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FOMFOM

GLOBAL

ENVIRONMENT

What is meant by the term?• Customers• Resources• Manufacturing

Emerging Borderless World

What are signs of this Borderless Business Environment?

What factors are facilitating this Environment?

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GLOBAL

ENVIRONMENT

Domestic Stage• Control: Home Country• Production: Home Country• Marketing: Home Country• Managers: Home Country

International Stage (Exporting)• Control: Home Country• Production: Home Country• Marketing: Home Country (Directed by International divison)• Managers: Home Country

Levels Of Globalization

Multinational Stage • Control: Home Country• Production: Multiple Countries locations• Marketing: Multiple Countries locations• Managers: Home or Host Country

Global Stage • Control: Multiple Countries• Production: Multiple Countries locations• Marketing: Multiple Countries locations• Managers: Global

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Internal Business Environment

Does the Basic Management Functions Change?• Financing• Production• Distribution

Does the Basic Management Functions Change?• Planning• Organizing• Motivating• Control

What Does Change?• Perceptions• Expectations• Norms

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ENVIRONMENT

Economic Environment

Economic Development• Market Feasibility• Labor availability• LDCs• Per Capita Income

InfrastructureDef: Physical facilities that support economic activity.

• Phones, Electricity, Transportation, Housing, Mail Service, Internet?

Resources & Product Market Location of Production is based on

•Availability of Raw materials, Customers, Labor or Political

If host country does not have necessary resources and in place then organization will have to add to accommodate business model.• Supply base, Schools, Intermediate goods

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ENVIRONMENT

Exchange Rate

Def: Rate of one country currency in exchange for another.

How does this impact the organization?

Exporting Product: Home Currency goes up in value then sales in Importing Country goes:

Down Why?

Production & Resources in Host Country:Home Currency goes up in value then sales in Importing Country goes:

No Change Why?

Potential impact on organization is in transfer of profits to Home country. • There are ways to minimize the impact

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ENVIRONMENT

Legal / Political Environment

Political RiskDef: Risk of loss of assets, earnings, power or managerial control due to politically based events or acts by the host government.

• Gov’t nationalization of industries• Gov’t sanctioned riots• actions against company as the result of company or home government decisions.

Political Instability• Civil war

Laws & Regulations• Transfer of profits• Ownership• Product related• Taxation

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ENVIRONMENT

Trade Alliances

Def: Agreements between countries that are designed to stimulate trade between members.

Current & Past Alliances:

European Union (EU)

North America Free Trade Agreement (NAFTA) 1989

Economic Community of West African States (ECOWAS) 1992

Association of South East Asian Nations (ASEAN) 1978

Latin American Free Trade Association (LAFTA) 1960

Impact on External Organizations• Barriers to entry for new organizations• Expansion of large global organizations

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GLOBAL ENVIRONMENT

Types of Trade Alliances

1) Free Trade Areas (FTA)• Requires nations to remove all tariffs among members

2) Customs Unions• Have a common external tariff policy for non members

3) Common Market• Permit free flow of all factors of production (capital, labor, technology)

4) Economic Union• Pursues common monetary & fiscal policies

5) Political Union• Same political position, merging into one nation

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FOMFOM

GLOBAL

ENVIRONMENT

Sociocultural Environment

Culture: Shared knowledge, beliefs and values as well as modes of behavior and ways of thinking.

If organizations and managers acknowledge the importance of considering the host country culture when doing business. Then why don’t they get it right?• Difficulty in applying the cultural information in all situations.

• Perceptions and bias of source of cultural information.• Ethnocentrism: Regarding one’s own culture to be superior• Use of past practices that gave successful results.

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ENVIRONMENT

Cultural Characteristics That Influence International Organizations

Geert Hofstede Research:1) Power Distance:Degree to which people accept inequality in power.

• Low : People expect equality in power• High: People do not expect equality in power

2) Uncertainty Avoidance: Intolerance for uncertainty or ambiguity.• Low: High tolerance for uncertainty• High: Uncomfortable with uncertainty

3) Individualism & Collectivism• Individualism reflects a value where the individual takes care of themselves.• Collectivism reflects values where each member looks out for other members interest.

4) Masculinity / Femininity• Masculinity reflects preferences for achievement, heroism, assertiveness, and work centered.• Femininity reflect preferences towards relationships, cooperation, group decision making & quality of life.

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ENVIRONMENT

Other Influences on International Organizations

1) Religion• Sacred objects• philosophical attitudes towards life taboos & beliefs

2) Social Organization• Social Status• Family relationships• Social mobility

3) Education• Literacy• Qualified Employees

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ENVIRONMENT

Getting Started Internationally

1) Outsourcing WorkAdv: Lower labor &/or raw materialsDisadv: Lose some production control

2) ExportingAdv: retain control, minimal risk, easy way to gain international experienceDisadv: Subject to currency fluctuations 3) Licensing & FranchisingAdv: Requires little capital; only way to tap into some countries; Provides life extension for mature products; good alternative to foreign production & marketing; Royalties are guaranteed.Disadv: No control over production & marketing; Must have a distinctive product or technology; Royalties are small compare to potential profits; potential development of competition.

4) Joint Venture Adv: Takes advantage of each partners strengths ( technology, capital.

Disadv: Personal conflicts; has weaknesses of each partner

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ENVIRONMENT

Getting Started Internationally

5) Wholly Owned Foreign Affliiate:Adv: Complete control; established distribution; established production & marketing; host country managersDisadv: More capital risk; Seen as outsiders

6) BarterDef: transfer of goods and services for other goods and servicesAdv: no currency exchange issues; Good for countries with no hard currencyDisadv: converting goods for currency; uncertain profit margins

7) Co-ProductionDef: Selling a product to a customer with the intent for the customer to pay in full or partially by making components for the product being sold or a like product.Adv: Allows the sale of expensive products or to countries with insufficient capital.Disadv: Has a limitation on what can be produced ( technology transfer or finite amount of work)

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ENVIRONMENT

Managing A Global Environment

Focus on sensitivity to cultural subtleties and understand ways to provide proper leadership, decision making, motivation & control.What do you think are factors facing managers on an international assignment?

• Language• Shared Experience • Loneliness• Homesickness

What factors should you have or look for in a manager for an international assignment?

•Adventurous•Adaptability•Accepting

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ENVIRONMENT

Preparation for Assignment

How do members of the host country relate to typical areas of management?•Leading

•Decision Making

•Motivation

•ControllingHow should a company ensure the readiness of a Manager for an international assignment?• Language training• Assignment to position in the International division of the home office.

• Networking• Knowledge of issues• Problem resolution

• Short trips to host country• Culture training• Mentoring by host country manager