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CHAPTER 6CHAPTER 6

MANAGING IN THE GLOBAL ENVIRONMENT

Learning Objectives

• Explain why the ability to perceive, interpret, and respondappropriately to the global environment is crucial for managerialsuccesssuccess

• Differentiate between the global task and global generalenvironments

• Identify the main forces in both the global task and generalenvironments, and describe the challenges that each forcepresents to managers

• Explain why the global environment is becoming more open andcompetitive and identify the forces behind the process ofl b li ti th t i th t iti l iti

MGT-101 Yiannos Rossides2

globalization that increases the opportunities, complexities,challenges, and threats that managers face

• Discuss why national cultures differ and why it is important thatmanagers be sensitive to the effects of falling trade barriers andregional trade associations on the political and social systems ofnations around the world

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• Global organizations are organizations that operateand compete not only domestically, but also globally.p y y, g yUncertain and unpredictable

• Global environment (Fig.6-1) refers to the set offorces and conditions in the world outside theorganization’s boundaries that affect the way it operatesand shape its behaviorChanges over time


gPresents managers with opportunities and threats


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Task Environment

• Set of forces and conditions that originateith li di t ib t t dwith suppliers, distributors, customers, and

competitors• Affect an organization’s ability to obtain

inputs and dispose of its outputs• Most immediate and direct effect on


• Most immediate and direct effect onmanagers

The Task EnvironmentA. Suppliers Individuals and organizations that provide an organization with the input

resources that it needs to produce goods and services Raw materials, component parts, labor (employees)

Relationships with suppliers can be difficult due to materials shortages,unions, and lack of substitutes. Suppliers that are the sole source of a critical item are in a strong

bargaining position to raise their prices. Managers can reduce these supplier effects by increasing the number of

suppliers of an input. It’s important that managers recognize the opportunities and threats


It s important that managers recognize the opportunities and threatsassociated with managing the global supply chain

• Gaining access to low-cost products made abroad represents anopportunity for U.S. companies to lower their input costs

• Managers who fail to utilize low-cost overseas suppliers create athreat and put their organizations at a competitive disadvantage

• See next slide: Global Outsourcing

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Global Outsourcing

• Process by which organizations purchasei t f th i dinputs from other companies or produceinputs themselves throughout the world tolower production costs and improve thequality or design of their products


The Task EnvironmentB. Distributors Organizations that help other organizations sell their goods or services

to customersto customers Powerful distributors can limit access to markets through its control

of customers in those markets. Managers can counter the effects of distributors by seeking

alternative distribution channels.C. Customers Individuals and groups that buy goods and services that an organization

produces


Identifying an organization’s main customers and producing thegoods and services they want is crucial to organizational andmanagerial success.

D. Competitors Organizations that produce goods and services that are similar to a

particular organization’s goods and services

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The Task Environment

• Potential CompetitorsOrganizations that presently are not in the task

environment but could enter if they so choose

• Rivalry between competitors is potentiallythe most threatening force that managersdeal with


• Strong competitive rivalry results in pricecompetition, and falling prices reduceaccess to resources and lower profits

The Task Environment

Barriers to Entry F t (Fi 6 2) th t k it diffi lt d tl f th Factors (Fig.6-2) that make it difficult and costly for the

organization to enter a particular task environment orindustry. The most important are:

i. Economies of scale Cost advantages associated with large operations

ii Brand loyalty


ii. Brand loyalty Customers’ preference for the products of organizations

currently existing in the task environment.

• Government regulations that impede entry

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Barriers to Entry and Competition

Figure 6.2


General Environment

EconomicEconomic

TechnologicalSocio-cultural

Forces


Demographic Political and Legal

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The General Environment

A. Economic Forces Interest rates, inflation, unemployment, economic growth,

and other factors that affect the general health and well-being of a country or world region

Successful managers:

• Realize the important effects that economic forces have


on their organizations

• Pay close attention to what is occurring in the nationaland regional economies to respond appropriately


• Technology Combination of tools machines computers skills information Combination of tools, machines, computers, skills, information,

and knowledge that managers use in the design, production, anddistribution of goods and services

B. Technological Forces Outcomes of changes in the technology that managers use to

design, produce, or distribute goods and services Results in new opportunities or threats to managers


Results in new opportunities or threats to managers Often makes products obsolete very

quickly Changes are altering the very nature of work itself, including the

manager’s job

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C. Sociocultural Forces Pressures emanating from the social structure of a country or Pressures emanating from the social structure of a country or

society or from the national culture Social structure: the arrangement of relationships between individuals and

groups in society

National culture: the set of values that a society considers important and thenorms of behavior that are approved or sanctioned in that society.

Societies differ substantially in the values and norms they


Societies differ substantially in the values and norms theyemphasize.

Effective managers are sensitive to differences between societiesand adjust their behaviors accordingly


D. Demographic Forces Outcomes of change in, or changing attitudes toward, the

characteristics of a population, such as age, gender,ethnic origin, race, sexual orientation, and social class

Most industrialized nations are experiencing the aging oftheir populations as a consequence of failing birth andd th t d th i f th b b b ti


death rates and the aging of the baby-boom generation

Organizations need to find ways to motivate and utilizethe skills and knowledge of older employees

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E. Political and Legal Forces Outcomes of changes in laws and regulations, such as

the deregulation of industries, the privatization oforganizations, and increased emphasis on environmentalprotection Increasingly nations are joining together into political unions that

allow for the free exchange of resources and capital


allow for the free exchange of resources and capital

The Changing Global Environment

• Managers now recognize that companiesexist and compete in a truly global marketexist and compete in a truly global market

• Managers constantly confront thechallenges of global competitionEstablishing operations in a country abroadObtaining inputs from suppliers abroadC f ff


Challenges of managing in a different national culture

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Process of Globalization

• GlobalizationSet of specific and general forces that work together to integrateSet of specific and general forces that work together to integrate

and connect economic, political, and social systems acrosscountries, cultures, or geographical regions

Result is that nations and peoples become increasinglyinterdependent

Four principal forms of capital that flow between countries are:


Human capital

Financial capital

Resource capital

Political capital

Declining Barriers to Trade and Investment

A. Tariff A tax that government imposes on imported or, occasionally, exported

goodsgoods. Intended to protect domestic industry and jobs from foreign

competition Other countries usually retaliate their own tariffs, actions that

eventually reduce the overall amount of trade and impedes economicgrowth.

B. Free-Trade Doctrine GATT and the Rise of Free Trade


GATT and the Rise of Free Trade The idea that if each country specializes in the production of the goods

and services that it can produce most efficiently, this will make the bestuse of global resources, i.e., If India is more efficient in making textiles,and the United States is more efficient in making computer software,then each country should focus on their respective strengths and tradefor the other’s goods.

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Declining Barriers of Distance and Culture

C. Distance Markets were essentially closed because of the slowness of Markets were essentially closed because of the slowness of

communications over long distances.

D. Culture Language barriers and cultural practices made managing

overseas businesses difficult

E Changes in Distance and Communication


E. Changes in Distance and Communication Improvement in transportation technology and fast, secure

communications have greatly reduced the barriers of physical andcultural distances.

Effects of Free Trade on Managers

Declining Trade BarriersOpened enormous opportunities for managers to expand

the market for their goods and services.

Allowed managers to now both buy and sell goods andservices globally.

Increased intensity of global competition such that


managers now have a more dynamic and exciting job ofmanaging.

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Effects of Free Trade on Managers

Regional Trade AgreementsNorth American Free Trade Agreement (NAFTA)g ( )Abolishes 99% of tariffs on goods traded between Mexico, Canada and the United

States Unrestricted cross-border flows of resources Increased investment by U.S. firms in Mexican manufacturing facilities due lower wage

costs in MexicoOpportunities and Threats The opportunity to serve more markets Increased competition from NAFTA competitors

CAFTA


CAFTARegional trade agreement designed to eliminate tariffs on products between the

United States and all countries in Central AmericaApproved by Dominican Republic, El Salvador, Guatemala, Nicaragua, and

Honduras

The Role of National Culture

Values Ideas about what a society believes to be good, desirable and beautiful.y g , Provide the basic underpinnings for notions of individual freedom,

democracy, truth, justice, honesty, loyalty, love, sex, marriage, etc. Norms Unwritten rules and codes of conduct that prescribe how people should act

in particular situations. Folkways—routine social conventions of daily life (e.g., dress codes

and social manners)


and social manners) Mores—behavioral norms that are considered central to functioning of

society and much more significant than folkways (e.g., theft andadultery), and they are often enacted into law.

Many differences in mores from one society to another

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Hofstede’s Model of National Culture

MGT-101 Yiannos Rossides25Figure 6.4

Hofstede’s Model of National Culture (Fig.6-4)

A. Individualism A ld i h l i di id l f d d lf i A worldview that values individual freedom and self-expression

and adherence to the principle that people should be judged bytheir individual achievements rather their social background.

B. Collectivism A worldview that values subordination of the individual to the goals

of the group and adherence to the principle that people should bejudged by their contribution to the group


C. Power Distance A society’s acceptance of differences in the well being of citizens

due to differences in heritage, and physical and intellectualcapabilities (individualism).

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Hofstede’s Model of National Culture

D. Achievement versus Nurturing Orientation Achievement-oriented societies value assertiveness, performance, and success

and are results-orientedand are results-oriented. Nurturing-oriented cultures value quality of life, personal relationships, and service. i.e., The United States and Japan are achievement-oriented; Sweden and Denmark

are more nurturing-oriented.E. Uncertainty Avoidance Societies and people differ in their tolerance for uncertainty and risk. Low uncertainty avoidance cultures (e.g., U.S. and Hong Kong) value diversity and

tolerate a wide range of opinions and beliefs. High uncertainty avoidance societies (e.g., Japan and France) are more rigid and


g y ( g , p ) gexpect high conformity in their citizens’ beliefs and norms of behavior.

Long Term Outlook Cultures with a long-term orientation rest on values such as thrift and persistence in

achieving goals Cultures with a short-term orientation are concerned with maintaining personal

stability or happiness and living for the present

National Culture and Global Management

• Management practices that are effective inone culture often will not work as well in

th ltanother culture• Managers must be sensitive to the value

systems and norms of an individual’scountry and behave accordinglyReview Questions


Review Questions1. Define and briefly explain the forces that form an organization’s

general environment, using examples where appropriate to support your answer.

2. Define the forces that form an organization’s task environment.

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