The Globalized World of Business

The Fact:
The world of business is globalizing
In 1990, 3000 multinationals were operating in the world. In 2003, there were 63000 multinationals with over 820000 subsidiaries.
Gabel, Medard, and Henry Bruner, Global Inc.: An Atlas of the Multinational corporation, 2003.

The Need:
But today, companies increasingly need softer people skills.and perhaps most important, working across cultures with Chinese, Germans, Indians, Italians, Russians, and a world full of suppliers and partners.
Editorial BusinessWeek April 18, 2005

Globally Exposed employees need to manage across:

Diverse cultural systems Diverse political and institutional systems Time and geographic distance

The realities facing graduates

Influencing Others: Who may be different from them Who may work for other organizations Who may be independent contractors Who may be in a matrix structure Who may be in several parts of the world

Global Mindset is a set of individual attributes that enable and facilitate global leadership.

The Global Marketplace

Opportunities and Challenges

Coping with the sudden appearance of new competitors Acknowledging cultural, political, and economic differences Dealing with increased uncertainty, fear, and anxiety Adapting to changes in the global environment Avoiding parochialism
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Whats Parochialism ?
Is viewing the world solely through its own eyes and perspectives. Is not recognizing that others have different ways of living and working. Is a significant obstacle for managers working in a global business world. Is falling into the trap of ignoring others values and customs and rigidly applying an attitude of ours is better than theirs to foreign cultures.
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Exhibit 41

Key Information About Three Global Attitudes

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Adopting a Global Perspective

Ethnocentric Attitude The parochialistic belief that the best work approaches and practices are those of the home country. Polycentric Attitude The view that the managers in the host country know the best work approaches and practices for running their business. Geocentric Attitude A world-oriented view that focuses on using the best approaches and people from around the globe.
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Different Types of International Organizations

Multinational Corporation (MNC)

Maintains operations in multiple countries.

Multidomestic Corporation
Is an MNC that decentralizes management and other decisions to the local country.

Global Company
Is an MNC that centralizes its management and other decisions in the home country.

Different Types of International Organizations (contd)

Transnational Corporation (Borderless Organization) Is an MNC that has eliminated structural divisions that impose artificial geographic barriers and is organized along business lines that reflect a geocentric attitude. Born Globals/International New Ventures (INVs) Commit resources upfront (material, people, financing) to doing business in more than one country.

Fig. 1-1: Managing in the International Environment

Section I: The Macro-Environment

(Economics, Politics, Infrastructure Laws, Culture)

Section II: Firm-Level Initiatives

(Strategy, Structure, Implementation, Control)

Section III: Manager Responses (Communication, Motivation, Leadership,

Negotiations, Responsibility

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Domain of International Management

Why, when, and how does a business firm (as an organization) decide to go international including the expansion and reduction of such internalization?

Why, when, and how is its organizational behavior a broad term covering mission, objectives, strategies, structures, staff, and processes [particularly, decision-making] internal, and external transactions and relations, performance, impact, etc. altered by internationalization.

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Largest International Companies

(Selected)

Global Rank

Company

2002 Revenues ($ millions)

1 2 3 4 5

Wal-Mart Stores Exxon Mobil General Motors BP Ford Motor

219,812.0 191,581.0 177,260.0 174,218.0 162,412.0

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Table 1-3: Labor Productivity of Foreign Affiliates and Domestic Firms in Manufacturing in Selected Economies
Country Foreign Affiliates Domestic Firms Ratio Foreign: Domestic

U.S.A U.K.
Netherlands

103818 79402 105793 268272

71006 51885 69477 24571

1.46 1.53 1.52 10.9

Ireland

China
France Sweden

7199
75970 68845

2633
101732 77417

2.73
0.75 0.89
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Fig. 1-2: Motives to Go International

Market-Seeking Motives

The Historically Indigenous Firm

Cost-Reduction Motives

Strategic Motives

1-17

Why Organizations Go International

Profits

New

Markets Raw Materials Financial Capital Lower Labor Costs

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Global Dimensions of Management

Key Global Events
Collapse of the Soviet Union Opening of China Improved Access (Telecommunications) Steady Growth in MNCs The European Community NAFTA - GATT

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The Global Economy

Based on the worldwide interdependence of resource supplies, product markets, and business competition.
GATT The European Union Russia Asia-Pacific Economic Forum China The Americas
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WTO NAFTA Maquiladoras Asia and the Pacific Rim Africa

International Management
The conduct of business and other operations in foreign countries.

Working overseas in the foreign operation of a domestic firm.

Working overseas for a foreign firm.

Working as a domestic employee of a foreign firm operating in your country.
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International Management and Globalization

What is international management?

the process of applying management concepts and techniques in a multinational environment and adapting management practices to different economic, political, and cultural environments (HLD, p. 6)

Why is globalization important?

International management is rapidly gaining in importance in tandem with the quickening pace of globalization

International Business
The

conduct of for-profit transactions of goods and services across national boundaries.

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Globalization: Definitions

Hodgetts, Luthans and Doh,

Globalization is the process of social, political, economic, cultural, and technological integration among countries around the world (p. 7)

Robertson (Globalization: Social Theory and Global Culture, 1992),

Globalization in its most allembracing form refers to both the compression of the world and the intensification of consciousness of the world as a whole (p. 8)

The Roots of Globalization

When did globalization begin?

Ancient trade routes barter trade Standard weights and measures Mercantilism the highways of the sea Post WWII institutions of global governance Past 1980s ICT, globalization defined

Hodgetts, Luthans, and Doh,

Contemporary globalization is a new branch of a very old tree whose roots were planted in antiquity (p. 8)

The Drivers of Globalization

What drives globalization?

Individual and social needs and aspirations Technological innovation Reduced technological and economic barriers to trade

Sustaining forces

Greater policy liberalization Greater efficiency of business Greater market access Increased flows of goods, services, and people

Search for competitive advantage

Development of new technologies

Reduced barriers to trade

Globalization from a Regional Perspective

Developed Economies
U.S. the European Union and Japan account for onehalf of world trade

Emerging and Transition Economies

Economies in Latin America and Asia are increasingly important global players
BRIC, economic powers with large internal markets Eastward expansion of the EU

Less Developed Countries (LDCs)

Some fast growing and increasingly open to the global system Others, notably in Africa, struggle to compete globally

North America

Important global market

Combined purchasing power of the U.S., Canada and Mexico is $12 million

United States
U.S. outbound FDI $1.8 billion (2003) U.S. inbound FDI $1.4 billion (2003)

Canada
Largest U.S. trading partner Legal and business environment similar to the U.S.

Mexico
Strong maquiladora industry Competitive with Asia for the U.S. market Emergence of Mexican MNCs

South America

Economic challenges
High inflation Heavy foreign debt Entrenched interests (crony capitalism) Political instability

Economic opportunities
Important emerging markets
Brazil, Argentina, Venezuela, Columbia, Chile, Peru

Prevalence of free market policies Expanding regional and international trade

Mercosur and Asia-Pacific Economic Cooperation (APEC)

Europe
Market

factors

Operational integration of the EU Privatization of traditionally nationalized industries Expanded ties to Central and Eastern Europe

Social

factors challenges

Maintaining social cohesion Adjusting to local tastes Plan globally, act locally

Economic

For foreign MNCs, gaining a foothold in the EU

Strategies include: acquisitions, alliances, and cooperative R&D

Absorbing the former communist-bloc countries

550 million middle-class consumers across 25 countries Largest economic market in the world

Central and Eastern Europe

Collapse of the Soviet Union (1991)

Glasnost (openness) and perestroika (economic and political restructuring) The fall of the Berlin Wall and German reunification

Russia
Dismantling of price controls and privatization Crime, political uncertainty, and inflation Membership in International Monetary Fund (IMF)

Successful transition economies

Czech Republic, Hungary, Poland, the Baltic states

Economies caught in transition

Albania, Bulgaria, Romania, former Soviet republics

East Asia

Japan
In the 1970s and 1980s
Strong government role Vertically integrated industries (keiretsus)

In the 1990s
Economic recession Collapse of the real estate bubble Banks reluctant to write-off uncollectible loans Still the worlds second largest economy

China
Economic opportunities
High rates of growth (8-10% per year) Large internal market (> 1.3 billion consumers)

Economic challenges
Inflation and political instability Regulatory reform and compliance Complex and unpredictable economic environment

East Asia The Four Tigers

South Korea
Dominated by family-held conglomerates (chaebols) Impacted by the Asian financial crisis (1997)

Hong Kong
Part of the PRC (one country, two systems) Risk of radical change in business environment

Singapore
Corporatist model From entrepot to global city

Taiwan
From cheap producer to technology leader Managing relations with the PRC the 3 Chinas

South and Southeast Asia

Southeast Asia
The Baby Tigers (TH, MY, IN, VN)
Large population base Inexpensive labor Considerable natural resources Attractive to outside investors

Other Southeast Asian nations

Philippines, Cambodia, Laos, Myanmar

South Asia
India
Large population (300 million middle class consumers) Increasingly open markets, technology leader Attractive to US and British investors

Other South Asian nations

Pakistan, Bangladesh, Nepal, Sri Lanka, Bhutan

Developing and Emerging Economies (1)

Economic characteristics
Low per capita GDP, low (or negative) GDP growth High unemployment - semiskilled or unskilled workforce Considerable government intervention in the economy Political instability, weak infrastructure, corruption

LDCs in Asia and Latin America

Include important regional economic powers (e.g. China, India, Indonesia, Brazil, Argentina) Generally well integrated into the global economy

Developing and Emerging Economies (2)

LDCs in the Middle East and Central Asia

Large oil reserves Highly unstable geopolitical and religious forces Plagued by continuing economic problems

LDCs in Africa
Considerable natural resources Diverse populations Weak and unstable governments Economies negatively impacted by social and environmental factors (poverty, starvation, illiteracy, corruption, environmental degradation) Poorly integrated into the global economy

Fig. 1-3: The International Environment

Political:
Governments Ideology Stability Civil Strife

Economic:
Trade Agreements Trading Blocs GNP/Wages Inflation

Cultural: The International Company

Customs Values Language Religion

Legal:
International Law Host Country Laws Home Laws International Piracy

Infrastructure:
Communications Internet Transportation Technology
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Economic Environment

Global and regional integration

International agreements (GATT, WTO) Regional agreements (EU, ASEAN, NAFTA, CAFTA, FTAA, Mercosur)

World trade and investment

80% of FDI contributed by developed economies U.S. exports/imports increased by 550% from 1983 to 2003 (to $1.3 and $1.8 trillion) Trade within the EU increased sharply, to > $2 trillion annually

Political Environment

Rapid and uncertain change

Chinas transition to a market economy European expansion and integration Russias unstable political institutions The emergence of political Islam in the Middle East

Significant differences across countries Change in government policies

Less stable governments increase political risk Uncertain responses to democratization Adjusting to adjust to new perspectives and changing requirements Assessing political risks (Chapter 10)

Legal/Regulatory Environment

Complex and confusing

MNCs must
Conform to national laws and standards Abide by the laws of their own countries Be aware of international treaties and obligations

Differences in regulatory regimes

Increase transaction costs Restrict and distort trade Can result in retaliatory practices or sanctions

Four main legal traditions

Common law Civil law Islamic law (theocratic law) Socialist law

Socio-Cultural Environment

Ethics and social responsibility

Business practices Labor standards and workers rights Corporate governance Intellectual property rights

Values and culture (Part II)

Responses to authority Individual vs. group recognition and responsibility Balance of work and family obligations Managing and resolving conflict

Technological Environment

Changing at lightning speed Internet and telecommunications

Increasing bandwidth/high-speed access Reduced costs of entry/leapfrogging

E-business
Customization (the long end of the tail) E-retailing and financial services
Movement of money across borders E-cash a currency without a country

Outsourcing and offshoring

Information as a commodity The 24-hour office increased productivity/lower cost

Environmental Challenges in the Global Economy

Educational Differences
Different School Systems Literacy Levels Availability of Skilled Labor

Socio-Cultural Differences
Different Cultures Culture Shock Ethnocentrism
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Environmental Challenges in the Global Economy

Economic Differences
Centralized vs Free Market Economies Transition to Privatization Trade Alliances and Policies

Legal Political Differences

Democratic vs Totlaitarian Systems Diverse Legal Codes
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THE PROS AND CONS OF GLOBALIZATION

1.
2.

Where do you stand?

Key themes to consider
a. Impact on Labor

b.
c. d.

Impact on Equality
Impact on Government Impact on the Environment

e.

Impact on Culture and Community

Impact on Labor

Positive effects
Increased job opportunities Upgraded education system Increased training

Negative effects
Job displacement Loss of industries or economic groups Lowered labor standards Downward wage pressure Decreased union power Diminished social contract

Impact on Equality

Positive effects
Increased income / reduced poverty Increased wages for education or technically skilled Improved economic conditions Rich become richer Greater access to goods Lower cost of goods Increased food supply (in some countries)

Negative effects
Greater disparity between haves and have-nots within and across countries Some downward pressure on wages for the poorly educated or unskilled Worsened economic conditions in marginalized countries Poor become poorer

Impact on Government

Positive effects
Increased economic development Expanded infrastructure Transfer of modern management techniques Greater interdependence among business partners

Negative effects
MNC power increased MNCs externalize cost to countries Competition results in too many concessions MNCs influence local policies Companies incorporate in low tax countries Pressure to reduce social benefits

Impact on the Environment

Positive effects
More efficient use of resources Increased demand for and transfer of more efficient technologies Increased incomes lead to greater concern for environmental protection

Negative effects
Increased consumption Advertising creates artificial needs Greater use of fossil fuels (increased travel) Increased surplus and scarcity Increased degradation from unregulated businesses More factories require more infrastructure

Impact on Culture/Community

Positive effects
Increased cultural exposure and understanding Closer cross-border ties

Negative effects
More mobility disrupts social life, particularly in remote or rural communities Disintegration of local communities Cultural homogenization and monoculture / reduced cultural diversity

Globalization: Pros and Cons

Globalization as moral conflict Impacts of Globalization

Increases economic interdependence Creates winners and losers

Implications of the debate

For academics
Need for more objective research Need to question assumptions and be open to alternatives

For companies
Be aware of multiple stakeholder interests Follow the guidelines of the UN Global Compact Consider the triple bottom line

Conclusion

Implications for Managers

Lifelong learning
the most valuable asset is the ability to learn how to learn (Thomas Friedman, The World is Flat)

Responsiveness
be alert for changes and quick to respond

Adaptability
knowing how to work with others being comfortable with uncertainty and ambiguity

Both a local and global perspective

see the big picture (global economy/whole organization) understand the details of operating at the local level

Questions or final comments