MGT 201 Ch. 4

The extent to which trade and investments, information, ideas, and political cooperation flow between countries
Global mindset
The ability to appreciate and influence individuals, groups, organizations, and systems that represent different social, cultural, political, institutional, intellectual, and psychological characteristics
Typically receives more than 25% of its revenue from operations outside its home country
Ethnocentric companies
emphasis on home country
Polycentric companies
oriented toward the markets of individual foreign host countries
Geocentric companies
Truly world oriented
– favor no specific country
Bottom of pyramid concept
Proposes that corporations can alleviate poverty and other social ills, as well as make significant profits, by selling to the world’s poor
Maintain domestic production, sell products in foreign countries
Global outsourcing
Engaging in the international division of labor to obtain the cheapest sources of labor and supplies
A company in one country makes certain resources available to companies in other countries in order to produce and sell abroad
Form of licensing in which a company provides its foreign franchisees with a complete package of materials and services (e.g. McDonald’s)
Direct investing
Organization is directly involved in managing its production facilities in a foreign country
Joint venture
Organization shares costs and risks with another firm in a foreign country to build facilities, innovate, produce and sell
Wholly owned foreign affiliate
Foreign subsidiary over which an organization has complete control
Greenfield venture
Company builds a subsidiary from scratch in a foreign country
– most risky form of direct investment
International management
managing business operations in one or more countries
key environmental factors:
– economic
– legal/political
– sociocultural
Economic development
Differs widely among countries and regions
– Typically based on per-capita income
Per-capita income
income generated by the nation’s production / total population
– income per person
country’s physical facilities that support economic activities
Political risk
Risk of loss of assets, earning power, or managerial control due to politically based events or actions by host governments
Political instability
Includes riots, revolutions, or government upheavals that can affect the operations of an international company
A natural tendency of people to regard their own culture as superior and to downgrade or dismiss other cultural values
Hofstede’s value dimensions
power distance
uncertainty avoidance
long-term orientation
short-term orientation
Power distance
High – people accept inequality in power
Low – people expect equality in power
Uncertainty avoidance
High – members are uncomfortable with uncertainty and ambiguity
Low – people have high tolerance for the unstructured, unclear, and unpredictable
Loose social framework, Individuals are expected to take care of themselves
Tightly knit social framework in which individuals look after one another
E.g. organizations protect members’ interests
Preference for achievement, heroism, assertiveness, work centrality, and material success
Preference for relationships, cooperation, group decision making, and quality of life
Long-term orientation
Reflects a greater concern for the future and a high value on thrift and perseverance
Short-term orientation
Concern with the past and present and a high value on meeting current obligations
High-context culture
people use communication to build relationships
e.g. meaning is derived from context
Low-context culture
use communication to exchange facts and information
e.g. communication for strictly business
Changing international landscape
– manufacturing
– phones, autos, Internet
– service
– software, pharmaceuticals, call centers
– growing clout
– agricultural, mining, manufacturing, service
– 7th largest economy
GATT – General agreement on tariffs and trade
1. 23 Nations, 1947
2. Decrease trade restrictions (e.g. tariffs, quotas, other barriers)
3. Called for establishment of WTO (1995)
1. Monitor international trade
2. Legal authority to arbitrate (settle) trade disputes
3. Pros & Cons to its existence (e.g. benefits and backlash of globalization)
a. Who is really benefiting?
1. 27 Nations
2. Powerful, single market system for Europe
a. European Unification
b. Euro – a single European currency that has replaced the currencies of 16 EU member nations
3. Global recession created winners and losers which slowed the move toward “European Identity”
1. Jan. 1, 1994
2. U.S., Mexico, Canada into single market
3. Spur growth and investment, increase exports, expand jobs
4. Decrease tariffs and trade restrictions