griffin chap05

CHAPTERCHAPTER

55

The Global EnvironmentThe Global Environment

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Learning ObjectivesLearning Objectives

After studying this chapter, you should be able to:– Describe the nature of international business, including its

meaning, recent trends, the management of globalization, and competition in a global environment.

– Discuss the structure of the global economy and how it affects international management.

– Identify and discuss the environmental challenges inherent in international management.

– Describe the basic issues involved in competing in a global economy, including organization size and the management challenges in a global economy.

After studying this chapter, you should be able to:– Describe the nature of international business, including its

meaning, recent trends, the management of globalization, and competition in a global environment.

– Discuss the structure of the global economy and how it affects international management.

– Identify and discuss the environmental challenges inherent in international management.

– Describe the basic issues involved in competing in a global economy, including organization size and the management challenges in a global economy.


Chapter OutlineChapter Outline• The Nature of International

Business– The Meaning of International

Business– Trends in International

Business– Managing the Process of

Globalization– Competing in a Global

Environment

• The Structure of the Global Economy– Mature Market Economies and

Systems– High Potential/High Growth

Economies– Other Economies

• The Nature of International Business– The Meaning of International

Business– Trends in International

Business– Managing the Process of

Globalization– Competing in a Global

Environment

• The Structure of the Global Economy– Mature Market Economies and

Systems– High Potential/High Growth

Economies– Other Economies

• Environmental Challenges of International Management– The Economic Environment

– The Political/Legal Environment

– The Cultural Environment

• Competing in a Global Economy– Globalization and

Organizational Size

– Management Challenges in a Global Economy

• Environmental Challenges of International Management– The Economic Environment

– The Political/Legal Environment

– The Cultural Environment

• Competing in a Global Economy– Globalization and

Organizational Size

– Management Challenges in a Global Economy


Levels of International Business Levels of International Business ActivityActivity

Level of International ActivityLowest Highest

Domestic

business

Multinational

business

International

business

Global

business

Figure 5.1


The Meaning of International The Meaning of International BusinessBusiness

• 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.

• 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.

• 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.

• 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.


Trends in International BusinessTrends 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.

• 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.


Managing The Process of Managing The Process of GlobalizationGlobalization

• Exporting– Making a product in the firm’s domestic market and selling it

in another country.

• Importing– Bringing a good, service, or capital into a home country from

abroad.– Advantages are small cash outlay, little exchange risk, and

no adaptation of product or service is necessary.– Disadvantages are tariffs and taxes imposed on cross-border

goods, high transportation costs to/from distant markets, and governmental restrictions and regulations.

• Exporting– Making a product in the firm’s domestic market and selling it

in another country.

• Importing– Bringing a good, service, or capital into a home country from

abroad.– Advantages are small cash outlay, little exchange risk, and

no adaptation of product or service is necessary.– Disadvantages are tariffs and taxes imposed on cross-border

goods, high transportation costs to/from distant markets, and governmental restrictions and regulations.


Managing The Process of Managing The Process of Globalization (cont’d)Globalization (cont’d)

• Licensing– Advantages are increased profitability from licensing without

additional capital requirements, lower operational costs in foreign markets, and extended profitability from existing technologies.

– Disadvantages are inflexibility in the licensing arrangement, loss of profits from licensee failure, and licensing possibly helps competitors learn to compete.

• Strategic Alliance and Joint Ventures– Advantages are quick market entry, access to materials and

technology, and reduced risk.– Disadvantage is that shared ownership limits control and

profitability.

• Licensing– Advantages are increased profitability from licensing without

additional capital requirements, lower operational costs in foreign markets, and extended profitability from existing technologies.

– Disadvantages are inflexibility in the licensing arrangement, loss of profits from licensee failure, and licensing possibly helps competitors learn to compete.

• Strategic Alliance and Joint Ventures– Advantages are quick market entry, access to materials and

technology, and reduced risk.– Disadvantage is that shared ownership limits control and

profitability.


Managing The Process of Managing The Process of Globalization (cont’d)Globalization (cont’d)

• Direct Investment– Advantages are enhanced operational control, it allows use

of existing infrastructure, and no adaptation of in-country product or service is necessary.

– Disadvantages are complexity in managing a foreign operation, greater economic- and political-risk exposure, and greater uncertainty of business risk.

– Maquiladoras are light-assembly plants built in northern Mexico close to the U.S. border which are given special tax breaks by the Mexican government.

• Direct Investment– Advantages are enhanced operational control, it allows use

of existing infrastructure, and no adaptation of in-country product or service is necessary.

– Disadvantages are complexity in managing a foreign operation, greater economic- and political-risk exposure, and greater uncertainty of business risk.

– Maquiladoras are light-assembly plants built in northern Mexico close to the U.S. border which are given special tax breaks by the Mexican government.


Advantages and Disadvantages of Different Advantages and Disadvantages of Different Approaches to InternationalizationApproaches to Internationalization

Approaches to Internationalization Advantages Disadvantages

Importing or

Exporting

1. Small cash outlay

2. Little risk

3. No adaptation necessary

1. Tariffs and taxes

2. High transportation costs

3. Government restrictions

Licensing 1. Increased profitability

2. Extended profitability

1. Inflexibility

2. Helps competitors

Strategic Alliance/

Joint Venture

1. Quick market entry

2. Access to materials and technology

1. Shared ownership (limits

control and profits)

Direct Investment 1. Enhances control

2. Existing infrastructure

1. Complexity

2. Greater economic and

political risk

3. Greater uncertainty

Table 5.1


The Structure of the Global The Structure of the Global EconomyEconomy

• Market Economies and Systems– Based on the private ownership of business and allows

market factors such as supply and demand to determine business strategy.

– Characteristics are a mature economy, well-developed infrastructures, and individual wealth.

• Market Systems– Clusters of countries that engage in high levels

of trade with each other through the elimination of trade barriers such as quotas and tariffs.

– North American Free Trade Agreement (NAFTA) covering the United States, Mexico, and Canada.

– European Union (EU) of western European countries.– Pacific Asia countries in Southeast Asia.

• Market Economies and Systems– Based on the private ownership of business and allows

market factors such as supply and demand to determine business strategy.

– Characteristics are a mature economy, well-developed infrastructures, and individual wealth.

• Market Systems– Clusters of countries that engage in high levels

of trade with each other through the elimination of trade barriers such as quotas and tariffs.

– North American Free Trade Agreement (NAFTA) covering the United States, Mexico, and Canada.

– European Union (EU) of western European countries.– Pacific Asia countries in Southeast Asia.


The Global EconomyThe Global Economy

• The global economy is dominated by three relatively mature market systems

• The global economy is dominated by three relatively mature market systems

Figure 5.2


Market Economies and SystemsMarket Economies and Systems

• High Potential/High Growth Economies– Characteristics are underdeveloped and immature markets,

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.

• High Potential/High Growth Economies– Characteristics are underdeveloped and immature markets,

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.


Market Economies and Systems Market Economies and Systems (cont’d)(cont’d)

• Other Economies– Some economies defy classification due to their possession

of critical and valuable resources (e.g., oil-producing countries) or other social or political factors which distort their internal economies and markets.

– Challenges of other economies• Political instability

• Cultural differences

• Ethnic violence

• Other Economies– Some economies defy classification due to their possession

of critical and valuable resources (e.g., oil-producing countries) or other social or political factors which distort their internal economies and markets.

– Challenges of other economies• Political instability

• Cultural differences

• Ethnic violence


Environmental Challenges of Environmental Challenges of International ManagementInternational Management

International management functions

Political/LegalEnvironment

• Government stability

• Incentives for

international trade

• Controls on international

trade

• Economic communities

EconomicEnvironment

• Economic system

• Natural resources

• Infrastructure

CulturalEnvironment

• Values, symbols, beliefs,

and language

• Individual differences

across cultures

Figure 5.3


Controls on International ManagementControls on International Management

• Key Concepts– Tariffs are collected on goods shipped across national

boundaries.– Quotas are limits placed on the number or value of goods

that can be traded as exports or imports.– Export restraint agreements are voluntary limits on the

volume or value of goods exported to or imported from another country.

• Key Concepts– Tariffs are collected on goods shipped across national

boundaries.– Quotas are limits placed on the number or value of goods

that can be traded as exports or imports.– Export restraint agreements are voluntary limits on the

volume or value of goods exported to or imported from another country.


The Cultural EnvironmentThe Cultural Environment

• Language– In Japanese the word “hai” can mean either “yes” or “I

understand.”– General Motors’ brand name “Nova” when “va” is

pronounced “ba” as “no va” in Spanish means “doesn’t go.”

• The Meaning of Colors– Green is popular in Muslim countries,

yet it signifies death in other countries.– Pink is associated with feminine

characteristics in the U.S.; yellow is the most feminine color in other countries.

• Language– In Japanese the word “hai” can mean either “yes” or “I

understand.”– General Motors’ brand name “Nova” when “va” is

pronounced “ba” as “no va” in Spanish means “doesn’t go.”

• The Meaning of Colors– Green is popular in Muslim countries,

yet it signifies death in other countries.– Pink is associated with feminine

characteristics in the U.S.; yellow is the most feminine color in other countries.


Individual Behaviors Across CulturesIndividual Behaviors Across Cultures

SocialOrientation

Relative importanceof the interests ofthe individual vs.

the interests ofthe group

The interests ofthe individual takeprecedence

Individualism

The interests ofthe group takeprecedence

Collectivism

PowerOrientation

The appropriatenessof power/authority

within organi-zations

Authority is inherentin one’s positionwithin a hierarchy

Power Respect Individuals assessauthority in view ofits perceived right-ness or their ownpersonal interests

Power Tolerance

Source: Adapted from R. W. Griffin,/M. Pustay, International Business, (figure 14.1, page 479) © 1996 Addison Wesley Longman. Reprinted by permission of Addison Wesley Longman. Figure 5.4


Individual Behaviors Across Cultures Individual Behaviors Across Cultures (cont’d)(cont’d)

GoalOrientation

What motivatespeople to achieve

different goals

Value materialpossessions, money,and assertiveness

Aggressive GoalBehavior

Value socialrelevance, qualityof life, and thewelfare of others

Passive GoalBehavior

UncertaintyOrientation

An emotionalresponse to

uncertainty andchange

Positive responseto change and newopportunities

UncertaintyAcceptance

Prefer structureand a consistentroutine

UncertaintyAvoidance



Individual Behaviors Across Cultures Individual Behaviors Across Cultures (cont’d)(cont’d)

TimeOrientation

The extent to whichmembers of a culture

adopt a long-term or a short-term outlookon work and life

Value dedication,hard work, andself-image

Long-TermOutlook

Place less emphasison hard work

Short-TermOutlook



Problems with Hofstede’s findingsProblems with Hofstede’s findings

• Assumes one-to-one relationship between culture and the nation-state

• His research may have been culturally bound.• Survey respondents were from a single industry

(computer) and a single company (IBM)

• Assumes one-to-one relationship between culture and the nation-state

• His research may have been culturally bound.• Survey respondents were from a single industry

(computer) and a single company (IBM)


Competing in a Global EconomyCompeting in a Global Economy

• Globalization and Organization Size– 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.

• Globalization and Organization Size– 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.


The World’s Largest MNCs: Industrial The World’s Largest MNCs: Industrial CorporationsCorporations

Rank 1999 Company Country

Revenues $ million

Profits $ million

Assets $ million

Employees Number

1 General Motors U.S. 176,558.0 6,002.0 273,921.0 388,000

2 Wal-Mart Stores U.S. 166,809.0 5,377.0 70,245.0 1,140,000

3 Exxon Mobil U.S. 163,881.0 7,910.0 144,521.0 106,000

4 Ford Motor U.S. 162,558.0 7,237.0 276,229.0 364,550

5 DaimlerChrysler Germany 159,985.7 6,129.1 175,068.8 466,938

6 Mitsui Japan 118,555.2 320.5 62,360.0 38,454

7 Mitsubishi Japan 117,765.6 233.7 78,949.2 42,050

8 Toyota Motor Japan 115,670.9 3,653.4 160,571.6 214,631

9 General Electric U.S. 111,630.0 10,717.0 405,200.0 340,000

10 Itochu Japan 109,068.9 (792.8) 59,153.9 5,306

Table 5.2Source: Adapted from Fortune, July 24, 2000; p. F-1, Fortune © 2000. Time Inc. All rights reserved.


The World’s Largest MNCs: Industrial The World’s Largest MNCs: Industrial CorporationsCorporations


Management ChallengesManagement Challengesin a Global Economyin a Global Economy

• Planning in a Global Economy– Requires a broad-based understanding of both environmental

issues and competitive issues.

• Organizing in a Global Economy– Involves addressing issues of creating and managing

operations on a world-wide scale.

• Leading in a Global Economy– Requires learning how to interact with and motivate persons of

different cultural, social, and economics backgrounds.

• Controlling– Involves integrating global operations that encompass time-

zone differences, cultural factors, and varying communication methods.

• Planning in a Global Economy– Requires a broad-based understanding of both environmental

issues and competitive issues.

• Organizing in a Global Economy– Involves addressing issues of creating and managing

operations on a world-wide scale.

• Leading in a Global Economy– Requires learning how to interact with and motivate persons of

different cultural, social, and economics backgrounds.

• Controlling– Involves integrating global operations that encompass time-

zone differences, cultural factors, and varying communication methods.

griffin chap05

Business

global economy globalization

business strategy

private ownership of

global environment copyright

management of globalization

mature economy

economic environment

economic systems