routine social conventions of everyday life. They concern customs and practices such as dressing appropriately for particular situations, social manners, eating with the correct utensils, and neighborly behaviour. People who violate folkways are often thought to be eccentric/weird.

Hofstede’s Model of National Culture Geert Hofstede collected data on employee values and norms, and developed five dimensions. 1. Individualism - Collectivism 2. Lower Power Distance - High Power Distance 3. Achievement Orientation - Nurturing Orientation 4. Low Uncertainty Avoidance - High Uncertainty Avoidance 5. Short-term Orientation - Long-term Orientation ⇓ Individualism vs. Collectivism Individualism  is a worldview that values individual freedom and self-...