Chapter 5

GLOBAL MANAGEMENT AND CULTURAL

DIVERSITY
GLOBAL MANAGEMENT

The global economy is making the diverse countries of the world increasingly interdependent
regarding resource supplies, product markets, and business competition.

Globalization is the process of growing interdependence among the components of the global
economy.
Global management involves managing operations in more than one country.

A global manager is a manager who is informed about international developments, transnational

in outlook, competent in working with people from other cultures, and always aware of regional
developments in a changing world.

WHY COMPANIES GO GLOBAL

An international business conducts commercial transactions of goods and/or services across

national boundaries.

Reasons businesses go international:

• Profits: global operations offer profit potential
• Customers: global operations offer new markets to sell products.
• Suppliers: global operations offer access to needed raw materials.
• Capital: global operations offer access to financial resources.
• Labor: global operations offer lower labor costs.
• Risk: global operations spread assets among multiple countries.

HOW COMPANIES GO GLOBAL

FIGURE 5.2 in the text identifies the two common forms of international business strategies –
Market Entry and Direct Investment.

Global Sourcing

A common first step into international business is global sourcing, which is the process
of purchasing materials, manufacturing components, or business services from around the
world.

Reshoring brings attractive opportunities back to the domestic country.

 Exporting and Importing

A second form of international business involves exporting and/or importing.

Exporting is a form of international business that involves selling locally made products
in foreign markets.

Importing is a form of international business that involves buying foreign-made products

and selling them in domestic markets.

Licensing and Franchising

Other forms of international business include the licensing agreement and franchising.

A licensing agreement occurs when another firm pays a fee for the rights to make or sell
another company’s products in a specified region.

Franchising involves buying the rights to use another’s name and operating methods in
its home country.

Joint Ventures and Strategic Alliances

Foreign direct investment strategies require major capital commitments but create rights
of ownership and control over operations in the foreign country. Local job creation,
called insourcing, results from foreign direct investment.

A joint venture establishes business operations in a foreign country through co-

ownership arrangements that pool resources and share risks and control of business
operations.

International joint ventures are types of global strategic alliances in which foreign and
domestic firms work together for mutual benefit.

Foreign Subsidiaries

A foreign subsidiary is a local operation completely owned and controlled by a foreign

firm. While the subsidiary can be acquired, it may also be a greenfield venture, i.e., a
foreign subsidiary built from the ground up by the foreign owner.

GLOBAL BUSINESS ENVIRONMENTS

Legal and Political Systems

 Global operations managers must be prepared to deal with the differences between home-
country and host-country laws and politics.

By using the planning technique of political-risk analysis, companies are able to forecast
a country’s political risk, which is the possible loss in value of a foreign investment due
to instability and political changes in the host country,

Trade Agreements and Trade Barriers

The World Trade Organization is an international organization that monitors

international trade and tries to resolve disputes among countries about tariffs and trade
restrictions.

The WTO members agree to give one another most favored nation status which gives a
trading partner most favorable treatment for imports and exports.

Even with most favored nation status, trade barriers still exist in the form of:

Tariffs: taxes that the government imposes on imports.

Nontariff barriers: quotas, import restrictions and protectionism, which is a call for
tariffs and favorable treatment to protect domestic industries from foreign competition.

Regional Economic Alliances

Regional economic alliances are growing around the world and represent a significant
challenge for global managers.

USMCA (the United States-Mexico-Canada Agreement) is a trade agreement that

links Canada, Mexico, and the United States in a regional economic alliance.

The European Union is a political and economic alliance of 28 European countries that
have agreed to support mutual economic growth by removing barriers that previously
limited cross-border trade and business development.

The Euro is the common currency used in the European Union.

APEC (Asia Pacific Economic Cooperation) promotes free trade and investment
among its 21 members in the Pacific region.

ASEAN (Association of Southeast Asian Nations) has a goal of promoting economic

growth and progress among its 10 member nations.
 SADC (South Africa Development Community) links 14 countries of southern Africa
in trade and economic development efforts.
TYPES OF GLOBAL BUSINESSES

A typical global corporation, also called multinational enterprise (MNE) and multinational
corporation (MNC), operates in many countries but has corporate headquarters in one home or
host country.

A transnational corporation is a multinational corporation that operates worldwide without

being identified with one national home. Executives of transnational organizations view the entire
world as their domain for acquiring resources, locating production facilities, marketing goods and
services, and communicating brand image.
PROS AND CONS OF GLOBAL CORPORATIONS

Multinational host-country relationships provide shared opportunities with potential for growth,
income, learning and development

Globalization Gap: is where large multinational corporations and industrialized nations gain
disproportionately from the benefits of globalization.

Host-Country Issues

Host-country complaints about MNC as shown in Figure 5.3: Excessive profits,

economic domination, interference with government, hire best local talent, limited
technology transfer, and disrespect for local customs.

Host-country benefits: larger tax bases, increased employment opportunities, technology

transfers, the introduction of new industries, and the development of local resources.

Home-County Issues

Multinational corporation complaints about host countries: profit limitations, overpriced

resources, exploitative rules, foreign exchange restrictions, and failure to uphold
contracts.

American lawmakers are concerned about tax inversion, where US-based MNCs buy a
firm in a low-tax country to shield their foreign earnings from US taxes.

ETHICS CHALLENGES FOR GLOBAL BUSINESSES

The ethical aspects of international business deserve special attention.

Corruption
 Corruption involves engaging in illegal practices to further one’s business interests.
Bribery and other forms of corruption can pose significant challenges for a global
business.

The Foreign Corrupt Practices Act prohibits U.S. businesses and their representatives
from engaging in corrupt practices abroad.

Child labor and Sweatshops

Child labor is the full-time employment of children for work otherwise done by adults.

Sweatshops are business operations that employ workers at low wages for long hours
and in poor working conditions.

Conflict Minerals

Conflict minerals are ones sourced in the Democratic Republic of Congo and
surrounding region and whose sale finances armed groups that perpetuate violence. The
problem with global sourcing is that it is sometimes difficult to determine where a
particular raw material was sourced. Some of the materials for phones, for example,
could be conflict materials.

CULTURES AND GLOBAL DIVERSITY

Learning Objective 3: Define culture and identify ways to describe diversity in global cultures.

Culture is a shared set of beliefs, values, and patterns of behavior common to a group of people.

Culture shock is the confusion and discomfort that a person experiences when in an unfamiliar
culture.

CULTURAL INTELLIGENCE

Ethnocentrism is the tendency to consider one’s culture as superior to others.

Cultural intelligence is the ability to adapt, adjust, and work well across cultures.

SILENT LANGUAGES OF CULTURE

 The dimensions of Edward T. Hall’s “silent languages of culture” include context, time
orientation, and the use of space.

Context

In a low-context culture most communication takes place via the written or spoken
word.

In a high-context culture much communication takes place through nonverbal and

situational cues in addition to the written or spoken word.

Time

In a monochronic culture people tend to do one thing at a time.

In a polychronic culture time is used to accomplish many different things at once.

Space

Proxemics is how people use space to communicate.

TIGHT AND LOOSE CULTURES

In tight cultures, norms are strong and clear and guide behavior. Deviations from the norm are
noticed, discouraged and even sanctioned. Examples of tight cultures include Malaysia, Korea
and Japan.

In loose cultures social norms are relaxed and less clear cut and conformity may vary a great deal.
Examples of loose cultures include Ukraine, Hungary and Brazil.

VALUES AND NATIONAL CULTURES

Geert Hofstede’s work is often considered a benchmark for how cultural differences can
influence management and organizational practices.

FIGURE 5.4 describes how countries compare on Hofstede’s five dimensions of national culture.

Five dimensions of value differences in national culture from Hofstede are:

1. Power distance: the degree to which a society accepts or rejects the unequal distribution of
power among people in organizations and the institutions of society.
 2. Individualism-collectivism: the degree to which a society emphasizes individual
accomplishments and self-interests, versus collective accomplishments and the interests of
groups.

3. Uncertainty avoidance: the degree to which a society is uncomfortable with risk, change,
and situational uncertainty, versus having tolerance for them.

4. Masculinity-femininity: the degree to which a society values assertiveness and material

success, versus feelings, relationships, and quality of life.

5. Time orientation: the degree to which a society emphasizes the short-term versus long-term
goals and gratifications.

Comparative management studies how management perspectives and practices systematically

differ among countries and cultures.

ARE MANAGEMENT THEORIES UNIVERSAL?

The management process must be used appropriately and applied with sensitivity to local cultures
and situations.

Management practices are influenced by cultural values; practices that are successful in one
culture may work less well in others.

INTERCULTURAL COMPETENCIES

Intercultural competencies are skills and personal characteristics that help us to be successful in
cross cultural situations.