Global Management

Global Management

• Global management involves managing across country borders.
• Globalization presents managers with opportunities, threats, and challenges.

Learning Objectives

• Identify three influential effects of globalization
• Describe the characteristics of a successful international manager
• Outline the ways in which companies can expand internationally
• Discuss barriers to free trade and ways companies try to overcome them
• Explain the value to managers of understanding cultural differences

Key Terms

• Context
• Countertrading
• Cross-cultural awareness
• Culture
• Dumping
• E-commerce
• Embargo
• Ethnocentric Managers
• European Union (EU)
• Exchange Rate
• Expatriates
• Exporting
• Expropriation
• Foreign Corrupt Practices Act
• Franchising
• Free Trade
• Geocentric Managers
• Global Economy
• Globalization
• Global Outsourcing
• Global Village
• GLOBE Project
• Greenfield Venture
• High-Context Culture
• Import Quota
• Importing
• Joint Venture
• Licensing
• Low-Context Culture
• Maquiladoras
• Monochromatic Time
• Most Favored Nation
• Multinational Corporation
• Multinational Organization
• Offshoring
• Outsourcing
• Parochialism
• Polycentric Managers
• Polychromatic Time
• Sanction
• Tariff
• Trade Protectionism
• Trading Bloc
• Trans-Pacific Partnership (TPP)
• U.S. – Mexico – Canada Agreement (USMCA)
• Wholly Owned Subsidiary

Globalization Trend

• "Globalization" refers to the world economy becoming more interdependent
• It's supported by the rise of the global village, e-commerce, and the increase in megafirms and Internet-enabled minifirms.

Global Village and E-Commerce

• The "global village" is the shrinking of time and space due to air travel and electronic media enabling global communication
• "E-commerce" involves buying and selling products/services through computer networks

Global Economy

• The "global economy" describes how the world's economies increasingly interact as a single market.
• Positive effects include rapid information dissemination and access to wider markets
• Negative effects include job losses, increased competition, security threats, unanticipated costs, difficulty managing cultural differences, & transmission of disease

Cross-Border Business: Megafirms and Minifirms

• Megafirms and mergers are increasing, especially in automobiles, telecommunications, and healthcare
• Minifirms are operating worldwide because the Internet allows them to be global, get started easily, and maneuver faster

International Management

• A "multinational corporation," or multinational enterprise, is a firm with operations in multiple countries
• Examples include Wal-Mart, ExxonMobil, Apple, General Motors, and General Electric
• A "multinational organization" is a nonprofit with operations in several countries

Why International Managment?

• Managers may deal with foreign customers, partners, employees, or suppliers.
• Managers may work for a foreign firm in the U.S. or an American firm abroad.

Success Abroad

• Developing a global mindset requires patience, listening, studying local customs, learning appropriate behaviors and rituals of respect, and becoming minimally skilled in the language

Successful International Managers

• "Ethnocentric managers" believe their native country/culture is superior
• "Parochialism" is limiting oneself to one's own perspective.
• "Polycentric managers" think native managers understand practices best
• "Geocentric managers" accept similarities and differences and use whatever techniques that are most effective

Why Companies Expand Internationally

• To find available supplies, access new markets, & obtain lower labor costs
• Companies expand internationally to access financial capital and avoid tariffs and import quotas

Maquiladoras in International Expansion

• "Maquiladoras" are foreign-owned manufacturing Plants operate in Mexico with special priveledges

How Companies Expand Internationally

• Global Outsourcing
• Importing, Exporting, & Countertrading
• Licensing & Franchising
• Joint Ventures
• Wholly-Owned Subsidiaries

Global Outsourcing

• "Outsourcing" means using suppliers outside the company to provide goods and services.
• "Global outsourcing" or "offshoring" uses suppliers outside the U.S

Importing and Exporting

• "Importing" is when a company buys goods outside its country and resells them domestically
• "Exporting" is when a company produces goods domestically and sells them outside its home country
• "Countertrading" involves bartering goods for services

Licensing and Franchising

• "Licensing" is when a company allows a foreign company to pay it a fee to make or distribute the product or service
• "Franchising" involves a company allowing a foreign company to pay a fee and share profits for using the company's brand and materials

Joint Ventures

• A "joint venture" is a strategic alliance where companies share risks/rewards, establishing a new enterprise as partners

Wholly Owned Subsidiaries

• A "wholly owned subsidiary" is a foreign subsidiary totally owned and controlled
• A "greenfield venture" is a built-from-scratch foreign subsidiary

Free Trade

• "Free trade" refers to the movement of goods and services among nations without political or economic obstruction

Trade Protectionism

• "Trade protectionism" involves government regulations limiting imports

Tariffs

• A "Tariff" is a tax levied on imports
• Revenue tariffs are designed to raise money for the government
• Protective tariffs are designed to raise the price of imported goods to make the prices of domestic products more competitive

Import Quota

• "Import quota" limits numbers of an import
• Intended to protect domestic industry

Dumping

• Designed to prevent dumping
• A company exports products at a lower price than in the home market (or below production costs).
• This is done to undercut local competition

Barriers to International Trade

• Quotas
• Embargoes
• Sanctions

Embargoes

• Complete bans on trade between one country and another

Sanctions

• Trade prohibition for a specific reason

Organizations Promoting International Trade

• World Trade Organization (WTO)
• The World Bank
• International Monetary Fund (IMF)

World Trade Organization (WTO)

• Designed to monitor and enforce trade agreements
• Based on the General Agreement on Tariffs and Trade (GATT), an international accord signed by 23 nations in 1947
• It currently consists of 164 countries and is headquartered in Geneva, Switzerland

The World Bank

• Founded to help European countries rebuild after WWII.
• Provides low-interest loans to developing nations for transportation, education, health, and telecommunications

International Monetary Fund (IMF)

• Designed to assist in smoothing the flow of money between nations
• Founded in 1945
• Affiliated with the United Nations
• A last-resort lender that provides short-term loans to countries with an unfavorable balance of payments

Major Trading Blocs

• A "trading bloc" is a group of nations that have agreed to remove trade barriers

USMCA

• USMCA (U.S. – Mexico – Canada Agreement) allows freer flow of goods, services, and capital among the U.S., Mexico, and Canada

EU

• EU (European Union) is 27 “borderless" trading partners in Europe

APEC

• APEC is the Asia-Pacific Economic Cooperation
• A group of 21 Pacific Rim countries, most with a Pacific coastline

ASEAN

• ASEAN (Association of Southeast Asian Nations) is a trading bloc of 10 countries in Southeast Asia

Mercosur

• Largest trading bloc in Latin America

CAFTA-DR (Central America Free Trade Agreement)

• Central America, including the Dominican Republic

Trans-Pacific Partnership (TPP)

• A trade agreement among 11 Pacific Rim countries
• Signed in February 2016
• The United States withdrew from the pact under the Trump administration

Cultural Differences

• A nation's culture is the shared set of beliefs, values, knowledge, and patterns of behavior common to a group of people

Cultural Dimensions

• "Dimension" is a measurable cultural feature
• Different cultures are understood by examining their dimensions
• One cultural dimension example is low-context vs. high-context

Cultural Context

• "Low-context culture" derives meanings from written/spoken words
• Examples: U.S., Great Britain, Scandinavia, Germany
• "High-context culture" relies heavily on situational cues
• Examples: China, Korea, Japan, Mexico, many Arab cultures

The GLOBE Project

• Started in 1993 by professor Robert J. House
• A cross-cultural research with nine different cultural dimensions
• Dimensions include power distance, uncertainty avoidance, institutional collectivism, ingroup collectivism, gender egalitarianism, assertiveness, future orientation, performance orientation, & humane orientation

Power Distance

• The the degree to which a society's members expect power to be unequally shared
• High: Morocco, Argentina, Thailand, Spain, Russia
• Low: Denmark, Netherlands, South Africa (black sample), Israel, Costa Rica

Uncertainty avoidance

• The extent to which a society relies on social norms and procedures to alleviate the unpredictability of future events.
• Higher: Switzerland, Sweden, Germany (former West), Denmark, Austria
• Lower: Russia, Hungary, Bolivia, Greece, Venezuela

Institutional collectivism

• The extent to which individuals are encouraged and rewarded for loyalty to the group as opposed to pursuing individual goals.
• Higher: Sweden, South Korea, Japan, Singapore, Denmark
• Lower: Greece, Hungary, Germany (former East), Argentina, Italy

In-group collectivism

• The extent to which people should take pride in being members of their family, circle of close friends, and their work organization.
• Higher: Iran, India, Morocco, China, Egypt
• Lower: Denmark, Sweden, New Zealand, Netherlands, Finland

Gender egalitarianism

• The extent to which a society should minimize gender discrimination and inequalities.
• Higher: Hungary, Poland, Slovenia, Denmark, Sweden
• Lower: South Korea, Egypt, Morocco, India, China

Assertiveness

• The extent to which a society expects people to be confrontational and competitive as opposed to tender and modest.
• Higher: Germany (former East), Austria, Greece, United States, Spain
• Lower: Sweden, New Zealand, Switzerland, Japan, Kuwait

Future orientation

• The extent to which a society encourages investment in the future, as by planning and saving.
• Higher: Singapore, Switzerland, Netherlands, Canada (English speaking), Denmark
• Lower: Russia, Argentina, Poland, Italy, Kuwait

Performance orientation

• The extent to which society encourages and rewards its members for performance improvement and excellence.
• Higher: Singapore, Hong Kong, New Zealand, Taiwan, United States
• Lower: Russia, Argentina, Greece, Venezuela, Italy

Humane orientation

• The degree to which individuals are encouraged to be altruistic, caring, kind, generous, and fair.
• Higher: Philippines, Ireland, Malaysia, Egypt, Indonesia
• Lower: Germany (former West), Spain, France, Singapore, Brazil

Cultural Variations

• Language: more than 7,000 languages are spoken.
• Interpersonal space: Americans like to conduct business with 3.1 to 3.4 feet of space compared to Asia where the ranges is 3.6 to 4.2 feet.
• Communication Styles
• High-context vs. low-context cultures
• Time orientation: "monochronic" (one thing at a time) vs. "polychronic"(more than one thing at a time)
• Religion influences work-related values.

Political and Legal Risks

• International expansion exposes companies to legal and political risks
• Political Instability
• Expropriation
• Corruption
• Labor abuses

Expropriation

• A government's seizure of a domestic or foreign company's assets

Corruption (bribes)

• U.S. “Foreign Corrupt Practices Act” prohibits questionable contributions to foreign political decision makers by employees of U.S. companies

Expatriates

• People living or working in a foreign country
• The U.S. State Department estimated in 2016 that about 9 million U.S. citizens are expatriates in foreign countries
• Issues associated with moving managers
  • Very expensive for the company
  • Many managers end up leaving