Managing in the global

environment
Topic 11
Dr Hugh Bainbridge

LEARNING OUTLINE
1. What is your global perspective?
Explain how the global economy creates opportunities and threats for managers
Contrast ethnocentric, polycentric, and geocentric attitudes to global business.
Discuss why its important for managers to be sensitive to global differences.
2. Understanding the global environment
Explain why many countries have become part of regional trading alliances.
Describe ASEAN, European Union, NAFTA and other regional trade alliances
Discuss the role of the WTO.
3. Doing business globally
Contrast MNCs, TNCs, and borderless organisations.
Describe the three stages organisations go through as they go global.
Describe foreign subsidiaries, joint ventures, strategic alliances, licensing, and
franchising.
4. Managing in a global environment
Explain how the global legal-political environment affects managers.
Describe the Hofstede and GLOBE dimensions for assessing cultures.
Outline the adjustment challenges faced by a manager on global assignments

The globalisation of business

Infrastructures have been developed
barriers
reduced
Trade
Trade
barriers
reduced

Global market windows have opened

Competition has intensified
How can any organisation in Australia and New Zealand, or

anywhere, avoid the effects of globalisation?

3 views of international business:Ethnocentricism

Ethnocentric attitude:

Narrow view of the world with an inability to recognise differences

between people

Narrow view of the world with an inability to recognise differences between people

Parochialism: A belief that the best work approaches and practices are
those of the home country.

Polycentricism
Polycentric attitude:

The view that the managers in the host country know the best work
approaches and practices for running their business.

firm was
was established
established
Home country:The
The country
country in
in which
which the
the firm

Host country: The

into
Thecountry
countrythat
thatthe
thefirm
firmhas
hasexpanded
expanded
into

Geocentrism
Geocentric attitude

A world-oriented view that focuses on using the best approaches and

people from around the globe.

Trade agreements
Bilateral training agreements
Multilateral trading agreements

Regional trading agreements

EU, NAFTA,
NAFTA, SAFTA
EU,
SAFTA

World trading agreements

WTO
WTO

Bilateral free trade agreements

Australian bilateral free trade agreements

Aust-NZ Closer Economic Relations Agreement

Thailand,
and
China
Also
Alsowith
withUSA,
USA,Singapore,
Singapore,
Thailand
and
China

Regional trading alliances

Americas

North American Free Trade Agreement (NAFTA)

Southern Common Market (Mercosur)

United
United States,
States, Canada,
Canada,and
andMexico
Mexico
Argentina, Brazil, Paraguay, Uruguay, and Venezuela; with Bolivia

Free Trade Area of the Americas

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

Economic and monetary union (Euro)

The European Union (EU)

Regional trading agreements (contd)

Africa

African Union

Asia

Association of Southeast Asian Nations (ASEAN)

Initial members: Indonesia, Malaysia, the Philippines, Singapore and

Thailand.

Membership has expanded to include Brunei, Burma (Myanmar), Cambodia,

Laos, and Vietnam.

600 million
million people
people
600
Approximately 9%
9% of
Approximately
of the
the worlds
world's population
population

ASEAN members

Multilateral agreements - World Trade

Organisation (WTO)
Multilateral trading
system
involving
151 countries
Multilateral
trading
system
involving
151 countries

Functions as the only global organisation dealing with the rules

of trade among nations.

Monitors and promotes world trade.
Evolved from the General Agreement on Tariffs and Trade
(GATT) in 1995.
Helps businesses in these countries conduct efficient and
effective trading relationships

Types of international organisations

Multinational corporation (MNC)
types
of of
international
companies
that maintain
operation
in multiple
AllAll
types
international
companies
that maintain
operations
in multiple
countries
countries

Multidomestic corporation

An MNC that decentralises management and other decisions to the local

country polycentric approach

Types of international organisations

Global
An
AnMNC
MNCthat
that
centralises
management
decisions
the home
centralises
management
and and
otherother
decisions
in the in
home

countryethnocentric
ethnocentric
approach
country,
approach

Transnational or borderless corporation

Reflects a geocentric approach

Born global

International new ventures committing resources to doing business in

several countries

How organisations go global

Foreign subsidiary
Directly investing in a foreign country by setting up a separate

and independent production facility or office

Greenfield investment

Acquisition

Advantages

Disadvantages

Strategic alliance
Partnerships between an organisation and a foreign company

partner(s) in which both share resources and knowledge in

developing new products or building production facilities

Advantages

Disadvantages

Joint venture
A business agreement in which the parties agree to develop, for

a finite time, a new entity and new assets by contributing equity.

Reasons for formation

Risk sharing

Geographical constraints

Funding constraints

Acquisition barriers; Prelude to acquisition

Risk sharing
Economies
Economiesofofscale
scale
Market access
Market access

International licensing and franchising

Licensing

An organisation gives another organisation the right to make or sell its

products using its technology or product specifications

Franchising
gives
another
organisation
the right
to use
name
and
An
Anorganisation
organisation
gives
another
organisation
the right
toits
use
its name
operating
operatingmethods
methods

and

How Australian and NZ companies go global

Approach somewhat different to the conventional model.
Why?

Small domestic markets

Small domestic markets

Geographically distant foreign markets

Less traceable products

Less tradeable products

Thus, may use slightly different strategies

Managing in a global environment

Legal
Legal
/ Political
environment
or Political
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

Managing in a global environment

Economic environment

Type of economic system

Market or command

Monetary and financial factors

rates
Currency
Currencyexchange
exchange
rates
Inflation
Inflationrates
rates

Diverse tax rates

Diverse tax rates

Impact of cultural dimensions in IB

Cultural dimensions are psychological dimensions, or value

constructs, which can be used to describe a specific culture.

Most famous cultural theorists:

Geert
Hofstede
(5 Cultural
Dimensions)
Geer Hoisted
(5 cultural
dimensions)

Fons Trompenaars (7 Cultural Dimensions frameworks)

Stuart Hall (Cultural Factors e.g. High Context vs low context)

Over 200 different cultural dimension frameworks

Understanding national cultures

GLOBE (Global Leadership and organisational behaviour effectiveness)

framework

Strength of national culture over organisational culture

Legal, political and economic influences on culture

Understanding national cultures

Hofstedes cultural framework

Individualism-collectivism

Power distance
Power
distance

Uncertainty
avoidance
Uncertainty avoidance

Quantity vs Quality of life (Achievement versus nurturing)

Time orientation

Examples of Hofstedes cultural dimensions

Based on Hofstede, G. (1980) Motivation, Leadership, and organisation: Do American

Theories Apply Abroad? Organisational Dynamics, Summer, 42-63.

International adjustment: 1) Pre-assignment

Individual
Training
Training

Prior experience

- > Accurate expectations

Organisational

Selection criteria

Support systems

2) In-country adjustment
Individual factors
Organisational factors

Job

Organisational socialisation

Organisational culture

Non-work factors

E.g., Family / Spouse support

Contribute to adjustment

Work adjustment

Interaction adjustment

General adjustment

LEARNING REVIEW
1. What is your global perspective?
Opportunities and threats of the global economy
Ethnocentric, polycentric, and geocentric attitudes.
2. Understanding the global environment
Explain why countries become part of regional trading alliances.
WTO, ASEAN, EU, NAFTA and other regional trade alliances.
3. Doing business globally
MNCs, TNCs, and borderless organisations.
3 stages organisations go through as they go global.
Exporting, importing, licensing, and franchising.
Global strategic alliances, joint ventures, and foreign subsidiaries.
4. Managing in a global environment
The global legal-political environment affects managers.
Hofstedes five dimensions, 9 GLOBE dimensions for assessing cultures.
Adjustment challenges faced by global managers.