Chapter 3 - Global Dimensions of Management.docx

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Global Management Studies
GMS 200
Shavin Malhotra

Chapter 3: Global Dimensions of Management Global Management: involves managing operations in more than one country Global Economy: in which resources, markets, competition is worldwide in scope Globalization: the process of growing independence among elements of the global economy Global Manager: culturally aware and informed on international affairs Why do companies go global? - Profits – Global operations offer greater profit potential - Customers – Global operations offer new markets to sell products - Suppliers – Global operations offer access to needed products and services - Capital – Global operations offer access to financial resources - Labour – Global operations offer access to lower labour costs Common forms of global business: Market entry strategies – global sourcing, exporting and importing, licensing and franchising Direct investment strategies – joint ventures, foreign subsidiaries Global Sourcing: the process of purchasing materials, manufacturing components or business services from around the world Exporting: local products are sold to foreign countries Importing: involves the selling in domestic markets of products acquired abroad Licensing Agreement: a local firm pays a fee to a foreign firm for rights to make or sell its products. It refers to offering a firm’s know- how or other intangible asset to a foreign company for a fee, royalty, and/or other type of payment - Advantages of Licensing * The need for local market research is reduced * The licensee may support the product strongly in the new market - Disadvantages of Licensing * Can lose control over the core competitive advantage of the firm - The licensee can become a new competitor to the firm Franchising: fee is paid to a foreign business for rights to locally operate using its name, branding, and methods. For example: firms such as McDonald’s, Wendy’s, Subway and others sell facility designs equipment, product ingredients and recipes, and management systems to foreign investors while retaining certain product and operating controls. Foreign Direct Investment: building, buying all, or buying part ownership of a business in another country Insourcing: job creation through foreign direct investment Joint Venture: operates in a foreign country through co-ownership by foreign and local partners Global Strategic Alliance: a partnership in which foreign and domestic firms share sources and knowledge for mutual gains Foreign Subsidiary: a local operation completely owned by a foreign firm Greenfield Investment: builds an entirely new operation in a foreign country Global Business Environments Political Risk: the potential loss in value of a foreign investment due to instability and political changes in the host country Political-Risk Analysis: tries to forecast political disruptions that can threaten the value of a foreign investment - Global managers must be prepared to deal with differences between home-country and host-country laws and politics - Global firms are expected to abide by local laws, some of which may be unfamiliar - Common legal problems faced by international businesses involve incorporation practices and business ownership; negotiating and implementing contracts with foreign parties; handling foreign exchange, and intellectual property rights – patents, trademarks and copyrights World Trade Organization (WTO): a global organization whose member nations, currently 153 of them, agree to negotiate and resolve disputes about tariffs and trade restrictions. It was established to promote free trade and open markets around the world. Most Favoured Nation Status: gives a trading partner most favourable treatment for imports and exports Tariffs: basically taxes that governments levy on imports for abroad Protectionism: call for tariffs and favourable treatments to protect domestic firms from foreign competition NAFTA: North American Free Trade Agreement linking Canada, the United States and Mexico in an economic alliance. It creates a trade zone with minimal barriers, which frees the flow of goods and services, workers, and investments among the three countries. European Union: a political and economic alliance of European countries. It links 27 countries that agree to support mutual economic growth by removing barriers that previously limited cross-border trade and business development Euro: common European currency Global Corporations: also called multinational corporations is extensive operations in more than one foreign country Transnational Corporation: an MNC (Multinational Corporations) that operates worldwide on a borderless basis MNC host country relationships: The potential host country benefits of MNCs include larger tax bases, increased employment opportunities, technology transfer, introduction of new industries, and development of local resources. What should go right? Mutual benefits: shared opportunities with potential for growth, income, learning, development What can go wrong? Host-country complaints about MNCs: excessive profits, economic domination, interference with government, hire best local talent, limited technology transfer, disrespect for local customs. MNC complaints about host countries: profit limitations, overpriced resources, exploitative rules, foreign exchange restrictions, failure to uphold contracts. Corruption: engaging in illegal practices to further one’s business interests Child Labour: the full time employment of children for work otherwise done by adults Sweatshops: employ of workers of very low wages for long hours and in poor working conditions Sustainable Development: meets the needs of the present without hurting future generations Culture: a shared set of beliefs, values, and patterns of behaviour common to a group of people Culture Shock: the confusion and discomfort a person experiences when in an unfamiliar culture Ethnocentrism: the tendency to consider one’s culture superior to others Culture Intelligence: the ability to accept and adapt to new cultures Low-Context Culture: emphasize communication via spoken or written words High-Context Culture: rely on nonverbal and situational cues as well as on spoken or written words in communication Monochronic Cultures: people tend to do one thing at a time Polychronic Cultures: time is used to accomplish many different things at once Proxemics: how people use space to communicate Ecological Fallacy: assumes that generalized cultural value applies equally well to all members of the culture Values and National Cultures: - Geert Hofstede identified four cultural dimensions: power distances, uncertainty avoidance, individualism-collectivism, and masculinity-femininity (and later studied a fifth dimension called time orientation) Hofstede’s cultural dimensions - Hofstede (1980) - book culture’s consequences o Survey of 72215 IBM employees in 40 nations o Between 1962 and 1973 - Individualism vs. Collectivism o Degree to which people in a country refer to act as individual rather than as members of groups - High vs. Low Power Distance o Degree of inequality among people which the population of the country considers as normal - Masculine vs. Feminine o Degree to which tough values like assertiveness, performance, success and competition (associated with the role of men in most societies) prevail over tender values like the quality of life, maintaining warm personal relationships, service and care for the weak (associated with the role of women in most societies) - Uncertainty Avoidance o Degree to which people in a country prefer structured over unstructured situations o What is different is dangerous - Long-term vs. Short-term orientation o Degree to which values oriented towards the future, like saving and persistence prevail over values oriented towards immediate or short-term gratification Four Cultural Dimensions: Power Distance: the degree to which a society accepts unequal distribution of power - in high power distance, you expect to find great respect for age, status, and titles - tend to be tolerant of power; prone to follow orders and accept differences in rank - degree to which people in a country prefer to act as individual rather than as members of group Individualism-Collectivism: the degree in which society emphasizes individuals and their self-interests - “I” and “me” used in conversations and meetings - such expressions reflect a cultural tendency toward individualism - degree to which people in a country prefer to act as individual rather than as members of groups Uncertainty Avoidance: the degree to which a society tolerates risk and uncertainty - low uncertainty avoidance cultures display openness to change and innovation - high uncertainty avoidance cultures, by contrast, one would expect to find a preference for structure, order, and predictability - degree to which people in a country prefer structured over unstructured situations - what is different is dangerous Masculinity-Femininity: the degree to whi
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