Chapter 4,5

Chapter 4 Managing in a global environmentFour stages of globalisation●Domestic stage: market potential is limited to the home country, with all production and marketingfacilities located at home.●International stage: exports increase, and the organisation usually adopts a multidomestic approach.●Multinational stage: the organisation has marketing and productioin facilities located in manycountries, with more than one-third of its sales outside the home country.●Global stage (stateless stage): international development transcends any signle home country.The international business environmentInternational management: the management of business operations conducted in more than one country.Diagram p140 !!!●The economic environmentThe economic environment represents the economic conditions in the country where the international organisation operates. It includes factors such as: 1. Econimic development. 2. Infrastructure. 3. Resource and product markets. 4. Exchange rates. 5. Inflation, interest rates and economic growth.1.Economic developmentEconomic development differs widely among the countries and regions of the world. Countries can be categorised as either “developing”or “developed”. The criterion usually used to classify countries as developed or developing is per capita income, which is the income generated by the nation’s production of goods and services divided by total population.2.InfrastructureA country’s physical facilities that support economic activities make up its infrastructure, which includes transportation facilities (eg. airports, highways and railroads), energy-producing facilities (eg. utilities and power plants), and communication facilities (eg. telephone lines and radio stations).3. Resource and product marketsWhen operating in another country, managers must evaluate the market demand for their products.4. Exchange ratesThe exchange rate is the rate at which one country’s currency is exchanged for another country’s. Changes in the exchange can have major implications for the profitability of international operations that exchange millions of dollars into other currencies every day.5.Inflation, interest rates and economic growthInflation rates measure the annual rate of growth of prices in the economy, and interest rates measure the cost of borrowing money. Stability and a solid, growing economy are two key factors that major companies look for in their global search for countries in which to locate their businesses.●The legal-political environmentBusinesses must deal with unfamiliar political systems when they go international, as well as with more government supervision and regulation. Some of the major legal-political concerns affecting international business are: 1. political risk. 2. Political instability. 3. Laws and regulations.1.Political riskAn organisation’s political risk is defined as its risk of loss of assets, earning power or managerial control due to politically based events or actions by host governments. Political risk includes government takeovers of property and acts of violence directed against a firm’s properties or employees.2.Political instabilityPolitical instability includes riots, revolutions, civil disorders and frequent changes in government. Politcial instability increases uncertainty.ws and regulationsGovernment laws and regulations differ from country to country and make manufacturing and sales a true challenge for international firms. The most visible changes in legal-political factors grow out of international trade agreements and the emerging international trade alliance system.●The sociocultural environmentA nation’s culture includes the shared knowledge, beliefs and values, as well as the common modes of behaviour and ways of thinking, among members of a society. Cultural factors are more perplexing than political and economic factors in foreign countries.Social values●Hofstede 1985 five dimensions1.Power distanceHigh power distance means that people accept inequality in power among institutions, organisations and people. Low power distance means that people expect equality in power.2.Uncertainty avoidanceHigh uncertainty avoidance means that members of a society feel uncomfortable with uncertainty and ambiguity, and thus support beliefs that promise certainty and conformity. Low uncertainty avoidance means that people have high tolerance for the unstructured, the unclear and the unpredictable.3.Individualism and collectivismIndividualism reflects a value for a loosely knit social framework in which individuals are expected to take care of themselves. Collectivism means a preference for a tightly knit social framework in which individuals look after one another and organisations protect their members’ interests.4.Masculinity and femininityMasculinity stands for preference for achievement, heroism, assertiveness, work centrality and material success. Feminity reflects the values of relationships, cooperation, group decision making and quality of life.5.Long-term orientationThe long-term orientation includes a greater concern for the future and highly values thrift and perseverance. A short-term orientaition is more concerned with the past and the present and places a high value on tradition and meeting social obligations.●GLOBE project value dimensionsRecent research by the GLOBE project extends Hofstede’s assessment and offers a broader understanding for today’s managers. The GLOBE project identified nine dimensions that explain cultural differences,including those identified by Hofstede.1.AssertivenessA high value on assertiveness means a society encourages toughness, assertiveness, and competitiveness.2. Future orientationRefers to the extent to which a society encourages and rewards planning for the future over short-term results and quick gratification.3. Uncertainty avoidanceThe degree to which members of a society feel uncomfortable with uncertainty and ambiguity.4.Gender differentiationThe extent to which a society maximises gender role differences.5.Power distanceThe degree to which people expect and accept equality or inequality in relationships and institutions.6.Societal collectivismThe degree wo thich practices in institutions such as schools, businesses, and other social organisations encourage a tightly knit collectivist society in which people are an importantpart of a group, or a highly individualistic society.7.Individual collectivismThe degree to which individuals take pride in being members of a family, close circle of friends, team, or organisation.8.Performance orientationHigh emphasis on performance and rewards people for performance improvements and excellence. A low performance orientation means people pay less attention to performance and more attention to loyalty, belonging, and background.9.Human orientationThe degree to which a society encourages and rewards people for being fair, altruistic, generous, and caring. A country high on humane orientation places high value on helping others and being kind.Getting started internationally – Market entry strategiesSmall and medium-sized organisations have two ways to become involved internationally. One is to seek cheaper sources of supply offshore, which is called outsourcing or offshoring. Another is to develop markets for finished products outside their home country, which may include exporting, licensing and direct investing. These are called market entry strategies.Diagram p153 !!!●OutsourcingGlobal outsoucing, sometimes called global sourcing or offshoring, means engaging in the international division of labour so that manufacturing can be done in countries with the cheapest sources of labour and supplies.●ExportingAn entry strategy in which the organisation maintains its production facilities within its home country and transfers its products for sale in foreign markets. Exporting enables a business to market its products inother countries at modest resource cost and with limited risk. Exporters do encounter numerous problems based on physical distances, government regulations, foreign currencies and cultural differences, but exporting is less expensive than committing the firm’s own capital to building plants in host countries.A form of exporting to less-developed countries is called countertrade. (the barter of products for other products rather than their sale for currency) An estimated 20% of world trade is countertrade.●LicensingAn entry strategy in which an organisation in one country makes certain resources available to organisations in another in order to participate in the production and sale of its products abroad. These resources include technology, managerial skills and/ or patent and trademark rights. They enable the licensee to produce and market a product similar to that the licensor has been producing.Franchising is a form of licensing in which the franchisor provides foreign franchisees with a complete package of material and services, including equipment, products, product ingredients, trademark and trade name rights, managerial advice and a standardised operating system.Licensing and franchising offer a business relatively easy access to international markets at low cost, but they limit its participation in and control over the development of those markets.●Direct investmentAn entry strategy in which the organisation is involved in managing its production facilities in a foreign country. Currently, the most popular type of direct investment is to engage in strategic alliances and partnerships.Joint venture is a variation of direct investment in which an organisation shares costs and risks with another firm to build a manufacturing facility, develop new products or set up a sales and distrubtion network.The other choice when considering direct investing is to have a wholly owned foreign affiliate, over which the company has complete control. Direct acquisition of an affiliate may provide cost savings over exporting by shortening distrubtion channels and reducing storage and transportation costs.The most costly and risky direct investment is called a greenfield venture– where a company builds a subsidiary from scratch in a foreign country. The advantage is that the subsidiary is exactly what the company wants and has the potential to be highly profitable. The disadvantage is that the company has to acquire all market knowledge, materials, people and know-how in a different culture, and mistakes are possible. The venture was high-risk because the new plant was building a new product with a new workforce, to be sold in a foreign country.The multinational company●Characteristics of multinational companiesMultinational company (MNC): an organisation that receives more than 25% of its total sales revenues from operations outside the parent company’s home country; also called a global company or transnational company.MNCs have the following distinctive managerial characteristics:1.An MNC is managed as an integrated, worldwide business system –foreign affiliates act in closealliance and cooperation with one another (capital, technology and people are transferred among closealliance and cooperation with one another).2.An MNC is ultimately controlled by a single management authority that makes key strategic decisionsrelating to the parent and all affiliates.3.MNC top managers are presumed to exercise a global perspective. They regard the entire world as onemarket for strategic decisions, resource acquisition, location of production, advertising and marketing efficiency.* Different MNC management philosophy1. Ethnocentric organisations: organisations that place emphasis on their home countries.2. Polycentric organisations: organisations that are oriented towards the markets of individual foreignhost countries.3. Geocentric organisations: organisations that are truly world-oriented and favour no specific country.●Personal challenges for global managersManagers will be most successful in foreign assignments if they are culturally flexible and can adapt easily to new situations and ways of doing things. The key to be sensitive to cultural differences and understand that other ways of thinking and doing are also valid.●Developing cultural intelligenceCultural intelligence (CQ): a person’s ability to use reasoning and observation skills to interpret unfamiliar gestures and situations and devise appropriate behavioural responses.CQ includes three components that work together: 1. cognitive. 2. Emotional. 3. Physical1.Cognitive componentA person’s observational and learning skills and the ability to pick up on clues to understanding.2. Emotional componentConcerns one’s self-confidence and self-motivation.3. Physical componentA person’s ability to shift his or her speech patterns, expressions, and body language to be in tune with people from a different culture.Chapter 5 Ethics, social responsibility and sustainable developmentEthics:the code of moral principles and values that governs the behaviours of a person or group with respect to what is right or wrong. Ethics deals with internal values that are a part of corporate culture and shapes decisions concerning social responsibility with respect to the external environment.Ethical dilemma:a situation when each alternative choice or behaviour is undesirable because of potentially harmful ethical consequences. Right and wrong cannot be clearly identified. Most ethical dilemmas involve a conflict between the needs of the part and the needs of the whole –the individual against the organisation or the organisation against society as a whole.Approaches for ethical decision-making●Utilitarian approachMoral behaviour produces the greatest good for the greatest number. Under this approach, a decisionmaker is expected to consider the effect of each possible decision on all parties and select the one that optimises the satisfaction for the greatest number of people.●Individualism approachActs are moral when they promote the individual’s best long-term interests, which ultimately leads to the greater good. With everyone pursuing self-direction, the greater good is ultimately served because people learn to accommodate each other in their own long-term interest.●Moral rights approachMoral decisions are those that best maintain the rights of those people affected by them.Moral rights that could be considered during decision making are:1.The right of free consentIndividuals are to be treated only as they knowingly and freely consent to be treated.2.The right to privacyIndividuals can choose to do as they please away from work and have control of information about their private life.3.The right of freedom of conscienceIndividuals may refrain from carrying out any order that violates their moral or religious norms.4.The right of free speechIndividuals may criticise truthfully the ethics or legality of actions of others.5.The right to due processIndividuals have a right to an impartial hearing and fair treatment.6.The right to life and safetyIndividuals have a right to live without endangerment or violation of their health and safety.●Justice approachMoral decisions must be based on standards of equity, fairness and impartiality.Three types of justice1.Distributive justiceDifferent treatment of people should not be based on arbitrary characteristics. In the case of substantive differences, people should be treated differently in proportion to the differences among them.2.Procedural justiceRules should be clearly stated, and consistently and impartically enforced.pensatory justiceIndividuals should be compensated for the cost of their injuries by the party responsible and also that individuals should not be held responsible for matters over which they no control.Factors affecting ethical choicesEthical or unethical business practices usually reflect the values, attitudes, beliefs and behaviour patterns of the organisational culture, so ethics is as much an organisational as personal issue. Examine how both the manager and the organisation shape ethical deicsion making.●The managerManagers bring specific personality and behavioural traits to the job. Personal needs, family influence and religious background all shape a manager’s value system. Specific personality characterisitcs, such as ego strength, self-confidence and a strong sense of independence, may enable managers to make ethical decisions.The stages of moral development Diagram p179 !!!1.Preconventional levelIndividuals are concerned with external rewards and punishments, and obey authority to avoid detrimental personal consequences.In an organisational context, this level may be associated with managers who use an autocratic or coercive leadership style, with employees oritented towards dependable accomplishment of specific tasks. Leadership style: autocratic / coerciveEmployee behaviour: task accomplishment2.Conventional levelPeople learn to conform to the expectations of good behaviour as defined by colleagues, family, friends and society. Meeting social and interpersonal obligations is important.Leadership style: guiding / encouraging, team orientedEmployee behaviour: work group collaboration3.Post-conventional level / principled levelIndividuals are guided by an internal set of values and standars and will even disobey rules or laws that violate these principles.Leadership style: transforming, or servant leadershipEmployee behaviour: empowered employees, full participationConclusion: The great majority of managers operate at level two. A few have not advanced beyond level one. Only about 20% of adults reach the level-three stage of moral development. People at level three are able to act in an independent, ethical manner regardless of expectations from others inside or outside the organisation. Managers at level three of moral development will make ethical decisions whatever the organisational consequences for them.●The organisationThe values of an organisation or department strongly influence employee behaviour and decision making. In particular, corporate culture serves to let employees know what beliefs and behaviour the organisation supports and those it will not tolerate.Social responsibilityThe obligation of organisation management to make decisions and take actions that will enhance the welfare and interests of society.。