Globalization and MNCs

A Borderless World

• Globalization involves the flow of trade, investments, information, social and cultural ideas, and political cooperation between countries
• Increased interdependence among countries, businesses, and people is a result of globalization
• Globalization provides a competitive edge and saturates domestic markets for many firms
• A global mindset enables managers to appreciate and influence diverse individuals, groups, organizations, and systems with differing characteristics
• A manager with a global mindset can perceive and respond to multiple perspectives simultaneously, avoiding a limited domestic viewpoint
• Developing a global mindset requires curiosity, open-mindedness, and the ability to handle ambiguity and complexity

Multinational Corporations (MNCs)

• Multinational corporations have a large size and volume in international business
• An MNC typically receives over 25% of its total sales revenues from operations outside its home country
• MNCs operate as integrated worldwide business systems with close cooperation between foreign affiliates
• A single management authority controls MNCs, making key strategic decisions for the parent company and all affiliates
• MNC top managers view the entire world as one market for strategic decisions, resource acquisition, and efficiency

Company Orientations

• Ethnocentric companies prioritize their home countries
• Polycentric companies focus on individual foreign host countries' markets
• Geocentric companies are world-oriented and do not favor any specific country

Globalization Backlash

• Increasing interconnectedness has led to a backlash against globalization
• Job losses due to companies exporting work to countries with lower wages are a primary concern
• Activists argue that globalization harms workers, contributes to environmental destruction, and increases poverty
• Businesses and governments must collaborate to ensure global advantages are shared fairly

Serving the Bottom of the Pyramid (BOP)

• Multinational organizations can address negative societal issues and make profits by selling to the world’s poorest populations
• The bottom of the pyramid refers to the over four billion people at the lowest level of the economic pyramid, based on per-capita income
• The concept of BOP is not new; Unilever has long been introducing inexpensive soap products to prevent disease in poor areas

Getting Started Internationally

• Organizations can engage internationally by seeking cheaper offshore resources through offshoring or global outsourcing
• Market entry strategies, such as exporting, licensing, and direct investment, are alternative ways to sell products and services in foreign markets

Exporting

• Exporting involves maintaining production facilities in the home country and transferring products for sale abroad
• Exporting allows companies to market products internationally with modest resources and limited risk
• Exporting involves challenges such as physical distances, government regulations, foreign currencies, and cultural differences
• Exporting is less expensive than building plants in host countries

Outsourcing

• Global outsourcing, or offshoring, involves the international division of labor to utilize cheaper labor and supplies
• Outsourcing core processes like auditing or chemistry research is a recent trend

Licensing

• Licensing involves a corporation (licensor) making resources available to companies in another country (licensees)
• Resources include technology, managerial skills, and/or patent and trademark rights to produce and market similar products
• Franchising is a special form of licensing where the franchisee buys a complete package of materials and services

Direct Investing

• Direct investing involves a corporation managing productive assets, distinguishing it from strategies with less managerial control
• Engaging in strategic alliances and partnerships is the most popular form of direct investment

Joint Ventures

• Joint ventures involve a company sharing costs and risks with another firm, usually in the host country
• Joint ventures help to develop new products, build manufacturing facilities, or set up sales and distribution networks

Foreign Affiliates

• Creating a wholly owned foreign affiliate gives the company complete control
• Direct acquisition of an affiliate may save costs by shortening distribution channels and reducing storage and transportation costs

Greenfield Venture

• A greenfield venture is building a subsidiary from scratch in a foreign country, which is the most costly and risky direct investment
• The subsidiary can be tailored to the company's exact needs and has high profit potential
• The company must acquire market knowledge, materials, people, and know-how in a different culture

The International Business Environment

• International management involves business operations in more than one country
• Fundamental business management tasks remain the same, but managers face greater difficulties and risks internationally
• Economic, legal-political, and sociocultural sectors present the greatest challenges in comparing countries

The Economic Environment

• Economic development varies among countries, which are categorized as developing or developed
• Less-developed countries (LDCs) are classified based on per capita income
• Most international firms are headquartered in economically advanced countries but are increasingly investing in Asia, Eastern Europe, and Latin America
• Infrastructure includes a country’s physical facilities supporting economic activities
• Companies in LDCs face challenges with lower levels of technology and logistical problems

The Legal-Political Environment

• Political risk involves a company's potential loss of assets, earning power, or managerial control due to political events or government actions
• Political instability includes riots, revolutions, civil disorders, or government upheavals affecting international company operations
• Government laws and regulations differ by country, creating challenges for international firms

The Sociocultural Environment

• A nation’s culture includes shared knowledge, beliefs, values, and common behaviors
• Understanding differences in social values helps managers comprehend local cultures
• Ethnocentrism is the attitude of regarding one’s own culture as superior and downgrading other cultures, making it hard for foreign firms to operate
• National social value systems and other cultural characteristics influence organizational and employee working relationships

Hofstede’s Value Dimensions

• Power distance measures the extent to which people accept inequality in power
  • High power distance countries include Malaysia and the Philippines
  • Low power distance countries include Denmark and Israel
• Uncertainty avoidance measures the degree to which people feel uncomfortable with uncertainty and ambiguity
  • High uncertainty avoidance countries include Greece, Portugal, and Uruguay
  • Low uncertainty avoidance countries include Singapore and Jamaica
• Individualism reflects a value for a loosely knit social framework
  • The United States, Canada, and Great Britain have individualist values
• Collectivism is a preference for a tightly knit social framework
  • China, Mexico, and Brazil have collectivist values
• Masculinity stands for achievement, heroism, assertiveness, work centrality, and material success
  • Japan, Italy, Mexico, and Germany have strong masculine values
• Femininity reflects the values of relationships, modesty, caring for the weak, and quality of life
  • Sweden, Norway, Costa Rica, and France have feminine values
• Long-term orientation values thrift and perseverance
• Short-term orientation values tradition and meeting social obligations

GLOBE Project Value Dimensions

• The GLOBE Project used data from 18,000 managers in 62 countries to explain cultural differences
  • Assertiveness measures the extent to which society encourages toughness and competitiveness
  • Future orientation measures the extent to which a society encourages planning for the future
  • Gender differentiation measures the extent to which a society maximizes gender role differences
  • Performance orientation measures the emphasis on performance and rewards for improvement
  • Humane orientation measures the degree to which a society encourages fairness, altruism, generosity, and caring

Communication Differences

• People from some cultures pay more attention to the social context of verbal communication
  • High-context cultures are sensitive to circumstances and use communication to build personal relationships with meaning derived from context, status, and nonverbal behavior
  • Asian and Arab countries exemplify high-context cultures
  • Low-context cultures primarily exchange facts and information, with meaning derived from explicit words
  • American and Northern European cultures are typically low-context cultures

International Trade Alliances

• The General Agreement on Tariffs and Trade (GATT), signed in 1947 by 23 nations, ensured nondiscrimination, provided procedures, settled disputes, and encouraged participation of LDCs
• GATT sponsored eight rounds of trade negotiations to reduce trade restrictions
• The World Trade Organization (WTO) represents the maturation of GATT and monitors international trade and disputes
• The WTO was established as a result of the 1986 to 1994 Uruguay round, and had 153 member countries as of July 2008
• The WTO brings greater trade liberalization in goods, information, technology, and services

European Union

• The European Economic Community, now called the European Union (EU), was formed in 1957 to improve economic and social conditions
• Largest expansion in 2004 where it became a 27-nation alliance
• The goal of the EU is to create a single-market system for Europe’s millions of consumers
• The euro, the single European currency, may replace 27 European currencies eventually

NAFTA

• NAFTA went into effect on January 1, 1994, merging the U.S., Canada, and Mexico into a single mega market
• NAFTA broke down tariffs and trade restrictions over a 15-year period
• Some view NAFTA as a success, while others view it as a failure
• It has increased trade, investment, and income and continues to improve competition for all three countries