Copyright 2012 Pearson Education Inc publishing as Prentice

The External Environment ü Refers to factors and forces outside the organization that affect its performance. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Publishing as Prentice Hall Management, Eleventh Edition by Stephen P. Robbins & Mary Coulter 6 -3

The External Environment ü Economic: interest rates, inflation, stock market fluctuations, and business cycle stages. ü Demographic: population age, race, gender, education level, geographic location, income, and family composition. ü Political/legal: local laws and global laws. It also includes a country’s political conditions and stability. ü Socio-cultural: societal and cultural factors such as values, attitudes, trends, traditions, lifestyles, beliefs, tastes. ü Technological: scientific or industrial innovations. ü Global: issues associated with globalization and a world economy Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Publishing as Prentice Hall Management, Eleventh Edition by Stephen P. Robbins & Mary Coulter 6 -4

What is Your Global Perspective? ü Ethnocentric Attitude ü Belief that home country (where the firm originated) has the best work approaches and practices (Parochialism) ü Ethnocentric managers do not trust foreign employees with key decisions ü Polycentric Attitude ü View that employees/managers in host country (the foreign country in which the company is operating) know the best approaches and practices ü Polycentric managers believe operations in foreign countries are better handled by employees from those locations Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Publishing as Prentice Hall Management, Eleventh Edition by Stephen P. Robbins & Mary Coulter 6 -5

What is Your Global Perspective? ü Geocentric Attitude üA world-oriented view that focuses on using the best approaches and people from all around the globe üGeocentric managers have a global view and look for best approaches regardless of the origin of the employee. üThe type of approach successful managers will need in today’s global environment Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Publishing as Prentice Hall Management, Eleventh Edition by Stephen P. Robbins & Mary Coulter 6 -6

Global Trade: Regional Trading Alliances Global competition previously considered country against country. Now it is shaped by regional trading agreements to facilitate economic growth and reduce trade barriers. ü The European Union (EU) üEconomic and political partnership of 28 democratic European countries üBarriers to travel, employment, investment and trade removed üCommon currency (Euro) üIn 2016, UK voted to opt out of the EU Copyright © 2012 Pearson Education, Inc. Management, Eleventh Edition by Stephen P. Robbins & Mary Coulter © 2012 Pearson Education, Inc. publishing as Prentice Hall Publishing as Prentice Hall 6 -7

Global Trade: Regional Trading Alliances ü North American Free Trade Agreement (NAFTA) currently USMCA üUnited States, Canada, and Mexico eliminated barriers to trade (tariffs, import licensing requirements, and customs user fees) üUnder President Trump's administration, the three countries reached a new agreement called the United States-Mexico-Canada Agreement (USMCA) which replaces the former NAFTA. üThese two agreements have many similar points. Only certain industries will be affected. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Publishing as Prentice Hall Management, Eleventh Edition by Stephen P. Robbins & Mary Coulter 6 -8

Global Trade: Regional Trading Alliances üAssociation of Southeast Asian Nations (ASEAN) üTrading alliance of 10 Southeast Asian nations originally established by Indonesia, Malaysia, Philippines, Singapore, and Thailand üBrings together disparate neighbors to address economic, security, political, and social issues üASEAN’s biggest problem is that individual members haven’t been willing to sacrifice for the common good. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Publishing as Prentice Hall Management, Eleventh Edition by Stephen P. Robbins & Mary Coulter 6 -9

Global Trade: Global Trading Mechanisms ü If Global trade issues arise, global trade systems ensure that trade continues efficiently and effectively. ü Government intervention and Trade Mechanisms help to mitigate crisis in the global economy ü There are 4 major global mechanisms ü ü World Trade Organization The International Monetary Fund, The World Bank Group The Organization for Economic Cooperation and Development Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Publishing as Prentice Hall Management, Eleventh Edition by Stephen P. Robbins & Mary Coulter 6 -10

Different Types of International Organizations Multinational Corporation (MNC): A firm that maintains operations in multiple countries. ü Multi-domestic Corporation: ü An MNC that decentralizes management and other decisions to host country. ü A Polycentric Approach. ü Frito-Lay from Pepsico ü Global Company ü An MNC that centralizes its management and other decisions to the home country. ü An Ethnocentric attitude. ü Starwood Hotels Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Publishing as Prentice Hall Management, Eleventh Edition by Stephen P. Robbins & Mary Coulter 6 -11

Different Types of International Organizations ü Transnational or Borderless Organization ü An MNC that eliminates artificial geographic barriers ü Reflects a geocentric attitude ü Ford Motor Company is pursuing the One Ford concept as it integrates its operations around the world ü A company’s origin or the national origin of its employees is no longer a good measure of how it does business. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Publishing as Prentice Hall Management, Eleventh Edition by Stephen P. Robbins & Mary Coulter 6 -12

How Organizations go Global ü Global Sourcing - purchasing materials or labor from around the world wherever it is cheapest. ü Exporting - making products domestically and selling them abroad. ü Importing - acquiring products made abroad and selling them domestically. ü Licensing - the licensor sells a right use its intellectual property or manufacture the licensor’s products in exchange of royalty to the licensee. (Walt Disney and the production of Mickey Mouse) ü Franchising -the franchisor permits the franchisee to use its brand name or business model as an independent branch of the franchisor against an agreed management fee. (Dominos and the technical know-hows) Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Publishing as Prentice Hall Management, Eleventh Edition by Stephen P. Robbins & Mary Coulter 6 -13

How Organizations go Global ü Strategic Alliance - a partnership between an organization and one or more foreign company partner(s) in which both share resources and knowledge in developing new products or building production facilities. Ex: Starbucks and Barnes & Nobles. ü Joint Venture - a specific type of strategic alliance in which the partners agree to form a separate, independent organization for some business purpose. Ex: Google and Nasa developing Google Earth. ü Foreign Subsidiary - directly investing in a foreign country by setting up a separate and independent production facility or office. (Find out one by yourself) Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Publishing as Prentice Hall Management, Eleventh Edition by Stephen P. Robbins & Mary Coulter 6 -14

How Organizations go Global Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

The Economic Environment A global manager must be aware of economic issues when doing business in other countries. It is important to understand a country’s economic system. ü Free Market Economy - an economic system in which resources are primarily owned and controlled by the private sector. ü Planned Economy - an economic system in which economic decisions are planned by a central government. No economy is purely free market or planned. USA and UK are toward the free market end of the spectrum but do have governmental intervention and controls. The economies of Vietnam and North Korea are more planned but recently have been moving toward more free market. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Publishing as Prentice Hall Management, Eleventh Edition by Stephen P. Robbins & Mary Coulter 6 -16

The Cultural Environment ü National Culture - the values and attitudes shared by individuals from a specific country that shape their behavior and beliefs about what is important. ü Which is more important to a manager—national culture or organizational culture? ü Research indicates that national culture has a greater effect on employees than does their organization’s culture. ü Hence it is important for managers to study the cultural environment. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Publishing as Prentice Hall Management, Eleventh Edition by Stephen P. Robbins & Mary Coulter 6 -17