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
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
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
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
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
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
Extent to which people accept power and authority differences among people High power distance = people accept power differences Low power distance = people like to regard themselves as more or less equal Cultural Dimensions: Power Distance Power Distance Cultural Dimensions
Extent to which things need to be clear or ambiguous 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) Cultural Dimensions: Uncertainty Avoidance Cultural Dimensions Uncertainty Avoidance
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 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 group membership Cultural Dimensions: Individualism/Collectivism Cultural Dimensions Individualism/ Collectivism
Extent to which people in a country value masculine or feminine traits Masculine = activities leading to success, money, possessions Feminine = activities showing caring of others and enhancing quality of life Cultural Dimensions: Gender Focus Gender Focus Cultural Dimensions
International Market Entry Strategies Exporting Less Risk Licensing Strategic Alliances Cross-Border Acquisitions Wholly-Owned Subsidiaries More Risk
International Market Entry Strategies Exporting Advantages: • Low cost • Low risk to licensor Disadvantages: • Potential trade barriers • Establishment of marketing and distributing systems in foreign market • Transportation costs • Smaller returns Manufacturing products in a firm’s home country and shipping them to a foreign market.
International Market Entry Strategies Advantages: • Less capital investment • Least amount of risk Disadvantages: • Licensor has little control over product and use of brand • Smaller returns Licensing Arrangements that allow a local firm in the new market to manufacture and distribute a firm’s product.
International Market Entry Strategies 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: • Outsourcing and Offshoring Strategic Alliances Cooperative arrangements between two firms in which they agree to share resources to accomplish a mutually desirable goal.
International Market Entry Strategies 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 may cost a premium Acquisitions of local firms made by foreign firms to enter a new international market. Cross-Border Acquisitions
International Market Entry Strategies 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 your own 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
Managing International Operations:Global Focus 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 Centralized to home office
Managing International Operations:Region-Country Focus 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 Decentralized to subsidiaries
Managing International Operations:Transnational Focus 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
Managing Across Cultures:Low- and High-Context Cultures Cultural context: degree to which a situation influences behavior or perception of “appropriateness” Neither high- nor low-context cultures are right or wrong, just different HIGH-CONTEXT People pay close attention to the situation and its various elements in assessing appropriate behavior LOW-CONTEXT Situation may or may not make a difference in what is considered appropriate behavior
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)
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