MM ZC211:Principles of

Management
BITS Pilani
Hyderabad Campus

Lecture-4

Date :05/7/13

Total Slides : 42 Swati Alok

BITS Pilani
Hyderabad Campus

Chapter 4
Managing in a Global Environment

Learning outlines
Identify
International
Opportunities
& challenges

Explore
Resources and
Capabilities

Use Core
Competence

MNC

Modes of
Entry

Increased
Market Size

Exporting

Return on
Investment

Licensing

Economies of
Scale and
Learning
Location
Advantage

Multidomestic
Strategy

Strategic
Competitiveness
Regional Trade
Outcomes
alliances

Higher
Performance
Returns

Strategic
Alliances

Global
Strategy
Transnational
Strategy

Innovation

Establishment of
New Subsidiary
Managing
Culture

Globalization
BMW, a German-owned firm, builds cars in South Carolina.
McDonalds sells hamburgers in China.
Toyota makes cars in Kentucky.
General Motors makes cars in Brazil.
Parts for Ford Motor Companys Crown Victoria come from Mexico, Japan,
Spain, Germany, and England.
Customers calling for information and support in countries like the USA and
UK find their calls being answered by call centre operators in India.

The world has become a global village

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Why you need to go global

Increase market size
High return on investment
Economies of scale
Location advantage
Helping hand:
Reduced regulations & tariffs
Internet and logistic issues

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Regional Trading Alliances (contd)

SAARC
South Asian Association for Regional Cooperation
Established on 8th Dec 1985
Bangladesh, Bhutan, India, Maldives Nepal, Pakistan and
Srilanka
Platform for people of South Asia to work together with
spirit of friendship, trust and understanding.

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Regional Trading Agreements

The European Union (EU) (27 democratic European
countries)
A unified economic and trade entity

Belgium, Denmark, France, Greece, Ireland, Italy,

Luxembourg, the Netherlands, Portugal, Spain, the United
Kingdom, Germany, Austria, Finland, and Sweden

Economic and monetary union (Euro)

North American Free Trade Agreement (NAFTA)

Eliminated barriers to free trade (tariffs, import licensing requirements, and
customs user fees)

United States, Canada, and Mexico

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Regional Trading Agreements

(contd)
Free Trade Area of the Americas
Southern Cone Common Market (Mercosur)
Association of Southeast Asian Nations (ASEAN)
Trading alliance of 10 Southeast Asian nations

African Union

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The World Trade Organization

(WTO)

Evolved from the General Agreement on Tariffs and Trade

(GATT) in 1995.
Functions as the only global organization dealing with the
rules of trade among nations.
Has 157 member nations.
Monitors and promotes world trade.

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The Global Marketplace

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

MGTS-ZC211 Managing in a Global Environment

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Whats Your Global

Perspective?
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.

MGTS-ZC211 Managing in a Global Environment

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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 global

organization
Multidomestic Corporation
A firm that maintains operations in several countries but decentralizes
management to the local country.

Global Company :
A firm which maintains operations in multiple countries but manages the
operations from a base in the home country

Borderless Organization/Transnational Corporation (TNC)

A firm that has eliminated structural divisions that impose artificial geographic
barriers and is organized along business lines.

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Corporate-Level International Strategies

Multi-Domestic Strategy
Strategy and operating decisions are decentralized
to strategic business units (SBU) in each country
Products and services are tailored to local markets
Business units in each country are independent
of each other
Assumes markets differ by country or regions
Focus on competition in each market

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Corporate-Level International Strategies

Global Strategy
Products are standardized across national markets
Decisions regarding business-level strategies are
centralized in the home office

Emphasizes economies of scale

Often lacks responsiveness to local markets

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Corporate-Level International Strategies

Transnational Strategy
Seeks to achieve both global efficiency and local
responsiveness
Difficult to achieve because of simultaneous
requirements for strong central control and
coordination to achieve efficiency and local
flexibility and decentralization to achieve local
market responsiveness
Must pursue organizational learning to achieve
competitive advantage
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International Corporate Strategy

When is each strategy appropriate?
High
Global
Strategy

Transnational

Need for Global

Integration

MultiDomestic

Low
Low
Need for Local Market Responsiveness

High

International Strategy Opportunities and Outcomes

Identify
International
Opportunities

Explore
Resources and
Capabilities

Use Core
Competence

International
Strategies
Increased
Market Size
Return on
Investment
Economies of
Scale and
Learning
Location
Advantage

MNC

Modes of
Entry

Strategic
Competitiveness
Regional Trade
Outcomes
alliances

Exporting
Higher
Performance
Returns

Licensing /
Multidomestic
Strategy
Global
Strategy
Transnational
Strategy

Franchising

FF

Strategic
alliances
Innovation

Establishment of
New Subsidiary
Management
Problems
and Risk

Choice of International Entry Mode

Exporting
Exporting
Common way to enter new international markets
No need to establish operations in other countries
Establish distribution channels through contractual
relationships
May have high transportation costs
May have less control on marketing and distribution
Difficult to customize products
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Choice of International Entry Mode

Licensing
Licensing
Firm authorizes another firm to manufacture and
sell its products
Licensing firm is paid a royalty on each unit
produced and sold
Licensee takes risks in manufacturing investments
Least risky way to enter a foreign market
Licensing firm loses control over product quality
and distribution
Relatively low profit potential
A significant risk is that licensor learns technology
and competes when license expires

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Choice of International Entry Mode

Strategic
Strategic Alliances
Alliances
Enable firms to shares risks and resources to expand into
international ventures
Most joint ventures (JVs) involve a foreign company
with a new product or technology and a host company
with access to distribution or knowledge of local
customs, norms or politics
May experience difficulties in merging disparate
cultures
May not understand the strategic intent of partners or
experience divergent goals
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Choice of International Entry Mode

New Wholly-Owned Subsidiary
Most costly and complex of entry alternatives
Achieves greatest degree of control
Potentially most profitable, if successful
Maintain control over technology, marketing
and distribution
May need to acquire expertise and knowledge
that is relevant to host country
Could require hiring host country nationals or consultants at high cost

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The Choice of Entry Mode

1. Exporting
Most manufacturing companies begin their global expansion as exporters
and later switch to one of the other modes.

2. Licensing
A foreign licensee buys the rights to produce a companys product for a
negotiated fee; licensee puts up most of the overseas capital.

3. Franchising
Franchising is a specialized form of licensing. The franchiser not only sells
intangible property, but also insists that franchisee agrees to follow strict
rules as to how it does business.

4. Joint Ventures
Typically a 50/50 venture a favored mode for entering a new market

5. Wholly-Owned Subsidiaries
Parent company owns 100% of subsidiarys stock setup or acquire
8 | 23
Copyright Houghton Mifflin Company. All rights reserved.

How Organizations Go Global

Three Stages of Globalization
Stage I

Exporting products for sale overseas and importing products

from overseas to sell in the home country.

Stage II

Committing to directly sell home-country products in overseas

markets or contracting for products to be manufactured
overseas and sold in the home country.

Stage III

Licensing manufacturing and franchising services to foreign

firms to use the brand name, technology, or product
specifications developed by the firm.

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Other Forms of Globalization

Strategic Alliances
Partnerships between and organization and a foreign company in which both
share resources and knowledge in developing new products or building new
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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Joint Ventures
Attractions:

Helps avoid the risks and costs of building a new

operation from the ground floor
Teaming with another company that has complementary
skills and assets may increase the probability of success

Pitfalls:

Requires the sharing of profits if the new business

succeeds

Venture partners must share control conflicts on how to

run the joint venture can cause failure

Run the risk of giving critical know-how away to joint

10 | 26
Copyright
Houghton Mifflin
Company. All rights reserved.
venture
partner

How Organizations Go Global

MGTS-ZC211 Managing in a Global Environment

27

Strategy

Does innovator
have all required
complementary
assests?

Likely height of
barriers to
imitation

No. of capable
competitors

yes

High

few

No

High

limited

no

low

Many

Go it alone
Enter into alliance

License
innovation

Limits To International Expansion

Management Problems
Cost of Coordination across diverse
geographical business units
Institutional and cultural barriers
Understanding strategic intent of competitors
The overall complexity of competition

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The Cultural Environment

National Culture
Is the values and attitudes shared by individuals from a specific country that
shape their behavior and their beliefs about what is important.
May have more influence on an organization than the organization culture.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

430

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Exhibit 44 What Are Americans Like

Americans are very informal.
Americans are direct.
Americans are competitive.
Americans are achievers.
Americans are independent and individualistic.
Americans are questioners.
Americans dislike silence.
Americans value punctuality.
Americans value cleanliness.
Sources: Based on M. Ernest (ed.), Predeparture Orientation Handbook: For Foreign Students and Scholars Planning to Study in the
United States (Washington, DC: U.S. Information Agency, Bureau of Cultural Affairs, 1984), pp. 10305; A. Bennett, American Culture Is
Often a Puzzle for Foreign Managers in the U.S., Wall Street Journal, February 12, 1986, p. 29; Dont Think Our Ways the Only Way,
The Pryor Report, February 1988, p. 9; and B.J. Wattenberg, The Attitudes behind American Exceptionalism, U.S. News & World
Report, August 7, 1989, p. 25.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

431

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Exhibit 44 What Are Indians Like

Indians are informal.
Indians are indirect.
Indians are both collectivistic and individualistic.
Indians view time as stretchable.
Indians have mostly external locus of control.
Indians are paternalistic.
Indians value relationships.
Indians value keeping of word.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

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Hofstedes Framework for

Assessing Cultures
Individualism
Individualism
versus
versus
Collectivism
Collectivism
Long-Term
Long-Term
versus
versus
Short-Term
Short-Term
Orientation
Orientation

Power
Power
Distance
Distance

Culture
Culture

Achievement
Achievement
versus
versus
Nurturing
Nurturing

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

Uncertainty
Uncertainty
Avoidance
Avoidance

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Exhibit 45 Hofstedes Five Dimensions of

National Culture
(1) Individualistic people look after their own and family interests
Collectivistic people expect group to look after and protect them
Individualistic
United States, Canada
Australia

Japan

Collectivistic
Mexico, Thailand

(2) High power distanceAccepts wide differences in power, great

deal of respect for those in authority
Low power distancePlays down inequalities: employees are not
afraid to approach nor are in awe of the boss
High power distance
Mexico, Singapore, france

Italy, Japan

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

Low power distance

United States, sweden

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Exhibit 45 Hofstedes Five Dimensions of

National Culture
(3) High uncertainty avoidanceThreatened with ambiguity and

experience high levels of anxiety

Low uncertainty avoidance Comfortable with risks; tolerant of
different behavior and opinions

High uncertainty avoidance

Italy, Mexico, France

Low uncertainty avoidance

United Kingdom Canada, United States,

(4) AchievementValues such as assertiveness, acquiring money and goods,

and competition prevail
NurturingValues such as relationships and concern for others prevail
Achievement
United States,
Mexico, Japan

Canada, Greece

Nurturing
France, Sweden

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Exhibit 45 Hofstedes Five Dimensions of

National Culture
(5) Long-term orientationPeople look to the future and value thrift
and persistence
Short-term orientation People value tradition and the past
Short-term thinking
Germany, Australia,

Long-term thinking
China, Taiwan, Japan

United States, Canada

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S.N
o

Coun
try

Power
distance
(56.57)

Uncertaint Individualism/coll
y
ectivism
avoidance (43.43)
(65.69)

Masculinity/femi
ninity
(48.84)

India

77

40

48

56

USA

40

46

91

62

Max
score

104

112

91

95

Min
score

11

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

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GLOBE
Global leadership and organizational behavior
effectiveness
Robert J House in 1991
170 social scientist
18000 manager
62 countries
Identified 9 dimensions of culture

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Exhibit 46 GLOBE Highlights

Source: M. Javidan and R. J. House, Cultural Acumen for the Global Manager: Lessons from Project GLOBE, Organizational Dynamics,
Spring 2001, pp. 289305. Copyright 2001. Reprinted with permission from Elsevier.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

439