Chapter 5

Managing in the
Global Environment
 Global Organizations
• Organizations that operate and compete
not only domestically, but also globally

• Uncertain and
unpredictable

2
 Organizational Environment
• Set of forces and conditions outside the
organization’s boundaries that have the
potential to affect the way the organization
operates
• Opportunities and threats

3
 Task Environment
• Set of forces and conditions that originate
with suppliers, distributors, customers, and
competitors
• Affect an organization’s ability to obtain
inputs and dispose of its outputs
• Most immediate and direct effect on
managers

4
 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)
– 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.

5
 Global Outsourcing
Purchase of inputs from foreign suppliers or
the production of inputs abroad to lower
production
costs and improve
product quality and
design

6
 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.

7
 The Task Environment
Customers
– Individuals and groups that buy goods and
services that an organization produces
• Identifying an organization’s main customers and
producing the goods and services they want is
crucial to organizational and managerial success.

8
 The Task Environment
Competitors
– Organizations that produce goods and services that are
similar to a particular organization’s goods and services
– Potential Competitors
• Organizations that presently are not in the task
environment but could enter if they so chose
– Strong competitive rivalry results in price competition,
and falling prices reduce access to resources and lower
profits.

9
 The Task Environment
Barriers to Entry
– Factors that make it difficult and costly for the
organization to enter a particular task
environment or industry

10
 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

11
 The General Environment
Economic Forces
– Interest rates, inflation, unemployment,
economic growth, and other factors that affect
the general health and well-being of a nation
or the regional economy of an organization
– Managers usually cannot impact or control
these.
– Forces have profound impact on the firm.

12
 The General Environment
Technological Forces
– Outcomes of changes in the technology that
managers use to design, produce, or distribute
goods and services
• Results in new opportunities or threats to managers
• Often makes products obsolete very
quickly.
• Can change how managers manage.

13
 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.
– Cultures and their associated social structures, values,
and norms differ widely throughout the world.

14
 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
• During the past two decades, women have entered the
workforce in increasing numbers and most industrial
countries’ populations are aging.
• This will change the opportunities for firms competing in
these areas as demands for child care and health care
are forecast to increase dramatically.

15
 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
• Increases in laws and regulations increase the costs
of resources and limit the uses of resources that
managers are responsible for acquiring and using
effectively and efficiently.

16
 The General Environment
Global Forces
– Outcomes of changes in international relationships;
changes in nations’ economic, political, and legal
systems; and changes in technology, such as falling
trade barriers, the growth of representative
democracies, and reliable and instantaneous
communication
– Important opportunities and threats to managers:
• The economic integration of countries through free-trade
agreements (GATT, NAFTA, EU) that decrease the
barriers to trade.

17
 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.

18
 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
• If India is more efficient in making textiles, and the
United States is more efficient in making computer
software, then each country should focus on their
respective strengths and trade for the other’s goods.

19
 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.

20
 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.

21
 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

22
 The Role of National Culture
Values
– Ideas about what a society believes to be
good, desirable and beautiful.
• Provides conceptual support for democracy, truth,
appropriate roles for men, and women.
• Usually not static but
very slow to change.

23
 The Role of National Culture
Norms
– Unwritten rules and codes of conduct that prescribe
how people should act in particular situations.
• Folkways—routine social conventions of daily life (e.g.,
dress codes and social manners)
• Mores—behavioral 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.
– Norms vary from country to country.

24
 Hofstede’s Model of National
Culture
• Individualism
– A worldview that values individual freedom and self-
expression and holds a strong belief in personal rights
and the need for persons to be judged by their
achievements rather their social background.
• Collectivism
– A worldview that values subordination of the individual
to the goals of the group.
– Widespread under communism and prevalent in Japan
as well.

25
 Hofstede’s Model of National
Culture
• Power Distance
– A society’s acceptance of differences in the well being
of citizens due to differences in heritage, and physical
and intellectual capabilities (individualism).
• In high power distance societies, the gap between rich
and poor becomes very wide (e.g., Panama and
Malaysia).
• In the low power distance societies of western cultures
(e.g., United States and Germany), the gap between rich
and poor is reduced by taxation and welfare programs.

26
 Hofstede’s 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.
– The United States and Japan are
achievement-oriented; Sweden and Denmark
are more nurturing-oriented.
27
 Hofstede’s 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. 28
 Hofstede’s Model of National
Culture
• Long Term Outlook
– Cultures (e.g., Taiwan and Hong Kong) with a
long-term in outlook are based on the values
of saving, and persistence.
– Short-term outlook societies (e.g., France and
the United States) seek the maintenance of
personal stability or happiness in the present.

29
 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 individual’s country
and behave accordingly

30