Chapter 3

Managing in a Global Environment

Global PerspectivesParochialism

Is viewing the world exclusively through one’s own eyes and perspectives.

Is not recognizing that others have different ways of living and working.

Is a significant problem for managers working in a global business world.

Is falling into the trap of ignoring others’ values and customs and strictly applying an attitude of “ours is better than theirs” to foreign cultures they'll find it difficult to compete with other organizations around the world that are seeking to understand foreign customs and market differences.

3 Global Attitude

1. Ethnocentric AttitudeThe parochalistic belief that the best work approaches

and practices are those of the home country (the country in which the company’s headquarters are located).

Managers with an ethnocentric attitude believe that people in foreign countries don’t have the needed skills, expertise, knowledge, or experience to make the best business decisions as people in the home country do.

They don’t trust foreign employees with key decisions or technology.

Example: America and Britain

Global Perspectives

2. Polycentric AttitudeThe view that the employees in the host country

(the foreign country in which the organization is doing business) know the best work approaches and practices for running their business.

Managers with this attitude view every foreign operation as different and hard to understand

Thus, they’re likely to let employees there figure out how best to do things.

Example: Nestle

Global Perspectives

3. Geocentric AttitudeA world-oriented view that focuses on using the

best approaches and people from around the globe.

Managers with this type of attitude have a global view and look for the best approaches and people regardless of origin.

Example: Novertis

Regional Trading Agreements

The European Union (EU)A unified economic and trade entity

Belgium, Denmark, France, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, the United Kingdom, Germany, Austria, Finland, and Sweden

North American Free Trade Agreement (NAFTA)Eliminated barriers to free trade (tariffs, import

licensing requirements, and customs user fees)

United States, Canada, and Mexico

Exhibit 4–1 European Union

Regional Trading Agreements

U.S.-Central America Free Trade Agreement (CAFTA)Free Trade Area of the AmericasSouthern Cone Common Market (Mercosur)Association of Southeast Asian Nations (ASEAN)

Trading alliance of 10 Southeast Asian nationsAfrican UnionSouth Asian Association for Regional Cooperation

(SARRC)

Exhibit 4–2 ASEAN Members

Source: Based on J. McClenahen and T. Clark, “ASEAN at Work,” IW. May 19, 1997, p. 42.

Different Types of International OrganizationsMultinational Corporation (MNC): Maintains operations in

multiple countries.

Types of MNC:Multi-domestic Corporation is an MNC that

decentralizes management and other decisions to the local country. Reflects the polycentric attitude Doesn’t attempt to replicate its domestic successes by

managing foreign operations from its home country. Instead, local employees typically are hired to manage the business and marketing strategies are tailored to that country’s unique characteristics.

Example: Nestle

Different Types of International Organizations

Global Company is an MNC that centralizes its management and other decisions in the home country. Reflects the ethnocentric attitude Treat the world market as an integrated whole and

focus on the need for global efficiency and cost savings

Example: Sony

Different Types of International Organizations (cont’d)

Transnational Corporation (Borderless Organization) is an MNC that has eliminated structural divisions that impose artificial geographic barriers. Reflects a geocentric attitude Example: IBM

Managing in A Global EnvironmentThe Legal Environment Ex: Bangladesh vs.

USAStability or instability of legal and political

systems: Legal procedures are established and followed

Fair and honest elections held on a regular basis

Differences in the laws of various nations: Effects on business activities

Effects on delivery of products and services

The Economic Environment

Economic SystemsFree market economy

An economy in which resources are primarily owned and controlled by the private sector. Ex: BD

Planned economy An economy in which all economic decisions are

planned by a central government. Ex: North KoreaMonetary and Financial Factors

Currency exchange ratesInflation ratesDiverse tax policies

The Economic Environment

Infrastructure: refers to basic systems of communication (telecommunications, television, radio, and print media), transportation (roads and highways, railroads, and airports), and energy facilities (power plants and gas and electric utilities). The Internet and technology use can also be considered part of infrastructure. Example: Ethiopia doesn’t accept any debit or credit card which is a drawback in trading with this country. Power problem in BD

The Economic Environment

Currency Conversion and Shifts: Shifts in exchange rates can also influence the attractiveness of various business decisions. A devalued currency may make a nation less desirable as an export destination because of reduced demand in that market. However, devaluation can make the nation desirable as an investment opportunity because investments there will be a bargain in terms of the investor’s currency. Example: RMG in BD

The Cultural Environment

National Culture

Is the values and attitudes shared by individuals from a specific country that shape their behavior and their beliefs about what is important.

May have more influence on an organization than the organization culture.

Ex: Calling in first name in USA vs. UK