Management

Fifteenth Edition, Global Edition

Chapter 4
Managing in a Global
Environment

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Learning Objectives
4.1 Define globalization, nationalism, and parochialism; and
contrast ethnocentric, polycentric, and geocentric
attitudes.
4.2 Describe the history of globalization.
4.3 Summarize the case for and against globalization.
4.4 Explain the different types of international organizations.
4.5 Describe the structures and techniques organizations
use as they go international.
4.6 Explain the relevance of the political/legal, economic,
and cultural environments to global business.

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What’s Your Global Perspective?
Globalization: the process of developing influence or
operations in other countries
Nationalism: patriotic ideals and policies that glorify a
country’s values
Parochialism: viewing the world solely through your own
perspectives, leading to an inability to recognize differences
between people

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Three Possible Global Attitudes
• Ethnocentric: view that home country has best work
practices
• Polycentric: view that managers in the host country know
the best approaches
• Geocentric: world-oriented view; wants to use best
practices from around the globe

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Globalization Highlights
• After WWI nations became more protectionist
• After WWII the trend toward globalization started
• Numerous agreements, institutions, and events pushed for
globalization

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Global Trade Mechanisms
• World Trade Organization (WTO)
• International Monetary Fund (IMF)
• World Bank Group
• General Agreement on Tariffs and Trade (GATT)
• Organization for Economic Cooperation and Development
(OECD)

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World Trade Organization
• World Trade Organization (WTO): global organization of
161 countries that deals with the rules of trade among
nations
– Essentially replaced GATT

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International Monetary Fund and World
Bank Group
• International Monetary Fund (IMF): An organization of
188 countries that promotes international monetary
cooperation and provides advice, loans, and technical
assistance
• World Bank Group: a group of very closely associated
institutions that provides financial and technical assistance
to developing countries

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GATT and Organization for Economic
Cooperation and Development
• GATT: a 1948 agreement between countries to reduce or
eliminate trade barriers
• Organization for Economic Cooperation and
Development (OECD): an international economic
organization that helps its 34 member countries achieve
sustainable economic growth and employment

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Association of Southeast Asian Nations
(ASEAN)
• Association of Southeast Asian Nations (ASEAN): a
trading alliance of 10 Southeast Asian nations

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Other Globalization Milestones
• World Economic Forum (1974) is a Swiss non-profit
foundation that brings world leaders together each year to
discuss factors of common interest
• Margaret Thatcher elected Prime Minister of UK (1979).
She was very pro free trade.
• Ronald Reagan elected US President (1980). Joined
Thatcher as a pro free trade advocate
• Fall of the Soviet Union (1991). Created 9 member states

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Regional Trading Alliances
• Global competition and the global economy are shaped by
regional trading agreements, including:
– European Union (EU)
– North American Free Trade Agreement (NAFTA)

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The European Union
• European Union (EU): a union of 28 democratic
European nations created as a unified economic and trade
entity with the euro as a single common currency

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Exhibit 4.1 European Union Map

Exhibit 4.1 shows the members of the European Union.

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North American Free Trade Agreement
(NAFTA)
• North American Free Trade Agreement (NAFTA): an
agreement among the Mexican, Canadian, and U.S.
governments in which barriers to trade have been
eliminated

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Other Major Events Shaping Globalization
• Shanghai Cooperation Organization (2003) – an eight-
nation group pledges to promote free trade among other
goals.
• We are the 99% Protest Movement (2011) – a group
protesting income and wealth inequality in the US.
• Made in China 2025 (2015) – a Chinese government-led
initiative to make China dominant in high-tech
manufacturing by 2025

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Other Globalization Events
• British vote to Exit EU (2016) – also known as Brexit. The
vote was in response to nationalist feelings in the UK
• Donald Trump elected US president (2016) – elected on
an America First campaign due to distrust of career
politicians
• Trans-Pacific Partnership (2016) – TPP was a trade
agreement among Pacific rim countries that fell apart for
lack of support
• USMCA (2018) – President Trump’s renegotiated version
of NAFTA

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Exhibit 4.2 Nationalism vs. Globalism Pendulum

Exhibit 4.2 shows the timeline and general shifts in attitude between globalism and
nationalism.

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The Case for Globalization
• The Win-Win Argument: The “every country wins”
argument is based on the law of comparative advantage.
• Essentially says a ‘rising tide floats all boats.’
• Globalization benefits all trading partners.

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The Case Against Globalization
• The Downside of Globalization: Critics of globalization
maintain that jobs were leaving developed high labor cost
nations and flowing to cheap labor nations.
• Cheap goods worldwide created wage stagnation for the
middle class.
• Globalization and capitalism together have increased
wealth inequality.
• Some groups are harmed by globalization.

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Globalization Today and Managerial Implications
• Globalization will continue despite its critics because:
– The infrastructure is already in place for global trade.
– The evidence shows globalization is NOT the cause of
unemployment—technology is the culprit.
– Managers need to develop requisite skills to be a
global manager.

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Different Types of International Organizations
• Multinational corporation (MNC)
• Multidomestic corporation
• Global company
• Transnational or borderless organization

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How Organizations Go International
• Global sourcing: purchasing materials or labor from
around the world wherever it is cheapest

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Exhibit 4.3 How Organizations Go Global

Exhibit 4.3 shows the different approaches companies can use to go global.

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Going Global: Exporting and Importing
• Exporting: making products domestically and selling them
abroad
• Importing: acquiring products made abroad and selling
them domestically

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Going Global: Licensing and Franchising
• Licensing: an organization gives another organization the
right to make or sell its products using its technology or
product specifications
• Franchising: an organization gives another organization
the right to use its name and operating methods

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Going Global: Strategic Alliances and Joint Ventures
• Strategic Alliance: partnership between an organization
and foreign company partner(s) in which both share
resources and knowledge in developing new products or
building production facilities
• Joint Venture: A specific type of strategic alliance in which
the partners agree to form a separate, independent
organization for some business purpose

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Going Global: Foreign Subsidiary
• Foreign Subsidiary: directly investing in a foreign country
by setting up a separate and independent production
facility or office

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Managing in a Global Environment
• What challenges will a manager face in a new country?

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Political/Legal Environment
– U.S. managers are accustomed to a stable legal and
political system
– Managers must stay informed of the specific laws in
countries where they do business
– Some countries have risky political climates

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Economic Environment
• Free Market Economy: an economic system in which
resources are primarily owned and controlled by the
private sector
• Planned Economy: an economic system in which
economic decisions are planned by a central government

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Cultural Environment
• National Culture—the values and attitudes shared by
individuals from a specific country that shape their
behavior and beliefs about what is important.

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Exhibit 4.4 What Are Americans Like?
Characteristic

Americans are very informal. They tend to treat people alike even when great differences in
age or social standing are evident.
Americans are direct. They don’t talk around things. To some foreigners, this may appear
as abrupt or even rude behavior.
Americans are competitive. Some foreigners may find Americans assertive or overbearing.
Americans are achievers. They like to keep score, whether at work or at play. They
emphasize accomplishments.
Americans are independent and individualistic. They place a high value on freedom and
believe that individuals can shape and control their own destiny.
Americans value personal space. They keep a distance when speaking and are
uncomfortable when people are too close.
Americans dislike silence. They would rather talk about the weather than deal with silence
in a conversation.
Americans value punctuality. They keep appointment calendars and live according to
schedules and clocks.
Americans value cleanliness. They often seem obsessed with bathing, eliminating body
odors, and wearing clean clothes.

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Exhibit 4.5 Hofstede’s Five Dimensions of National Culture

Exhibit 4.5 shows Hofstede’s Five Dimensions of National Culture.

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Global Leadership and Organizational
Behavior Effectiveness (GLOBE)
• Power distance
• Uncertainty avoidance
• Assertiveness
• Humane orientation
• Future orientation
• Institutional collectivism
• Gender differentiation
• In-group collectivism
• Performance orientation

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Applying Cultural Guidelines
• How do we apply this information?
• At a simplistic level it means, “When in Rome, do as the
Romans do”
• However, Hofstede and the GLOBE studies will help you
alert managers to potential problems that might emerge
due to cultural differences

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Review Learning Objective 4.1 (1 of 2)
• Define globalization, nationalism, and parochialism;
and contrast ethnocentric, polycentric, and geocentric
attitudes.
– Globalization—a process by which organizations
develop influence or operations in other countries.
– Nationalism—patriotic ideals and policies that glorify a
country’s values.
– Parochialism—viewing the world solely through your
own eyes and perspectives.

Copyright © 2021 Pearson Education Ltd.

Review Learning Objective 4.1 (2 of 2)
– Ethnocentric attitude—a parochial belief that the best
work approaches and practices are those of the home
country.
– Polycentric attitude—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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Review Learning Objective 4.2 (1 of 2)
• Describe the history of globalization.
– The European Union consists of 28 democratic
countries.
– NAFTA helps Canada, Mexico, and the United States
strengthen their global economic power. Appears it will
be replaced by USMCA.
– ASEAN is a trading alliance of 10 Southeast Asian
nations.
– World Trade Organization (WTO) monitors and
promotes trade relationships.

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Review Learning Objective 4.2 (2 of 2)
– The International Monetary Fund (IMF) and the World
Bank Group provide monetary support.
– The Organization for Economic Cooperation and
Development assists its member countries with
financial support.
– Pendulum is swinging back toward nationalism.
– Trump’s election on “America First” platform highlights
the change.
– Britain votes to exit the EU (Brexit).
– TPP abandoned.
– NAFTA renegotiated.

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Review Learning Objective 4.3
• Summarize the case for and against globalization.
• FOR Globalization: Based on the law of comparative
advantage that states nations are better off focusing
production on goods they can produce with the lowest
opportunity cost and then engage in trade to get other
goods. All nations benefit when this happens.
• AGAINST Globalization: Globalization is responsible for
wage stagnation in developed nations since low-wage
countries now produce most labor-intensive goods. It also
increases income and wealth inequality.

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Review Learning Objective 4.4
• Explain the different types of international
organizations.
– A multinational corporation—an international company
that maintains operations in multiple countries.
– A multidomestic organization—an MNC that
decentralizes management and other decisions to the
local country.
– A global organization—an MNC that centralizes
management and other decisions in the home country.
– A transnational organization—an MNC that has
eliminated artificial geographical barriers.

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Review Learning Objective 4.5 (1 of 2)
Describe the structures and techniques organizations
use as they go international.
– Global sourcing: purchasing materials or labor from
around the world wherever it is cheapest.
– Exporting: making products domestically and selling
them abroad.
– Importing: acquiring products made abroad and selling
them domestically.
– Licensing: gives that organization the right to use the
company’s brand name, technology, or product
specifications.

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Review Learning Objective 4.5 (2 of 2)
– Franchising: use another company’s name and
operating methods.
– Global strategic alliance: partnership between an
organization and foreign company partners
– Joint venture: a strategic alliance in which the partners
agree to form a separate, independent organization for
some business purpose
– Foreign subsidiary: direct investment in a foreign
country that a company creates by establishing a
separate and independent facility or office

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Review Learning Objective 4.6 (1 of 2)
• Explain the relevance of the political/legal, economic,
and cultural environments to global business.
– The laws and political stability of a country are issues
in the global political/legal environment with which
managers must be familiar
– Managers must be aware of a country’s economic
issues such as currency exchange rates, inflation
rates, and tax policies.

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Review Learning Objective 4.6 (2 of 2)
– Geert Hofstede identified five dimensions for assessing
a country’s culture: individualism-collectivism, power
distance, uncertainty avoidance, achievement-
nurturing, and long-term/short-term orientation.
– The GLOBE studies identified nine dimensions for
assessing country cultures.

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