Globalization
Globalization:
 Is the flow of goods and services, capital, and
knowledge across country borders
 Enhances economic interdependence among
countries and organizations
 Has changed the competitive landscape
 To compete effectively you must understand the
Institutional Environment and the Culture of
each country that you operate in
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Country’s Institutional Environment
Institutional Environment: A country’s rules,
policies, and enforcement processes
Three dimensions:
 Economic development dimension
 Political-legal dimension
 Physical infrastructure dimension
2
Country’s Institutional Environment:
Economic Development Dimension
Economies are classified as either:
 Developed economies
Larger economies with effective capital
markets
 Emerging economies
Rapidly growing with underdeveloped capital
markets
 Developing economies
Weak economies with little capital available for
growth
3
Country’s Institutional Environment:
Political-Legal Dimension
Includes a country’s political risk,
regulations, laws, and enforcement
Governments develop laws to govern
behavior of citizens and organizations
Some “rules” are excessive and
discourage foreign investment
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Country’s Institutional Environment:
Physical Infrastructure Dimension
Includes amount and quality of roads and
highways, telephone lines, and airports
 Poor infrastructure makes it difficult for
foreign firms to distribute products
Countries wanting foreign investment must
develop infrastructure
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Country’s Culture
 Culture
Learned set of assumptions, values, and beliefs that
have been accepted by members of a group and that
affect human behavior
 Focus here is on national cultures
 Can influence how people observe and interpret
the business world around them
 Can evolve and change with time
 4 prominent dimensions
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Cultural Dimensions
Power
Distance
Gender
Focus
Cultural
Dimensions
Uncertainty
Avoidance
Individualism/
Collectivism
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Cultural Dimensions: Power Distance
 Extent to which
people accept
power and
authority
differences
among people
Power
Distance
Cultural
Dimensions
 High power
distance = people
accept power
differences
 Low power
distance = people
like to regard
themselves as
more or less equal
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Cultural Dimensions: Uncertainty Avoidance
 Extent to which things need to be clear or
ambiguous
Cultural
Dimensions
Uncertainty
Avoidance
 High uncertainty avoidance = prefer clear norms
that govern behavior (i.e., avoid uncertainty)
 Low uncertainty avoidance = have fewer rules
and are comfortable in ambiguous situations
(i.e., can accept uncertainty)
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Cultural Dimensions: Individualism/Collectivism
Individualism:
 Extent to which
people’s identities
are self-oriented;
people take care of
themselves and
immediate family
 High emotional
independence
 Emphasize and
reward individual
achievement
Cultural
Dimensions
Individualism/
Collectivism
Collectivism:
 Extent to which a
people’s identities
are a function of the
group(s) to which
they belong (family
firm, community,
etc.)
 Emotional
dependence on
institutions
 Emphasize group10
membership
Cultural Dimensions: Gender Focus
 Extent to which people in a country value
masculine or feminine traits
Gender
Focus
Cultural
Dimensions
 Masculine = activities leading to success,
money, possessions
 Feminine = activities showing caring of others
and enhancing quality of life
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International Market Entry Strategies
Exporting
Less Risk
Licensing
Strategic Alliances
Cross-Border Acquisitions
Wholly-Owned Subsidiaries
More Risk
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International Market Entry Strategies
Exporting
Manufacturing products in a
firm’s home country and
shipping them to a foreign
market.
Advantages:
 Low cost
 Low risk to licensor
Disadvantages:
 Potential trade barriers
 Establishment of
marketing and distributing
systems in foreign market
 Transportation costs
 Smaller returns
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International Market Entry Strategies
Licensing
Arrangements that allow a
local firm in the new market
to manufacture and
distribute a firm’s product.
Advantages:
 Less capital investment
 Least amount of risk
Disadvantages:
 Licensor has little control
over product and use of
brand
 Smaller returns
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International Market Entry Strategies
Strategic Alliances
Cooperative arrangements
between two firms in which
they agree to share
resources to accomplish a
mutually desirable goal.
Advantages:
 Share costs and risks
between partners
 Access to resources not
previously available
 Learn capabilities from
partner
Disadvantages:
 Management disagreement
 Share profits
New types of alliances:
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 Outsourcing and Offshoring
International Market Entry Strategies
Acquisitions of local firms
made by foreign firms to
enter a new international
market.
Cross-Border Acquisitions
Advantages:
 Fast way to enter foreign
market
 Can start operations
immediately
Disadvantages:
 Can cause controversy in
local public
 Integrating two previously
independent companies
can be challenging
 Targeted acquisitions may16
cost a premium
International Market Entry Strategies
Direct investments to
establish a business in a
foreign market in which the
business is 100% owned and
controlled by the focal firm;
also called Greenfield
Venture.
Wholly-Owned Subsidiaries
Advantages:
 Maximum control
 Buffer assets from
competitors in the market
Disadvantages:
 Complex, risky and
expensive to launch
 Must establish relationships
with suppliers, buyers, etc.
 Must learn about culture and
institutional environment on
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your own
Managing International Operations:
Global Focus
Subsidiary
Country A
Subsidiary
Country E
Subsidiary
Country B
Home
Office
Subsidiary
Country D
Subsidiary
Country C
Centralized to home office
Global Focus
 Important decisions made
at home office
 Subsidiaries follow same
strategies
Advantage:
 Economies of scale
Disadvantage:
 No flexibility for
subsidiaries to make local
market decisions
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Managing International Operations:
Region-Country Focus
Subsidiary
Country A
Subsidiary
Country E
Subsidiary
Country B
Home
Office
Subsidiary
Country D
Subsidiary
Country C
Decentralized to subsidiaries
Region-Country Focus
 Important decisions made
by subsidiaries in local
markets
Advantage:
 Allows subsidiaries to
react quickly to changes
in marketplace
Disadvantage:
 Expensive; difficult for
home office to oversee
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Managing International Operations:
Transnational Focus
Subsidiary
Country A
Subsidiary
Country E
Subsidiary
Country B
Home
Office
Subsidiary
Country D
Subsidiary
Country C
Transnational Focus
 Both home office and
subsidiaries make
important decisions
Advantages:
 Good combination of
global efficiency and local
responsiveness
 Outperforms other
approaches
Centralized and decentralized
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Managing Across Cultures:
Low- and High-Context Cultures
Cultural context: degree to which a situation influences
behavior or perception of “appropriateness”
HIGH-CONTEXT
LOW-CONTEXT
People pay close
attention to the
situation and its
various elements in
assessing appropriate
behavior
Situation may or may
not make a difference
in what is considered
appropriate behavior
Neither high- nor low-context cultures are right or wrong,
just different
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Managing Across Cultures:
Managing Multi-Cultural Teams
Challenges to managing multi-cultural
teams:
Dependence on electronic communication
(virtual teams)
Basic communication issues
Building trust among team members with
different values (swift trust: rapid
development of trust in teams about task
activities)
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Developing a Global Mindset
Global mindset: cognitive attributes that
allow an individual to influence
individuals, groups, and organizations
from diverse socio-cultural and
institutional environments
Important for companies today
Having top managers from different
cultures can help
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