Globalization and Management

The Global Marketplace

Opportunities and 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

Whats Your Global Perspective?

Parochialism

Is viewing the world solely through ones 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.

Adopting a Global Perspective

Ethnocentric Attitude

The parochialistic belief that the best work approaches and practices are those of the home country. The view that the managers in the host country know the best work approaches and practices for running their business. A world-oriented view that focuses on using the best approaches and people from around the globe.

Polycentric Attitude

Geocentric Attitude

Regional Trading Agreements

The European Union (EU)

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

North American Free Trade Agreement (NAFTA)

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

United States, Canada and Mexico

European Union

Regional Trading Agreements

U.S.-Central America Free Trade Agreement (CAFTA) 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 South Asian Association for Regional Cooperation (SARRC)

ASEAN Members

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 149 member nations and 32 observer governments. Monitors and promotes world trade.

Different Types of International Organizations

Multinational Corporation (MNC)

Maintains operations in multiple countries.

Multidomestic Corporation

Is an MNC that decentralizes management and other decisions to the local country.

Global Company

Is an MNC that centralizes its management and other decisions in the home country.

Different Types of International Organizations (cont.)

Transnational Corporation (Borderless Organization)

Is an MNC that has eliminated structural divisions that impose artificial geographic barriers and is organized along business lines that reflect a geocentric attitude.

How do firms decide to enter the global market

Risk Which markets to enter How many places to cater Others factors- entry cost, population, income Barriers to entry Communication cost

Risks associated in globalization

Changing government policies Cultural differences Threat of local competition Currency exchange problems Adverse economic growth Transportation, communication systems Political risk Appropriateness & Availability of technology

How Organizations Go Global

Other Forms of Globalization

Strategic Alliances

Partnerships between 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. Directly investing in a foreign country by setting up a separate and independent production facility or office.

Foreign Subsidiary

Managing in A Global Environment

The Legal Environment

Stability or instability of legal and political systems

Legal procedures are established and followed Fair and honest elections held on a regular basis

Differences in the laws of various nations

Effects on business activities Effects on delivery of products and services

The Economic Environment

Economic Systems

Free market economy

An economy in which resources are primarily owned and controlled by the private sector.
An economy in which all economic decisions are planned by a central government.

Planned economy

Monetary and Financial Factors

Currency exchange rates Inflation rates Diverse tax policies

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.

What Are Indians Like?

Indians are informal. They do not say thank you, please, etc. as much as people say from other countries. They do not think that it is important to make an appointment before going to a friends place. If two people are talking to each other, a third will not think twice before joining the conversation. They will not be shy of asking a stranger about his or her personal information. Indians are indirect. Indians will find ways of saying unpleasant things so that they do not sound rude. Indians are both collectivistic and individualistic. Indians will depend on others to get their work done and will also help others in their needs. They do not believe that people control their own destiny and at the same time would not mind to be on their own to achieve their goals.

What Are Indians Like?

Indians view time as stretchable. Indians are not very upset if a meeting does not start on time. Time is defined by how long it takes to get something done Indians have mostly external locus of control. A typical Indian will not blame oneself for all their failures. It is very common for them to say that this was because of their destiny. Indians value relationships. Indians will go to great extent to build relationships and their view for relationships is long term. Family is a very important source of relationships for the Indians.

What Are Indians Like?

Indians are paternalistic. The head of the family is revered and respected. A leader or a boss is looked upon as the caretaker and father figure. A caring boss can get a lot of work done from the Indian subordinates. Whenever you go out to meet a family or for a formal business meeting, it is common to first greet the eldest or the senior-most person in the setting. Indians value keeping of word. Once trust is established and a word is given, Indians will try hard to honor it. They might be late or a little slow to honor their word but will eventually come back to you and will keep their promise.

Hofstedes Framework for Assessing Cultures

Individualism versus Collectivism

Long-Term versus Short-Term Orientation

Power Distance

Culture

Achievement versus Nurturing

Uncertainty Avoidance

GLOBE Highlights

The Role of Multinational Enterprises (MNE)

Ways to own foreign assets Foreign portfolio investments:

Purchase shares in the company that owns assets. Such investments give those companies share in profits, but no right to participate in management.

Direct investment: buying and management of foreign assets.

It is through a multinational enterprise, a large corporation with operations and divisions spread over several countries but controlled by a central headquarter.

Three factors to be considered by management before investment decisions.

The Role of Multinational Enterprises (MNE)

Economies of different nations:

Infrastructure: transportation, schools, communication systems, hospitals, power plants and sanitary facilities. Possibility of political changes. Production technology in one country may not work in another. Some governments may not encourage technological changes.

Political risks:

Appropriateness of technology to different cultures.

Impact of MNEs on Host Countries

Not necessarily welcome participants in national economies around the world Viewed with suspicion Some potential benefits Transfer of capital, technology and entrepreneurship to the host country. Improved host countrys balance of payments. Creation of local jobs and career opportunities Improved competition in local economy Greater availability of products for local consumers.

Impact of MNEs on Host Countries

Some potential costs: MNE may use local financing thereby absorbing capital that may have financed indigenous companies. Few well advertised, standardized products may drive local produced products from the market, thereby reducing consumer choice.

Impact of MNEs on Home Countries

Less debatable due to absence of highly charged emotional issues as political interference, cultural disruption and economic dependence. Drawbacks: Outflow of foreign investments with reduced income from exports may weaken the national balance of payments. Loss of technological advantage especially with joint ventures. Loss of domestic jobs.

The Future of Global Management

The various trends in the external environment may influence the practice of managerial functions of planning, organizing, staffing, leading and controlling. The external environment may be categorized as technological, economic, political and legal, and social, ethical and ecological. We live in a knowledge society in which information technology impacts on most aspects of our lives. In todays world, technology is being produced and distributed to the public faster then ever before.

Global Management
Trends/ changes in the global environment 1. Technological: a) Widespread use of IT b) Emergence of knowledge society c) Easy access to information at low cost d) Widespread and global e-commerce 2. Economic: a) EU reduced internal regional barriers by adding Bulgaria and Romania in 2007, but created external ones

Global Management
b) U.S. labour unions stance shifts from free trade to protectionism to protect jobs c) Borderless society 3. Political/Legal: a) Expansion of EU via admittance of new members, mainly from Eastern Europe b) Increased protectionism because of declined employment in manufacturing and services (due to e.g. outsourcing to India)

Global Management
4. Social/Ethical/Ecological: a) Emergence of knowledge workers b) People healthier and live longer c) Shifts in demographics: low birth rates and increased life expectancies result in graying population in developed countries d) Global Greening concerns.

Effects of Technological Changes on Planning: Setting objectives, strategic planning, decision making

IT aids scenario planning Wealth of information helps decision making (but possible information overload) Consumer access to product and service information allows comparisons with implications for marketing strategies, thus focus on consumer needs and services required. Cross-national alliances, joint ventures and mergers facilitated, thus global strategies required.

Effects of Technological Changes on Organizing: organization structure, authority relationships, decentralization

New organizational forms have come up. Eg. Outsourcing, virtual firms. Outsourcing requires disintegration of organization structure and restructuring Knowledge work promotes non-hierarchical structures Knowledge workers may become shareholders. From organization structures based on products and services to alliances based on strategic considerations. Manufactures join to form purchasing cooperatives Suppliers run and controlled by manufacturers, who direct and advise.

Effects of Technological Changes on Staffing

Specialized technical knowledge needed Greater mobility of knowledge workers in changing jobs Information enhances knowledge workers upward mobility Outsourcing of human resource management to specialist firms at home or abroad Continual training and retraining required to keep abreast of new technologies Development of new measurements for evaluating and rewarding knowledge workers

Effects of Technological Changes on Leading: Motivation, leadership, communication, teamwork

Information technology gives power to knowledge workers and consumers. Knowledge workers demand higher-order needs satisfaction (recognition, self-actualization, responsibility and participation) Electronic communication technology aids teamwork Lower communication costs.

Effects of Technological Changes on Controlling: Control techniques, Productivity

Ease of control It facilitates detection and correction of deviation Productivity measurements at low costs Internet facilitates world-wide selling Use of internet more for outside scanning not only for internal operations.

Effects of Economical Changes on:

Planning: Setting objectives, strategic planning, decision making Global strategies formulated Scanning for opportunities and threats globally, not only at home Increased global competition Borderless society has it own threats and opportunities Organizing: organization structure, authority relationships, decentralization Emergence of transnational companies Forming of cross-national alliances and mergers requires restructuring

Effects of Economic Changes on:

Staffing: Possible growth of labour unions in various countries Multicultural work force Need for culturally sensitive personnel with understanding of international macroeconomics Leading: Motivation, leadership, communication, teamwork Need for political leadership to balance interests of countries within regional blocs Ways to integrate developed with developing countries required Greater affluence requires new ways to motivate workers

Effects of Economic Changes on:

Controlling: Control techniques, Productivity Controls for transnational companies needed (eg. Tax policy) Potential for higher productivity

Effects of Political/Legal changes on:

Planning: Setting objectives, strategic planning, decision making More powerful EU can become a threat to USA Strategies needed to coping with barriers created by Regional Alliances. Organizing: organization structure, authority relationships, decentralization Need for establishing structures that resolve conflict between countries within power blocs and for developing policies to compete in regional blocs

Effects of Political/Legal changes on:

Staffing: Political-legal implications posed by multicultural work force Post September 11, USA makes it more difficult to obtain work visas thus hampering staffing of critical positions With increased protectionism, staffing in outsourcing companies can be on a decline Leading: Potential communication barriers arising from use of different languages

Effects of Social/Ethical/Ecological changes on:

Planning: Opportunity for targeting products at the youth in developing countries More marketing focus on older population in the developed countries Strategies must consider ecological impact of products and services (eg. Recycling) Organizing: Great potential for upward mobility in society and organizations, partly because of impact of knowledge society.

Effects of Social/Ethical/Ecological Changes on:

Staffing: Knowledge workers, as key human resources, require good formal education Need to integrate immigrants into work force Greater role of women at workplace Leading: Top management has to balance interests of various stakeholders (national and international) More women in leadership positions Top managers more engaged in ecological policies

Effects of Social/Ethical/Ecological Changes on:

Controlling: Growing awareness of environmental controls (measurement of performance against key environmental drivers)

Liberalization in the 1990s

It was in the 1990s that the first initiation towards globalization and economic liberalization was undertaken by Dr Manmohan Singh, who was the Finance Minister of India under the Congress government headed by P.V. Narasimha Rao. This is perhaps the milestone in the economic growth of India and it aimed towards welcoming globalization.

Gains from Globalization

1.
2. 3.

The gains from globalization can be analyzed in the context of the three types of channels: Trade in Goods and Services Movement of Capital Financial Flows

Gains from Globalization

1.

Trade in Goods and Services: According to the standard theory, international trade leads to allocation of resources that is consistent with comparative advantage. This results in specialization which enhances productivity. It is accepted that international trade, in general, is beneficial and that restrictive trade practices impede growth However , emerging economies will reap the benefits of international trade only if they reach the full potential of their resource availability

Gains from Globalization

Movement of Capital: Capital mobility enables the total savings of the world to be distributed among countries which have the highest investment potential. Under these circumstances, one countrys growth is not constrained by its own domestic savings. The inflow of foreign capital has played a significant role in the development in the recent period of the East Asian countries.

Gains from Globalization

Financial Flows: The rapid development of the capital market has been one of the important features of the current process of globalization However, the volatility in the foreign exchange market and the ease with which funds can be withdrawn from countries have created often times panic situations. When one country faces a crisis, it affects others Herd instinct is not uncommon in financial markets When an economy becomes more open to capital and financial flows, there is even greater compulsion to ensure that factors relating to macro-economic stability are not

Concerns and Fears

The first major concern is that globalization leads to a more unfair distribution of income among countries and within countries. The second fear is that globalization leads to loss of national autonomy and that countries are finding it increasingly difficult to follow independent domestic policies. In a highly integrated world economy, it is true that one country cannot pursue policies which are not in consonance with the worldwide trends. Another fear associated with globalization is insecurity and volatility. When countries are inter-related strongly, a small spark can start a large fire.

Actions by India

India has many strengths, which several developing countries lack. In that sense, India is different and is in a stronger position to gain from international trade and investment. Indias rise to the top of the IT industry in the world is a reflection of the abundance of skilled manpower in our country. India can attract greater foreign investment, if we can accelerate our growth with stability. Stability, in this context, means reasonable balance on the fiscal and external accounts.

Impacts on India

Globalization and liberalization has also made a positive impact on various important economic segments. Today, the service sectors, industrial sectors and the agriculture sector have really grown to a great extent. With the increase in the supply level, the rate of employment is also increasing considerably. One of the main aspects of globalization is foreign investment. India today has emerged as one of the perfect markets for foreign investors due to its vast market base. More and more foreign companies are investing in the Indian market to get more returns.

Managing in Global Environment

The Role of Cultural Intelligence It is often seen that most of the expatriates fail or are not able to perform upto the mark. One of the reasons given for the failure is lack of cultural intelligence. Cultural intelligence refers to an individuals capability to function effectively across cultures this can include national, ethnic, organizational as well as other types of culture.

Managing in Global Environment

It consists of cognition (thinking, learning, and strategizing); motivation (efficacy and confidence, persistence, value congruence and affect for the new culture); and behavior (social mimicry and behavioral repertoire). Cultural shock refers to frustration and anxiety that results from being constantly subjected to strange and unfamiliar cues about what to do and how to do it.

Managing in Global Environment

Adaptation of Other Management Activities Managers will have to be customized as per the host country environment. Expatriates or international managers will have to be extra sensitive or trained to fit their style to the host country styles for effective management.