Principles of Management
MBA & BBA
Lecture 4
(Managing Global Environment)
By: Farhan Mir
© Farhan Mir
2007
IMS
Topics
Introduction
History and Evolution of Management
Organizational & Environmental Constraints
Managing Global Environment
Global Perspective
Need for going Global
Understanding Global Environment
Doing Business Globally
Managing in Global Environment
© Farhan Mir
2007
IMS
Trends in International Business
Why do companies expand
internationally?
Expand sales (Extending Markets)
Cutting costs
Offering new products
Global Opportunities
(WTO allowing International companies
more opportunities in Pakistani market &
Vice Versa)
But once they enter into the global markets
they also face global issues (Constraints of
© Farhan Mir
the global environment)
2007
IMS
Trends in International
Business
Source: www.wal-mart.com
© Farhan Mir
2007
IMS
Trends in International
Business
Wal-Mart USA
1489 Stores
1397 Supercenters
532 Sam’s Clubs
56 Neighborhood Markets
Wal-Mart International
11 Argentina
23 Brazil
214 Canada
92 Germany
613 Mexico (1st int’l store in
1991)
3474 Total Stores
1,000,000 + associates
52 Puerto Rico
265 Great Britain
31 China
15 Korea
1317 Total International
© Farhan Mir
300,000 + associates2007 IMS
Trends in International
Business
China: www.wal-martchina.com
Germany: www.walmartgermany.de
Mexico: www.walmartmexico.com.mx
Korea: www.walmartkorea.com
United Kingdom: www.asda.com
© Farhan Mir
2007
IMS
Trends in International
Business
Wal-Mart’s next market?
© Farhan Mir
2007
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Perspective towards
Globalization
Parochialism- narrow view of the world
where you don’t recognize differences
between people
Ethnocentric- best work approaches are
that of the home country (where the business
initiated)
Polycentric- managers in the host
countries know the best work practices for
running their business
Geocentric- world-oriented view that
focuses on using the best approaches and
people from the globe
© Farhan Mir
2007
IMS
Degree of
Internationalization
Domestic business
All products and services within one
country
Almost extinct
Mostly small businesses
International business
Operate primarily in one country
Some resources or revenues from other
countries
© Farhan Mir
2007
IMS
Degree of Internationalization
Multinational business
Worldwide marketplace for inputs and
outputs
Retain primary “headquarters” in one
country
Global business
No overriding commitment to any single
country
Government and legal restrictions make
this category somewhat “hypothetical”
© Farhan Mir
2007
IMS
Degree of Internationalization
These are the largest export markets for this Finnish
company in 1957. Any idea what company this is?
© Farhan Mir
2007
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Degree of Internationalization
Today, you might recognize this company as a major provider
of telecommunications, information technology, and electronics.
© Farhan Mir
2007
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Degree of Internationalization
The company is Nokia,
and here are some of the countries it operates in today.
Europe, Africa
& Middle East
Austria
Belgium
Bulgaria
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Source: Nokia.com
Lithuania
Luxembourg
Maghreb
Netherlands
Norway
Poland
Portugal
Romania
Russia
Slovakia
Spain
Sweden
Switzerland
Turkey
UK
Asia-Pacific
Australia
China
Hong Kong
India
Japan
Korea
Philippines
Singapore
Taiwan
Americas
USA
Brazil
Canada
© Farhan Mir
2007
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Degree of Internationalization
(Some Examples)
Nestlé comes close to “global” business
http://www.nestle.com/Html/Id/index.asp
Operations in over 100 countries
© Farhan Mir
2007
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© Farhan Mir
2007
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The Structure of the Global
Market
Market Systems (Economic Integration)
European Union
NAFTA
AFTA
ASEAN
OPEC
Hundreds of others
© Farhan Mir
2007
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European Union (EU)
Established in February 1992 as a treaty uniting 12
countries
Over 374 million people
Since other 7 countries also in negotiation process so the
overall population increases
Before becoming part of EU all these countries had there
own set of policies, tax structures and protected industries
Now a single market and a common currency (Euro)
No traveling barriers
No investment and employment barriers
Why EU?
Idea was to build alliance against the strong US and
Japanese Economies
German automobiles now sold in EU
Nokia selling major telecommunication services
throughout EU
© Farhan Mir
2007
IMS
European Union (EU)
Source: Robbins, 2002
© Farhan Mir
2007
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© Farhan Mir
2007
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Types of Global Organizations
Multinational Corporation (MNCs)
Maintains significant operations in multiple
countries but manages them from a base in the
home country
Sony
Transnational Corporation (TNC)
Maintains significant operations in multiple
countries but decentralizes management to the
local country
Nestle
Borderless Organization
Approaches global business from a geocentric
approach and omits almost all barriers
IBM (developed itself into 13 divisions)
© Farhan Mir
2007
IMS
The Process of Internationalization
Exporting
Making products at home and selling them overseas
Most of the Sialkot Industry is based on this model
SAGA is one of the giant organization & CA is another
one
Importing
Selling products home that are made overseas
You’ll find products of most of the international
manufacturers in Pakistan even those organizations are
not themselves present in the country
Most of the Australia is dominated by Chinese products
imported for use
Licensing & Franchising
Manufacturing organizations allowing others to use their
brand name, technology or product specification
Based on annual fee on sales
Service organization allowing others to sue their brand name,
technology or product specification
© Farhan Mir
2007
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The Process of
Internationalization
Strategic Alliances
Doing business with partner organization overseas
by sharing resources and developing new
products and services
Joint Venture
A partnership in which the partner organization
form a separate new organization by merging
together
Foreign Subsidiary
Establishing and independent unit or facility in
another country
© Farhan Mir
2007
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The Process of Internationalization
Stage I
Stage II
Stage III
Passive Response
Initial Overt Entry
Established International
Operations
Foreign
Subsidiary
Joint
Ventures
Exporting
to foreign
countries
Importing
from foreign
countries
Hiring foreign
representation or
contracting with
foreign manufacturers
Strategic
Alliances
Licensing/
Franchising
© Farhan Mir
2007
IMS
Challenges for the Global
Manager
Political Environment
Government stability
International trade incentives
International trade controls
Economic communities
Economic Environment
Resource allocation processes
Property ownership
Natural resources
Infrastructure
Cultural Environment
Values, Symbols, Beliefs, Language
International Management
Functions
© Farhan Mir
2007
IMS
Challenges for the Global
Manager
Cultural Environment
Often taken for granted
Not necessarily a problem, but can be
disastrous
Language
Values, symbols, beliefs
© Farhan Mir
2007
IMS
Challenges for the Global Manager
Examples of cultural “bloopers”
GM’s Chevy Nova didn’t sell well in South America
because “no va” means “it won’t go” in Spanish
In Taiwan, the translation of the Pepsi slogan “Come alive
with the Pepsi generation” came out as “Pepsi will bring
your ancestors back from the dead.”
Gerber changed its baby food packaging in Africa after it
learned the largely illiterate population was accustomed to
seeing a picture on the label of what was in the can
Coca-Cola had to alter the taste of its soft drink in China
when the Chinese described it as “tasting like medicine.”
The name “coca-cola” also had to be re-worked because it
translated as “bite the wax tadpole”.
© Farhan Mir
2007
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Challenges for the Global
Manager- Global Distances
© Farhan Mir
2007
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Hofstede’s Framework for
Assessing National Cultures
Individualism versus Collectivism
Power Distance
Uncertainty Avoidance
Quantity versus Quality of Life
Long-term versus Short-term Orientation
© Farhan Mir
2007
IMS
Examples of Hofstede’s Cultural
Dimensions
© Farhan Mir
2007
IMS
Careers in International
Management- If you have got a
International Assignment
Success Factors
Cross-cultural
sensitivity
Business knowledge
Courage
Motivates others
Personal integrity
Diagnostic skills
Commitment to
success
Takes personal and
business risks
Changes with
feedback
Enjoys challenge
Takes advantage of
opportunities
Open to criticism
Seeks feedback
Maintains flexibility
© Farhan Mir
2007
IMS