Module 3: Globalization and the Manager
Globalization
- The process whereby national economies and business systems are becoming deeply interlinked
with each other
Accelerated Pace of Globalization
Three main reasons:
- The spread of market-based economic systems
- The decline of barriers to international trade and foreign direct investment
- Falling costs of communication and transportation
Market Economy
- Most businesses are privately owned
- Prices are set by the interaction of supply and demand
- Government regulation is limited to ensuring that competition between individual enterprises is
free and fair and that the system does not produce outcomes judged to be unacceptable
Socialist Economy
- Most businesses are owned by the state
- Private producers were excluded from certain industrial and commercial activities
- Prices were set by the state
- State planners decided what was produced where, in what quantity, and by whom
- Antithetical to globalization
Falling Barriers to Trade and Investment
- Tariffs – A tax on imports
- Quotas – A limit on the number of items of a good that can be imported from a foreign nation
- Regional trade agreements – agreements to remove barriers to trade between nations within a
geographic region
Implications of Globalization
- A massive surge in the volume of international trade and foreign direct investments
- Foreign Direct Investment (FDI) has increased even more dramatically
- For individual enterprises and their managers:
a.) Globalization of production is well under way
b.) Globalization of markets is starting to occur
c.) Advances in technology are facilitating these trends
Globalization of Production
Factors of Production (LABOR, ENERGY, LAND, CAPITAL)
Globalization of Markets
- Merging of historically distinct and separate national markets into one huge marketplace
- As firms follow each other around the world, they bring
A.) Products
B.) Operating strategies
C.) Marketing strategies
D.) Band names
E.) Greater uniformity replaces diversity
Technology Innovations
- Allow managers to create and then manage a globally dispersed production system
- Further facilitating the globalization of production
- Facilitated in globalization of markets
Constraints to Globalization
- Limit the ability of managers to move production activities to places where they can be
performed at the lowest cost.
- Also, limit the managers’ ability to treat the entire world as a single homogeneous marketplace
Protectionist Countertrends
National Differences in Consumer Behavior
National Differences in Business Systems
Differences in Social Culture
Reasons for Expansion:
Expand the market
Realize scale economies
Realize location economies
Benefit from global learning
Decisions When Going Global
Whether to treat the world as a single market or customize the firm’s products to reflect differences across
nations
The best mode for entering a foreign market
Where to locate different business activities
How best to manage subsidiaries
Management Challenges to Globalization
· Entry Mode
· Managing People in the Multinational Firm
· Locating Activities
· Global Standardization or Local Customization
Global Standardization or Local Customization
- Global standardization strategy – treating the world market as a single entity, selling the same
basic product around the world
- Local customization strategy – varying some aspect of product offerings or marketing messages
to take country or regional differences into account
Entry Mode
- EXPORTING
- FRANCHISING
- JOINT VENTURE
- LICENSING
- WHOLLY OWNED SUBSIDIARY
Locating Activities
Managers have to break the operations of the firm into discrete steps or activities
Each activity has to be located in the best place given a consideration of factors such as country
differences in:
- Labor costs and infrastructure
- Transportation costs
- Tariff barriers
- Currency exchange rates
- Strategic orientation
Managing People
a. Geocentric
b. Polycentric
c. ethnocentric
