chapter six

Managing in the Global

Environment

McGraw-Hill/Irwin
Contemporary Management, 5/e

Copyright 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives
Explain why the ability to perceive,
interpret, and respond appropriately to
the global environment is crucial for
managerial success
Differentiate between the global task and
global general environments
Identify the main forces in both the global
task and general environments, and
describe the challenges that each force
presents to managers
McGraw-Hill/Irwin

6-3

2006 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives
Explain why the global environment is
becoming more open and competitive
and identify the forces behind the
process of globalization that increases
the opportunities, complexities,
challenges, and threats that managers
face

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Learning Objectives
Discuss why national cultures differ and
why it is important that managers be
sensitive to the effects of falling trade
barriers and regional trade associations
on the political and social systems of
nations around the world

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Global Organizations
Organizations that operate and compete
not only domestically, but also globally
Uncertain and
unpredictable

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Global Environment
Set of forces and conditions in the world
outside the organizations boundaries
that affect the way it operates and shape
its behavior
Changes over time
Presents managers with opportunities
and threats

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Task Environment
Set of forces and conditions that
originate with suppliers, distributors,
customers, and competitors
Affect an organizations ability to obtain
inputs and dispose of its outputs
Most immediate and direct effect on
managers

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Forces in the Organizational Environment

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Question?
Which part of the task environment
provides an organization with the input
resources that it needs to produce
goods and services?
A. Customers
B. Suppliers
C. Competitors
D. Distributors
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The Task Environment

Suppliers
Individuals and organizations that provide an
organization with the input resources that it
needs to produce goods and services
Raw materials, component parts, labor
(employees)

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The Task Environment

Suppliers
Relationships with suppliers can be difficult
due to materials shortages, unions, and lack
of substitutes.
Suppliers that are the sole source of a
critical item are in a strong bargaining
position to raise their prices.
Managers can reduce these supplier effects
by increasing the number of suppliers of an
input.
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Suppliers

Its important that managers recognize

the opportunities and threats associated
with managing the global supply chain

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Suppliers
Gaining access to low-cost products
made abroad represents an opportunity
for U.S. companies to lower their input
costs
Managers who fail to utilize low-cost
overseas suppliers create a threat and
put their organizations at a competitive
disadvantage
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Global Outsourcing
Process by which organizations
purchase inputs from other companies or
produce inputs themselves throughout
the world to lower production costs and
improve the quality or design of their
products

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The Task Environment

Distributors
Organizations that help other organizations
sell their goods or services to customers
Powerful distributors can limit access to
markets through its control of customers
in those markets.
Managers can counter the effects of
distributors by seeking alternative
distribution channels.
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The Task Environment

Customers
Individuals and groups that buy goods and
services that an organization produces
Identifying an organizations main
customers and producing the goods and
services they want is crucial to
organizational and managerial success.

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The Task Environment

Competitors
Organizations that produce goods and
services that are similar to a particular
organizations goods and services

Vs.

Vs.

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The Task Environment

Potential Competitors
Organizations that presently are not in the
task environment but could enter if they so
choose

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The Task Environment

Rivalry between competitors is
potentially the most threatening force
that managers deal with
Strong competitive rivalry results in price
competition, and falling prices reduce
access to resources and lower profits

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The Task Environment

Barriers to Entry
Factors that make it difficult and costly for
the organization to enter a particular task
environment or industry

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Barriers to Entry
Economies of scale
Cost advantages associated with large
operations

Brand loyalty
Customers preference for the products of
organizations currently existing in the task
environment.

Government regulations that impede

entry
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Barriers to Entry and Competition

Figure 6.2

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General Environment

Economic

Sociocultural

Technological
Forces
Demographic

Political and
Legal
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The General Environment

Economic Forces
Interest rates, inflation, unemployment,
economic growth, and other factors that
affect the general health and well-being of a
country or world region

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Economic Forces
Successful managers:
Realize the important effects that
economic forces have on their
organizations
Pay close attention to what is occurring
in the national and regional economies to
respond appropriately

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The General Environment

Technology
Combination of tools, machines, computers,
skills, information, and knowledge that
managers use in the design, production,
and distribution
of goods and
services

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The General Environment

Technological Forces
Outcomes of changes in the technology that
managers use to design, produce, or
distribute goods and services

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The General Environment

Technological Forces
Results in new opportunities or threats to
managers
Often makes products obsolete very
quickly
Changes are altering the very nature of
work itself, including the managers job

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The General Environment

Sociocultural Forces
Pressures emanating from the social structure of a
country or society or from the national culture
Social structure: the arrangement of relationships
between individuals and groups in society
National culture: the set of values that a society
considers important and the norms of behavior
that are approved or sanctioned in that society.

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The General Environment

Sociocultural Forces
Societies differ substantially in the values
and norms they emphasize.
Effective managers are sensitive to
differences between societies and adjust
their behaviors accordingly

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The General Environment

Demographic Forces
Outcomes of change in, or changing attitudes
toward, the characteristics of a population,
such as age, gender, ethnic origin, race,
sexual orientation, and social class

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The General Environment

Demographic Forces
Most industrialized nations are experiencing
the aging of their populations as a
consequence of failing birth and death rates
and the aging of the baby-boom generation
Organizations need to find ways to motivate
and utilize the skills and knowledge of older
employees

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The General Environment

Political and Legal Forces
Outcomes of changes in laws and
regulations, such as the deregulation of
industries, the privatization of organizations,
and increased emphasis on environmental
protection
Increasingly nations are joining together
into political unions that allow for the free
exchange of resources and capital
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The Global Environment

Figure 6.3

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The Changing Global Environment

Managers now recognize that companies
exist and compete in a truly global
market
Managers constantly confront the
challenges of global competition
Establishing operations in a country abroad
Obtaining inputs from suppliers abroad
Challenges of managing in a different
national culture
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Process of Globalization
Globalization
Set of specific and general forces that work
together to integrate and connect economic,
political, and social systems across
countries, cultures, or geographical regions
Result is that nations and peoples become
increasingly interdependent

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Discussion Question?
What is the principal form of capital that
flows between countries?
A. Human
B. Political
C. Resource
D. Financial

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Process of Globalization
Four principal forms of capital that flow
between countries are:
Human capital
Financial capital
Resource capital
Political capital

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Declining Barriers to Trade and

Investment
Tariff
A tax that government imposes on imported
or, occasionally, exported goods.
Intended to protect domestic industry and
jobs from foreign competition
Other countries usually retaliate their own
tariffs, actions that eventually reduce the
overall amount of trade and impedes
economic growth.
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GATT and the Rise of Free Trade

Free-Trade Doctrine
The idea that if each country specializes in
the production of the goods and services that
it can produce most efficiently, this will make
the best use of global resources

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Declining Barriers of Distance and

Culture
Distance
Markets were essentially closed because of the
slowness of communications over long distances.

Culture
Language barriers and cultural practices made
managing overseas businesses difficult

Changes in Distance and Communication

Improvement in transportation technology and fast,
secure communications have greatly reduced the
barriers of physical and cultural distances.
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Effects of Free Trade on Managers

Declining Trade Barriers
Opened enormous opportunities for
managers to expand the market for their
goods and services.
Allowed managers to now both buy and sell
goods and services globally.
Increased intensity of global competition
such that managers now have a more
dynamic and exciting job of managing.
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Effects of Free Trade on Managers

North American Free Trade Agreement (NAFTA)
Abolishes 99% of tariffs on goods traded between
Mexico, Canada and the United States
Unrestricted cross-border flows of resources
Increased investment by U.S. firms in Mexican
manufacturing facilities due lower wage costs in
Mexico
Opportunities and Threats
The opportunity to serve more markets
Increased competition from NAFTA competitors
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Effects of Free Trade on Managers

CAFTA
Regional trade agreement designed to
eliminate tariffs on products between the
United States and all countries in Central
America
Approved by Dominican Republic, El
Salvador, Guatemala, Nicaragua, and
Honduras

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Question?
What are ideas about what a society
believes to be good, desirable and
beautiful?
A. Norms
B. Needs
C. Roles
D. Values

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The Role of National Culture

Values
Ideas about what a society believes to be
good, desirable and beautiful.
Provide the basic underpinnings for notions
of individual freedom, democracy, truth,
justice, honesty, loyalty,
love, sex, marriage, etc.

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The Role of National Culture

Norms
Unwritten rules and codes of conduct that prescribe
how people should act in particular situations.
Folkwaysroutine social conventions of daily life
(e.g., dress codes and social manners)
Moresbehavioral norms that are considered
central to functioning of society and much more
significant than folkways (e.g., theft and adultery),
and they are often enacted into law.
Many differences in mores from one society to
another
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Hofstedes Model of National Culture

Figure 6.4
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Hofstedes Model of National

Culture
Individualism
A worldview that values individual freedom and selfexpression and adherence to the principle that
people should be judged by their individual
achievements rather their social background.

Collectivism
A worldview that values subordination of the
individual to the goals of the group and adherence to
the principle that people should be judged by their
contribution to the group
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Hofstedes Model of National

Culture
Power Distance
A societys acceptance of differences in the
well being of citizens due to differences in
heritage, and physical and intellectual
capabilities (individualism).

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Hofstedes Model of National

Culture
Achievement versus Nurturing Orientation
Achievement-oriented societies value
assertiveness, performance, and success
and are results-oriented.
Nurturing-oriented cultures value quality of
life, personal relationships, and service.

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Hofstedes Model of National

Culture
Uncertainty Avoidance
Societies and people differ in their tolerance
for uncertainty and risk.
Low uncertainty avoidance cultures (e.g.,
U.S. and Hong Kong) value diversity and
tolerate a wide range of opinions and beliefs.
High uncertainty avoidance societies (e.g.,
Japan and France) are more rigid and expect
high conformity in their citizens beliefs and
norms of behavior.
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Hofstedes Model of National

Culture
Long Term Outlook
Cultures with a long-term orientation rest on
values such as thrift and persistence in
achieving goals
Cultures with a short-term orientation are
concerned with maintaining personal
stability or happiness and living for the
present

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National Culture and Global

Management
Management practices that are effective
in one culture often will not work as well
in another culture
Managers must be sensitive to the value
systems and norms of an individuals
country and behave accordingly

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Movie Example: Gung Ho

What decisions should
the Asian
executives consider
before opening a
plant in the U.S.?

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