6Chapter PowerPoint Presentation by Charlie Cook © Copyright The McGraw-Hill Companies, Inc., 2003....

66Chapter

PowerPoint Presentation by Charlie Cook© Copyright The McGraw-Hill Companies, Inc., 2003. All rights reserved.

Managing The Global Managing The Global EnvironmentEnvironment

© Copyright McGraw-Hill. All rights reserved. 6–2

Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

• After studying the chapter, you should be able to:After studying the chapter, you should be able to:Explain why the global environment is Explain why the global environment is

becoming more open and why barriers to the becoming more open and why barriers to the global transfer of goods and services are global transfer of goods and services are falling, increasing the opportunities, falling, increasing the opportunities, complexities, and challenges that managers complexities, and challenges that managers face.face.

Identify each of the forces in the global task Identify each of the forces in the global task environment, and explain why they create environment, and explain why they create opportunities and threats for global opportunities and threats for global managers.managers.


Learning Objectives (cont’d)Learning Objectives (cont’d)Learning Objectives (cont’d)Learning Objectives (cont’d)

Describe the way in which political and legal, Describe the way in which political and legal, economic, and sociocultural forces in the economic, and sociocultural forces in the general environment can affect managers general environment can affect managers and the way in which global organizations and the way in which global organizations operate.operate.

List the impediments to the development of a List the impediments to the development of a more open global environment.more open global environment.


Chapter OutlineChapter OutlineChapter OutlineChapter Outline

• The Changing Global EnvironmentThe Changing Global EnvironmentDeclining Barriers to Trade and InvestmentDeclining Barriers to Trade and InvestmentDeclining Barriers of Distance and CultureDeclining Barriers of Distance and CultureEffects of Free Trade on ManagersEffects of Free Trade on Managers

• The Global Task EnvironmentThe Global Task EnvironmentSuppliersSuppliersDistributorsDistributorsCustomersCustomersCompetitorsCompetitors


Chapter Outline (cont’d)Chapter Outline (cont’d)Chapter Outline (cont’d)Chapter Outline (cont’d)

• The Global General EnvironmentThe Global General EnvironmentPolitical and Legal ForcesPolitical and Legal ForcesEconomic ForcesEconomic ForcesChanges in Political and Legal and Economic Changes in Political and Legal and Economic

ForcesForcesSociocultural ForcesSociocultural Forces

• Choosing a Way to Expand InternationallyChoosing a Way to Expand InternationallyImporting and ExportingImporting and ExportingLicensing and FranchisingLicensing and FranchisingStrategic AlliancesStrategic AlliancesWholly Owned Foreign SubsidiariesWholly Owned Foreign Subsidiaries


Chapter Outline (cont’d)Chapter Outline (cont’d)Chapter Outline (cont’d)Chapter Outline (cont’d)

• Impediments to an Open Global EnvironmentImpediments to an Open Global EnvironmentGovernment-Imposed ImpedimentsGovernment-Imposed ImpedimentsSelf-Imposed Ethical ImpedimentsSelf-Imposed Ethical Impediments

• Summary and ReviewSummary and Review


The Changing Global EnvironmentThe Changing Global EnvironmentThe Changing Global EnvironmentThe Changing Global Environment

• Global OrganizationGlobal OrganizationAn organization that operates and competes An organization that operates and competes

in more than one countryin more than one country

• The Challenges of Global CompetitionThe Challenges of Global CompetitionEstablishing operations in a foreign countryEstablishing operations in a foreign countryObtaining inputs from foreign suppliersObtaining inputs from foreign suppliersManaging in a foreign cultureManaging in a foreign culture

• The global environment is openThe global environment is openManagers need to learn to compete globally.Managers need to learn to compete globally.


The Global EnvironmentThe Global EnvironmentThe Global EnvironmentThe Global Environment

Figure 6.1Source:


Declining Barriers to Trade and Declining Barriers to Trade and InvestmentInvestment

Declining Barriers to Trade and Declining Barriers to Trade and InvestmentInvestment

• TariffTariffA tax that government imposes on imported A tax that government imposes on imported

or, occasionally, exported goods.or, occasionally, exported goods.• Intended to protect domestic industry and jobs from Intended to protect domestic industry and jobs from

foreign competitionforeign competition

• Other countries usually retaliate their own tariffs, Other countries usually retaliate their own tariffs, actions that eventually reduce the overall amount of actions that eventually reduce the overall amount of trade and impedes economic growth.trade and impedes economic growth.


GATT and the Rise of Free TradeGATT and the Rise of Free TradeGATT and the Rise of Free TradeGATT and the Rise of Free Trade

• Free-Trade DoctrineFree-Trade DoctrineThe idea that if each country specializes in The idea that if each country specializes in

the production of the goods and services that the production of the goods and services that it can produce most efficiently, this will make it can produce most efficiently, this will make the best use of global resourcesthe best use of global resources

• If India is more efficient in making textiles, and the If India is more efficient in making textiles, and the United States is more efficient in making computer United States is more efficient in making computer software, then each country should focus on their software, then each country should focus on their respective strengths and trade for the other’s goods.respective strengths and trade for the other’s goods.


Declining Barriers of Distance and Declining Barriers of Distance and CultureCulture

Declining Barriers of Distance and Declining Barriers of Distance and CultureCulture

• DistanceDistanceMarkets were essentially closed because of the Markets were essentially closed because of the

slowness of communications over long slowness of communications over long distances.distances.

• CultureCultureLanguage barriers and cultural practices made Language barriers and cultural practices made

managing overseas businesses difficultmanaging overseas businesses difficult

• Changes in Distance and CommunicationChanges in Distance and CommunicationImprovement in transportation technology and Improvement in transportation technology and

fast, secure communications have greatly fast, secure communications have greatly reduced the barriers of physical and cultural reduced the barriers of physical and cultural distances.distances.


Effects of Free Trade on ManagersEffects of Free Trade on ManagersEffects of Free Trade on ManagersEffects of Free Trade on Managers

• Declining Trade BarriersDeclining Trade BarriersOpened enormous opportunities for Opened enormous opportunities for

managers to expand the market for their managers to expand the market for their goods and services.goods and services.

Allowed managers to now both buy and sell Allowed managers to now both buy and sell goods and services globally.goods and services globally.

Increased intensity of global competition Increased intensity of global competition such that managers now have a more such that managers now have a more dynamic and exciting job of managing.dynamic and exciting job of managing.


Effects of Free Trade on Managers Effects of Free Trade on Managers (cont’d)(cont’d)

Effects of Free Trade on Managers Effects of Free Trade on Managers (cont’d)(cont’d)

• North American Free Trade Agreement North American Free Trade Agreement (NAFTA)(NAFTA)Abolishes 99% of tariffs on goods traded Abolishes 99% of tariffs on goods traded

between Mexico, Canada and the United between Mexico, Canada and the United StatesStates

• Unrestricted cross-border flows of resourcesUnrestricted cross-border flows of resources

• Increased investment by U.S. firms in Mexican Increased investment by U.S. firms in Mexican manufacturing facilities due lower wage costs in manufacturing facilities due lower wage costs in MexicoMexico

Opportunities and ThreatsOpportunities and Threats• The opportunity to serve more marketsThe opportunity to serve more markets

• Increased competition from NAFTA competitorsIncreased competition from NAFTA competitors

© Copyright McGraw-Hill. All rights reserved. 6–14Figure 6.2Source:

Forces in the Global Task EnvironmentForces in the Global Task EnvironmentForces in the Global Task EnvironmentForces in the Global Task Environment


The Global Task EnvironmentThe Global Task EnvironmentThe Global Task EnvironmentThe Global Task Environment

• SuppliersSuppliersManagers buy products from global suppliers Managers buy products from global suppliers

or make items abroad and supply or make items abroad and supply themselves.themselves.

A common problem is developing a network A common problem is developing a network of global suppliers to keep costs down and of global suppliers to keep costs down and quality high.quality high.

Global outsourcingGlobal outsourcing• The purchase of inputs from foreign suppliers, or the The purchase of inputs from foreign suppliers, or the

production of inputs abroad, to lower costs and production of inputs abroad, to lower costs and improve product quality or design; the finished goods improve product quality or design; the finished goods become global products.become global products.


The Global Task EnvironmentThe Global Task EnvironmentThe Global Task EnvironmentThe Global Task Environment

• DistributorsDistributorsEach country often has a unique system of Each country often has a unique system of

distribution with custom and legal restraints.distribution with custom and legal restraints.Managers must identify the hidden threats Managers must identify the hidden threats

and problems in foreign distribution systems and problems in foreign distribution systems before attempting to compete in those before attempting to compete in those markets.markets.


Customers and CompetitorsCustomers and CompetitorsCustomers and CompetitorsCustomers and Competitors

• CustomersCustomersNational markets are now merging into a National markets are now merging into a

huge global market with the same basic huge global market with the same basic consumer and business goods.consumer and business goods.

• Creates large opportunities for expansionCreates large opportunities for expansion

• Products must be customized to fit different culturesProducts must be customized to fit different cultures

• CompetitorsCompetitorsGlobal competitors present new threatsGlobal competitors present new threats

• Increased competition abroad as well as at home.Increased competition abroad as well as at home.

• Strong local competitorsStrong local competitors

• Entry of foreign competitors into home marketsEntry of foreign competitors into home markets


Forces in the Global General EnvironmentForces in the Global General EnvironmentForces in the Global General EnvironmentForces in the Global General Environment

Figure 6.3Source:


Political and Legal ForcesPolitical and Legal ForcesPolitical and Legal ForcesPolitical and Legal Forces

• Representative DemocracyRepresentative DemocracyA political system in which representatives A political system in which representatives

elected by citizens and legally accountable to elected by citizens and legally accountable to the electorate form a government whose the electorate form a government whose function is to make decisions on behalf of the function is to make decisions on behalf of the electorateelectorate

• Usually has a number of safeguards such as freedom Usually has a number of safeguards such as freedom of expression, a fair court system, regular elections, of expression, a fair court system, regular elections, and limited terms for officials.and limited terms for officials.

• Possesses a well-defined legal system and economic Possesses a well-defined legal system and economic freedom.freedom.


Political and Legal Forces (cont’d)Political and Legal Forces (cont’d)Political and Legal Forces (cont’d)Political and Legal Forces (cont’d)

• Totalitarian RegimesTotalitarian RegimesA political system in which a single party, A political system in which a single party,

individual, or group holds all political power individual, or group holds all political power and neither recognizes nor permits and neither recognizes nor permits oppositionopposition

• Most safeguards found in a democracy do not exist.Most safeguards found in a democracy do not exist.

• These regimes are difficult to do business with given These regimes are difficult to do business with given their lack of political, legal, and economic freedoms.their lack of political, legal, and economic freedoms.

• Human rights issues Human rights issues also cause managers to avoid also cause managers to avoid dealing with these countries.dealing with these countries.


Economic ForcesEconomic ForcesEconomic ForcesEconomic Forces

• Free Market EconomyFree Market EconomyPrivate enterprise controls production of goods Private enterprise controls production of goods

and services.and services.Supply and demand determines production and Supply and demand determines production and

the prices consumers pay.the prices consumers pay.

• Command EconomyCommand EconomyThe government controls all factors of production The government controls all factors of production

(private enterprise is forbidden) and it decides (private enterprise is forbidden) and it decides what to produce, how much, and sets prices.what to produce, how much, and sets prices.

Many countries are moving away from their failed Many countries are moving away from their failed command economies to a free-market command economies to a free-market orientation.orientation.


Economic ForcesEconomic ForcesEconomic ForcesEconomic Forces

• Mixed EconomyMixed EconomyCertain economic sectors controlled by Certain economic sectors controlled by

private business, others are government private business, others are government controlled.controlled.

Many mixed countries are shifting toward Many mixed countries are shifting toward free-market systems.free-market systems.


Changes in Political and LegalChanges in Political and Legaland Economic Forces and Economic Forces

Changes in Political and LegalChanges in Political and Legaland Economic Forces and Economic Forces

• A worldwide shift from totalitarian regimes A worldwide shift from totalitarian regimes toward representative democracies.toward representative democracies.

• A strong movement from command and mixed A strong movement from command and mixed economies toward free market systems.economies toward free market systems.Opened significant expansion opportunities Opened significant expansion opportunities

for global business with many Western for global business with many Western businesses investing millions in the formerly businesses investing millions in the formerly totalitarian countries of the now-defunct totalitarian countries of the now-defunct Soviet bloc and China.Soviet bloc and China.


Changes in Political and Economic ForcesChanges in Political and Economic ForcesChanges in Political and Economic ForcesChanges in Political and Economic Forces

Figure 6.4


Sociocultural ForcesSociocultural ForcesSociocultural ForcesSociocultural Forces

• National cultureNational cultureThe set of values, norms, knowledge, beliefs, The set of values, norms, knowledge, beliefs,

and other practices that unite the citizens of and other practices that unite the citizens of a country.a country.

• ValuesValuesIdeas about what a society believes to be Ideas about what a society believes to be

good, desirable and beautiful.good, desirable and beautiful.• Provides conceptual support for democracy, truth, Provides conceptual support for democracy, truth,

appropriate roles for men, and women.appropriate roles for men, and women.

• Usually not static but very slow to change.Usually not static but very slow to change.


Sociocultural Forces (cont’d)Sociocultural Forces (cont’d)Sociocultural Forces (cont’d)Sociocultural Forces (cont’d)

• NormsNormsUnwritten rules and codes of conduct that Unwritten rules and codes of conduct that

prescribe how people should act in particular prescribe how people should act in particular situations.situations.

• FolkwaysFolkways——routine social conventions of daily life routine social conventions of daily life (e.g., dress codes and social manners)(e.g., dress codes and social manners)

• MoresMores—behavioral n—behavioral norms that are considered central orms that are considered central to functioning of society and much more significant to functioning of society and much more significant than folkways (e.g., theft and adultery), and they are than folkways (e.g., theft and adultery), and they are often enacted into law.often enacted into law.

Norms vary from country to country.Norms vary from country to country.


Hofstede’s Model of National CultureHofstede’s Model of National CultureHofstede’s Model of National CultureHofstede’s Model of National Culture

Figure 6.5


Hofstede’s Model of National Culture Hofstede’s Model of National Culture (cont’d)(cont’d)


• IndividualismIndividualismA worldview that values individual freedom A worldview that values individual freedom

and self-expression and holds a strong belief and self-expression and holds a strong belief in personal rights and the need for persons to in personal rights and the need for persons to be judged by their achievements rather their be judged by their achievements rather their social background.social background.

• CollectivismCollectivismA worldview that values subordination of the A worldview that values subordination of the

individual to the goals of the group.individual to the goals of the group.Widespread under communism and prevalent Widespread under communism and prevalent

in Japan as well.in Japan as well.




• Power DistancePower DistanceA society’s acceptance of differences in the A society’s acceptance of differences in the

well being of citizens due to differences in well being of citizens due to differences in heritage, and physical and intellectual heritage, and physical and intellectual capabilities (individualism).capabilities (individualism).

• In high power distance societies, the gap between In high power distance societies, the gap between rich and poor becomes very wide (e.g., Panama and rich and poor becomes very wide (e.g., Panama and Malaysia).Malaysia).

• In the low power distance societies of western In the low power distance societies of western cultures (e.g., United States and Germany), the gap cultures (e.g., United States and Germany), the gap between rich and poor is reduced by taxation and between rich and poor is reduced by taxation and welfare programs.welfare programs.




• Achievement versus Nurturing OrientationAchievement versus Nurturing OrientationAchievement-oriented societies value Achievement-oriented societies value

assertiveness, performance, and success and assertiveness, performance, and success and are results-oriented.are results-oriented.

Nurturing-oriented cultures value quality of Nurturing-oriented cultures value quality of life, personal relationships, and service.life, personal relationships, and service.

The United States and Japan are The United States and Japan are achievement-oriented; Sweden and Denmark achievement-oriented; Sweden and Denmark are more nurturing-oriented.are more nurturing-oriented.




• Uncertainty AvoidanceUncertainty AvoidanceSocieties and people differ in their tolerance Societies and people differ in their tolerance

for uncertainty and risk.for uncertainty and risk.Low uncertainty avoidance cultures (e.g., Low uncertainty avoidance cultures (e.g.,

U.S. and Hong Kong) value diversity and U.S. and Hong Kong) value diversity and tolerate a wide range of opinions and beliefs.tolerate a wide range of opinions and beliefs.

High uncertainty avoidance societies (e.g., High uncertainty avoidance societies (e.g., Japan and France) are more rigid and expect Japan and France) are more rigid and expect high conformity in their citizens’ beliefs and high conformity in their citizens’ beliefs and norms of behavior.norms of behavior.




• Long Term OutlookLong Term OutlookCultures (e.g., Taiwan and Hong Kong) with a Cultures (e.g., Taiwan and Hong Kong) with a

long-term in outlook are based on the values long-term in outlook are based on the values of saving, and persistence.of saving, and persistence.

Short-term outlook societies (e.g., France and Short-term outlook societies (e.g., France and the United States) seek the maintenance of the United States) seek the maintenance of personal stability or happiness in the present.personal stability or happiness in the present.


National Culture and Global National Culture and Global ManagementManagement

National Culture and Global National Culture and Global ManagementManagement

• Management practices that are effective in Management practices that are effective in one culture often will not work as well in one culture often will not work as well in another culture.another culture.Culture ShockCulture Shock

• The feelings of surprise and disorientation that people The feelings of surprise and disorientation that people experience when they do not understand the values, experience when they do not understand the values, folkways, and mores that guide behavior in a culture.folkways, and mores that guide behavior in a culture.

Expatriate ManagersExpatriate Managers• Managers who go abroad to work for a global Managers who go abroad to work for a global

organization.organization.


Four Ways of Expanding InternationallyFour Ways of Expanding InternationallyFour Ways of Expanding InternationallyFour Ways of Expanding Internationally

Figure 6.6Source:


Choosing a Way to Expand Choosing a Way to Expand InternationallyInternationally


• Importing and ExportingImporting and ExportingThe least risky and least complex of global The least risky and least complex of global

operationsoperations• ExportingExporting—making—making products at home and selling products at home and selling

them abroadthem abroad

• ImportingImporting—s—selling products at home that are made elling products at home that are made abroad.abroad.




• LicensingLicensingAllowing a foreign organization to take Allowing a foreign organization to take

charge of manufacturing and distributing a charge of manufacturing and distributing a product in its country or world region in product in its country or world region in return for a fee.return for a fee.

• Home firm does not have the risk involved with Home firm does not have the risk involved with investing in production and distribution facilities.investing in production and distribution facilities.

• The home firm risks exposing its technological know-The home firm risks exposing its technological know-how to its foreign partner.how to its foreign partner.




• FranchisingFranchisingSelling to a foreign organization the rights to Selling to a foreign organization the rights to

use a brand name and operating know-how use a brand name and operating know-how in return for a lump-sum payment and a in return for a lump-sum payment and a share of the profits.share of the profits.

• Franchiser does not have to bear any development Franchiser does not have to bear any development costs or deal with any problems associated with costs or deal with any problems associated with foreign market developmentforeign market development

• Danger to the franchiser is loss of reputation if the Danger to the franchiser is loss of reputation if the franchisee fails to operate properly or to produce franchisee fails to operate properly or to produce quality products.quality products.


Strategic AlliancesStrategic AlliancesStrategic AlliancesStrategic Alliances

• Strategic AlliancesStrategic AlliancesAgreements in which managers pool or share Agreements in which managers pool or share

their organization’s resources and know-how their organization’s resources and know-how with a foreign company and both with a foreign company and both organizations share the rewards and risks of organizations share the rewards and risks of the new venture.the new venture.

• Allows firm to maintain control which is a basic Allows firm to maintain control which is a basic problem with exporting, licensing, and franchising.problem with exporting, licensing, and franchising.

Joint ventureJoint venture• A strategic alliance among two or more companies A strategic alliance among two or more companies

that agree to jointly establish and share the that agree to jointly establish and share the ownership of an new business.ownership of an new business.


Wholly-Owned Foreign SubsidiariesWholly-Owned Foreign SubsidiariesWholly-Owned Foreign SubsidiariesWholly-Owned Foreign Subsidiaries

• Wholly-Owned Foreign SubsidiaryWholly-Owned Foreign SubsidiaryProduction operations established in a Production operations established in a

foreign country independent of any local foreign country independent of any local direct involvementdirect involvement

• Requires a high level of investmentRequires a high level of investment

• Higher degree of operational control lowers risk of Higher degree of operational control lowers risk of investmentinvestment

• Offers the potential for high returns on the investmentOffers the potential for high returns on the investment

• Protects the firm’s technology and know-howProtects the firm’s technology and know-how


Impediments to an Impediments to an Open Global EnvironmentOpen Global Environment

Impediments to an Impediments to an Open Global EnvironmentOpen Global Environment

• Government Imposed ImpedimentsGovernment Imposed ImpedimentsAdministrative barriers (nontariff barriers)Administrative barriers (nontariff barriers)——

the uthe use of policies and regulations to impede se of policies and regulations to impede or block foreign competitors’ entry into the or block foreign competitors’ entry into the home markets of competitors.home markets of competitors.

• Self-Imposed Ethical ImpedimentsSelf-Imposed Ethical ImpedimentsReasons for not tradingReasons for not trading

• Respect for workers’ rightsRespect for workers’ rights

• Respect for the environmentRespect for the environment

6Chapter PowerPoint Presentation by Charlie Cook © Copyright The McGraw-Hill Companies, Inc., 2003....

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