Managing in the Global Environment PDF

CHAPTER 6 Managing in the Global Environment ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. ...

CHAPTER 6 Managing in the Global Environment ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  Learning Objectives (1 of 2) 1. Explain why the ability to perceive, interpret, and respond appropriately to the global environment is crucial for managerial success. 2. Differentiate between the global task and global general environments. 3. Identify the forces in the global task and general environments, and describe the challenges that each force presents to managers. ©McGraw-Hill Education.  Learning Objectives (2 of 2) 4. Explain why the global environment is becoming more open and competitive, and identify the forces behind the process of globalization that increase the opportunities, complexities, challenges, and threats managers face. 5. Discuss why national cultures differ and why it is important that managers be sensitive to the effects of falling trade barriers and regional trade associations on the political and social systems of nations around the world. ©McGraw-Hill Education. The Nature of Managerial Decision Making (1 of 2) Global Environment The set of global forces and conditions that operates beyond an organization’s boundaries but affects a manager’s ability to acquire and utilize resources. ©McGraw-Hill Education. © Robert Nicholas footstock RF  Fig. 6.1 Forces in the Global Environment ©McGraw-Hill Education.  Task and General Environment The Task Environment The set of forces and conditions that originates with suppliers, distributors, customers, and competitors and affects an organization’s ability to obtain inputs and dispose of its outputs. The General Environment The wide-ranging global economic, technological, socio-cultural, demographic, political, and legal forces that affect an organization and its task environment ©McGraw-Hill Education.  The Task Environment (1 of 3) Suppliers – Individuals and organizations that provide an organization with the input resources needed to produce its goods and services. – Relationships with suppliers can be difficult due to materials shortages, unions, and lack of substitutes. Suppliers that are the sole source of a critical item are in a strong bargaining position to raise their prices. ©McGraw-Hill Education. –  The Task Environment (1 of 3) Global outsourcing – The purchase or production of inputs or final products from overseas suppliers to lower costs and improve product quality or design. ©McGraw-Hill Education.  The Task Environment (2 of 3) Distributors – Organizations that help other organizations sell their goods or services to customers. – Powerful distributors can limit access to markets through its control of customers in those markets. – Managers can counter the effects of distributors by seeking alternative distribution channels. ©McGraw-Hill Education.  The Task Environment (2 of 3) Customers – Individuals and groups that buy the goods and services an organization produces. – Identifying an organization’s main customers and producing the goods and services they want is crucial to organizational and managerial success. ©McGraw-Hill Education.  The Task Environment (3 of 3) Competitors – Organizations that produce goods and services that are similar to a particular organization’s goods and services. – Potential Competitors Organizations that presently are not in the task environment but could enter if they so chose – Strong competitive rivalry results in price competition, and falling prices reduce access to resources and lower profits. ©McGraw-Hill Education.  Barriers to Entry and Competition Economies of Scale That deter Create barriers potential to entry competitors Brand loyalty ©2013 Flat World Knowledge, Inc. ©McGraw-Hill Education.  The Task Environment (3 of 3) Barriers to Entry – Factors that make it difficult and costly for the organization to enter a particular task environment or industry – Economies of scale Cost advantages associated with large operations – Brand loyalty Customers’ preference for the products of organizations currently existing in the task environment. ©McGraw-Hill Education.  Individual Assignment: Economies of Scale FIXED COST $ 3,000.00 VARIABLE COST $ 5.00 NUMBER OF UNITS $ 50.00 UNIT PRICE $ 12.50 NET UNITS NET FIXED VARIABLE TOTAL COST/ TOTAL REVENUE COST COST COST UNIT PROFIT - - $ 3,000 50 $ 3,000 100 $ 3,000 150 $ 3,000 200 $ 3,000 250 $ 3,000 300 $ 3,000 350 $ 3,000 400 $ 3,000 450 $ 3,000 500 $ 3,000 550 $ 3,000 600 $ 3,000 650 $ 3,000 700 $ 3,000 750 $ 3,000 800 $ 3,000 ©McGraw-Hill Education.  Michael Porter’s 5 forces-model Suppliers Bargaining power of suppliers Industry competitors Potential Threat of Threat of Substitutes entrants new entry substitutes Rivalry among existing competitors Bargaining power of buyers Buyers (Customers) ©McGraw-Hill Education.  General Environment Economic forces Technological forces Social-cultural forces Demographic forces Political and legal forces ©McGraw-Hill Education.  General Environment Economic forces – Interest rates, inflation, unemployment, economic growth, and other factors that affect the general health and well-being of a nation or the regional economy of an organization – Managers usually cannot impact or control these. – Forces have profound impact on the firm. ©McGraw-Hill Education.  General Environment Technological forces – Outcomes of changes in the technology that managers use to design, produce, or distribute goods and services Results in new opportunities or threats to managers Often makes products obsolete very quickly. Can change how managers manage. ©McGraw-Hill Education.  General Environment Social-Cultural Forces – Pressures emanating from the social structure of a country or society or from the national culture Social structure: the arrangement of relationships between individuals and groups in society National culture: the set of values that a society considers important and the norms of behavior that are approved or sanctioned in that society. – Cultures and their associated social structures, values, and norms differ ©McGraw-Hill Education. widely throughout the world.  General Environment Political forces – Outcomes of changes in laws and regulations, such as the deregulation of industries, the privatization of organizations, and increased emphasis on environmental protection Increases in laws and regulations increase the costs of resources and limit the uses of resources that managers are responsible for acquiring and using effectively and efficiently. ©McGraw-Hill Education.  Factors reducing the impact of Environmental Forces Creating an effective organizational structure; Utilizing ICT and Internet; Interaction with individuals or groups; ©McGraw-Hill Education.  The Changing Global Environment Global Environment is our world in nowadays; Declining Barriers to Trade and Investments; – “Free Trade doctrine” VS Protectionist doctrine ; – GATT/WTO, EU, NAFTA Declining Barriers of Distance and Culture; ©McGraw-Hill Education.  Declining Barriers to Trade and Investment Tariffs – A tax that government imposes on imported or, occasionally, exported goods. – Intended to protect domestic industry and jobs from foreign competition – Other countries usually retaliate their own tariffs, actions that eventually reduce the overall amount of trade and impedes economic growth. ©McGraw-Hill Education.  GATT and the Rise of Free Trade Free Trade Doctrine – The idea that if each country specializes in the production of the goods and services that it can produce most efficiently, this will make the best use of global resources If India is more efficient in making textiles, and the United States is more efficient in making computer software, then each country should focus on their respective strengths and trade for the other’s goods. ©McGraw-Hill Education.  Declining Barriers of Distance and Culture Distance – Markets were essentially closed because of the slowness of communications over long distances. Culture – Language barriers and cultural practices made managing overseas businesses difficult Changes in Distance and Communication ©McGraw-Hill Education.  The Global Task Environment- Forces (In the Global Context) 1) Suppliers; – Development of a global network of suppliers; – Global outsourcing; 2) Distributors; – Traditional means for distribution and sales of goods to the customers; 3) Customers; – Significant differences in consumer tastes and preferences; 4) Competitors; – Brand loyalty of local producers; ©McGraw-Hill Education.  Global Task Environment- Forces and Challenges Competitors Customers Global Organization Suppliers Distributors ©McGraw-Hill Education.  The Global Task Environment Suppliers – Managers buy products from global suppliers or make items abroad and supply themselves. – A common problem is developing a network of global suppliers to keep costs down and quality high. – Global outsourcing The purchase of inputs from foreign suppliers, or the production of inputs abroad, to lower costs and improve product quality or design; the finished goods ©McGraw-Hill Education. become global products.  The Global Task Environment Distributors – Each country often has a unique system of distribution with custom and legal restraints. – Managers must identify the hidden threats and problems in foreign distribution systems before attempting to compete in those markets. ©McGraw-Hill Education.  Customers and Competitors Customers – National markets are now merging into a huge global market with the same basic consumer and business goods. Creates large opportunities for expansion Products must be customized to fit different cultures Competitors – Global competitors present new threats Increased competition abroad as well as at home. Strong local competitors ©McGraw-Hill Education.  The Global General Environment- Forces 1) Political and Legal Forces; – Representative democracies; – Totalitarian/Authoritarian regimes; 2) Economic Forces; – Free market economies; – Command/Centralized economies; 3) Social-cultural Forces /National Culture differences; – National culture; – Values, norms attitudes; 4) Gert Hofstede’s model of ©McGraw-Hill Education.  Political and Legal Forces Representative Democracy – A political system in which representatives elected by citizens and legally accountable to the electorate form a government whose function is to make decisions on behalf of the electorate Usually has a number of safeguards such as freedom of expression, a fair court system, regular elections, and limited terms for officials. Possesses a well-defined legal system and economic freedom. ©McGraw-Hill Education.  Political and Legal Forces (cont’d) Totalitarian/Autoritarian Regimes – A political system in which a single party, individual, or group holds all political power and neither recognizes nor permits opposition Most safeguards found in a democracy do not exist. These regimes are difficult to do business with given their lack of political, legal, and economic freedoms. Human rights issues also cause managers to avoid dealing with these countries. ©McGraw-Hill Education.  Economic Forces Free Market Economy – Private enterprise controls production of goods and services. – Supply and demand determines production and the prices consumers pay. Command and Centralized Economy – The government controls all factors of production (private enterprise is forbidden) and it decides what to produce, how much, and sets prices. – Many countries are moving away from their failed command economies to a free-market orientation. ©McGraw-Hill Education.  Economic Forces Mixed Economy – Certain economic sectors controlled by private business, others are government controlled. – Many mixed countries are shifting toward free-market systems. ©McGraw-Hill Education.  Sociocultural Forces National culture – The set of values, norms, knowledge, beliefs, and other practices that unite the citizens of a country. Values – Ideas about what a society believes to be good, desirable and beautiful. Provides conceptual support for democracy, truth, appropriate roles for men, and women. Usually not static but very slow to change. ©McGraw-Hill Education.  Sociocultural Forces (cont’d) Norms – Unwritten rules and codes of conduct that prescribe how people should act in particular situations. Folkways—routine social conventions of daily life (e.g., dress codes and social manners) Mores—behavioral norms that are considered central to functioning of society and much more significant than folkways (e.g., theft and adultery), and they are often enacted into law. – Norms vary from country to country. ©McGraw-Hill Education.  Gert Hofstede’ s model of National Culture ©McGraw-Hill Education.  Gert Hofstede’ s model of National Culture Power Distance – The extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally. In high power distance societies, the gap between rich and poor becomes very wide (e.g., Panama and Malaysia). In the low power distance societies of western cultures (e.g., United States and Germany), the gap between rich and poor is reduced by taxation and welfare programs. ©McGraw-Hill Education.  Gert Hofstede’ s model of National Culture Individualism – A world view that values individual freedom and self-expression and holds a strong belief in personal rights and the need for persons to be judged by their achievements rather their social background. Collectivism – A worldview that values subordination of the individual to the goals of the group. – Widespread under communism and prevalent in Japan as well. ©McGraw-Hill Education.  Gert Hofstede’ s model of National Culture Masculinity – Achievement-oriented societies value assertiveness, performance, and success and are results-oriented. Femininity – Nurturing-oriented cultures value quality of life, personal relationships, and service. The fundamental issue here is what motivates people, wanting to be the best (Masculine) or liking what you do (Feminine). ©McGraw-Hill Education.  Gert Hofstede’ s model of National Culture Uncertainty avoidance – Low uncertainty avoidance cultures (e.g., U.S. and Hong Kong) value diversity and tolerate a wide range of opinions and beliefs – High uncertainty avoidance societies (e.g., Japan and France) are more rigid and expect high conformity in their citizens’ beliefs and norms of behavior. ©McGraw-Hill Education.  Gert Hofstede’ s model of National Culture Uncertainty avoidance – Low uncertainty avoidance cultures (e.g., U.S. and Hong Kong) value diversity and tolerate a wide range of opinions and beliefs – High uncertainty avoidance societies (e.g., Japan and France) are more rigid and expect high conformity in their citizens’ beliefs and norms of behavior. ©McGraw-Hill Education.  Gert Hofstede’ s model of National Culture Long term orientation – Cultures (e.g., Taiwan and Hong Kong) with a long-term in outlook/viewpoint are based on the values of saving, and persistence. – Short-term outlook/viewpoint societies (e.g., France and the United States) seek the maintenance of personal stability or happiness in the present. ©McGraw-Hill Education.  Gert Hofstede’ s model of National Culture Indulgence – This dimension is defined as the extent to which people try to control their desires and impulses, based on the way they were raised. – Indulgence: a tendency toward a relatively weak control over one’s impulses; – Restraint: a relatively strong control over one’s urges; ©McGraw-Hill Education.  Gert Hofstede’ s model of National Culture: The Case of Albania ©McGraw-Hill Education.  Four Ways of Expanding Internationally ©McGraw-Hill Education.  Choosing a Way to Expand Internationally Importing and Exporting – The least risky and least complex of global operations Exporting—making products at home and selling them abroad Importing—selling products at home that are made abroad. ©McGraw-Hill Education.  Choosing a Way to Expand Internationally Licensing – Allowing a foreign organization to take charge of manufacturing and distributing a product in its country or world region in return for a fee. Home firm does not have the risk involved with investing in production and distribution facilities. ©McGraw-Hill Education. The home firm risks exposing its  Choosing a Way to Expand Internationally Franchising – Selling to a foreign organization the rights to use a brand name and operating know-how in return for a lump-sum payment and a share of the profits. Franchiser does not have to bear any development costs or deal with any problems associated with foreign market development Danger to the franchiser is loss of ©McGraw-Hill Education.  Choosing a Way to Expand Internationally Strategic Alliances – Agreements in which managers pool or share their organization’s resources and know-how with a foreign company and both organizations share the rewards and risks of the new venture. Allows firm to maintain control which is a basic problem with exporting, licensing, and franchising. – A strategic alliance among two or more companies that agree to jointly establish and share the ownership of an new ©McGraw-Hill Education.  Choosing a Way to Expand Internationally Wholly-Owned Foreign Subsidiary – Production operations established in a foreign country independent of any local direct involvement Requires a high level of investment Higher degree of operational control lowers risk of investment Offers the potential for high returns on the investment Protects the firm’s technology and know-how ©McGraw-Hill Education.