Chapter 4

1. Chapter 4 MGT 301 Managing Globally

2. Managing Globally Learning Goals • State the trends affecting organizations in a global economy • Describe how a country’s culture can affect an organization’s business practices • Explain how political—legal forces impact global business • Discuss how three major international trade agreements affect global competition and cooperation • Describe six strategies used by organizations to grow globally

3. International Management Managing Across the Globe: Why? • Great opportunities in the international marketplace today • Other countries having population explosions • Strong profit potential • Growing trend – Across borders business relationships • Slowdown in industrialized nations • Growth in newly industrialized and developing countries

4. The Global Economy: Global Economic Trends Borderless organizations Worldwide labor pool Worldwidecommunication Foreign Exchange rates Expanding Nature of trade Globalsourcing of parts Importanceof exportsand imports

5. The Global Economy: Snapshot “It is now possible for more people than ever to collaborate and compete in real time with more people on different kinds of work from different corners of the planet and on more equal footing than at any previous time in the history of the world using computers, e-mail, teleconferencing and dynamic software.” Thomas L. Friedman, Author, The World is Flat

6. Cultural Forces: Five Aspects of Culture Cultural Distance Culture Value Systems Social Change Language Time Orientation

7. Value Systems: Cultural Values in Mexico and the United States Importance of Cultural Orientation UncertaintyAvoidance Power Distance Gender-Role Orientation Individualism Cultural Value Dimension

8. Value Systems: Managerial Implications of Power Distance Differences Issue United States Mexico Subordinates’ dependence needs Moderate dependence on supervisor Heavy dependence on supervisor Consultation Expect to be consulted Expect little consultation Ideal superior Democratic leadership A benevolent autocrat or paternalistic father figure

9. Value Systems: Managerial Implications of Power Distance Differences (cont'd) Issue United States Mexico Rules and regulations Apply to all Supervisors are above rules and regulations and take advantage of privileges Status symbols Are accepted as symbols of authority, but are not necessary Are very important evidence of the authority of superiors

10. Value Systems: Values and Managerial Characteristics Characteristics United States Mexico Participation, delegation to employees Centralized, concentrated at top Decision making Responsibility Employees assume responsibility for their own lives Employees expect close paternalistic supervisors Organization chart Indicative of unequalcompetencies;reflects information flow in organization Indicative of unequal roles; reflects power relationships of key family members

11. Value Systems: Values and Managerial Characteristics (cont'd) Characteristics United States Mexico Demonstrated performance Family or personal ties Hiring criteria Performance feedback Employee accepts accountability Critical feedback resented Leadership pattern Democratic leader Benevolent dictator Planning process Long term, proactive, formal Short term, reactive, unstructured Source: Adapted from T.H. Becker. Doing Business in the New Latin America. Westport, CT: Praeger, 2004, 135-136.

12. Value Systems: Cultural Distance and Examples of Industries Impacted Aspects of CulturalDistance Examples of Industries Affected by Cultural Distance • Different languages • Different ethnicities • Different religions • Different social norms • Consumer foods • Tobacco products • Products that have high linguistic content (TV) • Auto (size, features)

13. Political-Legal Forces: Political Risk • Political risk: probability that governmental decisions or events in a country will negatively affect the long-term profitability of an investment • Major Dimensions of political risk High Low • Domestic instability High Low • Foreign conflict High Low • Political climate High Low • Economic climate High Low • Corruption

14. Political Risk: Examples of Perceptions of Country Corruption Country Rank Country Score* 1 (least Corrupt) Iceland (9.7) 2 Finland and New Zealand (9.6) 14 Canada (8.4) 17 United States (7.6) 21 Japan and Chile (7.5) 65 Mexico (3.5) 117 Philippines and Bolivia (2.5) 130 Venezuela (2.3) 158 (Most Corrupt) Bangladesh and Chad (1.7) *Score relates to degree of corrupt behaviors by analysts. Scores can range from 10 (not corrupt) to 0 (highly corrupt).

15. Political-Legal Forces: Political Mechanisms Protectionismis designed to help home-based industries or firms avoid (or reduce) potential (or actual) competitive threats from abroad • Tariff:a government tax on goods or services entering the country • Quota:a restriction on the quantity of a country’s imports and sometimes exports • Subsidy:a direct or indirect payment by a government to domestic firms to make selling or investing abroad cheaper for them • Cartel:an alliance of producers engaged in the same type of business that is formed to limit or eliminate competition and control production and prices

16. Political Mechanisms Related to Various Degrees of Corruption • Bribe: an improper payment made to induce the recipient to do something for the payer • Extortion: a payment made to ensure that the recipient doesn’t harm the payer in some way • Grease payments: small payments used to get lower level government employees to speed up required paperwork

17. International Trade Agreements: Snapshot “Every morning in Africa, a gazelle wakes up and knows it must run faster than a lion or it will be killed. Every morning a lion wakes up and knows that it must outrun the slowest gazelle or it will starve to death. It doesn’t matter whether or not you are a gazelle or lion. When the sun comes up, you better start running.” Jack Perkowski, Chairman and CEO, ASIMCO Technologies

18. Major International Trade Agreements: World Trade Organization (WTO) • Represents 149 negotiated trade agreements among countries Key Functions Cooperating with other International Organizations Providing a forum for trade negotiations Handling trade disputes between nations AdministeringWTOagreement Monitoringnational tradepolicies Providingtechnical assistance and training for people in developing countries

19. Major International Trade Agreements: WTO Benefits Promotes peace by handling trade disputes constructively Rules make life easier for all organizations to follow Benefits Trade stimulates economic growth and reduces the cost of living Systemencourages good government

20. Major International Trade Agreements: WTO Fundamental Principles • Most favored nation principle:when country A grants a tariff concession to country B, the same concession automatically applies to all other countries that are members of WTO • Reciprocity principle:each member country will not be forced to reduce tariffs unilaterally. A tariff concession is made only in return for comparable concessions from the other countries • Transparency principle:tariffs are to be readily visible to all countries

21. Major International Trade Agreement: North American Free Trade Agreement (NAFTA) • Created a freer trade zone among Canada, Mexico, and United States • removed and reduced barriers to trade, such as tariffs, quotas, and licenses • increased trade • tightened intellectual property right protection • Maquiladora plants:foreign-owned plants located in Mexico that border the U.S. • account for 40% of Mexico’s manufacturing • wages range from $15 - $20 a day • employ more than 1.2 million people

22. Major International Trade Agreement: European Union • An organization with the goals of creating a single market among member nations and establishing the free movement of goods, people, services, and capital • currently 25 member countries • Removes/Reduces: • physical barriers at country borders • technical barriers that prevent goods produced in one country being sold in others • Fiscal barriers: • red-tape and tax systems that hinder trade • financial barriers that prevent/hinder free movement of investment capital • Created the EURO as currency

23. Strategies for International Business High Global Multidomestic Alliances Complexity Franchising Licensing Exporting Low Low High Resource Commitment

24. Exporting Strategy Maintaining facilities within a home country and shipping goods and services abroad for sale in foreign markets (e.g., California Sunshine; Thomson Publishing) • Benefits: • no cash outlays • extends products/services to other countries • most sales done via Internet

25. Licensing Strategy Firm (the licensor) in one country giving other domestic or foreign firms (licensees) the right to use a patent, trademark, technology, production process, or product in return for the payment of a royalty or fee (e.g., Coca-Cola; PepsiCo) • Benefits: • little financial risk • increase market awareness • no production plants • Risks: • violation of intellectual property rights • licensee fails to pay royalty or fee • licensee steals technology

26. Franchising Strategy Parent organization (the franchiser) granting other companies or individuals (franchisees) the right to use its trademarked name and to produce and sell its goods or services (e.g., KFC, Marriott) • Benefits: • parent company maintains control of brand image, manufacturing and services • increase global presence • franchisee tailors marketing to local area(s) • Risks: • need to monitor franchisee • franchisee operates independently anddoesn’t perform services according to contract

27. Alliance Strategy An agreement between two or more organizations to pool physical, financial, and human resources to achieve common goals (e.g., Nestlé; L’Oreal) • Benefits: • share costs and risks of capital intense projects • desire for partners to learn from each other • partners shape competition in the industry • Risks: • political uncertainty • partners can become competitors • economic uncertainty • partners develop different goals

28. Multidomestic Strategy Adjusting products, services, and practices to individual countries or regions (e.g., Pacific Rim versus Western Europe versus North America) (e.g., Domino’s Pizza; Procter & Gamble) • Benefits: • firm taps into country values for product customization • marketing campaigns tailored to country • firm understands local distribution system • extending global brand name • Risks: • large financial investment required • shared services • high level of coordination needed across firm • reliance on local managers to implement strategy

29. Multidomestic Strategy: Snapshot “Procter and Gamble chose a multidomestic strategy because we believe that this leads to superior understanding of consumers and their needs and it develops close relationships with suppliers. This structure also enables product divisions to share information and key activities.” A.G. Lafley, CEO and President, Procter and Gamble

30. Global Strategy Stresses worldwide consistency, standardization and relatively low cost (e.g., Black & Decker, Kodak) • Benefits: • worldwide standards • promotes brand recognition • coordination of global manufacturing • distribution advantages • Risks: • assumes customers needs are similar across globe • high level of financial investment in plants and equipment • national currency fluctuations • loss of flexibility between plants