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Chapter 5
Managing in a Global World
© 2015 YOLO Learning Solutions
The Global Business Environment
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Managers considering international business must
research a country’s sociocultural, political-legal, and
economic environments before choosing an
appropriate level of involvement and operating
strategies.
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
The Sociocultural Environment
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The sociocultural environment includes culture,
language, body language, local customs, time
perception, religious considerations, and more.
The Hofstede framework and the GLOBE project are
two common frameworks for evaluating a country’s
culture.
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
The Political-Legal Environment
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Political considerations affect international business
daily as governments enact tariffs or other types of
trade restrictions in response to political events.
Managers engaged in international trade must
consider the relative stability of the countries in which
they wish to do business.
A firm that decides to enter the international
marketplace must contend with the laws of its own
nation, international laws, and the laws of the nation
with which it will be trading.
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
The Economic Environment
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When considering doing business in another country,
managers must look at the other country’s level of
economic development, which is commonly measured
through gross domestic product (GDP).
They also look at the other country’s infrastructure
(the physical facilities that support the country’s
economic activities).
The exchange rate (the ratio at which one nation’s
currency can be exchanged for another nation’s
currency or for gold) is also a factor to consider.
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
International Trade Facilitators
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Trade facilitators such as the World Trade Organization,
the World Bank, the International Monetary Fund, and
the Organization of Economic Cooperation and
Development foster global business by working to
reduce trade restrictions and loaning money to
developing nations.
Individual countries may offer incentives to promote
import and export trade, such as loans and free trade
zones.
© 2015 YOLO Learning Solutions
Levels of Organizational Involvement
in Global Business
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A company may be involved in international trade at
several levels, each requiring a greater commitment of
resources and effort.
Exporting is the sale of goods and services to foreign
markets; importing is the purchase of goods and
services from a foreign source.
Countertrade agreements involve bartering products
for other products instead of currency.
A trading company links buyers and sellers in different
countries to facilitate trade.
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
Levels of Organizational Involvement
in Global Business (continued)
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In licensing, one company agrees to allow a foreign
company the use of its company name, products, patents,
brands, trademarks, raw materials, and production
processes, in exchange for a flat fee or a royalty.
Franchising is a form of licensing in which a franchiser
agrees to provide a franchisee with a name, logo, methods
of operation, advertising, products, and other elements
associated with the franchiser’s business, in return for a
financial commitment and the agreement to conduct
business in accordance with the franchiser’s standard of
operations.
© 2015 YOLO Learning Solutions
Levels of Organizational Involvement in
Global Business (continued)
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Contract manufacturing occurs when a company hires
a foreign company to produce a specified volume of
the firm’s product to specification; the final product
carries the domestic firm’s name.
A joint venture is a partnership in which companies
from different countries agree to share the costs and
operation of the business.
A strategic alliance is a partnership formed to create
competitive advantage on a worldwide basis.
© 2015 YOLO Learning Solutions
Levels of Organizational Involvement in
Global Business (continued)
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The purchase of overseas production and marketing
facilities is direct investment.
Outsourcing, a form of direct investment, involves
transferring manufacturing or other tasks to countries
where labor and supplies are less expensive.
A multinational corporation is one that operates on a
worldwide scale, without significant ties to any one
nation or region.
© 2015 YOLO Learning Solutions
Regional Trade Alliances
and Agreements
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Various regional trade alliances and specific markets
have created both difficulties and opportunities for
organizations engaging in global business.
These include the North American Free Trade
Agreement (NAFTA), the European Union (EU), the
Association of Southeast Asian Nations (ASEAN), and
the Southern Common Market (Mercosur).
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
Managing Global Business
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Competing in an increasingly global economy provides
both opportunities and challenges for today’s
managers and affects how they engage in planning,
organizing, leading, and controlling.
Global managers must guard against the self-reference
criterion, which involves an often unconscious
referencing to the way things are done in one’s own
culture and experiences in making global business
decisions.
© 2015 YOLO Learning Solutions