Chapter 8 Global Management Management Principles Craig W. Fontaine, Ph.D

Chapter 8

Global Management

Management Principles

Craig W. Fontaine, Ph.D.

Management Fundamentals - Chapter 52

International management challenges of globalization

Europe– European Union (EU)

• Political and economic

alliance European

countries that agreed to

support mutual economic

growth

• Expanding to at 22

member countries with

375 million consumers

Management Fundamentals - Chapter 53

The Americas– North American Free Trade

Agreement (NAFTA)• Agreement for free flow of

goods and services between the Canada, Mexico, and United States

– Free Trade of the Americas (FTAA) — Alaska to Chile — is a possibility

International management challenges of globalization

Management Fundamentals - Chapter 54

Asia and the Pacific Rim– Economic power of

China and Japan– Growth in other Pacific

Rim countries– Asian countries

represent a third of the global marketplace

International management challenges of globalization

International management challenges of globalization

Management Fundamentals - Chapter 56

Africa– Increased attention to stable countries– Beckons international business– South African Development

Community (SADC) links 14 countries in trade and economic development

International management challenges of globalization

Globalization Basics

Key concepts of globalization:– Global economy

– Globalization

– International management

– Global manager

Global economy– Resource supplies, product markets, and business

competition are worldwide, rather than local

Globalization– The process of growing interdependence of these

components in the global economy

Globalization Basics

International management– Management in organizations with business interests in more than

one country

Global manager– Informed about international developments

– Transnational in outlook

– Competent in working with multicultural people

– Aware of regional developments in a changing world

Globalization Basics

International businesses– Conduct for-profit transactions of goods and services across

national boundaries

Reasons why businesses go international:– Profits

– Customers

– Suppliers

– Capital

– Labor

Globalization Basics

Market entry strategies involve the sale of goods or services to foreign markets but do not require expensive investments.

Types of market entry strategies:– Global sourcing– Exporting– Importing– Licensing agreement– Franchising

Globalization Basics

12

Common forms of international business—from market entry to direct investment strategies.

Going Global Levels of Involvement in International Business

14

Issues in globalization

Complications in the global business environment:– Environment is complex, dynamic, and highly competitive.– Global business executives must deal with differences in the

environment of business in different countries.– World Trade Organization resolves trade and tariff disputes among

countries.– Protectionism can complicate global trading relationships.

Trading Agreements &Trading Blocs

• Definition: Preferential trading agreements– Members of bloc favored over non-members

• Expected Advantages to trading blocs– Creation of new markets for producers– Lower priced goods/services for consumer– Promote political stability & economic prosperity

• Much of world divided into regional trading blocs

1. Trade Preference Association: Members lower govt. barriers on goods from other members only (e.g., Preferred nation designation).

2. Free Trade Area: Members eliminate barriers against other members but maintain individual barriers against goods from non-members (e.g., NAFTA).

Types of Trading Agreements &Trading Blocs

3. Customs Union: Members eliminate govt. barriers against members imports and establish common tariffs against non-members (e.g, EC, Mercosur).

4. Common Market: Barriers to all transactions removed b/n members, incl. transfers of labor, capital, & services. Common barriers against non-members (e.g., EU).

Types of Trading Agreements &Trading Blocs

The 25 Nations of the European Union

What are multinational corporations ?

A multinational corporation (MNC) is a business with extensive international operations in more than one foreign country.

Why multinational corporations?

Mutual benefits for host country and MNC:

– Shared growth opportunities

– Shared income opportunities

– Shared learning opportunities

– Shared development opportunities

Problems Experienced by HOST Countries

Host country complaints about MNCs:– Excessive profits

– Domination of local economy

– Interference with local government

– Hiring the best local talent

– Limited technology transfer

– Disrespect for local customs

Problems Experienced by Multinational Companies

MNC complaints about host countries:

– Profit limitations

– Overpriced resources

– Exploitative rules

– Foreign exchange restrictions

– Failure to uphold contracts

Ethical Concerns for Multinational Corporations

Ethical issues for MNCs:– Corruption — illegal practices that further one’s business

interests.– Sweatshops — employing workers at low wages for long hours

and in poor working conditions.– Child labor — full-time employment of children for work

otherwise done by adults.

What should go right and what can go wrong in MNC-host country relationships.

Corruption in Business and Government

Management Fundamentals - Chapter 526

Complicated the Roles for Managers

Planning and controlling– Complexity of international environment makes global

planning and controlling challenging.

– Planning and controlling risks: • Currency risk

• Political risk

Management Fundamentals - Chapter 527

Organizing and leading

– Multinational organization structures

• Global area structure

• Global product structure

– Staffing international operations

• Competent locals

• Expatriates

Complicated the Roles for Managers

Management Fundamentals - Chapter 528

New Challenges for Managers

Comparative management– How management systematically differs among countries and/or

cultures.

Global managers– Need to successfully apply management functions across

international boundaries.

Management Fundamentals - Chapter 529

Are management theories universal?

– North American management theories may be ethnocentric.

• Participation and individual performance are not emphasized as much in

other cultures.

New Challenges for Managers

Management Fundamentals - Chapter 530

Culture has many Components

Popular dimensions of culture:– Language

• Low-context cultures and high-context cultures– Interpersonal space– Time orientation– Religion– Contracts and formal agreements

Management Fundamentals - Chapter 531

Remember Hofstede?

Values and national cultures:– Power distance

– Uncertainty avoidance

– Individualism-collectivism

– Masculinity-femininity

– Time orientation

Project GLOBE

Project GLOBE (Global Leadership and Organizational Behavior Effectiveness)– Researches the leadership, organizational practices, and diversity

among world cultures.• Power distance• Uncertainty avoidance• Gender egalitarianism• Future orientation

Beyond Hofstede

Project GLOBE’s nine dimensions continued

• Institutional collectivism• In-group collectivism• Assertiveness• Performance orientation• Humane orientation

Nine cultural dimensions used by Project GLOBE researchers.

A large team of international researchers collaborated in Project GLOBE to examine societal cultures using the nine cultural dimensions shown in the figure.  When results from extensive empirical studies were analyzed for 62 countries, they were found to fall into ten culture clusters. Countries within a cluster share many societal cultural practices; countries tend to differ significantly across clusters in their cultural practices.

Employees in an International Workforce

• Parent-country national – employee who was born and works in the country in which an organization’s headquarters is located.

• Host-country national – employee who is a citizen of the country (other than parent country) in which an organization operates a facility.

• Third-country national – employee who is a citizen of a country that is neither the parent country nor the host country of the employer.

Employees in an International Workforce

• When organizations operate overseas, they hire a combination of parent-country nationals, host-country nationals, or third-country nationals.

• Expatriates – employees assigned to work in another country.

Managers and Culture

Culture – The shared set of beliefs, values, and patterns of behavior common to a group

of people. Culture shock

– Confusion and discomfort a person experiences in an unfamiliar culture. Cultural intelligence

– The ability to adapt and adjust to new cultures Ethnocentrism

– Tendency to consider one’s own culture as superior to others.

When Managers go Abroad

Stages in adjusting to a new culture:– Confusion

– Small victories

– The honeymoon

– Irritation and anger

– Reality

Expatriate Adjustment Stages

Source: GMAC Relocation Services, used with permission.

Causes of Expatriate Assignment Failure

Source: Based on data from Global Relocation Trends Survey Report (New York: GMAC GRS/Windham International, 2000), 48.

Global Employee Selection Factors

Spouse, Family, and Dual-Career Issues

• Adaptability screening– assesses how well managers and families are likely to

adjust to a foreign culture

Language and cross-cultural training for the family is just as, if not more, important than training for

employees.

Selecting Expatriate Managers

• Expatriate managers need technical competence in the area of operations.

• In addition, many other skills are necessary to be successful in an overseas assignment:– Ability to maintain a positive self-image and feeling of

well-being– Ability to foster relationships with host-country nationals– Ability to perceive and evaluate the host country’s

environment accurately

Compensating Expatriates

• After setting the total pay, the organization divides this amount into the four components of the total pay package:1. Base salary2. Tax equalization allowance3. Benefits4. Allowances

Typical Expatriate Compensation Components

Global Assignment Management Cycle

Helping Expatriates Return Home

• Repatriation – the process of preparing expatriates to return home from foreign assignment.1. Communication: the expatriate receives information

and recognizes changes at home while abroad2. Validation: giving the expatriate recognition for the

overseas service when this person returns home.