UNDERSTANDING THE GLOBAL ENVIRONMENT14/02/2014

Today’s sections• 1. The Strategic Importance of Understanding the

External and Organizational Environments• 2. Economic Globalization• 3. The Political Landscape• 4. Industry Dynamics• 5. Labor Markets• 6. Country Cultures• 7. Technologies• 8. Company Culture• 9. Business Strategy

Global Environment

• The global business environment can be defined as the environment in different sovereign countries, with factors exogenous to the home environment of the organization, influencing decision making on resource use and capabilities.

• The global business environment can be classified into:

1. The Strategic Importance of Understanding the External and Organizational Environments

• External environment

- It encompasses local, national and multinational conditions

- Economic, politics, industrial dynamics, labor markets, culture

To function effectively and efficiently, companies operating internationally must understand the social environment of the host country they are operating in.

The Strategic Importance of Understanding the External and Organizational Environments• Organizational (internal) environment

- Conditions within the organization

- Technology, company culture and strategy

As firms have no control over the external environment, their success depends upon how well they adapt to the external environment. A firm’s ability to design and adjust its internal variables to take advantage of opportunities offered by the external environment, and its ability to control threats posed by the same environment, determine its success.

The HR Triad (how it can help)

HR professionals, line managers and all the employees in general contribute to the organization’s ability to adapt by monitoring the environment, interpreting events that occur in it and making adjustments as needed.

2. Economic GlobalizationCompeting on Cost versus competing on Knowledge

- e.g. Malden Mills located in Massachusetts (textile company that makes Polartec)

What keeps arctic explorers warm and marathon runners dry? Polartec's high-tech fabrics do. Founded in 1906 as Malden Mills, the company -- which introduced Polarfleece more than 30 years ago -- makes more than 400 types of all-season synthetic textiles used primarily in the manufacture of performance apparel and outerwear under the eponymous Polartec brand. Its textiles are fundamental to active garments produced for retailers such as L.L. Bean, The North Face, and Timberland, as well as the military.

http://www.polartec.com/

- Couldn’t compete with low-cost labor in other countries

- Leverage research capabilities to develop new products and production methods

- Low skilled jobs replaced by jobs requiring much higher skills

Polarfleece® was a major textile innovation recognized by Time Magazine as one of the 100 most important inventions in the 20th century)

2. Economic Globalization• Worldwide operations - A global market that is growing at a much faster pace than regional and national markets

- Especially important for service organizations for which it means creating worldwide sales and marketing groups so that multinational clients can get their worldwide needs met at a single source (organization)

Economic Globalization• Regional Trade Zones A free trade zone (FTZ), also called foreign-trade zone, is an area within which goods may be handled, manufactured and re-exported without the intervention of the customs authorities.

It is a region where a group of countries has agreed to reduce or eliminate trade barriers.

• The North American Free Trade Agreement (NAFTA)• In 1993, the Canadian Parliament, the U.S. Congress

and the Mexican Congress approved this agreement in order to allow for eventual free trade among these 3 countries

• e.g. the maquiladoras: U.S. companies setting up factories along the border with Mexico

• A maquiladora is manufacturing operations in a free trade zone (FTZ), where factories import material and equipment on a duty-free and tariff-free basis for assembly, processing, or manufacturing and then export the assembled, processed and/or manufactured products, sometimes back to the raw materials' country of origin.

• Currently about 1.3 million Mexicans are employed in one or more of approximately 3,000 maquiladoras

• Wages for maquiladora workers remain much lower than they would be in the U.S. but still 5 times more than Mexico’s minimum wage

Economic Globalization - European Union (EU) An institutional framework for the construction of a united

Europe Reduce conflict in the region and prevent the occurrence

of other devastating events Its primary goal, like NAFTA, is the removal of trade

barriers Free movement of people across its members’ borders,

creating a more mobile workforce

Economic Globalization

- Association of Southeast Asian Nations (ASEAN)

Established in 1967, today it accounts for more than 30% of the region’s total trade

Strives to speed the economic growth, social progress and cultural development in the regions through joint efforts in the spirit of equality and partnership in order to strengthen the foundation for a prosperous and peaceful community of Southeast Asian nations

3. The Political Landscape• Internal Labor Organization (ILO) - Housed within the United Nations, aims to promote social justice and internationally recognized human and labor rights

• Social Accountability International (SAI) - Promotes socially responsible approaches in the way of conducting business and administers a certification process called Social Accountability 8000. SA8000 is an auditable certification standard that encourages organizations to develop, maintain, and apply socially acceptable practices in the workplace.

3. The Political Landscape• Social Accountability International (SAI) 8000 requires compliance

with eight performance criteria, as outlined on the Social Accountability International website.

• Child Labor: No use or support of child labor; • Forced and Compulsory Labor: No use or support for forced or

compulsory labor; no required 'deposits' - financial or otherwise; no withholding salary, benefits, property or documents to force personnel to continue work; personnel right to leave premises after workday; personnel free to terminate their employment; and no use nor support for human trafficking.

• Health and Safety: Provide a safe and healthy workplace; prevent potential occupational accidents

• Freedom of Association and Right to Collective Bargaining: Respect the right to form and join trade unions and bargain collectively. All personnel are free to: organize trade unions of their choice; and bargain collectively with their employer.

3. The Political Landscape• Discrimination: No discrimination based on race, national or

social origin, caste, birth, religion, disability, gender, sexual orientation

• Disciplinary Practices: Treat all personnel with dignity and respect; zero tolerance of corporal punishment, mental or physical abuse of personnel; no harsh or inhumane treatment.

• Working Hours: Compliance with laws & industry standards; normal workweek, not including overtime, shall not exceed 48 hours; 1 day off following every 6 consecutive work days, with some exceptions; overtime is voluntary, not regular

• Remuneration: Respect right of personnel to living wage; all workers paid at least legal minimum wage;

The Political Landscape• World Trade Organization (WTO) - Established in 1995 and with 146 member countries, it

is the only global body able to enforce its decisions through its own court

- It requires that taxes and tariffs applied to imported goods and services must be applied equally to their domestic equivalents

  It is an organization for trade opening. It is a forum for governments to negotiate trade agreements. It is a place for them to settle trade disputes. It operates a system of trade rules. Essentially, the WTO is a place where member governments try to sort out the trade problems they face with each other.

4. Industry Dynamics• Industry Life Cycles

- A series of stages that create certain similarities in the issues industry members face and the solutions they adopt

- When there are many opportunities for growth (demand is perhaps the most important!), many firms can be profitable but then competition intensifies and consequently growth of the industry levels off

Industry Dynamics• Mergers and Acquisitions - Gaining access to skills and talents of people employed by

another company

Unfortunately, M&A strategy is not risk free, and in fact research consistently shows that results are often less than anticipated. For example:

• 75 percent of M&A’s fail or turn out to be disappointments,• 50 percent of M&A’s lead to lower productivity during the first 4-

8 months,• Almost 50 percent of key people in target companies leave

within the first 12 months.

(Source: CFO Magazine, Business Week, Fortune)

• Reasons for failure: clashes between company cultures, loss of key talent people, incompatibility (all HR issues)

• Culture encompasses beliefs, values, ethics, procedures, behaviors, expectations, work styles, and the way members feel about their workplace and company identity. Meshing two complex cultures may be one of the most difficult managerial challenges.

• Key talent people (key employees) are those who add the most value to the organization and are difficult to replace.

5. Labor Markets• The U.S. Labor Markets

Slow growth: due to the forthcoming retirement of Baby Boomers (those born between 1946 and 1961) and the fact that during the last 30 years there was an influx of women workers (now that so many women are working, their entry into the workforce is no longer a source of labor market growth)

Labor Markets

Skills shortage: More severe for ‘new economy’ and ‘high-tech’ jobs. Projections indicate that the fastest job growth during this decade will be in computer-related jobs

Competition: When people and skills are in short supply, competition among employers heats up as they seek to attract and retain their most valuable human resources and keep turnover as low as possible

Labor Markets

- Immigrants

How do you feel as immigrant workers especially in relation to ‘nationals’?

What are the reasons that have made you to decide to leave your home country?

Do you ever plan to go back? Under what ‘terms’ / ‘conditions’?

Labor Markets• Global Labor Market - Labor costs: the lower cost of labor (as seen in the maquiladoras example) in other countries means that an American employer will look for ways to shift the organization abroad

- Where the skills are: the lack of skilled labor in the domestic market / well-educated, entry-level workers in developing countries

- Health issues: the cost for employers of sick employees in terms of medical care, benefits payments, higher recruitment and training costs

6. Country Cultures• Dimensions of Country Cultures

- Geert Hofstede’s research on IBM in the 1970s and the 5 cultural dimensions

- The Global Leadership and Organizational Behavior Effectiveness (GLOBE) project (It is an international group of social scientists and management scholars who study cross-cultural leadership): 150 researchers who have collected data from 18000 managers in 62 countries

Country Cultures• Consequences of Country Cultures

- Domestic employers cannot simply impose their domestic HR practices and expect their foreign employees to be as effective

e.g. employees in the U.S., Mexico and Poland responded well to HR practices that empowered them to make work-related decisions but this wasn’t the case with employees in India

7. Technologies• It is the process of making and using tools and equipment plus the knowledge used in the process

• Factories and mass production technologies - People had to leave their farms / small workshops and move near the factory

- They had to accept standardized procedures for doing their work

- Low skilled jobs, routine, depersonalization

Technologies• Computer Technologies

- Employees who work in factories have robots as coworkers

e.g. At the New Balance Athletic Shoe factory in Maine, skilled employees use sophisticated technology to produce shoes similar to those that most competitors are producing overseas using low-tech workers.

Technologies• Virtual Workforce

https://www.youtube.com/watch?v=QouqznE4Yws#t=49

- Such employees perform their jobs anywhere and anytime, often on an as-needed basis

e.g. By eliminating the need for office space, IBM reduced its real estate expenses by 50% per office site

e.g. HP doubled its revenue per salesperson after adopting virtual work arrangements

→ What are the drawbacks of telecommuting?

Technologies• Human Resource Information System (HRIM)

- When computer technologies are used to gather, analyze and distribute information about the people in an organization

e.g. Dow Chemical facilitates worldwide coordination of its employees through making accessible information such as performance expectations and competencies required for all types of jobs in the company

8. Company Culture• The unique pattern of shared assumptions, value and

norms that shape the socialization activities, language, symbols and ceremonies of people in the organization

• Leadership

- Effective leadership ensures that people are working towards the same goals / objectives

- Where are we going? Why are we going there? (vision, mission and values)

Company Culture• Vision

- The top management’s view of the kind of company it is trying to create.

- It can be thought of as a best-case scenario of where the company will be in the future

e.g. The company wants to be among the best airlines

Company Culture• Mission

- Defines a company’s business and provides a clear view of what the company is trying to accomplish for its customers

e.g. The company wants to be the number 1 airline in the low-budget sector by 2015

• Values

- The strong enduring beliefs and principles that the company holds, helping to define the company and differentiate it from other companies

- How the employees (and actually everybody connected internally to the organization) is expected to behave

Company Culture• Company Sub-cultures - It exists when assumptions, values and norms are shared by some, not all, the organizational members

- Benefits: the more diverse you are as an organization, the more diverse are the opinions that are expressed, making you more creative

- Challenges: Minorities, old cultures, sub-culture can be stronger than organizational culture

9. Business Strategies• A Business strategy is a set of integrated and coordinated

commitments and actions intended to achieve stated business goals

• A strategy map shows the cause-and-effect relationships that ultimately determine firm performance

• A competitive strategy describes how a particular business / business unit competes against direct rivals who offer the same products and services

Business Strategies• Total Quality

- Total Quality Management (TQM) and Six Sigma (Tom Peters, In Search of Excellence)

- TQM: a management approach to long–term success through customer satisfaction. In a TQM effort, all members of an organization participate in improving processes, products, services, and the culture in which they work.

Empowering employees is critical in getting them involved and committed to finding ways to continuously improve the quality of products and services

- Empowered employees have the autonomy and responsibility to make decisions about how work gets done without seeking approval from their supervisors

Business Strategies• Low Cost

- Cost leadership strategy: high volume of sales with a low margin associated with each

• Customer Service

- Becoming increasingly important as a basis for differentiating on company from its competitors

• Innovation

- 3M post-it notes … accidental or guided innovation?