Management Ch 4- Global Management PDF

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Chapter 4: Global Management- Managing across Borders Globalization- the trend of the world economy toward becoming a more interdependent system, is reflected in three developments: 1. The rise of the “global village” and electronic commerce. 2. The world’s becoming one market instead of many national ones. 3. The rise of both mega-firms and Internet-enabled mini-firms worldwide.

The Rise of the “Global Village” and Electronic Commerce The global village refers to the “shrinking” of time and space as air travel and the electronic media have made it easier for the people around the globe to communicate with one another. e-commerce, or electronic commerce, the buying and selling of products and services through computer networks The global economy refers to the increasing tendency of the economies of the world to interact with one another as one market instead of many national markets. Megamergers Operating Worldwide - Certain industries—automobiles, airlines, telecommunications, health care, and pharmaceuticals, for instance—aren’t suited to being midsize, let alone small and local, so companies in these industries are trying to become bigger and cross-border. The means for doing so is to merge with other big companies. “The presence of a few dominant companies in an industry,” said one editorial, makes it harder for entrepreneurs to start new businesses in that sector.”

Minifirms Operating Worldwide The Internet and the World Wide Web allow almost anyone to be global, with two important results: 1. Small companies can get started more easily. Because anyone can put goods or services on a website and sell worldwide, this wipes out the former competitive advantages of distribution and scope that large companies used to have. 2. Small companies can maneuver faster. Little companies can change direction faster, which gives them an advantage in terms of time and distance over large companies. Global mind-set combines (1) an openness to and awareness of diversity across cultures and markets with (2) a propensity and ability to see common patterns across countries and markets A multinational corporation, or multinational enterprise, is a business firm with operations in several countries. A multinational organization is a nonprofit organization with operations in several countries. Ethnocentric managers believe that their native country, culture, language, and behavior are superior to all others. Ethnocentrism might also be called parochialism—that is, a narrow view in which people see things solely through their own perspective.

Polycentric managers take the view that native managers in the foreign offices best understand native personnel and practices, and so the home office should leave them alone. Geocentric managers accept that there are differences and similarities between home and foreign personnel and practices and that they should use whatever techniques are most effective. Why do companies expand internationally? 1. Availability of Supplies 2. New Markets 3. Lower Labor Cost  For example, the rationale for using maquiladoras— manufacturing plants allowed to operate in Mexico with special privileges in return for employing Mexican citizens 4. Access to Finance Capitals 5. Avoidance of Tariffs and Import Quotas Five ways of expanding internationally: 1. Global Outsourcing  outsourcing is defined as using suppliers outside the company to provide goods and services  Global outsourcing, or offshoring, is defined as using suppliers outside the United States to provide labor, goods, or services. 2. Importing, Exporting, and Countertrading  When importing, a company buys goods outside the country and resells them domestically.  When exporting, a company produces goods domestically and sells them outside the country.  Sometimes other countries may wish to import American goods but lack the currency to pay for them. In that case, the exporting U.S. company may resort to countertrading— that is, bartering goods for goods. 3. Licensing and Franchising  In licensing, a company allows a foreign company to pay it a fee to make or distribute the first company’s product or service.  Franchising is a form of licensing in which a company allows a foreign company to pay it a fee and a share of the profit in return for using the first company’s brand name and a package of materials and services. 4. Joint Venture  joint venture, also known as a strategic alliance, with a foreign company to share the risks and rewards of starting a new enterprise together in a foreign country.  Sometimes a joint venture is the only way an American company can have a presence in a certain country, whose laws may forbid foreigners from ownership. 5. Wholly- Owned Subsidiaries  A wholly-owned subsidiary is a foreign subsidiary that is totally owned and controlled by an organization. The foreign subsidiary may be an existing company that is purchased outright.  A greenfield venture is a foreign subsidiary that the owning organization has built from scratch.

The World of Free Trade: Regional Economic Cooperation and Competition Free trade- the movement of goods and services among nations without political or economic obstruction

Barriers to International Trade Countries often use trade protectionism—the use of government regulations to limit the import of goods and services— to protect their domestic industries against foreign competition. The justification they often use is that this saves jobs. Actually, protectionism is not considered beneficial, mainly because of what it does to the overall trading atmosphere. The devices by which countries try to exert protectionism consist of tariffs, import quotas, and trade embargoes and sanctions. 1. Tariffs  A tariff is a trade barrier in the form of a customs duty, or tax, levied mainly on imports.  There are two types of tariffs: One, called a revenue tariff, is designed simply to raise money for the government, such as a tax on all oil imported into the United States. The other, which concerns us more, is a protective tariff, which is intended to raise the price of imported goods to make the prices of domestic products more competitive. 2. Import quotas  An import quota is a trade barrier in the form of a limit on the numbers of a product that can be imported.  Quotas are designed to prevent dumping, the practice of a foreign company’s exporting products abroad at a lower price than the price in the home market—or even below the costs of production—in order to drive down the price of the domestic product. 3. Trade Embargoes and Sanctions  An embargo is a complete ban or prohibition of trade of one country with another, so that no goods or services can be imported or exported from or to the embargoed nation.  A sanction is the trade prohibition on certain types of products, services, or technology to another country for specific reasons, including nuclear nonproliferation and humanitarian purposes.

Organizations Promoting International Trade The three principal organizations designed to facilitate international trade are the World Trade Organization, the World Bank, and the International Monetary Fund. 1. The World Trade Organization (WTO)  Consisting of 164 member countries, the World Trade Organization (WTO) is designed to monitor and enforce trade agreements.  The agreements are based on the General Agreement on Tariffs and Trade (GATT), an international accord first signed by 23 nations in 1947, which helped to reduce worldwide tariffs and other barriers. 2. The World Bank  Today the purpose of the World Bank is to provide low-interest loans to developing nations for improving transportation, education, health, and telecommunications. 3. The International Monetary Fund  The International Monetary Fund (IMF) is designed to assist in smoothing the flow of money between nations.

Major Trading Blocs: NAFTA and the EU A trading bloc, also known as an economic community, is a group of nations within a geographical region that have agreed to remove trade barriers with one another. The two major trading blocs we will consider are the NAFTA nations and the European Union. 1. NAFTA—The Three Countries of the North American Free Trade Agreement  Formed in 1994, the North American Free Trade Agreement (NAFTA) is a trading bloc consisting of the United States, Canada, and Mexico, encompassing 444 million people.  The agreement is supposed to eliminate 99% of the tariffs and quotas among these countries, allowing for freer flow of goods, services, and capital in North America. 2. The EU—The 28 Countries of the European Union  Formed in 1957, the European Union (EU) consists of 28 trading partners in Europe, covering nearly 500 million consumers.  Nearly all internal trade barriers have been eliminated (including movement of labor between countries), making the EU a union of borderless neighbors and the world’s largest free market. Most favored nation trading status describes a condition in which a country grants other countries favorable trading treatment such as the reduction of import duties. The exchange rate is the rate at which the currency of one area or country can be exchanged for the currency of another’s. A nation’s culture is the shared set of beliefs, values, knowledge, and patterns of behavior common to a group of people. Low-context culture- a culture in which shared meanings are primarily derived from written and spoken words High-context culture- a culture in which people rely heavily on situational cues for meaning when communicating with others Dutch researcher and IBM psychologist Geert Hofstede collected data from 116,000 IBM employees in 53 countries and proposed his Hofstede model of four cultural dimensions, which identified four dimensions along which national cultures can be placed: (1) Individualism/ Collectivism – indicates how much people prefer a loosely knit social framework in which people are expected to take care of themselves a tightly knit social framework in which people and organizations are expected to look after each other (2) Power Distance – refers to the degree to which people accept inequality in social situations (3) Uncertainty Avoidance - expresses people’s intolerance for uncertainty and risk (4) Masculinity/Femininity - expresses how much people value performance-oriented traits or how much they embrace relationship-oriented traits

The GLOBE Project’s Nine Cultural Dimensions Started in 1993 by University

of Pennsylvania professor Robert J. House, the GLOBE project is a massive and ongoing cross-cultural investigation of nine cultural dimensions involved in leadership and organizational processes. (GLOBE stands for Global Leadership and Organizational Behavior Effectiveness.) GLOBE extends Hofstede's theory and results and evolved into a network of more than 150 scholars from 62 societies. Most of these researchers are native to the particular cultures being studied. The nine cultural dimensions are as follows: (1) Power distance—how much unequal distribution of power should there be in organizations and society? Power distance expresses the degree to which a society’s members expect power to be unequally shared. (2) Uncertainty avoidance—how much should people rely on social norms and rules to avoid uncertainty? Uncertainty avoidance expresses the extent to which a society relies on social norms and procedures to alleviate the unpredictability of future events. (3) Institutional collectivism—how much should leaders encourage and reward loyalty to the social unit? Institutional collectivism expresses the extent to which individuals are encouraged and rewarded for loyalty to the group as opposed to pursuing individual goals. (4) In-group collectivism—how much pride and loyalty should people have for their family or organization? In contrast to individualism, in-group collectivism expresses the extent to which people should take pride in being members of their family, circle of close friends, and their work organization. (5) Gender egalitarianism—how much should society maximize gender role differences? Gender egalitarianism expresses the extent to which a society should minimize gender discrimination and role inequalities. (6) Assertiveness—how confrontational and dominant should individuals be in social relationships? Assertiveness represents the extent to which a society expects people to be confrontational and competitive as opposed to tender and modest. (7) Future orientation—how much should people delay gratification by planning and saving for the future? Future orientation expresses the extent to which a society encourages investment in the future, as by planning and saving. (8) Performance orientation—how much should individuals be rewarded for improvement and excellence? Performance orientation expresses the extent to which society encourages and rewards its members for performance improvement and excellence. (9) Humane orientation—how much should society encourage and reward people for being kind, fair, friendly, and generous? Humane orientation represents the degree to which individuals are encouraged to be altruistic, caring, kind, generous, and fair.

How do you go about bridging cross-cultural gaps? Let’s consider variations in six basic culture areas: (1) Language (2) Interpersonal Space (3) Communication (4) Time Orientation (5) Religion (6) Law and Political Stability Among the risks an organization might anticipate abroad are:  Instability

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Expropriation - defined as a government’s seizure of a domestic or foreign company’s assets Corruption Foreign Corrupt Practices Act - which makes it illegal for employees of U.S. companies to make “questionable” or “dubious” contributions to political decision makers in foreign nations Labor Abuses

Expatriates—people living or working in a foreign country

Key Points: 4.1 Globalization: The Collapse of Time and Distance • Globalization is the trend of the world economy toward becoming more interdependent. Globalization is reflected in three developments: (1) the rise of the global village and e-commerce; (2) the trend of the world’s becoming one big market; and (3) the rise of both megafirms and Internet-enabled minifirms. • The rise of the “global village” refers to the “shrinking” of time and space as air travel and the electronic media have made global communication easier. The Internet and the web have led to e-commerce, the buying and selling of products through computer networks. • The global economy is the increasing tendency of the economies of nations to interact with one another as one market. • The rise of cross-border business has led to megamergers, as giant firms have joined forces, and minifirms, small companies in which managers can use the Internet and other technologies to get enterprises started more easily and to maneuver faster.

4.2 You and International Management • Studying international management prepares you to work with foreign customers or partners, with foreign suppliers, for a foreign firm in the United States, or for a U.S. firm overseas. International management is management that oversees the conduct of operations in or with organizations in foreign countries. • The successful international manager is not ethnocentric or polycentric but geocentric. Ethnocentric managers believe that their native country, culture, language, and behavior are superior to all others. Polycentric managers take the view that native managers in the foreign offices best understand native personnel and practices. Geocentric managers accept that there are differences and similarities between home and foreign personnel and practices, and they should use whatever techniques are most effective.

4.3 Why and How Companies Expand Internationally

• Companies expand internationally for at least five reasons. They seek (1) cheaper or more plentiful supplies, (2) new markets, (3) lower labor costs, (4) access to finance capital, and (5) avoidance of tariffs on imported goods or import quotas. • There are five ways in which companies expand internationally. (1) They engage in global outsourcing, using suppliers outside the company and the United States to provide goods and services. (2) They engage in importing, exporting, and countertrading (bartering for goods). (3) They engage in licensing (allow a foreign company to pay a fee to make or distribute the company’s product) and franchising (allow a foreign company to pay a fee and a share of the profit in return for using the first company’s brand name). (4) They engage in joint ventures, a strategic alliance to share the risks and rewards of starting a new enterprise together in a foreign country. (5) They become wholly owned subsidiaries, or foreign subsidiaries that are totally owned and controlled by an organization.

4.4 The World of Free Trade: Regional Economic Cooperation • Free trade is the movement of goods and services among nations without political or economic obstructions. • Countries often use trade protectionism—the use of government regulations to limit the import of goods and services—to protect their domestic industries against foreign competition. Three barriers to free trade are tariffs, import quotas, and embargoes and sanctions. (1) A tariff is a trade barrier in the form of a customs duty, or tax, levied mainly on imports. (2) An import quota is a trade barrier in the form of a limit on the numbers of a product that can be imported. (3) An embargo is a complete ban on the import or export of certain products. A sanction is the trade prohibition on certain types of products, services, or technology to another country for specific reasons, including nuclear nonproliferation and humanitarian purposes. • Three principal organizations exist that are designed to facilitate international trade. (1) The World Trade Organization is designed to monitor and enforce trade agreements. (2) The World Bank is designed to provide low-interest loans to developing nations for improving transportation, education, health, and telecommunications. (3) The International Monetary Fund is designed to assist in smoothing the flow of money between nations. • A trading bloc is a group of nations within a geographical region that have agreed to remove trade barriers. We considered two major trading blocs: (1) the North American Free Trade Agreement (NAFTA: U.S., Canada, and Mexico), and (2) the European Union (EU: 28 trading partners in Europe). Others are the Association of Southeast Asian Nations, Asia-Pacific Economic Cooperation, Mercosur, and the Central America Free Trade Agreement. Negotiated over seven years, the Trans-Pacific Partnership (TPP) is a proposed trade agreement among 12 Pacific Rim countries that can’t take effect until it is approved by the U.S. Congress and other parliaments in the bloc. Besides joining together in trade blocs, countries also extend special, “most favored nation” trading privileges—that is, grant other countries favorable trading treatment such as the reduction of import duties. • When doing overseas trading, managers must consider exchange rates, the rate at which the currency of one area or country can be exchanged for the currency of another’s, such as American dollars in relation to Mexican pesos or European euros. • The term BRICS stands for the five major emerging economies of Brazil, Russia, India, China, and South Africa—five countries that make up 40% of the world’s population, represent about 20% of the world’s economic activity, and have established their own $100 billion reserve fund. The largest of these countries in the order of their population size are China, India, and Brazil.

4.5 The Importance of Understanding Cultural Differences

• Misunderstandings and miscommunications often arise because one person doesn’t understand the expectations of a person from another culture. In low context cultures, shared meanings are primarily derived from written and spoken words. In high context cultures, people rely heavily on situational cues for meaning when communicating with others. • Geert Hofstede proposed the Hofstede model of four cultural dimensions, which identified four dimensions along which n...