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CHAPTERCHAPTER
55
The Global EnvironmentThe Global Environment
Copyright Copyright © by Houghton Mifflin Company.© by Houghton Mifflin Company.All rights reserved.All rights reserved.
PowerPoint PresentationPowerPoint Presentation by Charlie Cook by Charlie Cook
Copyright © by Houghton Mifflin Company. All rights reserved. 5–2
Learning ObjectivesLearning Objectives
After studying this chapter, you should be able to:– Describe the nature of international business, including its
meaning, recent trends, the management of globalization, and competition in a global environment.
– Discuss the structure of the global economy and how it affects international management.
– Identify and discuss the environmental challenges inherent in international management.
– Describe the basic issues involved in competing in a global economy, including organization size and the management challenges in a global economy.
After studying this chapter, you should be able to:– Describe the nature of international business, including its
meaning, recent trends, the management of globalization, and competition in a global environment.
– Discuss the structure of the global economy and how it affects international management.
– Identify and discuss the environmental challenges inherent in international management.
– Describe the basic issues involved in competing in a global economy, including organization size and the management challenges in a global economy.
Copyright © by Houghton Mifflin Company. All rights reserved. 5–3
Chapter OutlineChapter Outline• The Nature of International
Business– The Meaning of International
Business– Trends in International
Business– Managing the Process of
Globalization– Competing in a Global
Environment
• The Structure of the Global Economy– Mature Market Economies and
Systems– High Potential/High Growth
Economies– Other Economies
• The Nature of International Business– The Meaning of International
Business– Trends in International
Business– Managing the Process of
Globalization– Competing in a Global
Environment
• The Structure of the Global Economy– Mature Market Economies and
Systems– High Potential/High Growth
Economies– Other Economies
• Environmental Challenges of International Management– The Economic Environment
– The Political/Legal Environment
– The Cultural Environment
• Competing in a Global Economy– Globalization and
Organizational Size
– Management Challenges in a Global Economy
• Environmental Challenges of International Management– The Economic Environment
– The Political/Legal Environment
– The Cultural Environment
• Competing in a Global Economy– Globalization and
Organizational Size
– Management Challenges in a Global Economy
Copyright © by Houghton Mifflin Company. All rights reserved. 5–4
Levels of International Business Levels of International Business ActivityActivity
Level of International ActivityLowest Highest
Domestic
business
Multinational
business
International
business
Global
business
Figure 5.1
Copyright © by Houghton Mifflin Company. All rights reserved. 5–5
The Meaning of International The Meaning of International BusinessBusiness
• Domestic Business– acquires all of its resources and sells all of its products or
services within a single country.
• International Business– is primarily based in a single country yet acquires a
meaningful share of its resources and/or revenues from other countries.
• Multinational Business– transcends national boundaries and buys raw materials,
borrows money, and manufactures and sells its products in a world-wide marketplace.
• Global Business– transcends national boundaries and is not committed to a
single home country.
• Domestic Business– acquires all of its resources and sells all of its products or
services within a single country.
• International Business– is primarily based in a single country yet acquires a
meaningful share of its resources and/or revenues from other countries.
• Multinational Business– transcends national boundaries and buys raw materials,
borrows money, and manufactures and sells its products in a world-wide marketplace.
• Global Business– transcends national boundaries and is not committed to a
single home country.
Copyright © by Houghton Mifflin Company. All rights reserved. 5–6
Trends in International BusinessTrends in International Business
• Economic Recovery– Industrialized nations in Europe and Asia have rebuilt their
economic systems that were devastated in WWII.
• Decreasing Isolation from Foreign Competition– U.S. consumer goods markets are open to overseas
competitors.
• Increasing Globalization of World Markets– Volume of international trade has increased more than
3,000% from 1960 to 2000.
• Economic Recovery– Industrialized nations in Europe and Asia have rebuilt their
economic systems that were devastated in WWII.
• Decreasing Isolation from Foreign Competition– U.S. consumer goods markets are open to overseas
competitors.
• Increasing Globalization of World Markets– Volume of international trade has increased more than
3,000% from 1960 to 2000.
Copyright © by Houghton Mifflin Company. All rights reserved. 5–7
Managing The Process of Managing The Process of GlobalizationGlobalization
• Exporting– Making a product in the firm’s domestic market and selling it
in another country.
• Importing– Bringing a good, service, or capital into a home country from
abroad.– Advantages are small cash outlay, little exchange risk, and
no adaptation of product or service is necessary.– Disadvantages are tariffs and taxes imposed on cross-border
goods, high transportation costs to/from distant markets, and governmental restrictions and regulations.
• Exporting– Making a product in the firm’s domestic market and selling it
in another country.
• Importing– Bringing a good, service, or capital into a home country from
abroad.– Advantages are small cash outlay, little exchange risk, and
no adaptation of product or service is necessary.– Disadvantages are tariffs and taxes imposed on cross-border
goods, high transportation costs to/from distant markets, and governmental restrictions and regulations.
Copyright © by Houghton Mifflin Company. All rights reserved. 5–8
Managing The Process of Managing The Process of Globalization (cont’d)Globalization (cont’d)
• Licensing– Advantages are increased profitability from licensing without
additional capital requirements, lower operational costs in foreign markets, and extended profitability from existing technologies.
– Disadvantages are inflexibility in the licensing arrangement, loss of profits from licensee failure, and licensing possibly helps competitors learn to compete.
• Strategic Alliance and Joint Ventures– Advantages are quick market entry, access to materials and
technology, and reduced risk.– Disadvantage is that shared ownership limits control and
profitability.
• Licensing– Advantages are increased profitability from licensing without
additional capital requirements, lower operational costs in foreign markets, and extended profitability from existing technologies.
– Disadvantages are inflexibility in the licensing arrangement, loss of profits from licensee failure, and licensing possibly helps competitors learn to compete.
• Strategic Alliance and Joint Ventures– Advantages are quick market entry, access to materials and
technology, and reduced risk.– Disadvantage is that shared ownership limits control and
profitability.
Copyright © by Houghton Mifflin Company. All rights reserved. 5–9
Managing The Process of Managing The Process of Globalization (cont’d)Globalization (cont’d)
• Direct Investment– Advantages are enhanced operational control, it allows use
of existing infrastructure, and no adaptation of in-country product or service is necessary.
– Disadvantages are complexity in managing a foreign operation, greater economic- and political-risk exposure, and greater uncertainty of business risk.
– Maquiladoras are light-assembly plants built in northern Mexico close to the U.S. border which are given special tax breaks by the Mexican government.
• Direct Investment– Advantages are enhanced operational control, it allows use
of existing infrastructure, and no adaptation of in-country product or service is necessary.
– Disadvantages are complexity in managing a foreign operation, greater economic- and political-risk exposure, and greater uncertainty of business risk.
– Maquiladoras are light-assembly plants built in northern Mexico close to the U.S. border which are given special tax breaks by the Mexican government.
Copyright © by Houghton Mifflin Company. All rights reserved. 5–10
Advantages and Disadvantages of Different Advantages and Disadvantages of Different Approaches to InternationalizationApproaches to Internationalization
Approaches to Internationalization Advantages Disadvantages
Importing or
Exporting
1. Small cash outlay
2. Little risk
3. No adaptation necessary
1. Tariffs and taxes
2. High transportation costs
3. Government restrictions
Licensing 1. Increased profitability
2. Extended profitability
1. Inflexibility
2. Helps competitors
Strategic Alliance/
Joint Venture
1. Quick market entry
2. Access to materials and technology
1. Shared ownership (limits
control and profits)
Direct Investment 1. Enhances control
2. Existing infrastructure
1. Complexity
2. Greater economic and
political risk
3. Greater uncertainty
Table 5.1
Copyright © by Houghton Mifflin Company. All rights reserved. 5–11
The Structure of the Global The Structure of the Global EconomyEconomy
• Market Economies and Systems– Based on the private ownership of business and allows
market factors such as supply and demand to determine business strategy.
– Characteristics are a mature economy, well-developed infrastructures, and individual wealth.
• Market Systems– Clusters of countries that engage in high levels
of trade with each other through the elimination of trade barriers such as quotas and tariffs.
– North American Free Trade Agreement (NAFTA) covering the United States, Mexico, and Canada.
– European Union (EU) of western European countries.– Pacific Asia countries in Southeast Asia.
• Market Economies and Systems– Based on the private ownership of business and allows
market factors such as supply and demand to determine business strategy.
– Characteristics are a mature economy, well-developed infrastructures, and individual wealth.
• Market Systems– Clusters of countries that engage in high levels
of trade with each other through the elimination of trade barriers such as quotas and tariffs.
– North American Free Trade Agreement (NAFTA) covering the United States, Mexico, and Canada.
– European Union (EU) of western European countries.– Pacific Asia countries in Southeast Asia.
Copyright © by Houghton Mifflin Company. All rights reserved. 5–12
The Global EconomyThe Global Economy
• The global economy is dominated by three relatively mature market systems
• The global economy is dominated by three relatively mature market systems
Figure 5.2
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Market Economies and SystemsMarket Economies and Systems
• High Potential/High Growth Economies– Characteristics are underdeveloped and immature markets,
weak industrial base, weak currency, and poor consumers.– People’s Republic of China, India, Vietnam, Brazil, Russia.– Challenges to market development:
• The need for large investments in distribution systems.
• The need to educate/train consumers in product usage.
• A lack of infrastructure for support operations.
• Unfavorable policy changes affecting investments.
• High Potential/High Growth Economies– Characteristics are underdeveloped and immature markets,
weak industrial base, weak currency, and poor consumers.– People’s Republic of China, India, Vietnam, Brazil, Russia.– Challenges to market development:
• The need for large investments in distribution systems.
• The need to educate/train consumers in product usage.
• A lack of infrastructure for support operations.
• Unfavorable policy changes affecting investments.
Copyright © by Houghton Mifflin Company. All rights reserved. 5–14
Market Economies and Systems Market Economies and Systems (cont’d)(cont’d)
• Other Economies– Some economies defy classification due to their possession
of critical and valuable resources (e.g., oil-producing countries) or other social or political factors which distort their internal economies and markets.
– Challenges of other economies• Political instability
• Cultural differences
• Ethnic violence
• Other Economies– Some economies defy classification due to their possession
of critical and valuable resources (e.g., oil-producing countries) or other social or political factors which distort their internal economies and markets.
– Challenges of other economies• Political instability
• Cultural differences
• Ethnic violence
Copyright © by Houghton Mifflin Company. All rights reserved. 5–15
Environmental Challenges of Environmental Challenges of International ManagementInternational Management
International management functions
Political/LegalEnvironment
• Government stability
• Incentives for
international trade
• Controls on international
trade
• Economic communities
EconomicEnvironment
• Economic system
• Natural resources
• Infrastructure
CulturalEnvironment
• Values, symbols, beliefs,
and language
• Individual differences
across cultures
Figure 5.3
Copyright © by Houghton Mifflin Company. All rights reserved. 5–16
Controls on International ManagementControls on International Management
• Key Concepts– Tariffs are collected on goods shipped across national
boundaries.– Quotas are limits placed on the number or value of goods
that can be traded as exports or imports.– Export restraint agreements are voluntary limits on the
volume or value of goods exported to or imported from another country.
• Key Concepts– Tariffs are collected on goods shipped across national
boundaries.– Quotas are limits placed on the number or value of goods
that can be traded as exports or imports.– Export restraint agreements are voluntary limits on the
volume or value of goods exported to or imported from another country.
Copyright © by Houghton Mifflin Company. All rights reserved. 5–17
The Cultural EnvironmentThe Cultural Environment
• Language– In Japanese the word “hai” can mean either “yes” or “I
understand.”– General Motors’ brand name “Nova” when “va” is
pronounced “ba” as “no va” in Spanish means “doesn’t go.”
• The Meaning of Colors– Green is popular in Muslim countries,
yet it signifies death in other countries.– Pink is associated with feminine
characteristics in the U.S.; yellow is the most feminine color in other countries.
• Language– In Japanese the word “hai” can mean either “yes” or “I
understand.”– General Motors’ brand name “Nova” when “va” is
pronounced “ba” as “no va” in Spanish means “doesn’t go.”
• The Meaning of Colors– Green is popular in Muslim countries,
yet it signifies death in other countries.– Pink is associated with feminine
characteristics in the U.S.; yellow is the most feminine color in other countries.
Copyright © by Houghton Mifflin Company. All rights reserved. 5–18
Individual Behaviors Across CulturesIndividual Behaviors Across Cultures
SocialOrientation
Relative importanceof the interests ofthe individual vs.
the interests ofthe group
The interests ofthe individual takeprecedence
Individualism
The interests ofthe group takeprecedence
Collectivism
PowerOrientation
The appropriatenessof power/authority
within organi-zations
Authority is inherentin one’s positionwithin a hierarchy
Power Respect Individuals assessauthority in view ofits perceived right-ness or their ownpersonal interests
Power Tolerance
Source: Adapted from R. W. Griffin,/M. Pustay, International Business, (figure 14.1, page 479) © 1996 Addison Wesley Longman. Reprinted by permission of Addison Wesley Longman. Figure 5.4
Copyright © by Houghton Mifflin Company. All rights reserved. 5–19
Individual Behaviors Across Cultures Individual Behaviors Across Cultures (cont’d)(cont’d)
GoalOrientation
What motivatespeople to achieve
different goals
Value materialpossessions, money,and assertiveness
Aggressive GoalBehavior
Value socialrelevance, qualityof life, and thewelfare of others
Passive GoalBehavior
UncertaintyOrientation
An emotionalresponse to
uncertainty andchange
Positive responseto change and newopportunities
UncertaintyAcceptance
Prefer structureand a consistentroutine
UncertaintyAvoidance
Source: Adapted from R. W. Griffin,/M. Pustay, International Business, (figure 14.1, page 479) © 1996 Addison Wesley Longman. Reprinted by permission of Addison Wesley Longman. Figure 5.4
Copyright © by Houghton Mifflin Company. All rights reserved. 5–20
Individual Behaviors Across Cultures Individual Behaviors Across Cultures (cont’d)(cont’d)
TimeOrientation
The extent to whichmembers of a culture
adopt a long-term or a short-term outlookon work and life
Value dedication,hard work, andself-image
Long-TermOutlook
Place less emphasison hard work
Short-TermOutlook
Source: Adapted from R. W. Griffin,/M. Pustay, International Business, (figure 14.1, page 479) © 1996 Addison Wesley Longman. Reprinted by permission of Addison Wesley Longman. Figure 5.4
Copyright © by Houghton Mifflin Company. All rights reserved. 5–21
Problems with Hofstede’s findingsProblems with Hofstede’s findings
• Assumes one-to-one relationship between culture and the nation-state
• His research may have been culturally bound.• Survey respondents were from a single industry
(computer) and a single company (IBM)
• Assumes one-to-one relationship between culture and the nation-state
• His research may have been culturally bound.• Survey respondents were from a single industry
(computer) and a single company (IBM)
Copyright © by Houghton Mifflin Company. All rights reserved. 5–22
Competing in a Global EconomyCompeting in a Global Economy
• Globalization and Organization Size– Multinational Corporations (MNCs) adopt a global
perspective and compete in the global marketplace.– Medium-Size Businesses remain primarily domestic
organizations that may buy and sell abroad through trade specialists and compete with foreign companies in local markets.
– Small Businesses participate in global markets when they serve as local suppliers for MNCs.
• Globalization and Organization Size– Multinational Corporations (MNCs) adopt a global
perspective and compete in the global marketplace.– Medium-Size Businesses remain primarily domestic
organizations that may buy and sell abroad through trade specialists and compete with foreign companies in local markets.
– Small Businesses participate in global markets when they serve as local suppliers for MNCs.
Copyright © by Houghton Mifflin Company. All rights reserved. 5–23
The World’s Largest MNCs: Industrial The World’s Largest MNCs: Industrial CorporationsCorporations
Rank 1999 Company Country
Revenues $ million
Profits $ million
Assets $ million
Employees Number
1 General Motors U.S. 176,558.0 6,002.0 273,921.0 388,000
2 Wal-Mart Stores U.S. 166,809.0 5,377.0 70,245.0 1,140,000
3 Exxon Mobil U.S. 163,881.0 7,910.0 144,521.0 106,000
4 Ford Motor U.S. 162,558.0 7,237.0 276,229.0 364,550
5 DaimlerChrysler Germany 159,985.7 6,129.1 175,068.8 466,938
6 Mitsui Japan 118,555.2 320.5 62,360.0 38,454
7 Mitsubishi Japan 117,765.6 233.7 78,949.2 42,050
8 Toyota Motor Japan 115,670.9 3,653.4 160,571.6 214,631
9 General Electric U.S. 111,630.0 10,717.0 405,200.0 340,000
10 Itochu Japan 109,068.9 (792.8) 59,153.9 5,306
Table 5.2Source: Adapted from Fortune, July 24, 2000; p. F-1, Fortune © 2000. Time Inc. All rights reserved.
Copyright © by Houghton Mifflin Company. All rights reserved. 5–24
The World’s Largest MNCs: Industrial The World’s Largest MNCs: Industrial CorporationsCorporations
Copyright © by Houghton Mifflin Company. All rights reserved. 5–25
Management ChallengesManagement Challengesin a Global Economyin a Global Economy
• Planning in a Global Economy– Requires a broad-based understanding of both environmental
issues and competitive issues.
• Organizing in a Global Economy– Involves addressing issues of creating and managing
operations on a world-wide scale.
• Leading in a Global Economy– Requires learning how to interact with and motivate persons of
different cultural, social, and economics backgrounds.
• Controlling– Involves integrating global operations that encompass time-
zone differences, cultural factors, and varying communication methods.
• Planning in a Global Economy– Requires a broad-based understanding of both environmental
issues and competitive issues.
• Organizing in a Global Economy– Involves addressing issues of creating and managing
operations on a world-wide scale.
• Leading in a Global Economy– Requires learning how to interact with and motivate persons of
different cultural, social, and economics backgrounds.
• Controlling– Involves integrating global operations that encompass time-
zone differences, cultural factors, and varying communication methods.