marketing manager course - chapter 2

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
2
Chapter
Managing in a
Global Environment
Managing in a
Global Environment
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
After reading this chapter, you should be able to:
z Understand the landscape of the global market.
z Develop an awareness for the role of culture in international
management.
z Recognize the major options firms face when they choose a
global strategy and the conditions that make a strategic
choice most appropriate.
z Determine the best mode of entry into foreign markets given
each firm’s unique characteristics.
z Develop effective human resource practices for managing
international subsidiaries.
z Become aware of ethical issues in international operations.
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The Changing Pattern of International Business
zChanging world output and world trade
picture
¾The U.S. no longer dominates the world economy
¾Large U.S. multinationals no longer dominate
international business
¾The centrally planned communist economies that
made up roughly half the world suddenly become
accessible to Western businesses

¾The global economy has become more knowledge-
intensive
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The Changing Pattern of International Business
(continued)
z Lowered trade barriers
¾ General Agreement on Tariffs and Trade
(GATT)
¾ World Trade Organization (WTO)
z Integrated Economic Markets
¾ The European Union (EU)
¾ The North American Free Trade Act
(NAFTA)
¾ The Association of Southeast Asian Nations
(ASEAN)
¾ The Asia Pacific Economic Cooperation
(APEC)
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The Changing Pattern of International Business
(continued)
z Global consumer preferences
¾ Tastes and preferences are converging
¾ Presence of mass media, exposure to
goods from various countries, and
standardized products
z Globalized production
¾ Cost efficiency
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Example of Globalized Production
Of the $20,000 sticker price of a General Motors

Automobile LeMans:
z $6,000 goes to South Korea, where the car was assembled
z $3,000 goes to Japan for sophisticated high-tech parts
(engines, transaxles, electronics)
z $800 goes to Taiwan, Singapore, and Japan for small
parts
z $500 goes to Great Britain for advertising and marketing
services
z $1,000 goes to Ireland for data processing
z $7,600 goes to GM and its external professional firms in
the United States
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The Changing Pattern of International Business
(continued)
z Technological innovations
¾ Advances in communications, information
processing, and transportation technology
¾ Fiber optics, wireless technology, the Internet
and World Wide Web, and satellite technology
z Management across cultures
¾ Adaptation to business strategies, structures,
operational policies, and human resource
programs
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Major Factors Affecting International Business
z General business environment
z Legal system
¾ Common law
¾ Civil law
¾ Muslim law

z Economic environment
z Cultural environment
¾ Culture shock
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Dimensions of Culture
Power Distance
Individualism
Uncertainty Avoidance
Masculinity / Femininity
Long-term/ Short-term
Orientation
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Entry Strategy and Strategic Alliances
Four key decisions of a firm contemplating foreign
expansion:
z Which countries to enter
z When to enter
z Scale of involvement
z How to enter
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Choosing Foreign Countries
The appeal of a particular country is likely to be greater
when:
z The size of the domestic market is large
z The present wealth of consumers in that market is high and
projected to grow in the future
z The needed resources are readily available
z The firm’s product offerings are suitable to a particular
market
z A positive business environment exists

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When to Enter Foreign Countries
and Scale of Involvement
z When to Enter
¾ First-mover advantages
¾ Pioneering costs
z Scale of Involvement
¾ Lowest if the firm simply decides to export its products to the
foreign location
¾ Highest if the firm decides to have a wholly owned
subsidiary in the foreign country
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Modes of Entry
Exporting
Turnkey Project
Licensing
Franchising
Strategic Alliance
Joint Venture
Wholly Owned
Subsidiary
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Advantages and Disadvantages of
Various Modes of Entry Choices
Loss of competitive advantage
Potential quality control problems
Limited ability to use profits in one country to
increase competition in another country
Quick expansion
Lower development costs and risks

Lower political risk
Franchising
Loss of competitive advantage
Limited ability to use profits in one country to
increase competition in another country
Quick expansion
Lower expenses and risks
Lower political risk
Licensing
Competition from local client
Loss of competitive advantage
Access to closed markets
Turnkey Project
No low cost sales
High transportation costs
Potential tariffs
Economies of scale
Lower foreign expenses
Exporting
DisadvantagesAdvantagesMode of Entry
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Advantages and Disadvantages of Various
Modes of Entry Choices
(continued)
Loss of competitive advantage
Potential overestimation of partner’s
capabilities
Access to closed markets
Pooled resources increase partner’s
capabilities

Complementary skills & assets
Strategic Alliance
Large capital outlay
Lack of local knowledge
Increased risk
Maximum control over proprietary
knowledge/ technology
Greater strategic flexibility
Efficiencies of global production system
Wholly Owned
Subsidiary
Potential for conflict of interest
Loss of competitive advantage
Knowledge of local markets
Lower development costs and risk
Access to closed markets
Joint Venture
DisadvantagesAdvantagesMode of Entry
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Examples of Strategic Alliances
z General Electric – Snecma of
France
z Toshiba – IBM
z Mitsui – General Electric
z Toyota – GM, TRW
z Canon – Hewlett-Packard
z Mitsubishi – Caterpillar
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Basic Approaches to Managing an
International Subsidiary

Ethnocentric Approach
Polycentric Approach
Geocentric Approach
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Why International Assignments End in Failure
z Career blockage
z Culture shock
z Lack of pre-departure cross-cultural training
z Overemphasis on technical qualifications
z Getting rid of a troublesome employee
z Family problems
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Key Human Resource Management
Factors for Global Firms
z Selection
¾ Selection criterion should include cultural sensitivity
z Training
¾ Length of assignment determines depth of training
¾ Cross-cultural training is critical to success
z Career Development
¾ International assignments should be part of career
advancement plan
z Compensation and Benefits
¾ Incentives and quality-of-life concerns
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Three approaches to cross-cultural training
Impression Approach
Affective Approach
Information-Giving Approach
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Ethics and Social Responsibility
z Globalization greatly increases the possibility that
managers will face an ethical dilemma.
z Different cultures have different notions of right
and wrong.
z U.S. Foreign Corrupt Practice Act (1977).
z Many firms and industry groups have developed
their own codes of conduct for foreign operations.
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Applications of Management Perspectives—
For the Manager
z
Firms are prevented from capitalizing on business
opportunities overseas by a lack of awareness of:
¾ How to enter foreign markets
¾ How to operate in diverse national settings
z By developing a better appreciation of the unique
challenges that may confront them, managers can
learn how to function well overseas.
z Groom managers for their role in globalization.
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Applications of Management Perspectives—
For Managing Teams
z Many firms are entering joint ventures with companies in
other countries.
z Joint ventures usually require teams made up of employees
from different nations.
z The ability of international teams to work together in a
climate of mutual respect is a key to success.
z This requires:

¾ Cross-cultural sensitivity.
¾ Understanding of the international context in which the firm
operates.
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Applications of Management Perspectives—
For Individuals
z
The career mobility of employees is likely to be
enhanced if they have international skills.
z International savvy is increasingly valued.
z Many firms require employees to have
international experience before they can move into
the upper management ranks.
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.