LECTUREPEDIA - Ajarn Paul Tanongpol, J.D.; M.B.A.;B.A.; CBEST
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LECTUREPEDIA - Ajarn Paul Tanongpol, J.D.; M.B.A.;B.A.; CBEST
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CHAPTER 5 Global Dimensions of Management [Many of the foundation materials in this lecture is taken from www.wikipedia.org as referenced source]
1. International management and globalization 2. International business challenges 3. Multinational corporation 4. Culture and global diversity 5. Management across culture
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1. International management and globalization a. Europe b. The Americas c. Asia and the Pacific Rim d. Africa 2. International business challenges a. Competitive global business environment b. Forms of international business 3. Multinational corporation a. Types of multinational corporations b. Pros and cons of multinational corporations c. Ethical issues of multinational operations 4. Culture and global diversity a. Popular dimensions of culture b. Values and national cultures c. Understanding cultural diversity 5. Management across culture a. Planning and controlling b. Organizing and leading c. Are management theories universal? d. Global organizational learning
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1. International management and globalization This is the age of the global economy in which resource supplies, product markets, and business competition are worldwide rather purely local or national in scope. This is also a time influenced by the forces of globalization. Globalization is the process of growing interdependence among elements of global economy.
The term used to describe management in organizations with interests in more than one country in international management. A global manager is culturally aware and well informed in international affairs.
a. Europe i. The EU is a political and economic alliance of European countries. The Euro is the common European currency.
ii. The European Union (EU) is an intergovernmental and supranational union of 25 member states. The European Union was established under that name in 1992 by the Treaty on European Union (the Maastricht Treaty). However, many aspects of the Union existed before that date through a series of predecessor relationships, dating back to 1951.
iii. The Union nowadays has a common single market consisting of a customs union, a single currency managed by the European Central Bank (so far adopted by 12 of the 25 member states), a Common Agricultural Policy, a common trade policy, and a Common Fisheries Policy.[2] A Common Foreign and Security Policy was also established as the second of the three pillars of the European Union. The Schengen Agreement abolished passport control, and customs checks were also abolished at many of the EU's internal borders, creating a single space of mobility for EU citizens to live, travel, work and invest.
iv. The European Union's activities cover all areas of public policy, from health and economic policy to foreign affairs and defense. However, the extent of its powers differs greatly between areas. Depending on the area in question, the EU may therefore resemble a federation (e.g. on monetary affairs, agricultural, trade and environmental policy, economic and social policy), a confederation (e.g. on home affairs) or an international organisation (e.g. in foreign affairs).
b. The Americas i. NAFTA 1. The North American Free Trade Agreement, known usually as NAFTA, is a free trade agreement among Canada, the United States, and Mexico. NAFTA went into effect on January 1, 1994. NAFTA is also used to refer to the tripartite trading bloc of North American countries.
2. NAFTA called for immediately eliminating duties on half of all U.S. goods shipped to Mexico and Canada, and gradually phasing out other tariffs over a period of about 14 years. Restrictions were to be removed from many categories, including, but not limited to, motor vehicles and automotive parts, computers, textiles, and agriculture. The treaty also protected intellectual property rights (patents, copyrights, and trademarks) and outlined the removal of restrictions on investment among the three countries. Provisions regarding worker and environmental protection were added later as a result of supplemental agreements signed in 1993.
3. This agreement was an expansion of the earlier Canada-U.S. Free Trade Agreement of 1989. Unlike the European Union, NAFTA does not create a set of supranational governmental bodies, nor does it create a body of law which is superior to national law. NAFTA is a treaty under international law. (Under United States law it is classed as a congressional-executive agreement rather than a treaty, reflecting a peculiar sense of the term "treaty" in United States constitutional law that is not followed by international law or the laws of other states.)
ii. MERCOSUR 1. MERCOSUR is a customs union between Brazil, Argentina, Uruguay, Paraguay and Venezuela, founded in 1991 by the Treaty of Asunción, which was later amended and updated by the 1994 Treaty of Ouro Preto. Its purpose is to promote free trade and the fluid movement of goods, peoples, and currency.
2. Bolivia, Chile, Colombia, Ecuador and Peru have associate member status. On 30 December 2005 it was announced that Bolivia would be invited to join as an associate member. Venezuela signed its membership agreement on 17 June 2006, and became a full member on 4 July of the same year. The organization has a South and Central America
3. Some South Americans see Mercosur as giving the capability to combine resources to balance the activities of other global economic powers, perhaps especially the United States and the European Union. The organization could also potentially pre-empt the Free Trade Area of the Americas (FTAA), however, over half of the current Mercosur member countries rejected the FTAA proposal at the IV Cumbre de las Américas (IV Summit of the Americas) in Argentina in 2005.
iii. CARICOM 1. The Caribbean Community and Common Market or CARICOM was established by the Treaty of Chaguaramas[1] which came into effect on August 1, 1973. The first four signatories were Barbados, Jamaica, Guyana and Trinidad and Tobago.
2. CARICOM replaced the 1965–1972 Caribbean Free Trade Association (CARIFTA), which had been organized to provide a continued economic linkage between the English-speaking countries of the Caribbean following the dissolution of the West Indies Federation which lasted from January 3, 1958 to May 31, 1962.
3. A Revised Treaty of Chaguaramas[2] establishing the Caribbean Community including the CARICOM Single Market and Economy (CSME) was signed by the Heads of Government of the Caribbean Community on July 5 2001 at their Twenty-Second Meeting of the Conference in Nassau, The Bahamas.
c. Asia and the Pacific Rim i. ASEAN 1. The Association of Southeast Asian Nations (ASEAN) is a political and economic organization of countries located in Southeast Asia. ASEAN was formed on August 8, 1967 by Malaysia, Thailand, Indonesia, Singapore, and the Philippines, as a non-provocative display of solidarity against Communist expansion in Vietnam and insurgency within their own borders. Following the Bali Summit of 1976, the organization embarked on a programme of economic cooperation, which floundered in the mid-1980's only to be revived around a 1991 Thai proposal for a regional "free trade area". The countries meet annually.
2. ASEAN Regional Forum. ASEAN regularly conducts dialogue meetings with other countries and an organization, collectively known as the ASEAN dialogue partners during the ASEAN Regional Forum (ARF). The ASEAN Regional Forum is an informal multilateral dialogue of 25 members that seeks to address security issues in the Asia-Pacific region. The ARF met for the first time in 1994. The current participants in the ARF are as follows: ASEAN, Australia, Canada, People's Republic of China, European Union, India, Japan, North Korea, South Korea, Mongolia, New Zealand, Pakistan, Papua New Guinea, Russia, East Timor, and the United States.
3. The ASEAN Summit The organization holds annual meetings in relation to economic, and cultural development of Southeast Asian countries. The ASEAN Leaders' Formal Summit was first held in Bali, Indonesia in 1976. At first there was no set schedule due to domestic issues in the member countries. In 1992, leaders decided to hold meetings every three years; and in 2001 it was decided to meet annually to address urgent issues affecting the region. Member nations were assigned to be the summit host in alphabetical order except in the case of Myanmar which dropped its 2006 hosting rights in 2004 due to pressure from the United States and the European Union. The formal summit meets for three days. The usual itinerary is as follows: o ASEAN leaders hold an internal organization meeting. o ASEAN leaders hold a conference together with foreign ministers of the ASEAN Regional Forum. o Leaders of 3 ASEAN Dialogue Partners (also known as ASEAN+3) namely China, Japan and South Korea hold a meeting with the ASEAN leaders. o A separate meeting is set for leaders of 2 ASEAN Dialogue Partners (also known as ASEAN-CER) namely Australia and New Zealand. At the 11th ASEAN Summit in Kuala Lumpur, Malaysia, new meetings were scheduled. These were: East Asia Summit - converging ASEAN and six dialogue partners namely China, Japan, South Korea, Australia, New Zealand and India. ASEAN-Russia Summit - meeting between ASEAN leaders and the President of Russia.
d. Africa i. The East African Community (EAC) is a customs union in East Africa, consisting of Kenya, Uganda and Tanzania. It was founded in January 2001 at a ceremony held in the Tanzanian city of Arusha, which is also its headquarters, reviving an earlier effort abandoned in 1977. This new EAC treaty paved the way for an economic and, ultimately, political union of the three countries. A further treaty signed in March 2004 set up a customs union, which commenced on 1 January 2005. Under the terms of the treaty, Kenya, the richest of the three countries, will pay duty on its goods entering Uganda and Tanzania until 2010. A common system of tariffs will apply to other countries supplying the three countries with goods.
ii. The Southern African Development Coordination Conference (SADCC), which was the forerunner of the Southern African Development Community (SADC), was formed in Lusaka, Zambia, on 1 April 1980, following the adoption of the Lusaka Declaration (entitled Southern Africa: Towards Economic Liberation) by the nine founding member states.
iii. The Declaration and Treaty establishing the Community, which replaced the Coordination Conference, was signed at the Summit of Heads of State or Government on 17 August 1992, in Windhoek, Namibia.
2. International business challenges An international business conducts commercial transactions across national boundaries. These are the reasons for international business: o Profits o Customers o Suppliers o Capital o Labor
b. Competitive global business environment i. Privatization Privatization is the selling of state-owned enterprises into private ownership.
ii. WTO World Trade Organization (WTO). Member nations agree to negotiate and resolve disputes about tariffs and trade restrictions. The World Trade Organization (WTO) is an international, multilateral organization, which sets the rules for the global trading system and resolves disputes between its member states, all of whom are signatories to its approximately 30 agreements. WTO headquarters are located in Geneva, Switzerland. Pascal Lamy is the current Director-General, taking over from the previous Director-General Supachai Panitchpakdi on September 1, 2005. As of December 15, 2005, there are 149 members in the organization [1] with the latest to join being Saudi Arabia. All WTO members are required to grant one another most favoured nation status, such that (with some exceptions) trade concessions granted by a WTO member to another country must be granted to all WTO members (WTO, 2004c).
iii. Protectionism Protectionism calls for tariffs and favorable treatments to protect domestic firms from foreign competition.
c. Forms of international business i. Market entry strategies 1. Global sourcing 2. Exporting 3. Importing 4. Licensing agreement 5. Franchising ii. Direct foreign investment strategies 1. Joint venture o Partner must know your business to succeed o Partner with strong local workforce o Future expansion possibilities o Strong local market for partner’s own product o Shared interests in meeting customer needs o Good profit potential o Sound financial standing 2. Wholly owned subsidiary
3. Multinational corporation A true MNC is a business firm with extensive operations in more than one foreign country.
a. Types of multinational corporations i. Transnational corporation A multinational corporation (MNC) or multinational enterprise (MNE) or transnational corporation (TNC) or multinational organization (MNO) is a corporation/enterprise that manages production establishments or delivers services in at least two countries. Multinational corporations (MNC) are often divided into three broad groups: ii. Types of MNC 1. Horizontally integrated multinational corporations manage production establishments located in different countries to produce the same or similar products. 2. Vertically integrated multinational corporations manage production establishment in certain country/countries to produce products that serve as input to its production establishments in other country/countries. 3. Diversified multinational corporations manage production establishments located in different countries that are neither horizontally or vertically integrated.
b. Pros and cons of multinational corporations i. Host country issues 1. Host country complaints about MNC o Excessive profits o Economic domination o Interference with government o Hire best local talent o Limited technology transfer o Disrespect for local customs
2. MNC complaints about host country o Profit limitation o Overpriced resources o Exploitative rules o Foreign exchange restrictions o Failure to uphold contract
ii. Home country issues People in the home country complains that MNCs are transferring jobs out of the country, shifting capital investment abroad, and engaging in corrupt practices in foreign countries.
c. Ethical issues of multinational operations i. Corruption ii. Sweatshop iii. Child labor iv. Sustainable development v. ISO 1400: certification for environmentally safe policies
4. Culture and global diversity Culture is a shared set of beliefs, values, and patterns of behavior common to a group of people.
a. Popular dimensions of culture i. Language 1. Low-context culture: emphasizes spoken or written words in communication. 2. High-context culture: relies on non-verbal and contextual communication.
ii. Interpersonal space iii. Time orientation 1. In monochromic culture, people tend to do one thing at a time. 2. In polychromic culture, people do many things at once.
iv. Religion v. Role of agreements
b. Values and national cultures i. Power distance ii. Uncertainty avoidance iii. Individualism-collectivism iv. Masculinity-femininity v. Time orientation: short-term vs. long-term emphasis
c. Understanding cultural diversity i. Relationship with people 1. Universalism vs. particularism 2. Individualism vs. collectivism 3. Neutralism vs. affective 4. Specific vs. diffuse 5. Achievement vs. prescription
ii. Attitudes toward time 1. Sequential view Time is viewed as continuous and passing series of events.
2. Synchronic view Time takes a greater sense of urgency.
iii. Attitudes toward the environment
5. Management across culture a. Planning and controlling i. Political risk ii. Political risk analysis b. Organizing and leading c. Are management theories universal? d. Global organizational learning
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