Management Ch3 International Management Final

MANAGING IN A
GLOBAL
ENVIRONMENT
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LEARNING OBJECTIVES
1. Contrast ethnocentric, polycentric, and geocentric attitudes
toward global business.
• Develop your skill at collaborating in cross-cultural settings.
2. Discuss the importance of regional trading alliances and global
trade mechanisms.
3. Describe the structures and techniques organizations use as
they go international.
4. Explain the relevance of the political/legal, economic, and
cultural environments to global business.
• Know how to culturally aware.
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Hold the Pork, Please!
Germany-based Haribo
(www.haribo.com)
Cultural Challenge and Blunders:
Pork-based product: off-limits to
Muslims and Jews
Not meeting the needs of a
globally dispersed subculture
Potentially worth $2 billion
annually
Printing on packages: Backward,
but Hebrew is read from right to
left
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WHAT’S YOUR GLOBAL PERSPECTIVE?
• Ethnocentric Attitude – the 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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ETHNOCENTRIC ORIENTATION
 Guided by domestic market extension concept:

 Domestic strategies, techniques, and personnel are perceived as
superior
 International customers are considered as secondary
 International markets are regarded primarily as outlets for surplus
domestic production
 International marketing plans are developed in-house by the
international division
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POLYCENTRIC ORIENTATION
 Guided by the multidomestic market concept:

 Focuses on the importance and uniqueness of each
international market
 Likely to establish businesses in each target country
 Fully decentralized, minimal coordination with headquarters
 Marketing strategies are specific to each country
 Result: No economies of scale, duplicated functions, higher final
product costs
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GEOCENTRIC ORIENTATION
 Guided by the world marketing concept:

 The world is perceived as a total market with identifiable,
homogenous segments
 Targeted marketing strategies aimed at market segments, rather
than geographic locations
 Achieve position as low-cost manufacturer and marketer of
product line
 Provides standardized product or service throughout the world
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UNDERSTANDING THE GLOBAL
ENVIRONMENT – TRADING
ALLIANCES
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UNDERSTANDING THE GLOBAL
ENVIRONMENT – TRADING ALLIANCES
• European Union (EU) – a union of 28

democratic European nations created as a
unified economic and trade entity with the
Euro as a single common currency.
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TRADING ALLIANCES (CONT.)
• North American Free Trade

Agreement (NAFTA) – an
agreement among the Mexican,
Canadian, and U.S. governments in
which certain barriers to trade have
been eliminated.
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TRADING ALLIANCES (CONT.)
• Association of Southeast Asian Nations
(ASEAN) – a trading alliance of 10 Southeast
Asian nations. Brunei Darussalam, Cambodia, Indonesia, Lao
PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and
Vietnam.
• ASEAN +3 (China, S. Korea and Japan)
• ASEAN 16 (India, Australia, and N. Zealand)
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GLOBAL TRADING SYSTEM
GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) 1947
 The General Agreement on Tariffs and Trade (GATT): atreaty

designed to promote free trade by reducing both tariff and
nontariff barriers to international trade
 Between 1947 and 1988: Highly Successful
 Reduce average tariffs from 40 percent to 5 percent
 Multiply the volume of international trade by a factor of 20
 By the middle to late 1980s: Challenges

 Nontariff barriers
 Services not covered by the original GATT
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GLOBAL TRADE MECHANISMS
• World Trade Organization (WTO) – a

global organization of 153 countries that deals with the
rules of trade among nations. Help the free flow of trade,
Settle trade disputes among its members
• International Monetary Fund (IMF) –

an organization of 185 countries that promotes
international monetary cooperation and provides advice,
loans, and technical assistance.
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TYPES OF INTERNATIONAL
ORGANIZATIONS
• Multinational Corporation (MNC) – a
broad term that refers to any and all types
of international companies that maintain
operations in multiple countries.
• Multidomestic Corporation – an MNC
that decentralizes management and other
decisions to the local country which reflects
polycentric attitude .
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TYPES OF INTERNATIONAL ORGANIZATIONS
(CONT.)
• Global Company – an MNC that centralizes
management and other decisions in the home
country which reflects ethnocentric attitude.
• Transnational or Borderless Organization –
an MNC in which artificial geographical barriers
are eliminated and reflects a geocentric attitude.
 For example, IBM dropped its organizational structure based on
country and reorganized into industry groups. Ford Motor
Company is pursuing what it calls the One Ford concept as it
integrates its operations around the world.
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HOW ORGANIZATIONS GO
GLOBAL
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EXHIBIT 4-3
HOW ORGANIZATIONS GO GLOBAL
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• Global Sourcing – purchasing materials

or labor from around the world wherever it
is cheapest.
• Exporting – making products domestically
and selling them abroad.
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GOING GLOBAL (CONT.)
• Importing – acquiring products made abroad
and selling them domestically.
• Licensing – an organization gives another
organization the right to make or sell its
products using its technology or product
specifications.
• Franchising – an organization gives another
organization the right to use its name and
operating methods.
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• Strategic Alliance – a partnership between

an organization and one or more foreign
company partner(s) in which both share
resources and knowledge in developing new
products or building 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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• Foreign Subsidiary – directly investing in

a foreign country by setting up a separate
and independent production facility or office.
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EXHIBIT 4-3
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MANAGING IN A GLOBAL ENVIRONMENT
The Political/Legal Environment

– Managers must stay informed of the specific
laws in countries where they do business
– Some countries have risky political climates
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THE ECONOMIC ENVIRONMENT
• Free Market Economy – an economic

system in which resources are primarily
owned and controlled by the private sector.
• Planned Economy – an economic system
in which economic decisions are planned by
a central government.
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THE CULTURAL ENVIRONMENT
• National Culture – the values and

attitudes shared by individuals from a specific
country that shape their behavior and beliefs
about what is important.
• Hofstede’s framework for assessing
cultures – one of the most widely
referenced approaches to helping managers
better understand differences between
national cultures.
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HOFSTEDE’S DIMENSIONS OF CULTURE
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INDIVIDUALISM VS. COLLECTIVISM
 The individualism vs. collectivism dimension considers the degree to
which societies are integrated into groups and their perceived
obligation and dependence on groups.
 Individualism indicates that there is greater importance on attaining

personal goals. A person’s self-image in this category is defined as “I.”
 Collectivism indicates that there is greater importance on the goals and
well-being of the group. A person’s self-image in this category is defined
as “We”.
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POWER DISTANCE
 The power distance index considers the extent to which inequality and
power are tolerated. In this dimension, inequality and power are viewed
from the viewpoint of the followers – the lower level.
 High power distance index indicates that a culture accepts inequality

and power differences, encourages bureaucracy and shows high respect
for rank and authority.
 Low power distance index indicates that a culture encourages
organizational structures that are flat, decentralized decision-making
responsibility, participative style of management, and places emphasis on
power distribution.
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UNCERTAINTY AVOIDANCE
 The uncertainty avoidance index considers the extent to which
uncertainty and ambiguity are tolerated. This dimension considers how
unknown situations and unexpected events are dealt with.
 High uncertainty avoidance index indicates a low tolerance for

uncertainty, ambiguity, and risk-taking. The unknown is minimized
through strict rules, regulations, etc.
 Low uncertainty avoidance index indicates a high tolerance for
uncertainty, ambiguity, and risk-taking. The unknown is more openly
accepted, and there are lax rules, regulations, etc.
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MASCULINITY VS. FEMININITY
 The masculinity vs. femininity dimension is also referred to as “tough vs.
tender,” and considers the preference of society for achievement,
attitude towards sexuality equality, behavior, etc.
 Masculinity comes with the following characteristics: distinct gender

roles, assertive, and concentrated on material achievements and wealth-
building.
 Femininity comes with the following characteristics: fluid gender roles,
modest, nurturing, and concerned with the quality of life.
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LONG-TERM ORIENTATION VS. SHORT-
TERM ORIENTATION
 Long-term orientation shows focus on the future and involves delaying
short-term success or gratification in order to achieve long-term
success. Long-term orientation emphasizes persistence, perseverance,
and long-term growth.
 Short-term orientation shows focus on the near future, involves
delivering short-term success or gratification and places a stronger
emphasis on the present than the future. Short-term orientation
emphasizes quick results and respect for tradition.
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INDULGENCE VERSUS RESTRAINT
 Indulgence versus restraint This dimension captures the

extent to which a society allows free expression. An
indulgent society (one scoring high on this dimension)
allows people to rather freely satisfy human needs related
to enjoying life and having fun.
 By contrast, a restrained society uses varying degrees of
social norms to suppress the free satisfaction of such needs.
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GLOBAL MANAGEMENT IN TODAY’S WORLD
• The Challenges that face International

Managers today
– The increased threat of terrorism by a truly global
terror network
– Economic interdependence of trading countries
– intense underlying and fundamental cultural
differences—differences that encompass
traditions, history, religious beliefs, and deep-
seated values.
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REVIEW QUESTIONS
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EXERCISES –CHOOSE THE BEST
ANSWER
1) Natalya operates a retail store in Romania. She buys consumer
electronics from vendors in China and Japan to sell in her store. Natalya
is engaging in ________, 1) _______
A) importing B) licensing C) global sourcing D) franchising
2) Samanex Corporation maintains production facilities in 13 different

countries on three continents. Each facility is managed by a native of the
country where it is located. This practice is indicative of a(n) ________
attitude.2) _______
A) polycentric B) multicentric C) ethnocentric D) geocentric
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ANSWER
3) A(n) ________ attitude is the view that employees in the host country
know the best practices for running their operations. 3) _______
A) polycentric B) ethnocentric C) geocentric D) regiocentric
4) Harley Davidson makes motorcycles but in its retail stores it also sells
clothing, motorcycle accessories, jewelry, and many related products
made by other companies. Harley Davidson is engaging in ________.
4) _______
A) licensing B) exporting C) global sourcing D) franchising

ANSWER
5) Which of the following is a multinational corporation that tailors
marketing strategies to the host country's unique characteristics? 5)
_______
A) global company B) transnational organization

C) borderless organization D) multidomestic corporation
6) While talking with her advisor at the university, Jane deduces that she
has a(n) ________ attitude, as she has never traveled abroad and relates
well only to people from her home country. 6) _______
A) polycentric B) regiocentric C) geocentric D) ethnocentric

EXERCISES –CHOOSE THE BEST ANSWER
7) Melamark LLC has customers on four continents. It would like to
increase its global presence as a supplier to its global customers. The
most expensive option would be to ________. 7) _______
A) export from a single production plant

B) license producers in several countries
C) directly invest in a production facility in another country
D) form a strategic alliance with an existing company in another country
8) For American company Leather Exporters, first quarter sales in Italy

were higher compared to the preceding year but profits were down. What
could account for this difference? 8) _______
A) a change in the national leadership in Italy

B) a reduction in trade barriers with Italy
C) a difference in the currency exchange rate
D) a cultural change in Italian society

9) Transnational organizations are also known as ________. 9)
_______
A) polycentric organizations B) borderless organizations

C) multidomestic organizations D) ethnocentric organizations
10) The International Monetary Fund is an organization that ________.

10) ______
A) helps countries conduct trade through a system of rules
B) provides financial assistance to developing countries
C) rules on disputes over tariffs and subsidies
D) promotes international monetary cooperation

11) A global company reflects the ________. 11) ______
A) ethnocentric attitude B) geocentric attitude

C) pancentric attitude D) polycentric attitude

13) Multidomestic corporations ________. 13) ______
A) reflect ethnocentric attitudes

B) attempt to replicate their domestic successes by managing foreign
operations from the home country
C) decentralize management and other decisions to the local country
D) maintain operations in multiple countries, but do not allow managers in
each country to make their own decisions
14) Melamark's advisor on global affairs is concerned that ________ carries

too much risk. 14) ______
A) setting up a foreign subsidiary B) franchising

C) a joint venture D) a strategic alliance

15) In Malbadia, a central committee formed by the political powers decides
what products and how many of each will be produced. This situation is
typical of ________. 15) ______
A) a free market economy B) a free enterprise economy

C) a planned economy D) a freely planned economy
16) In today's global environment, managers must have a(n) ________

attitude to be successful. 16) ______
A) parochial B) geocentric C) ethnocentric D) bigoted

17) In 1984 Toyota and General Motors formed a company called NUMMI to
build cars carrying both the General Motors and Toyota brands. NUMMI is
an example of a(n) ________. 17) ______
A) equity strategic alliance B) global venture

C) joint venture D) nonequity strategic alliance
18) Which of the following types of global organizations reflects the

geocentric attitude? 18) ______
A) regional organization B) global company

C) transnational organization D) multidomestic corporation

19) Unlike the United States, the change from one regime to another in
foreign countries can be less than peaceful. Differences in the ________
can lead to uncertainty and risk for global managers. 19) ______
A) cultural environment B) political/legal environment

C) demographic environment D) economic environment
20) If Shana's company decides to open another company in France but

centralizes its management in the United States, it would be considered a
________.20) ______
A) borderless organization B) transnational corporation

C) multidomestic corporation D) global company

21) The World Trade Organization evolved from which of the following?
21) ______
A) Marshall Plan B) General Agreement on Tariffs and

Trade
C) Mercosur D) Truman Doctrine
22) Nathan uses ethnic craftsmen to make high quality oak furniture. If he
decides to offer his furniture for sale in other countries, he will be engaging
in ________. 22) ______
A) licensing B) importing C) franchising D) exporting

24) "Let's forget about tomorrow for tomorrow never comes." "Live for
today." These expressions would be typical of a culture that is ________.
24) ______
A) low in future orientation B) low in humane orientation

C) high in assertiveness D) high in performance orientation
25) A domestic firm and a foreign firm sharing the cost of developing new
products or building production facilities in a foreign country constitute a
________. 25) ______
A) foreign subsidiary B) franchising agreement

C) strategic alliance D) joint venture

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MANAGING IN A

Copyright © 2016 Pearson Education, Inc. Chapter 2-3

 Guided by domestic market extension concept:

 Guided by the multidomestic market concept:

 Guided by the world marketing concept:

• European Union (EU) – a union of 28

• North American Free Trade

 The General Agreement on Tariffs and Trade (GATT): atreaty

 By the middle to late 1980s: Challenges

• World Trade Organization (WTO) – a

• International Monetary Fund (IMF) –

• Global Sourcing – purchasing materials

• Strategic Alliance – a partnership between

• Foreign Subsidiary – directly investing in

The Political/Legal Environment

• Free Market Economy – an economic

• National Culture – the values and

 Individualism indicates that there is greater importance on attaining

 High power distance index indicates that a culture accepts inequality

 High uncertainty avoidance index indicates a low tolerance for

 Masculinity comes with the following characteristics: distinct gender

 Indulgence versus restraint This dimension captures the

• The Challenges that face International

A) importing B) licensing C) global sourcing D) franchising

2) Samanex Corporation maintains production facilities in 13 different

A) polycentric B) multicentric C) ethnocentric D) geocentric

Copyright © 2014 Pearson Education, Ltd

A) polycentric B) ethnocentric C) geocentric D) regiocentric

A) licensing B) exporting C) global sourcing D) franchising

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A) global company B) transnational organization

A) polycentric B) regiocentric C) geocentric D) ethnocentric

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A) export from a single production plant

8) For American company Leather Exporters, first quarter sales in Italy

A) a change in the national leadership in Italy

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A) polycentric organizations B) borderless organizations

10) The International Monetary Fund is an organization that ________.

Copyright © 2014 Pearson Education, Ltd

A) ethnocentric attitude B) geocentric attitude

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A) reflect ethnocentric attitudes

14) Melamark's advisor on global affairs is concerned that ________ carries

A) setting up a foreign subsidiary B) franchising

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A) a free market economy B) a free enterprise economy

16) In today's global environment, managers must have a(n) ________

A) parochial B) geocentric C) ethnocentric D) bigoted

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A) equity strategic alliance B) global venture

18) Which of the following types of global organizations reflects the

A) regional organization B) global company

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A) cultural environment B) political/legal environment

20) If Shana's company decides to open another company in France but

A) borderless organization B) transnational corporation

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A) Marshall Plan B) General Agreement on Tariffs and

A) licensing B) importing C) franchising D) exporting