Transcript Chapter Five - University of Mississippi

Mgmt 371
Chapter Five
The Global Environment
Much of the slide content was created by Dr, Charlie Cook, Houghton Mifflin, Co.©
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http://faculty.bus.olemiss.edu/brobinson
Figure 5.1: Levels of International
Business Activity
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The Meaning of
International Business
 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.

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The Meaning of
International Business
 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.

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Trends 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.
 This includes labor markets.
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Table 5.1: Advantages and Disadvantages
of Different Approaches to
Internationalization
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The Structure of
the Global Economy
 Mature Market Economies and Systems

Based on the private ownership of
business and allows market factors to
determine business strategy.

A mature economy, well-developed
infrastructures, and individual wealth.

Primarily concentrated in North America
and Europe.

Compare to High Potential/High Growth
Economies.
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The Structure of
the Global Economy
 Trade Agreements
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North American Free Trade Agreement
(NAFTA) covering the United States, Mexico, and
Canada.
European Union (EU) 27 member states in
Europe.
Association of Southeast Asian Nations
(ASEAN) 10 members in Southeast Asia.
South Asian Association for Regional
Cooperation (SAARC) 8 members in South
Asia
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The Global Economy
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Market Economies
and Systems
 High Potential/High Growth Economies
 Underdeveloped and immature markets with a 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

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Market Economies and Systems
 Other Economies


Economies that defy classification due to their
possession of critical and valuable resources or
other social or political factors which distort their
internal economies and markets.
Challenges of other economies
 Political instability
 Cultural differences
 Ethnic violence
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The Role of the
GATT and the WTO
 General Agreement on Tariffs and Trade
(GATT)

Promoted international trade by reducing trade
barriers and making it easier for all nations to
compete.
 Most Favored Nation (MFN) principle
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The Role of the
GATT and the WTO
 The World Trade Organization (WTO)

Organization (replacing GATT) with the goals
of:
 Promoting trade flows by encouraging nations
to adopt nondiscriminatory and predictable
trade policies
 Reducing remaining trade barriers through
multilateral negotiations
 Establishing impartial procedures for
resolving trade disputes among its members
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Environmental Challenges of
International Management
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Controls on International Management

Tariffs

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Quotas
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Taxes collected on goods
shipped across national
boundaries.
Limits placed on the number
or value of goods that can
be traded as exports or
imports.
Export restraint agreements

Voluntary limits on the
volume or value of goods
exported to or imported from
another country.
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Social Orientation
 Individualism v. Collectivism - self-explanatory

In individualistic societies you are expected to
take care of yourself (the lower the score, the
more individualistic).
 Self expression and individual achievement is
valued.
 US, Canada.

Collectivistic societies expect you to
subordinate your interests to those of your
group or society
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Power Orientation

Power Distance - the degree to which people accept
the idea that disparities in power and well-being among
members of society are due to each individual’s
physical and intellectual abilities.

The higher the power distance score, the
greater the acceptance of inequality (Power
Respect).
 Latin America, Asia.

The lower the power distance score, the less
the acceptance of inequality (Power
Tolerance).
 US, UK, Netherlands, Western Europe.
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Uncertainty Orientation
 Uncertainty
Avoidance - tolerance for
risk and ambiguity.
Measures resistance to change and
preference for structured situations.
 Uncertainty Avoidance = Japan,
France.
 Uncertainty Acceptance = US, UK,
India.
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Goal Orientation
 Aggressive Goal Orientation (Masculinity) v.
Passive Goal Orientation (Femininity)- the degree
to which a society divides its roles and jobs along
gender lines.

Aggressive Goal Orientation societies have
clearly defined “male” and “female” roles.
Value assertiveness, performance, material
success, and competition. Japan, US.
Passive Goal Orientation societies have few or
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no social distinctions based on sex.
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Value personal relationships, quality of life, and
care of the weak. Scandinavia
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Time Orientation
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Short-Term Orientation – the cultural
dimension that measures the value societies
put on personal stability,living for the present,
and immediate gratification. (U.S., France,
Canada)
Long-Term Orientation – the cultural
dimension that measures the value societies
put on the future (i.e., thrift and persistence),
as opposed to a short-term focus on the
present. (Taiwan, Japan, India).
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Competing in a Global Economy
 Globalization and Organization Size
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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.
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Top 10 Largest MNCs
 Exxon/Mobil*
 General Electric
 Wal-Mart
 Total*
 Royal Dutch Shell*
 ING Group**
 BP*
 Citicorp**
 General Motors
 AXA**
 Chevron
 Allianz**
 Daimler Benz
 Volkswagen
 Toyota
 Fortis**
 Ford
 Credit Agricole**
 Conoco Phillips*
 AIG**
*Petroleum
** Banking, Insurance, Financial Services
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Management Challenges
in a Global Economy
 Planning in a Global Economy
Understanding of both environmental issues and
competitive issues.
 Organizing in a Global Economy
 Addressing issues of creating and managing
operations on a world-wide scale.
 Leading in a Global Economy
 Learning how to interact with and motivate persons
of different cultural, social, and economics
backgrounds.
 Controlling in a Global Economy
 Integrating global operations that encompass timezone differences, cultural factors, and varying
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communication methods.
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