Global Issues In Management
Spring 2007
Global Issues in Management
1
Global Issues in Management
• A more complex external environment
• Legal and political factors
• Economic factors
• Cultural differences
Spring 2007
Global Issues in Management
2
Why Globalize?
• New markets
• CocaCola
• Disney
• More sources for innovative ideas
• Demand for global services
• FedEx
• Netscape
• Keep up with competition
• Low cost manufacturing
• Low cost…but what about productivity
• Ethical issues
Spring 2007
Global Issues in Management
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Profiting from Global
Expansion
• International firms can:
• Earn a greater return from distinctive skills or
core competencies
• Realize location efficiencies by dispersing
operations to locations where they can be
performed most efficiently
• Realize economies of scale
• Realize economies of scope
• Worldwide learning
• Multimarket flexibility
Spring 2007
Global Issues in Management
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What Makes Globalization
Possible?
• Technology
• Transportation
• Communications
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Spring 2007
Open markets
Economic integration
Peace
Corporate strategy
Global Issues in Management
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Approaches to International Business
Geocentric
Use the best
methods, no matter
what the source
Ethnocentric
Home country
methods are the
best
Spring 2007
Polycentric
Host country
methods are the
best
Global Issues in Management
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Borders
• Economic, political and cultural factors
may apply to regions, not just countries
• These factors may also vary within
countries (Belgium, Canada, for
example)
• But, important to know the map
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The International Environment:
Economic
• Differing levels of economic development
• Infrastructure (or lack thereof…)
• Transportation
• Energy
• Communications
• Resources and markets
• Availability of raw materials
• Untapped markets
• Exchange rates, taxes, inflation
• Growing trend towards market economies
Spring 2007
Global Issues in Management
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Economic Systems
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Market Economy
• Private ownership
• Supply and demand
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Command Economy
• Centralized ownership
• Planned production
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Mixed Economy
• Some public ownership in national interest:
health care, communications
•
State Directed Economy
• Government oversight and coordination of
economic activities
• State subsidies
Spring 2007
Global Issues in Management
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The International Environment: Political
• Treaties and alliances
• NAFTA
• European Union
• Political risk and instability
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War and / or revolution
Terrorists, kidnapping and riots
Nationalization
An opportunity? Eastern Europe
• Laws and regulations
Spring 2007
Global Issues in Management
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North American Free Trade Agreement
• Became law: January 1,1994
• Over 15 year period:
• tariffs reduced (99% of goods traded)
• NTBs reduced
• investment opportunities increased
• Protects intellectual property
• Applies national environmental standards
Spring 2007
Global Issues in Management
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Cultural Differences
• Issues to get in trouble with…
• Language
• Religion
• Languages to speak
• Cultural differences
• Business practices and etiquette
Spring 2007
Global Issues in Management
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Language Issues
• U.S. one of few countries where we don’t learn a second
(or a third) language
• Languages learned in school often do not translate to
business usage
• Do you try?
• Not in France, not unless you can pronounce it right !
• Other countries, yes: it’s a gesture of goodwill
• But, even if the language is the same, will we
understand?
Spring 2007
Global Issues in Management
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Sources:http://www.EdwardMooney.com/miniflags/; http://www.infoplease.com/ipa/A0774735.html
Millions of Speakers
Languages of the World
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Spring 2007
Global Issues in Management
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Religious Issues
• Islam:
• Ramadan fasting
• 5 daily prayers (15 minutes or so), even at
work
• Modest dress for women (including head
scarf)
• Friday, not Sunday (noon prayers on Fridays)
Spring 2007
Global Issues in Management
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Dress
• “Casual Days” are a U.S. custom
• Very conservative dress for women in
Islamic countries
• Removing one’s shoes
• Across Asia
• Russian homes
Spring 2007
Global Issues in Management
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Addressing Other People
• Formality
• Herr und Frau, not first names in Germany; U.S. is almost
alone in using first names
• Titles (Dr., Professor, “Assistant Vice President”, etc.) very
important everywhere but U.S.
• Be careful, if you know language, with formal and informal
pronouns
• Business cards essential in Mexico, Europe, Japan
• Personal space: much smaller in Latin America, Spain,
Italy
Spring 2007
Global Issues in Management
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Cultural Dimensions (Hofstede)
• These are very important to understand
• The dimensions:
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Spring 2007
Collectivism - Individualism
Power Distance
Uncertainty Avoidance
Quality of Life
Global Issues in Management
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Collectivism - Individualism
• Identification with group vs. identification as an individual
• Collective cultures:
• Think in terms of in-groups and out-groups
• Life decisions made by group
• Look after one’s in-group, no matter what
• Individualistic cultures
• Concern for self and immediate family
• Individual privacy
• Association with level of economic development
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Global Issues in Management
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Power Distance
• The extent to which a culture accepts that power is
distributed unevenly
• High power distance
• People have a place in society, high or low
• Superiors are to be respected
• Less trust and cooperation; more likelihood of corruption
• Low power distance
• Equal rights for everyone
• Hierarchies are established for convenience
• Power can be judged to be legitimate or not
Spring 2007
Global Issues in Management
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Uncertainty Avoidance
• The extent to which a society feels threatened by
ambiguity and uncertainty
• High uncertainty avoidance
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Lots of policies, rules, regulations
Hard work valued, time is money
Acceptance of authority
Conflict avoided
• Low uncertainty avoidance
• Look to common sense
• Tolerance, constructive conflict
• Aggression less accepted
Spring 2007
Global Issues in Management
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Quality of Life
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The extent to which society values typically “masculine” values,
such as assertiveness, and acquisition of things, as opposed to
caring for others and quality of life.
Masculine cultures
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Clear gender roles
Live to work
Ambition, success valued
Machismo
Feminine cultures
• Sympathy for the unfortunate
• Work to live
• People are important
Spring 2007
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A Fifth Dimension
• Confucian Work Dynamic
• Based on work done in East Asia by “Chinese
Cultural Connection” group
• Focus on:
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Spring 2007
Long-term
Order
Thrift
Persistence
Respect for tradition
Global Issues in Management
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Stages in Going International
Stage 1
Export to Foreign Countries
Stage 2
Hire Foreign Agents / Brokers
Contract Foreign Managers
Stage 3
Licensing or Franchising
Joint Ventures - Foreign Subsidiary
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Firms Face Two Conflicting Pressures
Overseas
Reduce
costs
Respond to
local needs
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Local Responsiveness
• Different consumer tastes and preferences
• MTV – cricket in India
• Ben & Jerry’s – ice cream in Japan
• Whirlpool – the World Washer in India
• Different infrastructure and practice
• Left hand vs. right hand drive cars
• Cup holders
• Differences in distribution channels
• Pharmaceuticals
• Pillsbury – flour in India
• Government demands
• Local content rules
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Four Basic Strategies
High
Cost and
efficiency
pressures
Low
Low
Spring 2007
Global
Strategy
Transnational
Strategy
Home
Replication
Strategy
Multi domestic
Strategy
High
Pressures for local responsiveness
Global Issues in Management
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Home Replication Strategy
• Go where locals don’t have your skills
• Little adaptation. Products developed at
home (centralization)
• Possibly a commodity item
• Manufacturing and marketing in each
location
• Makes sense where low skills,
competition, and costs exist
Spring 2007
Global Issues in Management
12-17
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Microsoft
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Argentina
Australia
Austria
Belgium
Bolivia
Brazil
Bulgaria
Canada
Chile
China
Colombia
Costa Rica
Cote D'Ivoire
Croatia
Czech Republic
Denmark
Dominican
Republic
Ecuador
Spring 2007
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Egypt
El Salvador
Finland
France
Germany
Greece
Guatemala
Hong Kong
Hungary
India
Indonesia
Ireland
Israel
Italy
Jamaica
Mexico
Japan
Jordan
Kenya
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Korea
Kuwait
Latvia
Lebanon
Luxembourg
Malaysia
Mauritius
Morocco
Namibia
Netherlands
New Zealand
Nigeria
Norway
Pakistan
Panama
Peru
Philippines
Poland
Portugal
Puerto Rico
Romania
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Russia
Saudi Arabia
Singapore
Slovakia
Slovenia
South Africa
Spain
Sweden
Switzerland
Taiwan
Thailand
Tunisia
Turkey
Ukraine
United Arab
Emirates
United Kingdom
Uruguay
Venezuela
Vietnam
31.4% of revenue outside U.S
Global Issues in Management
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Not always the best
strategy, though
10% 1%
30%
31%
4%
24%
North America
Europe
Spring 2007
Africa
Latin America
Asia
Corporate
Global Issues in Management
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Multi-Domestic Strategy
• Maximize local responsiveness
• Customize the product and marketing
strategy to national demands
• Extremely decentralized
• Often the strategy of choice for
consumer products
• Good for high local responsiveness and
low cost reduction pressures
• Nestle:
• No indication of any pet food in
Paraguay
• Major brand in Chile
• 6 pet food brands in U.S.
Spring 2007
Global Issues in Management
12-18
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Global Strategy
• Best use of economies of scale and
scope
• This is a low cost strategy
• Utilize product standardization to create a
global product
• Not good where local responsiveness
demand is high
Spring 2007
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Transnational Strategy
• Core competencies can develop in any of the
firm’s worldwide operations
• Flow of skills and product offerings occurs
throughout the firm - not only from home firm to
foreign subsidiary (global learning)
• Makes sense where there is pressure for both
cost reduction and local responsiveness
• But….costs involved in communication and
coordination
Spring 2007
Global Issues in Management
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Global Issues in Management