Chapter 03: Managing

in a Global
Environment
By
Lecturer Ehtisham Muhammad Khan
Global Perspective

• Monolingualism is the state of being able to understand, speak, or

write in only one language. It can also refer to a language policy that
enforces an official or national language over others.
• Parochialism is viewing the world solely through one’s own eyes and
perspectives. People with a parochial attitude do not recognize that
others have different ways of living and working. They ignore others’
values and customs and rigidly apply an attitude of “ours is better
than theirs” to foreign cultures.
• Ethnocentric Attitude is the parochialistic belief that the best work
approaches and practices are those of the home country (the country in
which the company’s headquarters are located). Managers with an
ethnocentric attitude believe that people in foreign countries don’t have the
needed skills, expertise, knowledge, or experience to make the best business
decisions as people in the home country do. They don’t trust foreign
employees with key decisions or technology
• Polycentric Attitude is the view that employees in the host country (the
foreign country in which the organization is doing business) know the best
work approaches and practices for running their business. Managers with this
attitude view every foreign operation as different and hard to understand.
Thus, they’re likely to let employees there figure out how best to do things.
• Geocentric Attitude a world-oriented view that focuses on using the
best approaches and people from around the globe. Managers with
this type of attitude have a global view and look for the best
approaches and people regardless of origin.
Understanding the Global Environment:
Regional Trading Alliances

• The European Union (EU) is an economic and political partnership of

27 democratic European countries. When the 12 original members
formed the EU in 1993, the primary motivation was to reassert the
region’s economic position against the United States and Japan. Each
European nation had border controls, taxes, and subsidies;
nationalistic policies; and protected industries. There is no barrier to
travel, employment, investment, and trade for European companies.
• North American Free Trade Agreement (NAFTA) was reached by the
Mexican, Canadian, and U.S. governments in 1992, and a vast
economic bloc was created. As of 2010, it remains the largest trade
bloc in the world in terms of combined GDP of its members.
Understanding the Global Environment:
Regional Trading Alliances

• Association of Southeast Asian Nations (ASEAN) is a trading alliance

of 10 Southeast Asian nations. The ASEAN region has a population
over 591 million with a combined GDP of US$1.5 trillion.
Global Trade Mechanism
• World Trade Organization (WTO)
The World Trade Organization (WTO),formed in 1995, is a global organization
of 166 countries that deals with the rules of trade among nations. The WTO
evolved from the General Agreement on Tariffs and Trade (GATT), a trade
agreement in effect since the end of World War II. Today, the WTO is the only
global organization that deals with trade rules among nations.
• International Monetary Fund (IMF)
The International Monetary Fund (IMF) is an organization of 190 countries
that promotes international monetary cooperation and provides member
countries with policy advice, temporary loans, and technical assistance to
establish and maintain financial stability and to strengthen economy
Global Trade Mechanism
• World Bank Group is a group of five closely associated institutions, all
owned by its member countries, that provides vital financial and technical
assistance to developing countries around the world. The goal of the World
Bank Group is to promote long-term economic development and poverty
reduction by providing members with technical and financial support.
• Organization for Economic Cooperation and Development (OECD) is a
Paris-based international economic organization whose mission is to help
its 38 member countries achieve sustainable economic growth and
employment and raise the standard of living in member countries while
maintaining financial stability in order to contribute to the development of
the world economy
Doing Business Globally
• Multinational Corporation (MNC) is any type of international company that
maintains operations in multiple countries.
• Multi-domestic Corporation which decentralizes management and other
decisions to the local country. It reflects the polycentric attitude. Local employees
typically are hired to manage the business and marketing strategies. Example,
Walmart stores.
• Global Company which centralizes its management and other decisions in the
home country. This approach to globalization reflects the ethnocentric attitude.
Although these companies may have considerable global holdings, management
decisions with company-wide implications are made from headquarters in the
home country. Example, Sony
• Transnational or borderless organization use an arrangement that eliminates
artificial geographical barriers and reflects a geocentric attitude. Example: IBM
Organizations going international
• Global Sourcing: Managers who want to get into a global market with
minimal investment may start with global sourcing (also called global
outsourcing), which is purchasing materials or labor from around the
world wherever it is cheapest.
• The next step in going global may involve exporting the organization’s
products to other countries—that is, making products domestically
and selling them abroad. In addition, an organization might do
importing, which involves acquiring products made abroad and selling
them domestically. Both usually entail minimal investment and risk.
• Managers also might use licensing or franchising, which are similar
approaches involving one organization giving another organization the
right to use its brand name, technology, or product specifications in
return for a lump sum payment or a fee usually based on sales.
• The only difference is that licensing is primarily used by
manufacturing organizations that make or sell another company’s
products and franchising is primarily used by service organizations
that want to use another company’s name and operating methods.
Strategic Alliance
• A strategic alliance, which is a partnership between an organization
and a foreign company partner or partners in which both share
resources and knowledge in developing new products or building
production facilities.
• A specific type of strategic alliance in which the partners form a
separate, independent organization for some business purpose is
called a joint venture.
• Foreign subsidiary: Managers may choose to directly invest in a
foreign country by setting up a foreign subsidiary as a separate and
independent facility or office. This arrangement involves the greatest
commitment of resources and poses the greatest amount of risk.
Economic Environment
• A free market economy is one in which resources are primarily owned and
controlled by the private sector.
• A planned economy is one in which economic decisions are planned by a
central government. Actually, no economy is purely free market or planned.
• Examples:
• For instance, the United States and United Kingdom are toward the free
market end of the spectrum but do have governmental intervention and
controls.
• The economies of Vietnam and North Korea are more planned.
• China is also a more planned economy, but until recently had been moving
toward being more free market.
The Cultural Environment
• National culture includes the values and attitudes shared by
individuals from a specific country that shape their behavior and their
beliefs about what is important.
• Research indicates that national culture has a greater effect on
employees than does their organization’s culture.
MANAGING A GLOBAL WORKFORCE
• Cultural intelligence encompasses three main dimensions:
1. Knowledge of culture as a concept—how cultures vary and how
they affect behavior; (2)
2. Mindfulness—the ability to pay attention to signals and reactions in
different cross-cultural situations;
3. Behavioral skills—using one’s knowledge and mindfulness to
choose appropriate behaviors in those situations.
MANAGING THE GLOBAL
WORKFORCE
• Effective global leaders need global mind-set attributes. Those
attributes have three components i.e.
1. Intellectual capital: Knowledge of international business and the
capacity to understand how business works on a global scale
2. Psychological capital: Openness to new ideas and experiences
3. Social capital: Ability to form connections and build trusting
relationships with people who are different from you