MG4031 Week 04 Global Business Environment PDF

MG4031 Wk.04 Lec.01 Global Business Environment: All factors beyond the organisation’s boundary that affect the organisation. These factors are uncontrollable from an organisation’s point of view. Organisations, through environmental scanning must manage and anticipate developments in their environ...

MG4031 Wk.04 Lec.01 Global Business Environment: All factors beyond the organisation’s boundary that affect the organisation. These factors are uncontrollable from an organisation’s point of view. Organisations, through environmental scanning must manage and anticipate developments in their environment to survive. Environmental Scanning: A process that systematically surveys and interprets relevant data to identify external opportunities and threats that impact future decisions. Components of external scanning include: Trends of the marketplace/industry: What trends will impact the organisation positively/negatively Competition: What are competitors doing and how can their weaknesses be exploited? Technology: Are their new technologies to improve efficiency? Customers: How is the customer base changing? Labour supply and market: What is the labour market like, is there ready access to talent? Globalisation: The increasing and deepening interactions and connections between individuals, groups and organisations across the world. The globalisation of production has allowed manufacturers to break down production into different stages, each in a location most advantageous. Markets are also becoming more globalised, leading to more choice for the consumer, and in turn, lower prices as MNCs can benefit from huge economies of scale. Despite globalisation, cultural and geographical differences remain. There are also some risks and threats, along with pressures on natural resources, climate and traditional industries and livelihoods. In an era of rising populism and nationalism and conflict, there are also debates about deglobalisation. Regional Trading Blocs/Alliances: Close economic co-operation and integration among member states, allowing free trade between member states, while imposing tariffs on goods from outside the trading bloc. However, there are often many regulations. The EU is a single market of 27 member states, which integrated in 1992, allowing goods, people and money to flow freely, increasing trade. While trading is easier and cheaper, the Common External Tariff (CET) makes imports more expensive. It is the 3rd largest global player in international trade.  North American Free Trade Agreement (NAFTA): Mexico, US and Canada signed this in 1994, creating the world’s largest free trade area. US trade with the other countries has quadrupled. In 2018, the US negotiated the US-Mexico-Canada Agreement (USMCA), updating many aspects of the NAFTA. Mercosur: Known as the Common Market of the South, it is South America’s largest trading bloc. It was set up in 1991 by Argentina, Brazil, Paraguay and Uruguay under the Treaty of Asunción. There are many associate members, who can join free trade agreements but remain outside the bloc’s customs union, e.g. Chile and Colombia. The Pacific Alliance is the second largest trade group in the region (Chile, Colombia, Mexico and Peru). The Caribbean countries have formed CARICOM. The Association of Southeast Asian Nations (ASEAN): A bloc of 10 countries which has undergone significant economic growth. African Continental Free Trade Agreement (AfCFTA): 49 states, signed in 2018, the largest free trade agreement in history. However, these states have a large variation in GDP. BRICS (Brazil, Russia, India, China, South Africa): Five large emerging economies with a large population and good economic potential. They account for over 25% of global GDP and 40% of the population. They experienced high growth rates in the years preceding the Financial Crisis. China has the highest growth rate in the group and has the second largest economy in the world by GDP. They have been divided into two categories since the Financial Crisis: Countries integrating into global supply chains (India with IT and services and China with manufacturing) Countries taking advantage of globalisation to sell their abundant natural resources (Brazil with soybeans, iron ore and crude oil, Russia with crude oil, natural gas and minerals, and South Africa with gold, diamonds and platinum) Corruption is still a major problem in the BRICS. MNC: An organisation with business activities in more than one country. International Firm: An organisation engaged in trade in many parts of the world, but without value-adding activities. Understanding Cultural Differences: Culture: A system of values and norms that are shared among a group of people and that when taken together constitute a design for living. Understanding the values and behaviours of potential customers, employees and the wider society of global business locations is essential for any organisation. Culture often originates from shared national history and identity, from social, ethnic and religious groups, and from language and communication. Hofstede’s Cultural Classification: He identified six cultural dimensions: 1. Power Distance (PD): This is the extent to which hierarchical differences are accepted in society. Cultures with a high PD score display a strong deference to authority. In work, they have tall hierarchies, high centralisation, more supervisory staff and larger wage differentials. 2. Uncertainty Avoidance (UA): The extent to which the members of a society tolerate uncertainty and ambiguity, and how the society tries/doesn’t try to deal with the future. Countries with a high score try to avoid uncertainty by standardising behaviour and rules and are intolerant of unorthodox behaviour and ideas. Those with a lower score display less ritualistic behaviour and are more like to take risks. Cultural scores for UA are critical for FDI due to risk-taking. 3. Individualism Vs. Collectivism: People believe in the rise and the dominance of the individual rather than the others. The opposite is collectivism. High collectivism leads to firms treating employees as ‘family members’. This effects pay and reward for MNCs operating in different countries. 4. Masculinity Vs. Femininity: the extent to which traditional masculine values such as aggressiveness and assertiveness are emphasised, as opposed to values of nurturing and concern for others. Organisations from high masculinity environments typically reward competition and aggressive behaviour rather than softer, more intuitive skills. 5. Long Vs. Short-Term Orientation: The cultural views to the future and time. A culture with low LTO maintains old traditions and norms, and dislikes cultural change. Cultures with high LTO are likely to adopt a longer planning horizon and defer investment decisions. In business, this is referred to as normative (short-term) and pragmatic (long-term). 6. Indulgence Vs. Restraint: The extent to which people control their desires and impulses. Cultures high on indulgence possess a positive/optimistic attitude, placing a higher degree of importance on leisure time. Those with restraint do not. The GLOBE (Global Leadership and Organisational Behaviour Effectiveness) Project was an add on the Hofstede’s working. Its cultural dimensions are: Assertiveness Gender Differentiation Uncertainty Avoidance Future Orientation Power Distance Collectivism/Individualism In-Group Collectivism Performance Orientation Humane Orientation Cultural Risk: A situation where a cultural mistake or misunderstanding puts a business activity in jeopardy. Cultural Distance: The degree to which an organisation is unfamiliar with the culture. When managing cultural, organisations will typically follow one of these three approaches: 1. Ethnocentrism: Focuses on the use of the home culture as the standard 2. Polycentrism: Focuses on the use of the host culture as the standard 3. Geocentrism: Focuses on the use of a global mindset as the standard References: Notes based on MG4031 Lecture Slides and Modern Management: Theory and Practice for Students in Ireland (5th Ed.) - Tiernan S. and Morley, M.J. Chapter 3.