Chapter 4 MGT 250
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Chapter 4: Global Management Managing across Borders Vocabulary AsianPacific Economic Cooperation (APEC) a group of 21 Pacific Rim countries whose purpose is to improve economic and political ties Association of Southeast Asian Nations (ASEAN) a trading bloc consisting of 10 countries in Asia: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam Central America Free Trade Agreement (CAFTA) involves the US and Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua and is intended to reduce tariffs and other barriers to free trade Countertrading bartering goods for goods Culture the shared set of beliefs, values, knowledge, and patterns of behavior common to a group of people Dumping the practice of a foreign company’s exporting products abroad at a lower price than the price in the home market – or even below the costs of production – in order to drive down the price of the domestic product Ecommerce the buying and selling of products and services through computer networks Embargo a complete ban on the import of export of certain products Ethnocentric Managers managers that believe that their native country, culture, language, and behavior are superior to all others European Union (EU) 28 trading partners in Europe Exchange Rate the rate at which the currency of one area or country can be exchanged for the currency of another’s Expatriates people living or working in a foreign country Exporting a company produces goods domestically and sells them outside the country Expropriation a government’s seizure of a domestic or foreign company’s assets Foreign Corrupt Practices Act makes it illegal for employees of US companies to make “questionable” or “dubious” contributions to political decision makers in foreign nations Franchising a form of licensing in which a company allows a foreign company to pay it a fee and a share of the profit in return for using the first company’s brand name and a package of materials and services Free Trade the movement of goods and services among nations without political or economic obstruction Geocentric Managers managers that accept that there are differences and similarities between home and foreign personnel and practices that they should use whatever techniques are most effective Global Economy the increasing tendency of the economies of the world to interact with one another as one market instead of many national markets Global Outsourcing using suppliers outside the US to provide labor, goods, or services Global Village the “shrinking” of time and space as air travel and the electronic media have made it easier for the people around the globe to communicate with one another Globalization the trend of the world economy toward becoming a more interdependent system Chapter 4: Global Management Managing across Borders GLOBE Project a massive and ongoing crosscultural investigation of nine cultural dimensions involved in leadership and organizational processes Greenfield Venture a foreign subsidiary that the owning organization has built from scratch Highcontext Culture people rely heavily on situational cues for meaning when communicating with others Import Quota a trade barrier in the form of a limit on the numbers of a product that can be imported Importing a company buys goods outside the country and resells them domestically International Monetary Fund (IMF) designed to assist in smoothing the flow of money between nations Joint Venture something formed with a foreign company to share the risks and rewards of starting a new enterprise together in a foreign country Licensing a company allows a foreign company to pay it a fee to make or distribute the first company’s product or service Lowcontext Culture shared meanings which are primarily derived from written and spoken words Maquiladoras manufacturing plants allowed to operate in Mexico with special privileges in return for employing Mexican citizens Mercosur the largest trade bloc in Latin America and has five core members – Argentina, Brazil, Paraguay, Uruguay, and Venezuela – and seven associate members: Bolivia, Chile, Colombia, Ecuador, Guyana, Peru, and Suriname Monochromic Time a preference for doing one thing at a time Most Favored Nation a condition in which a country grants other countries favorable trading treatment such as the reduction of import goods Multinational Corporation a business firm with operations in several countries Multinational Organization a nonprofit organization with operations in several countries North American Free Trade Agreement (NAFTA) a trading bloc consisting of the US, Canada, and Mexico Offshoring using suppliers outside the US to provide labor, goods, or services Outsourcing using suppliers the company to provide goods and services Parochialism a narrow view in which people see things solely through their own perspective Polycentric Managers managers that take the view that native managers in the foreign offices best understand native personnel and practices, so the home office should leave them alone Polychromic Time a preference for doing more than one thing at a time Tariff a trade barrier in the form of a customs duty, or tax, levied mainly on imports Trade Protectionism the use of government regulations to limit the import of goods and services Trading Bloc a group of nations within a geographical region that have agreed to remove trade barriers with one another Whollyowned Subsidiary a foreign subsidiary that is totally owned and controlled by an organization World Bank used to provide lowinterest loans to developing nations for improving transportation, education, health, and telecommunications Chapter 4: Global Management Managing across Borders World Trade Organization (WTO) designed to monitor and enforce trade agreements 4.1 Globalization: The Collapse of Time & Distance Competition & Globalization: Who Will Be No. 1 Tomorrow? o The US is ranked #5 as most competitive in the world o On a perperson basis, the US is ranked #6 richest The Rise of the “Global Village” & Electronic Commerce From Transportation to Communication o In 1844, telegraphs ended the Pony express o By 1876 it was competing with the telephone o By 1906, the commercial radio o By 1925, television o This is where philosopher Marshall McLuhan created the meaning of global village The Net, the Web, & the World o Of 7.2 billion people, 39% are internet users o With the web being created, came ecommerce One Big World Market: The Global Economy o Conditions such as the Berlin Wall coming down (the end of communism), Asian countries opening their economies to foreign investors, and governments deregulating their economies set up the conditions by which goods, people, and money could move more freely throughout the world; aka a global economy Positive Effects o Global economy seems to be good for everyone o Its revitalizing parts of industrial America o The world is more interconnected, which leads to better and more affordable products Negative Effects o Lead to the 20072009 recession in the US o Outsourcing CrossBorder Business Megamergers Operating Worldwide o The last 20 years have seen a surge in mergers: two or more companies joining to be one o Industries involved include oil, telecommunications, automobiles, and pharmaceuticals Minifirms Operating worldwide o This creates to important results: Small companies can maneuver faster Chapter 4: Global Management Managing across Borders Small companies can maneuver more easily 4.2 You & International Management Why Learn about International Management o International management is management that oversees the conduct of operation in or with organizations in foreign countries, whether it’s through a multinational corporation or organization Multinational Corporations o Example: McGrawHill (presence in 17 foreign countries) Multinational Organizations o Example: the International Red Cross o Consider yourself in the following situations: You may deal with foreign customers or partners You may deal with foreign employees or suppliers You may work for a foreign firm in the US You may work for an American Firm outside the US – or for a foreign one The Successful International Manager: Geocentric, Not Ethnocentric or Polycentric Ethnocentric Managers – “We Know Best” o Tend to believe that they ca export the managers and practices of their home countries to anywhere in the world and that they will be more capable and reliable o Ethnocentric is also called parochialism o It seems to be bad for businesses Polycentric Managers – “They Know Best” o The attitude is opposite of ethnocentric managers Geocentric Managers – “What’s Best Is What’s Effective, Regardless of Origin” o The payoff for being this type of manager is greater than ethnocentric or polycentric 4.3 Why & How Companies Expand Internationally Why Companies Expand Internationally o It depends on the product or service that makes it wrong to restrict selling to just its own company o Reasons why companies expand internationally o Availability of supplies o New markets o Lower labor costs o Access to finance capital o Avoidance of tariffs & import quotas How Companies Expand Internationally o Reference Figure 4.1 o Five ways of expanding internationally Chapter 4: Global Management Managing across Borders Global outsourcing Importing, exporting, & countertrading Licensing & Franchising Joint ventures Whollyowned subsidiaries 4.4 The World of Free Trade: Regional Economic Cooperation Barriers to International Trade o Countries try to exert protectionism by o Tariffs o Import quotas o Embargoes Organizations Promoting International Trade o Three principal organizations designed to facilitate international trade are o World trade organization o The world bank o The international monetary fund Major Trading Blocks o NAFTA – the three countries of the North American Free Trade agreement o The EU – the 28 countries of the European Union o APEC – 21 countries of the Pacific Rim o ASEAN – 10 countries of the Association of Southeast Asian Nations o Mercosur – 12 countries of Latin America o CAFTADR – 7 countries of South America Most Favored Nation Trading Status o The purpose is to promote stronger and more stable ties between companies with locations in more than one country Exchange Rates o Exchange rates go with the changing economic conditions 4.5 The Importance of Understanding Cultural Differences The Importance of National Culture o We learn out culture from an early age with people around us o It’s made of so many nuances, people from other cultures may feel a culture shock Cultural Dimensions: The GLOBE Project o Misunderstands and miscommunications often arise in international business relationships because people don’t understand the expectations of the other side The GLOBAL Project’s Nine Cultural Dimensions Chapter 4: Global Management Managing across Borders o Power distance – the degree to which a society’s members expect power to be unequally shared o Uncertainty avoidance – the extent to which a society relies on social norms and procedures to alleviate the unpredictability of future events o Institutional collectivism – the extent to which individuals are encouraged and rewarded for loyalty to the group as opposed to pursuing individual goals o Ingroup collectivism – the extent to which people should take pride in being members of their family, circle of close friends, and their work organization o Gender egalitarianism – the extent to which a society should minimize gender discrimination and role inequalities o Assertiveness – the extent to which a society expects people to be confrontational and competitive as opposed to tender and modest o Future orientation – the extent to which a society encourages investment in the future, as by planning and saving o Performance orientation – the extent to which society encourages and rewards its members for performance improvement and excellence o Humane orientation – the degree to which individuals are encouraged to be altruistic, caring, kind, generous, and fair Other Cultural Variations o How to bridge crossculture gaps o Language o Interpersonal space o Communication o Time orientation Monochromic time Polychromic time o Religion o Law & political stability Instability Expropriation Corruption Labor abusers