Introduction to Management

Lecture 8: Managing in the Global Market

KEY QUESTIONS FOR THIS WEEK

What are some of the challenges associated with managing in a global context?

What are some of the drivers in globalisation that will affect managers today and in the future?

Why do you need to understand cultural differences in an international marketplace and how is the market different in the Asian Pacific context?

Introduction to Management

The context of managers work

Teams and Teamwork

Ethical Management

Leading in a Global Context

Managing Information in Asian Context

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What is Globalisation?

–The trend of the world economy towards becoming a more interdependent system

–Time and distance have virtually collapsed as reflected in these important developments: the rise of the global village and e-commerce, and the rise of megamergers and internet-enabled mini-firms

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Globalisation: The collapse of time and distance

Global village

The ‘shrinking’ of time and space as air travel and the electronic media have made it much easier for people to communicate with each other across the globe

Twenty-five years ago, mobile phones, pagers, fax and voicemail links barely existed; by 2017, there were nearly 4.77 billion mobile subscriptions

Today, 51% of the world’s population are internet users

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Do students feel more connected globally? Do they envisage themselves entering jobs on a local or national level? Do they anticipate working on a global scale during their career?

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Globalisation: The collapse of time and distance

E-commerce

The buying and selling of products and services through computer networks

E-commerce in Australia and New Zealand has been estimated at close to US$20 billion in 2013 and is projected to account for 7.2% of all retail sales by 2018

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How has technology changed the way we think about global commerce? Do students feel that they could reach the world with their products and services? What impact will this have in the coming years as students evaluate their job opportunities and earning potential? This is an extraordinary time to come of age in business. The globe is literally the limit.

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Globalisation: The collapse of time and distance

Global Economy

The increasing tendency of the economies of the world to interact with one another as one market, instead of many national markets

Positive Effects

Foreign firms bring expertise and links to international markets when they invest in Australia and New Zealand

Negative Effects

Vast surplus funds from global investments flowed into the US and were invested badly in subprime mortgages; outsourcing of formerly well-paying jobs overseas

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There are both positive and negative effects to a more global world. Though it is exciting to be interconnected, it can also lead to outsourcing labour to other countries, particularly in manufacturing.

Positive effects: The world is far more interconnected leading to better and more affordable products, and better communication among nations.

Negative effects: The movement, or outsourcing, of formerly well-paying jobs overseas as companies seek cheaper labour costs, particularly in manufacturing.

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Question

Jelene sells her art through her own website and her store on Etsy. She receives questions from many different countries. Jelene is engaged in:

E-commerce

Global trading

Counter-trading

Embargo

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The correct answer is ‘A’, e-commerce. See slide 5.

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Lecture Script 6-7

Why learn about international management?

Multinational corporation

Business firm with operations in several countries

Multinational organisation

Non-profit organisation with operations in several countries

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Examples of multinational corporations include McGraw-Hill Education, which is owned by Apollo Global Management. In 2015, the five largest multinationals were all in the US: Apple, Exxon Mobil, Berkshire Hathaway, Google and Microsoft.

Some examples of multinational non-profit organisations include the World Health Organization and the International Red Cross.

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Consider yourself in the following situations:

Dealing with foreign customers or partners

Dealing with foreign employees or suppliers

Working for a foreign-owned firm

Working outside your home country for a home-country or foreign firm

Why learn about international management?

Working for a foreign firm. If you thought you might work for a foreign firm, either at home or overseas, what should you be doing now to prepare for it?

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Do you believe that this advice doesn’t apply to you? Think again! In your lifetime there may be many opportunities for you to interact on a global scale.

Your call: You may have to travel a lot, working for a multinational company, even a small one, to stay connected with colleagues, employees and suppliers. Would this concern you? Would you expect time away from home to bring additional financial rewards or would you see it as a ‘perk’?

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The successful international manager

Ethnocentric managers

Believe that their native country, culture, language and behaviour are superior to others

Related to parochialism, a narrow view in which people see things solely through their own perspective

Parochialism

Narrow view in which people see things solely through their own perspective

Are either of these the ‘right’ way to be?

What is the alternative?

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Ethnocentric managers tend to believe that they can export the managers and practices of their home countries to anywhere in the world and that they will be more capable and reliable. Often the ethnocentric viewpoint is less attributable to prejudice than it is to ignorance, since such managers obviously know more about their home environment than the foreign environment.

Is ethnocentrism bad for business? It seems so. A survey of 918 companies with home offices in the US, Japan and Europe found that ethnocentric policies were linked to such problems as recruiting difficulties, high turnover rates and lawsuits over personnel policies.

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The successful international manager

Polycentric managers

Take the view that native managers in the foreign offices best understand native personnel and practices, and so the home office should grant them maximum autonomy

Geocentric managers

Accept that there are differences and similarities between home and foreign personnel and practices, and that they should use whatever techniques are most effective

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Polycentric managers can also run into pitfalls. In a large global company, cohesive management is important for success. What is the better way?

Geocentric managers tend to accept similarities and differences, and use techniques that are most effective. This blending of cultures and management techniques can lead to a very successful global presence.

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Question

Alvin accepts that differences and similarities exist between home and foreign personnel and practices, and that the company should use whatever techniques are most effective. Alvin can be described as:

Ethnocentric

Polycentric

Geocentric

Expatriate

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The correct answer is ‘C’, geocentric.

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Lecture Script 6-12

Why companies expand internationally

Availability of supplies

New markets

Lower labour costs

Financial advantage

Avoidance of tariffs and import quotas

Gaining scale

Following the customer

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Why do companies expand internationally? Ask students to identify why each of these reasons is important.

Availability of supplies—overseas, raw materials for your products may be cheaper or more plentiful

New markets—you may find more demand and more customers for your products overseas

Lower labour costs—for example, Australia and NZ often transfer labour to South East Asia. Another example from the US is maquiladoras (manufacturing plants allowed to operate in Mexico with special privileges in return for employing Mexican citizens)

Access to financial capital—finding overseas investors can help grow your business

Avoidance of tariffs and import quotas—countries place tariffs (fees) on imported goods or impose import quotas (limitations on the numbers of products allowed in) to protecting their domestic industries. To avoid these penalties, a company might create a subsidiary to produce the product in the foreign country. General Electric and Whirlpool, for example, have foreign subsidiaries to produce appliances overseas.

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Lecture Script 6-13

How companies expand internationally

Global outsourcing

Using suppliers outside the company to provide goods and services

Importing

Buying goods outside the country and reselling them domestically

Exporting

Producing goods domestically and selling them outside the country

Countertrading

Bartering goods for goods

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On the lower-risk and investment end of the scale, global outsourcing, importing, exporting and countertrading are easier entries into foreign markets. The companies are run domestically, but may do some business with foreign countries. There is generally no ownership abroad, just business dealings.

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Top 10 exporting countries, 1999 and 2015

RANK IN 1999 RANK IN 2015
1. US US
2. Germany China
3. Japan Japan
4. France Germany
5. Britain France
6. Canada South Korea
7. Italy Netherlands
8. Netherlands Italy
9. China Russia
10. Belgium United Kingdom

Table 4.1 Top 10 exporting countries, 1999 and 2012

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As can be seen, some countries’ rank has stayed relatively the same in the last 15 plus years, while others, like China, South Korea and the United Kingdom, have increased in their export of goods and services.

The US had fallen to number 3 in 2013, but is back at number 1 in 2015. Any guesses why this might be? The US is a leader in exporting American pop culture (movies, music, fashion). The US is also a leader in exporting computers and other information technology services.

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How companies expand internationally

Licensing

A firm allows a foreign company to pay it a fee to make or distribute the firm’s product or service

Franchising

A firm allows a foreign company to pay it a fee and a share of the profit in return for using the firm’s brand name and a package of materials and services

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Refer to the textbook for an example of licensing: The DuPont chemical company might license a company in Brazil to make Teflon, the non-stick substance found on some frying pans. Thus, DuPont, the licensor, can make money without having to invest large sums to conduct business directly in a foreign company. Moreover, the Brazilian firm, the licensee, knows the local market better than DuPont.

Refer to the textbook for an example of franchising: Well-known brands Burger King, Hertz and Hilton Hotels might provide the use of their names plus their operating know-how (facility design, equipment, recipes, management systems) to companies in the Philippines in return for an up-front fee plus a percentage of the profits.

Ask students if they can identify some well-known franchises. Fast food will probably top their list. Ask students why a franchise might be preferred over a small independent restaurant.

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How companies expand internationally

Joint venture

Formed with a foreign company to share the risks and rewards of starting a new enterprise together in a foreign country

Also known as a strategic alliance

Wholly-owned subsidiary

A foreign subsidiary is totally owned and controlled by an organisation

A greenfield venture is a foreign subsidiary that the owning organisation has built from scratch

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Joint ventures are another way to expand globally, and they fall in a higher risk and investment category. These companies are forming a strategic alliance to start a new enterprise together in a foreign company. It is more risky than outsourcing, importing, exporting, licensing or franchising, but not as risky as a wholly-owned subsidiary.

Why do students think that a joint venture would be higher risk than licensing or franchising, but less risk than a wholly-owned subsidiary?

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Question

XYZ Corporation builds a manufacturing plant in Mexico, employs Mexican citizens and receives favourable tax treatment by the Mexican government. XYZ is:

Using a maquiladora

Countertrading

Outsourcing

Franchising

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The correct answer is ‘A’, maquiladora.

Rationale: This is an example of expanding internationally by taking advantage of lower labour costs. (Maquiladoras are manufacturing plants allowed to operate in Mexico with special privileges in return for employing Mexican citizens.)

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Lecture Script 6-18

The world of free trade

Table 4.2 Top 10 US, Australia and New Zealand trading partners

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As of January 2016, these are the top 10 nations that Australia and New Zealand export to, and the top 10 nations that Australia and New Zealand import from (see p. 138).

Are students surprised by any on the list?

Australia exports to and imports from mostly China.

Thailand, Germany and Malaysia make our top 10 imports, but do not make our top 10 exports. Is this an untapped opportunity for Australian businesses? For New Zealand, Taiwan makes the top 10 imports but is not in the top 10 exports. Is this an untapped opportunity for New Zealand businesses?

What barriers might be in play? Barriers are discussed on the following slides.

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Organisations promoting international trade

World Trade Organization (WTO)

Designed to monitor and enforce trade agreements

Agreements are based on the General Agreement on Tariffs and Trade (GATT), an international accord first signed by 23 nations in 1947

Includes 164 countries

Headquarters in Geneva, Switzerland

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Though situations like the ones on the previous slide can be difficult, how does the world regulate itself to be fairer to everyone?

The three principal organisations designed to facilitate international trade are the World Trade Organization (WTO), the World Bank, and the International Monetary Fund.

With regard to the WTO, can students explain why an international accord may have been desirable in 1947 (just after World War II)?

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Organisations promoting international trade

International Monetary Fund (IMF)

Designed to assist in smoothing the flow of money between nations

Founded in 1945 and now affiliated with the United Nations

Operates as a last-resort lender that makes short-term loans to countries suffering from unfavourable balance of payments (e.g. Greece)

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In recent times, the IMF has become more high profile because of its role in trying to shore up some weaker European economies, including making loans to Greece, Portugal and Ireland, and considering how to assist Italy and Spain.

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Major trading blocs

A trading bloc (also known as an economic community) is a group of nations within a geographical region that agree to work towards the removal of trade barriers with one another.

In some cases the target is eliminating all barriers to create a completely open market.

Mercosur—largest trading bloc in Latin America

CAFTA (Central America Free Trade Agreement)—Central America

NAFTA (North American Free Trade Agreement)—allows for freer flow of goods, services and capital between the US, Canada and Mexico

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These are examples of major trading blocs in the world. Some have political implications, but all are designed to reduce or remove trade barriers with partnering countries.

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Major trading blocs

EU (European Union)—28 ‘borderless’ trading partners in Europe (or 27 post-Brexit (Britain’s exit from the EU)

APEC (Asia-Pacific Economic Cooperation)—group of 21 Pacific Rim countries, most with a Pacific coastline (including Australia, New Zealand, US, Canada, China)

ASEAN (Association of Southeast Asian Nations)—trading bloc of 10 countries in South East Asia

Asia-Pacific Economic Cooperation (APEC)

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These are further examples of major trading blocs in the world. Some have political implications, but all are designed to reduce or remove trade barriers with partnering countries.

A discussion about Brexit—the vote in the United Kingdom to leave the European Union—might lend itself well here. The story is likely to continue evolving.

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Question

Where the USA does not allow the import of Cuban sugar and cigars, this is an example of:

An embargo

A tariff

A quota

A maquiladora

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The correct answer is ‘A’, An embargo.

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Lecture Script 6-24

The importance of national culture

Culture

A shared set of beliefs, values, knowledge and patterns of behaviour common to a group of people

For example, the culture of tipping in restaurants varies from country to country

Tipping point. The culture of tipping in restaurants varies from country to country.

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Culture defines who we are and is different across the world. As discussed earlier, it is best to understand the cultures you are visiting or doing business with.

The culture of tipping varies from country to country.

Another example: Brazil requires all private businesses and government facilities to give people aged 60 and over immediate and differentiated attention—and if they don’t, they can be fined the equivalent of $750 for each infraction. Such preferential treatment for seniors (and pregnant women and mothers with young children) ‘is a prized perk in Brazil and other parts of Latin America, where long lines and spotty service are all too common’, says one report.

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Consider the Asian Context – being Ambicultural

Recognise the shortcomings of the prevailing Western and Eastern business models to meet the challenges and complexities presented by globalization and emerging markets.

Exhibit an openness to new ways of thinking, and an ability to see the wisdom and strength in other cultural and business paradigms.

See supplemental readings

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Demonstrate an understanding that business cannot operate independently of social, geopolitical, environmental, and human needs, but must balance these diverse needs.

Transcend divisions around the globe.

Show dedication to integrating global awareness into everyday actions. ?

Emphasise unity and morality.

Develop your ability to balance social good and self-interest.

Emphasise trust-based and legal relationships.

An equal appreciation for teamwork and individual stars.

A commitment to continued learning, to sharing knowledge and experience with others in the interest of mutual improvement, and, ultimately, to reaching the pinnacles of professional achievement and humanity.

The Embrace and Management of Contradiction If we examine many of the items on the list above, a theme becomes clear. In bridging cultures there is a need to pursue the best of both worlds, even when there are tensions between particular polarities (Bruton et al., 2008; Duncan, 1976; Luo & Rui, 2009). There is, in short, a need sometimes to integrate opposites, and that too must become part of an ambi-cultural orientation: social good and self-interest, trust-based and legal relationships, teamwork and individual achievement, risk taking and caution, business and society, locally sensitive and foreign.

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Characteristics of an Ambi-cultural Manager

Recognition of shortcomings of prevailing Eastern & Western business models to meet challenges of emerging markets

Openness to new ways of thinking

Balancing diverse social, geo-political, human needs

Dedicated to integrating global awareness into every day actions

Emphasis on unity and morality

Ability to balance social good and self-interest

Commitment to continued learning

Sharing knowledge and experience with others.

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Example:  Chinese business practices

Practices to Embrace:

– Long-termism

– Harmony (Guanxi)

– Collectivism

– Seniority

– Mentorship

Practices to avoid:

– Mistrust

– Secrecy

– Centralised authoritarianism

– Ethnocentricity

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The Emerging Global Landscape

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What Is An Organisation?

An organisation is a system of consciously coordinated activities of two or more people aiming to achieve common objectives (Chester Barnard)

Question: How might culture or cultural differences influence organisations, their strategies, and their structures?

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Lets step back and consider the basic definition, and then expand our viewpoint to consider the influence of culture (regional/national/tribal and discipline-based), it commonalities and difference, and the resulting influences on organisations.

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Top 10 Exporting countries,

1999 and 2012

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Alibaba’s new seller’s journey!

(Seller.alibaba.com, n.d.)

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https://seller.alibaba.com/training.htm

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Assignment 3 – e-portfolio & Report

Your statement of purpose – Why is this important?

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Next Lecture?

Teams and Teamwork Week 5
Ethical Management Week 6
Leading in a Global Context Week 7
Managing Information Week 8 Assessment 2 due

Next week

Course Review

Introduction to Management

The Functions of Management

Managing Creativity, Innovation and Design

Managing Emotions

Networking

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RMIT University©2017

References

•Podrug, N 2011, ‘Influence of National Culture on Decision-Making Style’, South east European Journal of Economics and business, vol. 6, no. 1, pp. 37-44.

•Steers, R.M., Nardon, L. and Sanchez-Runde, C.J., 2013. Management across cultures: Developing global competencies. Cambridge University Press.

•Nardon, L & Steers, RM 2009, ‘The Culture Theory Jungle: Divergence and Convergence in Models of National Culture. ‘, in Cambridge Handbook of Culture, Organizations, and Work, pp. 3-22.

 

 
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