Chapter 4: Global Management

Globalization: definition: the trend of the world economy towards

becoming a more interdependent system
Developments:
1) Rise of global village & ecommerce
2) The world: 1 market, instead of many national ones
3) Rise of mega firms and internet-enabled minifirms worldwide
Marshall Mcluhan: global village refers to the shrinking of time, space
- as air travel and electronic media have made it easier for the people
around the globe to communicate with one another

Arrival of WWW led to e-commerce, the buying and selling of

products and services through computer networks

The global economy

1) Berlin Wall came down, signaling the end of communism
2) Asian countries opened their economies to foreign investors
3) Governments deregulated their economies
Global economy: increasing tendency of the national economies to
interact with one another as one market, instead of many national
markets
Positive effects
- Outsourcing creates jobs
- FDI

Negative effects
- Contagion effect
- Jobs lost due to outsourcing
and offshoring

The rise of both megamergers and minifirms

worldwide
-

We will see more of 2 opposite kinds of businesses- mergers of huge

companies into even larger companies, and small, fast-moving
startup companies
Minifirms: 1) Small companies get started more easily (wipe out
former competitive advantages that large companies used to have)
2) Small companies can maneuver faster (little companies change
direction faster, advantage in terms of time and distance over large
companies)

International management
MNC, multinational corporation: business firm with operations in several
countries
Multinational organization: nonprofit organization, operations in several
countries
Situations:
1) Deal with foreign customers/partners: know cultural differences
2) Deal with foreign employees/suppliers: outsourcing
3) May work for a foreign firm in the USA
4) May work for an American firm outside the USA- or for a foreign one

A successful international manager is

GEOCENTRIC, not ethnocentric or polycentric
Geocentric
Ethnocentric
- Whats best is
- We know best
whats
- Believe that
effective,
their native
regardless of
country,
origin
culture,
- Accept that
language,
there are
behavior are
differences
superior to all
and
others
similarities
- Parochialism, a
between home
narrow view in
and foreign
which people
personnel and
see things
that they
solely in their
should use
own perspective
whatever
techniques
that are most
effective

Polycentric
- They know best
- Take the view
that native
managers in
the foreign
offices best
understand
native
personnel and
practices, so
the home office
should leave
them alone

Why do companies expand internationally, and

how do they do it?

Why do companies expand

internationally?
Availability of supplies

New markets
Lower labour costs

Raw materials etc

Eg oil companies go outside
USA to find cheap oil
sources

Outsourcing, eg
manufacturing jobs in the
USA were lost
The rationale for using
maquiladoras
manufacturing plants
allowed to operate in Mexico
with special privileges in
return for employing
Mexican citizens- is cheaper
labour
A countertrend:
deglobalisation companies
are moving production back
home, because long supply
chains can be easily affected
by geopolitics etc
Capital from foreign
companies
Subsidies from foreign
governments
Tariffs (placed on imported
goods)
Import quotas
Protection of domestic
industries

Access to financial capital

Avoidance of tariffs and

import quotas

5 ways of expanding internationally

Global outsourcing

Importing, exporting and

countertrading

-Definition: the using of suppliers

outside the company to provide
goods and services
-Offshoring
- Importing: country buys
goods outside the country
and resells them
domestically
- Exporting: A country
produces goods

Licensing and franchising

Joint ventures

Wholly owned subsidiaries

domestically and sells them

outside the country
- Sometimes, other countries
may wish to import
American goods, but lack
the currency, results in
countertrading (barter
trading)
- Licensing: A company allows
a foreign company to pay it
a fee to make or distribute
the first companys product
or service
- Franchising: A company
allows a foreign company to
pay it a fee and a share of
the profit, in return for using
the first companys brand
name and a package of
materials and services
- Strategic allies: 2 organizations
that have joined forces, realize
advantages
- A foreign subsidiary that is
totally owned and controlled
by an organization
- A greenfield venture is a
foreign subsidiary that the
owning organization has
built from scratch

What are barriers to free trade, and what major

organizations and trading blocs promote free
trade?

Free trade: the movement of goods and services among nations

without political or economic obstruction
Trade protectionism: the use of governmental regulations to limit
the import of goods and services (protect domestic industries
against foreign competition)

Tariffs

Import quotas

Embargoes

Trade barrier
Customs duty or tax levied
mainly on imports
1) Revenue tariff ( raise
money for the government)
2) Make prices of domestic
products more competitive
(protective tariff)
Limit the numbers of a
product that can be
imported
Protect domestic industries
by restricting the availability
of foreign products
Quotas to prevent
dumping: the practice of a
foreign companys 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
A complete ban on the
import or export of certain
products

Organizations promoting international trade

WTO

To monitor and enforce trade

agreements
Agreements: based on the
General Agreement on
Tariffs and Trade (GATT)
an international accord
signed by 23 nations, helped
to reduce worldwide tariffs

The world bank

IMF

and other barriers

Negotiations that resulted in
the lowering of barriers
To provide low-interest loans
to developing nations for
improving transportation,
education, health and
telecommunications
Designed to assist in
smoothing the flow of
money between nations
Last-resort lender that
makes short-term loans to
countries suffering from
unfavorable BOP
Shore up weaker European
union economies

Trading bloc/economic community

-

A group of nations within a geographical region that have agreed to

remove trade barriers with one another
NAFTA nations, the EU, the APEC countries, the ASEAN countries, the
Mercosur, and CAFTA

NAFTA

EU

APEC

North American Free Trade

Agreement
- Trading bloc: United States,
Canada, Mexico
1) In Mexico, it failed to
generate substantial job
growth, hurt subsistence
farmers
2) In the united states, resulted
in lost jobs, NAFTA shifted
jobs south of the border
3) USA trade deficit with
Mexico and Canada
- 27 countries
- Nearly all internal trade
barriers removed (including
movement of labor)
- Euros exchange rate decline
in worth compared to USD
- Asia Pacific Economic
Cooperation (APEC), a group

of 21 Pacific Rim countries

whose purpose is to improve
economic and political ties
ASEAN

Mercosur

CAFTA-DR

11 countries of the
Association of Southeast
Asian Nations
10 countries of Latin
America
Largest trading bloc in Latin
America
4 core members- Argentina,
Brazil, Paraguay, Uruguay,
Venezuela
5 associate members:
Bolivia, Chile, Colombia,
Ecuador, Peru
Central America Free Trade
Agreement

Most favored nation trading status

-

Condition in which a country grants other countries favorable

trading treatment, such as the reduction of import duties

The importance of understanding cultural

differences
The importance of national culture
-

A nations culture is the shared set of beliefs, values, knowledge,

and patterns of behavior common to a group of people
Culture shock: discomfort with being in an unfamiliar culture

Cultural dimensions: the GLOBE project

Low context culture

High context culture

- Shared meanings are primarily

derived from written and spoken
words
- Rely heavily on situational cues
for meaning when communicating
with others

GLOBE projects 9 cultural dimensions (involved in

leadership and organizational processes)
1) Power distance
-expresses the degree to which a societys members expect power to be
unequally shared
2) 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
- 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
- Contrasted with individualism expresses the extent to which
people should take pride in being members of their family, circle of
close friends, work organizations
5) Gender egalitarianism
- Expresses the extent to which a society should minimize gender
discrimination and role inequalities
6) Assertiveness
- Represents the extent to which society expects people to be
confrontational and competitive as opposed to tender and modest
7) Future orientation
- Expresses the extent to which a society encourages investment in
the future, as by planning and saving
8) Performance orientation
- Expresses the extent to which society encourages and rewards its
members for performance improvement and excellence
9) Humane orientation
- Expresses the degree to which individuals are encouraged to be
altruistic, caring, kind, generous and fair

Recognizing cultural tendencies to gain

competitive advantage
-

USA: scored high on assertiveness and performance orientation

perceived as being pushy and hardworking
Switzerland: scored high on uncertainty avoidance and future
orientation political neutrality
Singapore: Clean and safe, well educated and hardworking social
collectivism, future orientation, performance orientation

Russia: low scores on future orientation, performance orientation

Thus, knowing the cultural tendencies of foreign

business partners and competitors can give you
a strategic competitive advantage
Other cultural variations: language,
interpersonal space, communication, time
orientation, religion
Language

Interpersonal
space

1)
2)
3)
4)
-

Communication
Time orientation

Speak your own language

Use a translator
Use a translation app
Learn the local language
Different cultures different
interpretations of what is acceptable
Can lead to cross-cultural
misunderstandings

E.g., Americans call ahead for

appointments
- South Koreans believe in spontaneity
- Monochronic time and poly chronic time:
1) Monochronic time: Preference for doing
one thing at a time
- Time is viewed as being limited, precisely
segmented, schedule driven
2) Poly chronic time: Preference for doing
more than one thing at a time
- Time is viewed as being flexible and
multidimensional

Religion
Expatriates
- Definition: people living or working in a foreign country
- Cultural adaptability: patience, flexibility, and tolerance for others
beliefs