Globalization and International Management Overview

1. m a n a g e m e n t 2eH i t t / B l a c k / P o r t e r Chapter 3: International Management and Globalization

2. Learning Objectives After studying this chapter, you should be able to: • Explain what globalization is and how it affects firms and countries. • Identify and differentiate the two major elements of the global environment. • Name and explain the three major dimensions of an institutional environment • Define the term culture and identify four primary cultural dimensions. • Describe the five international market entry strategies and explain when each should be used.

3. Learning Objectives • Explain the three types of international organization focus • Discuss the benefits and challenges of managing across cultures • Describe how to effectively manage multicultural teams • Define the term global mindset and explain its importance for managers

4. Globalization Globalization: • Is the flow of goods and services, capital, and knowledge across country borders • Enhances economic interdependence among countries and organizations • Allows both small and large firms from developed and less developed economies to compete

5. Country’s Institutional Environment Institutional environment: the country’s rules, policies, and enforcement processes Three dimensions: • Economic development dimension • Political-legal dimension • Physical infrastructure dimension

6. Country’s Institutional Environment:Economic Dimension Economies are classified as either: • Developed economies • Larger economies with effective capital markets • Emerging economies • Rapidly growing with underdeveloped capital markets • Developing economies • Weak economies with little capital available for growth

7. Country’s Institutional Environment:Political-Legal Dimension • Includes country’s political risk, regulations, laws, and enforcement • Governments develop laws to govern behavior of citizens and organizations • Some “rules” are excessive and discourage foreign investment • Intellectual property rights

8. Country’s Institutional Environment:Physical Infrastructure Dimension • Includes amount and quality of roads and highways, telephone lines, and airports • Poor infrastructure makes it difficult for foreign firms to distribute products • Countries wanting foreign investment must develop infrastructure

9. Country’s Institutional Environment Clusters Adapted from Exhibit 3.1

10. Country’s Culture • Culture • Learned set of assumptions, values, and behaviors • Accepted as successful • Passed on to newcomers • Begins when a group of people faces a set of challenges • Evolves and changes with time

11. Cultural Dimensions

12. Extent to which people accept power and authority differences among people High power distance = people accept power differences Low power distance = people like to regard themselves as more or less equal Cultural Dimensions: Power Distance Power Distance Cultural Dimensions

13. Extent to which people can accept uncertainty or ambiguity High uncertainty avoidance = prefer clear norms that govern behavior (i.e., avoid uncertainty) Low uncertainty avoidance = have fewer rules and are comfortable in ambiguous situations (i.e., can accept uncertainty) Cultural Dimensions: Uncertainty Avoidance Cultural Dimensions Uncertainty Avoidance

14. Individualism: Extent to which people’s identities are self-oriented; people take care of themselves and immediate family High emotional independence Emphasize and reward individual achievement Collectivism: Extent to which a people’s identities are a function of the group(s) to which they belong (family firm, community, etc.) Emotional dependence on institutions Emphasize group membership Cultural Dimensions: Individualism/Collectivism Cultural Dimensions Individualism/ Collectivism

15. Extent to which people in a country value masculine or feminine traits Masculine = activities leading to success, money, possessions Feminine = activities showing caring of others and enhancing quality of life Cultural Dimensions: Gender Focus Gender Focus Cultural Dimensions

16. Cultural Values and Scores • Higher scores indicate higher power distance • Higher scores suggest more uncertainty avoidance • Higher scores indicate greater collectivism • Higher scores suggest greater gender equality; lower scores indicate • male domination Adapted from Exhibit 3.2

17. Cultural Values and Scores (cont.) • Higher scores indicate higher power distance • Higher scores suggest more uncertainty avoidance • Higher scores indicate greater collectivism • Higher scores suggest greater gender equality; lower scores indicate • male domination Adapted from Exhibit 3.2

18. International Market Entry Strategies Exporting Less Risk Licensing Strategic Alliances Cross-Border Acquisitions Wholly-Owned Subsidiaries More Risk

19. International Market Entry Strategies Advantages: • Low cost • Low risk to licensor Disadvantages: • Potential trade barriers • Establishment of marketing and distributing systems in foreign market • Transportation costs • Smaller returns Exporting Manufacturing products in a firm’s home country and shipping them to a foreign market.

20. International Market Entry Strategies Advantages: • Less capital investment • Least amount of risk Disadvantages: • Licensor has little control over product and use of brand • Smaller returns Licensing Arrangements that allow a local firm in the new market to manufacture and distribute a firm’s product.

21. International Market Entry Strategies Advantages: • Share costs and risks between partners • Access to resources not previously available • Learn capabilities from partner Disadvantages: • Management disagreement • Share profits New types of alliances: • Outsourcing • Offshoring Strategic Alliances Cooperative arrangements between two firms in which they agree to share resources to accomplish a mutually desirable goal.

22. International Market Entry Strategies Advantages: • Fast way to enter foreign market • Can start operations immediately Disadvantages: • Can cause controversy in local public • Integrating two previously independent companies can be challenging • Targeted acquisitions may cost a premium Acquisitions of local firms made by foreign firms to enter a new international market. Cross-Border Acquisitions

23. International Market Entry Strategies Advantages: • Maximum control over operations • Buffer assets from competitors in the market Disadvantages: • Complex, risky and expensive to launch • Must establish relationships with suppliers, buyers, etc. • Must learn about culture and institutional environment on your own Direct investments to establish a business in a foreign market in which the business is 100% owned and controlled by the focal firm; also called Greenfield Venture. Wholly-Owned Subsidiaries

24. Managing International Operations:Global Focus Global Focus • Important decisions made at home office • Subsidiaries follow same strategies Advantage: • Economies of scale Disadvantage: • No flexibility for subsidiaries to make local market decisions Centralized to home office

25. Managing International Operations:Region-Country Focus Region-Country Focus • Important decisions made by subsidiaries in local markets Advantage: • Allows subsidiaries to react quickly to changes in marketplace Disadvantage: • Expensive; difficult for home office to oversee Decentralized to subsidiaries

26. Managing International Operations:Transnational Focus Transnational Focus • Both home office and subsidiaries make important decisions Advantages: • Good combination of global efficiency and local responsiveness • Outperforms other approaches Centralized and decentralized

27. Low- and High-Context Cultures Cultural context: degree to which a situation influences behavior or perception of “appropriateness” Neither high- nor low-context cultures are right or wrong, just different HIGH-CONTEXT People pay close attention to the situation and its various elements in assessing appropriate behavior LOW-CONTEXT Situation may or may not make a difference in what is considered appropriate behavior

28. Low- and High-Context Cultures Examples HIGH-CONTEXT American Canadian German Swiss Scandinavian English LOW-CONTEXT Vietnamese Chinese Japanese Korean Arab Greek Adapted from Exhibit 3.3

29. Managing Multi-Cultural Teams Challenges to managing multi-cultural teams: • Dependence on electronic communication (virtual teams) • Basic communication issues • Building trust among team members with different values (swift trust: rapid development of trust in teams about task activities)

30. Developing a Global Mindset Global mindset: cognitive attributes that allow an individual to influence individuals, groups, and organizations from diverse socio-cultural and institutional environments

31. Managing Globalization Arguments FOR globalization: • Creates a more peaceful society • Promotes interest in local traditions and history • Facilitates development of cultural sensitivity and understanding • Cultural change = gain and creativity

32. Managing Globalization Arguments AGAINST globalization: • Promotes homogeneity of cultures • Encourages one bland, uniformed identity for all cultures • Cultural change = loss and destruction X