Managing in a global environment

Chapter 5

Suzaan Hughes
Notices

•Individually complete the peer evaluation by clicking on the

link (on Moodle) by Thursday 20 March 23:59.

•NB: register your team on the JSE platform and report your
team name to me at the google forms link: 27 March 4pm

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Learning Outcomes

1. Define globalization and explain how it is creating a borderless world for today’s managers.
2. Describe a global mindset and why it has become imperative for companies operating
globally.
3. Describe the characteristics of a multinational corporation and explain the ‘bottom of the
pyramid’ concept.
4. Define international management and explain how it differs from the management of
domestic business operations.
5. Indicate how dissimilarities in the economic, sociocultural and legal-political environments
throughout the world can affect business operations.
6. Discuss how the international landscape is changing, including the growing power of China
and India.
7. Describe how regional trading alliances are reshaping the international business
environment.

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 A Borderless World
Globalization is the increase in the flow of goods, services,
capital, people, and ideas across international boundaries
(Harvard business school online)

Organisations and managers are not isolated from

international forces
• Trade barriers have fallen
• Communication is faster, cheaper
• Consumer tastes converge

The difficulties and risks of a borderless world are matched

by benefits and opportunities

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Rankings on the Globalization Index

Change in globalization: https://kof.ethz.ch/en/forecasts-and- 5

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indicators/indicators/kof-globalisation-index.html
Globalisation across the world

Source:https://geographylaunchpad.weebly.com/uploads/2/5/4/1/25412597/2936407_orig.png

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Cultures and Global Diversity
Culture

• The shared set of beliefs, values, and patterns of behaviour

common to a group of people

Culture shock

• Confusion and discomfort a person experiences in an

unfamiliar culture

Cultural intelligence

• The ability to adapt and adjust to new cultures

Ethnocentrism

• Tendency to consider one’s own culture as superior to others

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 Global Mindset
•Ability of managers to appreciate and influence individuals,
groups, organisations, and systems that represent:
•Different social, cultural, political, institutional, intellectual,
and psychological characteristics
•Develop by engaging with people from different cultures

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 The Impact of Multinational Corporations (MNC)

•The size and volume of international business is LARGE

• Companies have revenue = GDP of small country
• Move assets from country to country
• 25% or more of its profit comes from outside parent country
•MNC is managed as an integrated whole

AMAZON Turnover 2023: $574.78 B

South African GDP: $380.91 B
US GDP: $32.23 T

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 The Impact of Multinational Corporations (MNC)

•Controlled by a single management authority

•MNC managers must have a global perspective
•Ethnocentric companies – place emphasis on their
home countries
•Polycentric companies – oriented toward the markets
of individual foreign host countries
•Geocentric companies – world oriented and favour no
specific country

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 The Globalization Backlash

• 68% of Americans say other countries benefit the most from free trade
✓53% believe free trade has hurt US

• The primary concern for most people is the loss of jobs

• Business leaders insist that economic benefits flow back to the home
economy
✓Lower prices and expanded markets
✓Increased profits and funds for innovation

• But some consumers say they would be willing to pay higher prices to keep
down foreign competition

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 Serving the Bottom
of the Pyramid (BOP)
• An approach for multinationals to do good
• Corporations can alleviate problems and make large profits by
selling to the world’s poor
• There are more than four billion people at the lowest level of
the economic pyramid
• Many companies are adopting BOP strategies

$2 = R 36,41; per month R1092,30

SRD = R370p/m 12
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Minimum wage = R28,79p/h (40h*4wks =R 4606,40)
5.2 - Strategies for Entering the International Arena

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 International Market Strategies

• Exporting – transferring products for sale to foreign countries

• Outsourcing – also called offshoring, work activities are done in countries with cheap
labour

• Licensing – enabling a company to produce and market a product in another country

✓Franchising is licensing that provides a complete package of materials and services

• Direct investing – high level of involvement, company manages and controls assets

✓Joint venture an organisation shares costs and risks with another firm in a foreign
country (develop new products or set up sales and distribution network)

✓Wholly owned affiliate is a foreign subsidiary over which the organisation has complete
control

✓Greenfields ventures, when a company builds a subsidiary from scratch in a foreign

country

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 The International Business Environment

•Planning, organising, leading and controlling in multiple

countries can be challenging
• It took McDonald’s a year to figure out that Hindus in India do not eat beef

•Managers must be mindful in the global marketplace

• Swedish vacuum maker Electrolux in US adverts: “Nothing sucks like an Electrolux.”

• Ford launched an ad campaign in Belgium that execs thought said, “Every car has a high-
quality body.” However, when translated, the slogan read, “Every car has a high-quality
corpse”

• Coors’ beer campaign in Spain, “Turn It Loose” commonly interpreted as “suffer from
diarrhea.”

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5.3 - Key Factors in International Environment

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 The Economic Environment

•Economic development – Countries are categorized

as either developed or developing based on per capita
income

• Government policies

• Market size

• Financial markets

• Infrastructure

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 5.4 - Country Competitiveness Comparison

SA 2024 Q4 unemployment: 31.9% Youth unemployment: 45.5%

SA employment rate: 41.9%; Mauritius: 94.1%; Nigeria: 76.1%; Angola 18

62%; Rwanda 54.6%

 Economic Environment
• Economic interdependence

Recent economic crises highlighted how interconnected economies are around the world

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 The Legal-Political Environment

•Political risk is defined

2021 2020 2019 2018 2017
as the risk of lost GLOBAL
70 70 71 72 72
AVERAGES
assets, earning power 1. Singapore 90 90 92 92 91
2. Norway 89 89 88 88 88
or managerial control 2. Canada 89 89 91 91 92
4. Austria 88 88 87 87 87
•Political instability 8. Sweden 86 86 86 86 86
13. Netherlands 85 85 86 87 86
includes riots, 13. Japan 85 86 87 85 85
15. Israel 84 84 85 85 84
revolutions, civil 19. Germany 83 83 84 84 84
disorders and frequent 19. Denmark 83 83 83 83 82
64. China 67 67 67 69 69
changes in government 66. South Africa 66 66 69 67 65

https://www.prsgroup.com/political-risk-index-september-2021/ 20
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 The Sociocultural Environment

The values and behaviours that govern global

businesses do not always translate well
• Social values
• Communication differences

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 Hofstede’s Value Dimensions
✓ Power distance – high power distance means people accept inequality in power
among institutions, organisations and people, low power distance means people
expect equality in power.

✓ Uncertainty avoidance – high uncertainty avoidance means that people feel

uncomfortable with uncertainty and ambiguity and thus support beliefs that promise
certainty and conformity. Low uncertainty avoidance means that people have a high
tolerance for the unstructured the unclear and the predictable

✓ Individualism and collectivism – Individualism reflect a value for a loosely knit

social framework where individuals take care of themselves. Collectivism means a
preference for a tight knit social framework in which individuals look after one
another and organisations protect their members.

✓ Masculinity and femininity – Masculinity stands for preference for achievement,

heroism, assertiveness, work centrality and material success. Femininity reflects the
values of relationships, cooperation, group decision-making and quality of life.

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How countries’ short-term thinking and long-term thinking
compare on Hofstede’s dimensions of
national culture.

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 GLOBE Project Value Dimensions
• Assertiveness – high assertiveness means society values toughness,
confidence and competitiveness, low assertiveness means people value
tenderness and concern for others
• Future orientation – the extent to which a society encourages and rewards
planning for the future over short-term results and quick gratification
• Gender differentiation – extent to which gender role differences are maximised
• Performance orientation – high – places emphasis on performance and
rewards people for performance improvements and excellence, low – means
people pay less attention to performance and more attention to loyalty, belonging
and background
• Humane orientation – degree to which society encourages and rewards people
for being fair, altruistic, generous and caring, if low – people are expected to take
care of themselves, self-enhancement and gratification are of high importance

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5.7 – Examples of Country Rankings on
Selected GLOBE Value Dimensions

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 Cultures and Global Diversity

Silent
languages of
culture

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5.8 - High-Context and Low-Context Cultures

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 Changing International Landscape

•China Inc.

✓China manufactures many products for US companies

✓China is also a growing consumer market

✓Regulations and government policies make doing business

in China a challenge

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 Changing International Landscape

•India is a service giant, growing in software design

and engineering

•Brazil is a country that is gaining the attention of

global managers

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 International Trade Alliances
• General Agreement on Tariff and Trade (GATT)
• 23 nations in 1947, a set of rules for fair trade
• World Trade Organisation (WTO)
• Maturation of GATT into permanent global institute
• European Union
• Signed in 1957, Treaty of Rome was designed to improve economic and
social conditions among original six member states; evolved into 28-nation
European Union
• North American Free Trade Agreement (NAFTA)
• Signed in 1994,single market for the United States, Canada, and Mexico
African Growth and Opportunity Act (AGOA)
• U.S. economic policy and commercial engagement with Africa. 32 eligible
sub-Saharan African countries with duty-free access to the U.S. market for
over 1,800 products
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 Dare! (homework)

Alone, or in a group of no more than 2 people;

• Look for a place/event where you can be in a different cultural environment to your
own (nothing dangerous!)
• When you are there, talk to at least 5 different people
Afterwards, write a reflection:
• Describe the situation you were in
• How did it feel to be different?
• How did people treat you? Is that how you would treat them if the shoe was on
the other foot?
• What did you learn?
• What competencies would you/someone need to handle such a situation?
Submit after the semester break!!
Due: 8 April 9am

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