Management

Fourteenth Edition

Chapter 4
Managing in a Global
Environment

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Learning Objectives
4.1 Contrast ethnocentric, polycentric, and geocentric
attitudes toward global business.
Develop your skill at collaborating in cross-cultural
settings.
4.2 Discuss the importance of regional trading alliances and
global trade mechanisms.
4.3 Describe the structures and techniques organizations
use as they go international.
4.4 Explain the relevance of the political/legal, economic,
and cultural environments to global business.
Know how to be culturally aware.
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What’s Your Global Perspective?
Parochialism: means ignoring the impact of cultural
concepts and diversity on organizations, professions,
policies, procedures and programs.
Parochialism is a limiting view because it precludes
(stop)options for managing diversity effectively.

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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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)
– Association of Southeast Asian Nations
(ASEAN)

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

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Exhibit 4-2 ASEAN Map

Exhibit 4-2 shows the members of ASEAN.

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Other Trade Alliances

• African Union (AU)

• East African Community (EAC)
• South Asian Association for Regional Cooperation
(SAARC)
• Trans-Pacific Partnership (TPP)

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 African Union (AU)
The African Union (AU) is a continental body consisting of
the 55 member states that make up the countries of the
African Continent. It was officially launched in 2002 as a
replacement to the Organization of African Unity (OAU,
1963-1999).

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East African Community (EAC)

The East African Community (EAC) is a regional

intergovernmental organization of 6 Partner States: the
Republics of Burundi, Kenya, Rwanda, South Sudan,&
Uganda

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• The Trans-Pacific Partnership Agreement (TPP) is a
free trade agreement that would liberalize trade and
investment between 12 Pacific-rim countries.
• The countries are New Zealand, Australia, Brunei
Darussalam, Canada, Chile, Japan, Malaysia, Mexico,
Peru, Singapore, the United States and Viet Nam.
• The concluded TPP Agreement was signed in
February 2016. New Zealand

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Exhibit 4-3
TPP Map

Exhibit 4-3 shows the current members of TPP and countries indicating a desire to join.
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Global Trade Mechanisms
• World Trade Organization (WTO)
• International Monetary Fund (IMF)
• World Bank Group
• 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

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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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Organization for Economic Cooperation
and Development
• 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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How Organizations Go International (1 of 2)
• Global sourcing: purchasing materials or labor
from around the world wherever it is cheapest

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How Organizations Go International (2 of 2)
• Multinational corporation (MNC)
• Multidomestic corporation (IMF)
• Global company
• Transnational or borderless organization

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Exhibit 4-4
How Organizations Go Global

Exhibit 4-4 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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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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Global Management in Today’s World (1 of 2)
• The Challenge of Openness
– Increased threat of terrorism
– Economic interdependence of trading countries
– Intense fundamental cultural differences

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Global Management in Today’s World (2 of 2)
• Cultural Intelligence: cultural awareness and
sensitivity skills
• Global Mind-Set: attributes that allow a leader to
be effective in cross-cultural environments

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Exhibit 4-7 A Global Mind-Set
Intellectual Knowledge of international business
capital: and the capacity to understand how
business works on a global scale

Psychological Openness to new ideas and

capital: experiences

Social capital: Ability to form connections and build

trusting relationships with people
who are different from you

Exhibit 4-7 shows components of a global mind-set.

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Review Learning Objective 4.1
• Contrast ethnocentric, polycentric, and
geocentric attitudes toward global business.
– Parochialism—viewing the world solely through your
own eyes and perspectives.
– 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)
• Discuss the importance of regional trading
alliances and global trade mechanisms.
– The European Union consists of 28 democratic
countries.
– NAFTA helps Canada, Mexico, and the United States
strengthen their global economic power.
– ASEAN is a trading alliance of 10 Southeast Asian
nations.
– Other trade alliances
– 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.

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Review Learning Objective 4.3 (1 of 3)
• Describe the structures and techniques
organizations use as they go international.
– 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 4.3 (2 of 3)
– 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.
– Franchising: use another company’s name and
operating methods.

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Review Learning Objective 4.3 (3 of 3)
– 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 4.4 (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 4.4 (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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Copyright

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