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Emerging Borderless World
FOM
What is meant by the term?
• Customers
• Resources
• Manufacturing
What are signs of this Borderless Business
Environment?
What factors are facilitating this Environment?
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Levels Of Globalization
FOM
Domestic Stage
• Control:
• Production:
• Marketing:
• Managers:
Home Country
Home Country
Home Country
Home Country
International Stage (Exporting)
• Control:
• Production:
• Marketing:
• Managers:
Home Country
Home Country
Home Country (Directed by International divison)
Home Country
Multinational Stage
• Control:
• Production:
• Marketing:
• Managers:
Home Country
Multiple Countries locations
Multiple Countries locations
Home or Host Country
Global Stage
• Control:
• Production:
• Marketing:
• Managers:
Multiple Countries
Multiple Countries locations
Multiple Countries locations
Global
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Internal Business Environment
FOM
Does the Basic Management Functions Change?
• Financing
• Production
• Distribution
Does the Basic Management Functions Change?
• Planning
• Organizing
• Motivating
• Control
What Does Change?
• Perceptions
• Expectations
• Norms
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Economic Environment
FOM
Economic Development
• Market Feasibility
• Labor availability
• LDCs
• Per Capita Income
Infrastructure
Def: Physical facilities that support economic activity.
• Phones, Electricity, Transportation, Housing, Mail Service, Internet?
Resources & Product Market
Location of Production is based on
•Availability of Raw materials, Customers, Labor or Political
If host country does not have necessary resources and in place then
organization will have to add to accommodate business model.
• Supply base, Schools, Intermediate goods
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Exchange Rate
FOM
Def: Rate of one country currency in exchange for another.
How does this impact the organization?
Exporting Product:
Home Currency goes up in value then sales in Importing Country goes:
Down
Why?
Production & Resources in Host Country:
Home Currency goes up in value then sales in Importing Country goes:
No Change
Why?
Potential impact on organization is in transfer of profits to Home
country.
• There are ways to minimize the impact
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Legal / Political Environment
FOM
Political Risk
Def: Risk of loss of assets, earnings, power or managerial control due to
politically based events or acts by the host government.
• Gov’t nationalization of industries
• Gov’t sanctioned riots
• actions against company as the result of company or home
government decisions.
Political Instability
• Civil war
Laws & Regulations
• Transfer of profits
• Ownership
• Product related
• Taxation
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Trade Alliances
FOM
Def: Agreements between countries that are designed to stimulate trade
between members.
Current & Past Alliances:
European Union (EU)
North America Free Trade Agreement (NAFTA) 1989
Economic Community of West African States (ECOWAS) 1992
Association of South East Asian Nations (ASEAN) 1978
Latin American Free Trade Association (LAFTA) 1960
Impact on External Organizations
• Barriers to entry for new organizations
• Expansion of large global organizations
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Types of Trade Alliances
FOM
1) Free Trade Areas (FTA)
• Requires nations to remove all tariffs among members
2) Customs Unions
• Have a common external tariff policy for non members
3) Common Market
• Permit free flow of all factors of production (capital, labor, technology)
4) Economic Union
• Pursues common monetary & fiscal policies
5) Political Union
• Same political position, merging into one nation
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Sociocultural Environment
FOM
Culture: Shared knowledge, beliefs and values as well as modes of behavior
and ways of thinking.
If organizations and managers acknowledge the importance of considering
the host country culture when doing business. Then why don’t they get it
right?
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Difficulty in applying the cultural information in all situations.
Perceptions and bias of source of cultural information.
Ethnocentrism: Regarding one’s own culture to be superior
Use of past practices that gave successful results.
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Cultural Characteristics That Influence
International Organizations
FOM
Geert Hofstede Research:
1) Power Distance:Degree to which people accept inequality in power.
• Low : People expect equality in power
• High: People do not expect equality in power
2) Uncertainty Avoidance: Intolerance for uncertainty or ambiguity.
• Low: High tolerance for uncertainty
• High: Uncomfortable with uncertainty
3) Individualism & Collectivism
• Individualism reflects a value where the individual takes care of
themselves.
• Collectivism reflects values where each member looks out for other
members interest.
4) Masculinity / Femininity
• Masculinity reflects preferences for achievement, heroism,
assertiveness, and work centered.
• Femininity reflect preferences towards relationships, cooperation,
group decision making & quality of life.
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Other Influences on International
Organizations
FOM
1) Religion
• Sacred objects
• philosophical attitudes towards life taboos & beliefs
2) Social Organization
• Social Status
• Family relationships
• Social mobility
3) Education
• Literacy
• Qualified Employees
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Getting Started Internationally
FOM
1) Outsourcing Work
Adv: Lower labor &/or raw materials
Disadv: Lose some production control
2) Exporting
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Adv: retain control, minimal risk, easy way to gain international experience
Disadv: Subject to currency fluctuations
3) Licensing & Franchising
Adv: Requires little capital; only way to tap into some countries; Provides life extension
for mature products; good alternative to foreign production & marketing; Royalties are
guaranteed.
Disadv: No control over production & marketing; Must have a distinctive product or
technology; Royalties are small compare to potential profits; potential development of
competition.
4) Joint Venture
Adv: Takes advantage of each partners strengths ( technology, capital.
Disadv: Personal conflicts; has weaknesses of each partner
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Getting Started Internationally
FOM
5) Wholly Owned Foreign Affliiate:
Adv: Complete control; established distribution; established production &
marketing; host country managers
Disadv: More capital risk; Seen as outsiders
6) Barter
Def: transfer of goods and services for other goods and services
Adv: no currency exchange issues; Good for countries with no hard currency
Disadv: converting goods for currency; uncertain profit margins
7) Co-Production
Def: Selling a product to a customer with the intent for the customer to pay in full or
partially by making components for the product being sold or a like product.
Adv: Allows the sale of expensive products or to countries with insufficient capital.
Disadv: Has a limitation on what can be produced ( technology transfer or finite
amount of work)
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Managing A Global Environment
FOM
Focus on sensitivity to cultural subtleties and understand ways to provide
proper leadership, decision making, motivation & control.
What do you think are factors facing managers on an international
assignment?
• Language
• Shared Experience
• Loneliness
• Homesickness
What factors should you have or look for in a manager for an international
assignment?
•Adventurous
•Adaptability
•Accepting
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Preparation for Assignment
FOM
How do members of the host country relate to typical areas of management?
•Leading
•Decision Making
•Motivation
•Controlling
How should a company ensure the readiness of a Manager for an
international assignment?
• Language training
• Assignment to position in the International division of the home office.
• Networking
• Knowledge of issues
• Problem resolution
• Short trips to host country
• Culture training
• Mentoring by host country manager
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