Management tenth edition

Chapter Managing in a
4 Global
Environment
Learning Outcomes
Follow this Learning Outline as you read and study
this chapter.

4.1 What’s Your Global perspective?

• Define parochialism.
• Contrast ethnocentric, polycentric, and geocentric
attitudes towards global business.
4.2 Understanding The global Environment
• Describe the current status of the EU, NAFTA,
ASEAN and other Regional Trade Allowances.
• Discuss the role of the WTO.
Learning Outcomes
4.3 Doing Business Globally
• Contrast multinational, multidomestic, global,
transnational, and born global organizations.
• Describe the different ways organizations can go
international.
4.4 Managing In A Global Environment.
• Explain how the global legal-political and economic
environments affect managers.
• Discuss Hofstede’s five dimensions for assessing
cultures.
• Describe the challenges of doing business globally in
today’s world.
Learning Outcomes
4.4 Managing In A Global Environment.
• Explain how the global legal-political and economic
environments affect managers.
• Discuss Hofstede’s five dimensions for assessing
cultures.
• Describe the challenges of doing business globally in
today’s world.
The Global Marketplace
• Opportunities and Challenges
 Coping with the sudden appearance of new
competitors
 Acknowledging cultural, political, and economic
differences
 Dealing with increased uncertainty, fear, and anxiety
 Adapting to changes in the global environment
 Avoiding parochialism
What’s Your Global
Perspective?
• Parochialism
 Is viewing the world solely through one’s own eyes
and perspectives.
 Is not recognizing that others have different ways of
living and working.
 Is a significant obstacle for managers working in a
global business world.
 Is falling into the trap of ignoring others’ values and
customs and rigidly applying an attitude of “ours is
better than theirs” to foreign cultures.
Adopting a Global Perspective
• Ethnocentric Attitude
 The parochialistic belief that the best work
approaches and practices are those of the home
country.
• Polycentric Attitude
 The view that the managers in the host country know
the best work approaches and practices for running
their business.
• Geocentric Attitude
 A world-oriented view that focuses on using the best
approaches and people from around the globe.
Regional Trading Agreements
• The European Union (EU)
 A unified economic and trade entity
 Belgium, Denmark, France, Greece, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, Spain, the United
Kingdom, Germany, Austria, Finland, and Sweden

• North American Free Trade Agreement (NAFTA)

 Eliminated barriers to free trade (tariffs, import
licensing requirements, and customs user fees)
 United States, Canada, and Mexico
Regional Trading Agreements
• U.S.-Central America Free Trade Agreement (CAFTA)
• Free Trade Area of the Americas
• Southern Cone Common Market (Mercosur)
• Association of Southeast Asian Nations (ASEAN)
 Trading alliance of 10 Southeast Asian nations
• African Union
• South Asian Association for Regional Cooperation
(SARRC)
The World Trade Organization
(WTO)
• Evolved from the General Agreement on Tariffs
and Trade (GATT) in 1995.
• Functions as the only global organization
dealing with the rules of trade among nations.
• Has 149 member nations and 32 observer
governments.
• Monitors and promotes world trade.
Different Types of International
Organizations
• Multinational Corporation (MNC)
 Maintains operations in multiple countries.
• Multidomestic Corporation
 Is an MNC that decentralizes management and other
decisions to the local country.
• Global Company
 Is an MNC that centralizes its management and other
decisions in the home country.
Different Types of International
Organizations (cont’d)

• Transnational Corporation (Borderless

Organization)
 Is an MNC that has eliminated structural divisions that
impose artificial geographic barriers and is organized
along business lines that reflect a geocentric attitude.
Exhibit 4–3 How Organizations Go Global
Other Forms of Globalization
• Strategic Alliances
 Partnerships between and organization and a foreign
company in which both share resources and
knowledge in developing new products or building
new production facilities.
• Joint Venture
 A specific type of strategic alliance in which the
partners agree to form a separate, independent
organization for some business purpose.
• Foreign Subsidiary
 Directly investing in a foreign country by setting up a
separate and independent production facility or office.
Managing in A Global
Environment
• The Legal Environment
 Stability or instability of legal and political systems
 Legal procedures are established and followed
 Fair and honest elections held on a regular basis
 Differences in the laws of various nations
 Effects on business activities
 Effects on delivery of products and services
The Economic Environment
• Economic Systems
 Free market economy
 An economy in which resources are primarily owned and
controlled by the private sector.
 Planned economy
 An economy in which all economic decisions are planned by
a central government.
• Monetary and Financial Factors
 Currency exchange rates
 Inflation rates
 Diverse tax policies
The Cultural Environment
• National Culture
 Is the values and attitudes shared by individuals from
a specific country that shape their behavior and their
beliefs about what is important.
 May have more influence on an organization than the
organization culture.
 Exhibit 4–4 What Are Americans Like

Americans are very informal.

Americans are direct.
Americans are competitive.
Americans are achievers.
Americans are independent and individualistic.
Americans are questioners.
Americans dislike silence.
Americans value punctuality.
Americans value cleanliness.
Sources: Based on M. Ernest (ed.), Predeparture Orientation Handbook: For Foreign Students and Scholars Planning to Study in the
United States (Washington, DC: U.S. Information Agency, Bureau of Cultural Affairs, 1984), pp. 103–05; A. Bennett, “American Culture Is
Often a Puzzle for Foreign Managers in the U.S.,” Wall Street Journal, February 12, 1986, p. 29; “Don’t Think Our Way’s the Only Way,”
The Pryor Report, February 1988, p. 9; and B.J. Wattenberg, “The Attitudes behind American Exceptionalism,” U.S. News & World
Report, August 7, 1989, p. 25.
Hofstede’s Framework for
Assessing Cultures
Individualism
versus
Collectivism

Long-Term
versus Power
Short-Term Distance
Orientation
Culture

Achievement
Uncertainty
versus
Avoidance
Nurturing
Exhibit 4–5 Hofstede’s Five Dimensions of
National Culture
(1) Individualistic — people look after their own and family interests
Collectivistic — people expect group to look after and protect them

Individualistic Collectivistic
United States, Canada Japan Mexico, Thailand
Australia

(2) High power distance—Accepts wide differences in power, great

deal of respect for those in authority
Low power distance—Plays down inequalities: employees are not
afraid to approach nor are in awe of the
boss

High power distance Low power distance

Mexico, Singapore, Italy, Japan United States, Sweden
Exhibit 4–5 Hofstede’s Five Dimensions of
National Culture
(3) High uncertainty avoidance—Threatened with ambiguity and
experience high levels of
anxiety
Low uncertainty avoidance— Comfortable with risks; tolerant of
different behavior and
opinions

High uncertainty avoidance Low uncertainty avoidance

Italy, Mexico, France United Kingdom Canada, United States,
Singapore

(4) Achievement—Values such as assertiveness, acquiring money and goods,

and competition prevail
Nurturing—Values such as relationships and concern for others prevail

Achievement Nurturing
United States, Japan, Canada, Greece France, Sweden
Mexico
Exhibit 4–5 Hofstede’s Five Dimensions of
National Culture

(5) Long-term orientation—People look to the future and value thrift

and persistence
Short-term orientation — People value tradition and the past

Short-term thinking Long-term thinking

Germany, Australia, China, Taiwan, Japan

United States, Canada
Exhibit 4–6 GLOBE Highlights

Source: M. Javidan and R. J. House, “Cultural Acumen for the Global Manager: Lessons from Project GLOBE,” Organizational Dynamics,
Spring 2001, pp. 289–305. Copyright © 2001. Reprinted with permission from Elsevier.
Global Management in Today’s
World
• Challenges
 Openness associated with globalization
 Significant cultural differences (e.g., Americanization)
 Adjusting leadership styles and management
approaches
• Risks
 Loss of investments in unstable countries
 Increased terrorism
 Economic interdependence