Chapter 4 – Managing in a Global

Environment

Key Terms (LO 4.1)

Globalization – Process by which organizations develop influence/operations across
international borders. Assumes open borders and free trade.

Nationalism – Patriotic ideals/policies that glorify a country's values; advocates

independence, puts own country first. Builds walls through tariffs.

Parochialism – Viewing the world solely through your own perspective; ignoring others'
values/customs; "ours is better than theirs" attitude.

Three Managerial Attitudes:

 Ethnocentric – Home country's approaches are best; don't trust foreign employees
with key decisions
 Polycentric – Host country managers know best; let local employees figure things out
 Geocentric – World-oriented; use best approaches and people from anywhere;
requires eliminating parochialism

History of Globalization (LO 4.2)

Pre-WWII: Globalization popular in 19th century (industrialization, British/French
colonialism) → WWI caused return to protectionism until mid-1940s.

Key Milestones:

 1944 – Bretton Woods Conference (monetary order between US, Canada, Western
Europe, Australia, Japan)
 1945 – IMF (189 countries; temporary loans, promotes growth, reduces poverty) and
World Bank (assistance to developing countries)
 1948 – GATT (reduce/eliminate tariffs; replaced by WTO in 1995)
 1961 – OECD (37 developed countries; stimulate growth and trade)
 1967 – ASEAN (10 Southeast Asian nations; economic growth, regional stability)
 1974 – World Economic Forum (annual Davos meeting; business/government
leaders)
 1979 – Thatcher elected UK PM (free trade, deregulation, privatization)
 1980 – Reagan elected US President (reduce regulation, cut taxes, global trade)
 1991 – Fall of Soviet Union (9-nation Commonwealth of Independent States formed)
 1992 – EU formed (28 democratic European countries; compete against US and
Japan)
  1994 – NAFTA (eliminate trade barriers: US, Canada, Mexico)
 1995 – WTO (replaced GATT; 164 members; regulates trade in goods, services, IP)
 2003 – Shanghai Cooperation Organization (8 nations; China, India, Pakistan, Russia
+ 4 others; security + free trade)
 2011 – "We Are the 99%" movement (attacked income inequality)
 2015 – Made in China 2025 (dominate global high-tech manufacturing)
 2016 – Brexit, Trump elected, TPP failed → signs of rising anti-globalization
 2018 – USMCA (updated NAFTA)

Case For and Against Globalization (LO 4.3)

FOR (Win-Win Argument):

 Based on Law of Comparative Advantage – countries should produce what they

have lowest opportunity cost for
 Boosts economy, increases wages, lowers prices for consumers
 Reduces poverty in developing nations
 Raised standard of living for hundreds of millions

AGAINST (Downside):

 Middle class wage stagnation in North America and Europe

 Jobs shifted to low-wage countries
 Immigration keeps wages down
 Benefits mainly went to large corporations and power elite
 Increased economic inequality in developed countries

Globalization Today – Why it's here to stay:

1. Global supply chains took decades to build; not easily dismantled

2. Technology (automation), not free trade, is the real cause of job losses (only 13% of
US manufacturing job losses 2000-2010 were from trade)
3. Most people still believe benefits exceed costs (lower prices, higher profits, higher
wages in developing nations)

Types of International Organizations (LO

4.4)

MNC — The Umbrella Term

Any company operating in multiple countries. The three types below describe how it manages
itself.

1. Multidomestic Corporation
 Management: Decentralized — local managers decide everything
 Attitude: Polycentric (host country knows best)
 Products/strategies are adapted for each country's market
 Examples: Nestlé (different products in different countries), Frito-Lay (different
Doritos taste/texture in UK vs US)

2. Global Company
 Management: Centralized at home country HQ
 Attitude: Ethnocentric (home country knows best)
 Same products/strategies pushed across all markets
 Focus on global efficiency and cost savings
 Examples: Sony, Deutsche Bank, Marriott International

3. Transnational / Borderless
 Management: No fixed center — best approach from anywhere is used
 Attitude: Geocentric (world-oriented, no country bias)
 Eliminates artificial geographical barriers entirely
 Example: Ford's "One Ford" concept — reduced vehicle platforms from 27 to 9
globally

Key Connection to Remember

Attitude → Organization Type
Ethnocentric → Global Company
Polycentric → Multidomestic
Geocentric → Transnational

Ethnocentric, Polycentric, Geocentric Attitudes

Ethnocentric
  Manager believes home country's ways are the best
 Doesn't trust foreign employees with key decisions
 Thinks people in other countries lack the skills/expertise
 "Our way is the right way"
 Leads to: Global Company structure

Polycentric

 Manager believes host country's managers know best

 Lets local employees figure out how to run things
 Views every foreign operation as different and hard to understand
 "You know your market better than we do"
 Leads to: Multidomestic Corporation

Geocentric

 Manager has a world-oriented view — no country bias

 Looks for best approaches and people regardless of origin
 Requires eliminating parochial attitudes
 Requires deep cross-cultural understanding
 "Best idea wins, doesn't matter where it comes from"
 Most sought-after attitude in international companies
 Leads to: Transnational/Borderless Organization

Simple Way to Remember

Attitude Trusts... Thinks...

Ethnocentric Home country only "We know best"
Polycentric Host country only "They know their market best"
Geocentric Everyone equally "Best from anywhere"

How Organizations Go International (LO 4.5)

From minimal to significant investment/risk: (GIELFSJF Acronym)

1. Global Sourcing – Purchasing materials/labor wherever cheapest (e.g., US hospitals

using Indian radiologists)
2. Exporting – Making domestically, selling abroad
3. Importing – Acquiring foreign products, selling domestically
4. Licensing – Give another org rights to use brand/technology/specs (mainly
manufacturing); e.g., Budweiser licensed to Kirin in Japan
 5. Franchising – Give rights to use name and operating methods (mainly services); e.g.,
KFC, Dunkin' Donuts in other countries
6. Strategic Alliance – Partnership sharing resources and knowledge; e.g., Leica +
Moncler
7. Joint Venture – Strategic alliance where partners form a separate independent
organization; e.g., Jaguar Land Rover + Chery
8. Foreign Subsidiary – Direct investment; separate independent facility in foreign
country; greatest commitment and risk

Managing in a Global Environment (LO 4.6)

Political/Legal Environment

 Laws vary significantly across countries (firing employees, layoff rules, visa
restrictions)
 Saudi Arabia won't grant visas to single women or homosexuals
 India requires foreign firms to have a local resident as director
 Bribery illegal in most of Western world but common in Cambodia, Yemen, Ukraine
 Political risks are rising (Latin America, Africa especially)

Economic Environment

 Free Market Economy – Resources owned/controlled by private sector (US)

 Planned Economy – Economic decisions planned by central government (China)
 Managers must understand: currency exchange rates, inflation rates, tax policies
 Currency fluctuations can dramatically affect MNC profits

Cultural Environment

 National culture – Values and attitudes shared by individuals of a specific country;

shapes behavior
 National culture has greater effect on employees than organizational culture (e.g.,
IBM employees in Germany are more influenced by German culture than IBM's
culture)
 Cultural differences are harder to identify than legal/economic differences

Cultural Frameworks
Hofstede's 5 Dimensions of National Culture

Dimension Description
Individualism vs. Collectivism Self/family interest vs. group protection
Power Distance High = accepts inequality; Low = plays down inequality
Uncertainty Avoidance High = threatened by ambiguity; Low = comfortable with
 Dimension Description
risk
Achievement = assertiveness/competition; Nurturing =
Achievement vs. Nurturing
relationships/concern
Long-term vs. Short-term
Long = thrift/persistence; Short = tradition/past
Orientation

GLOBE Framework (9 Dimensions)

Extends Hofstede's work; data from 18,000+ managers in 62 countries.

Shares with Hofstede: Power distance, Uncertainty avoidance

Additional: Assertiveness, Humane orientation, Future orientation, Institutional collectivism,

Gender differentiation, In-group collectivism, Performance orientation

Key Examples/Cases
Disney in Paris (1992):

 Assumed French = Americans → failed

 French use buses (not cars), expect wine, have fixed lunch times, shorter stays
 Lesson: Culture matters!

BreadTalk (Case 2):

 Singaporean company, founded 2000; 12 brands, ~1000 outlets in 16 countries

 Key strategy: hands-on senior management presence + right local partners
 Joint ventures in China (with Ge Ying) and Indonesia (with PT Pura Indah Berkat)
 42% revenues from outside Singapore (2018); China alone = 26%

Greece Bribery (Case 1):

 "Fakelaki" (bribe envelopes) widespread despite OECD Anti-Bribery Convention

 Siemens AG paid €330M settlement for bribing during 2004 Athens Olympics
 Shows importance of understanding political/legal environment globally

Quick Tips for Managers Going Global

 Develop geocentric attitude and cross-cultural sensibilities
 Gain international experience (foreign assignments)
 Learn second/third languages (Europeans typically speak 3-4; Americans usually
only English)
 Build understanding of global markets
 Use Hofstede/GLOBE frameworks to anticipate cultural clashes
Summary

Key Terms (LO 4.1)

 Globalization – open borders, free trade

 Nationalism – country first, tariffs
 Parochialism – "ours is better than theirs"
 Ethnocentric – home country best → Global Company
 Polycentric – host country best → Multidomestic
 Geocentric – world-oriented, best from anywhere → Transnational

History of Globalization (LO 4.2)

 Pre-WWII: protectionism → Bretton Woods 1944 opened globalization era

 Key orgs: IMF, World Bank, GATT, OECD, ASEAN, WTO, EU, NAFTA/USMCA
 2015 onwards: Brexit, Trump, TPP failure → rising nationalism

For & Against Globalization (LO 4.3)

 For: comparative advantage, boosts economy, reduces poverty

 Against: wage stagnation, job losses, inequality
 Still here to stay: supply chains, automation (not trade) causes job losses

Types of International Organizations (LO 4.4)

 MNC – umbrella term

 Multidomestic – decentralized, polycentric (Nestlé)
 Global Company – centralized, ethnocentric (Sony)
 Transnational – borderless, geocentric (Ford)

How Organizations Go International (LO 4.5) Minimal → Significant investment:

 Global Sourcing → Exporting → Importing → Licensing → Franchising → Strategic Alliance →

Joint Venture → Foreign Subsidiary (highest risk)
Managing Globally (LO 4.6)

 Political/Legal – laws vary, bribery, visa restrictions

 Economic – free market vs planned, exchange rates, inflation
 Cultural – national culture > organizational culture
 Hofstede: 5 dimensions (individualism, power distance, uncertainty avoidance,
achievement/nurturing, long/short-term)
 GLOBE: 9 dimensions, extends Hofstede, 62 countries

Cases

 Disney Paris – culture matters, ethnocentric mistake

 BreadTalk – joint ventures, hands-on management
 Greece Bribery – political/legal risks globally