Management 12e by w griffin ch05

TWELFTH EDITION

MANAGEMENT
Ricky W. Griffin
Part Two: Understanding the Environmental
Context of Management

Chapter Five: Navigating the
Global Environment

© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5-1


Learning Outcomes
1. Describe the nature of international business,
including its meaning, recent trends, management of
globalization, and competition in a global market.
2. Discuss the structure of the global economy and
describe the GATT and the WTO.
3. Identify and discuss the environmental challenges
inherent in international management.
4. Describe the basic issues involved in competing in a
global economy, including organization size and the
management challenges in a global economy.

© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5-2


The Nature of International Business
Car
made in
Japan
Clothes
made in
Taiwan

Phone
made in
China

You

Coffee
grown in
Africa

Failure to take a global perspective is one of the
biggest mistakes a manager can make.
© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5-3


Figure 5.1

Levels of International Business Activity

The text identifies four general levels of
international activity differentiating organizations.

© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5-4


The Meaning of International Business
 A domestic business
– acquires all of its resources and sells all of its products or
services within a single country.

 An international business
– is based in a single country but acquires meaningful resources
and/or revenues from other countries.

 A multinational business
– uses a worldwide marketplace to buy materials, borrow money,
manufacture, and sell its products.

 A global business
– transcends national boundaries and is not committed to a
single home country.
© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5-5


Trends in International Business
 After WW II, the U.S. dominated global
markets.
 Rebuilt countries were poised for growth
while U.S. companies became complacent.
 Increased population and affluence meant
consumers wanted new/better products.
 Foreign products began flooding the U.S.
market and companies had to compete.
© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5-6


Managing the Process of Globalization

Exporting

Involves making
the product in the
firm’s domestic
marketplace and
selling it in another
country.

Importing

Means that a good,
service, or capital is
brought into the
home country from
abroad.

Importing and/or exporting is usually the first type of
international business in which a firm gets involved.

© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5-7


© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5-8

• Occurs when two or more
firms jointly cooperate for
mutual gain.
• A joint venture is a special
type of strategic alliance in
which partners share
ownership in a new
enterprise.

• Occurs when a firm
headquartered in one
country builds or purchases
operating facilities or
subsidiaries in a foreign
country.
• Maquiladoras are lightassembly plants built in
northern Mexico, close to
the U.S. border.

Strategic alliance

Direct investment

Licensing
• An arrangement whereby
one company allows
another to use its brand
name, trademark,
technology, patent,
copyright, or other assets in
exchange for a royalty
based on sales.

Managing the Process of Globalization


Table 5.1

Advantages and Disadvantages of Different
Approaches to Internationalization

© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5-9


Competing in a Global Market
 The functions are the same, whatever a
firm’s level of international involvement.
– Complexity increases for international firms.

 The key question is whether to focus on
globalization or regionalism.
– Most MNC’s use both global and local
resources and activities.

© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5 - 10


Structure of the Global Economy
 Mature market economies and systems
– A market economy is based on the private
ownership of business that allows market
factors such as supply and demand to

determine business strategy.
– Clusters of countries that engage in high
levels of trade with one another is known as
market systems.

© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5 - 11


Figure 5.2

The Global Economy

© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5 - 12


Mature Market Economies and Systems
North American Free Trade Agreement
(NAFTA)
• An agreement made by the U.S., Canada, and Mexico to
promote trade with one another.
European Union (EU)
• The first and most important international market system.
Pacific Asia
• A market system located in Southeast Asia.

© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5 - 13


Structure of the Global Economy
 High-potential/high-growth economies
– Underdeveloped and immature economies.
• Characterized by weak industry, weak currency,
and relatively poor consumers.
o China, India, Brazil, Russia, Vietnam and South Africa.

– Currently experiencing strong development
and growth.
– Barriers to international trade:
• consumers’ lack of wealth and poor infrastructure.

© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5 - 14


Structure of the Global Economy
 Other economies
– The Middle East defies classification.
• These countries hold tremendous wealth yet are
politically unstable and exhibit vast cultural
differences.

– Countries involved in political or ethnic
violence are poor business risks.
– Cuba offers a unique opportunity as it is only
now emerging into the outside world.
© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5 - 15


Role of the GATT and the WTO
The World Trade
Organization began
in 1995 and replaced
the GATT, absorbing
its mission. Requires
members to open
their markets to
international trade
and follow WTO rules.

(WTO)

(GATT)

The General
Agreement on
Tariffs and Trade is a
trade agreement to

promote international
trade by reducing
barriers and making it
easier for all nations
to compete in
international markets.

The WTO has three goals: to promote fair trade policies,
to reduce trade barriers, and to resolve trade disputes.
© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5 - 16


Figure 5.3

Environmental Challenges of International
Management

Managers functioning in a global context must be
aware of several environmental challenges.
© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5 - 17


Environmental Challenges of
International Management

Three aspects of the economic environment
– Economic system
• Most countries are moving toward a market economy.

– Natural resources
• These vary by country.
• Access to and use of natural resources.

– Infrastructure
• The schools, hospitals, power plants, railroads,
highways, ports, airfields, and distribution systems
make up infrastructure.
© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5 - 18


Environmental Challenges of
International Management
 The political/legal environment
– Government stability
• includes the ability to stay in power or as the
permanence of policies toward business.
• If nationalized, a company is taken over by the
government.

– Incentives for multinational trade
• include tax cuts, low interest rates, or other
subsidies.

© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5 - 19


Environmental Challenges of
International Management
 The political/legal environment
– Controls on international trade
• A tariff is a tax collected on goods shipped across
national boundaries.
• A quota is a limit on the number or value of goods
that can be traded.
• An export restraint agreement between
governments sets voluntary limits on goods
exported or imported from each other.
• “Buy national” legislation gives preference to
domestic producers.
© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5 - 20


Environmental Challenges of
International Management
 The political/legal environment
– An economic community is a set of countries

that agree to markedly reduce or eliminate trade
barriers among member nations.
•
•
•
•
•

A formalized market system.
The European Union (EU).
NAFTA.
The Latin American Integration Association.
The Caribbean Common Market.

© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5 - 21


Environmental Challenges of
International Management
 The cultural environment
– Values, symbols, beliefs, and language differ
from one country to another.
•
•
•
•

Barbie dolls do not sell well in Muslim countries.
Different cultures value time differently.
Language can pose a barrier.
Both spoken works and nonverbal aspects of
language can pose problems for managers.

© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5 - 22


Figure 5.4

Individual Differences Across Cultures

© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5 - 23


Figure 5.4

Individual Differences Across Cultures

© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5 - 24

Figure 5.4

Individual Differences Across Cultures

© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5 - 25