Chapter 4: The International

Environment

Alyssa Geverjuan
Anna Mae Nakamura
TWO APPROACH:

MAINSTREAM
MULTISTREAM
 MAINSTREAM MANAGEMENT
AND INTERNATIONAL
ENVIRONMENT
The International Environment is important
because it provides managers with:

Access to less expensive organizational inputs

Lower Production costs
Larger market for outputs
 MULTINATIONAL COMPANY
(MNC)
It is an organizational that receives more than
25% of its total sales revenue from outside of
its own country.
One-third of the Worlds productive assets
They conduct approximately 70% of World
Trade.
 GLOBALIZATION
Refers to the changes in the four
dimensions of the external environment
that have resulted in increased
interdependence and integration among
people and organizations around the
world.
HOW TO
INTERNATIONALIZE AN
ORGANIZATION????
 Exporting and Importing

Simplest ways for a domestic

firm to internationalize.
EXPORTING - an organization produces
goods and services in its home country
and sells them in another country.

IMPORTING bringing in finished

products from a foreign country for
resale domestically.
 VARIATIONS OF
EXPORTING AND
IMPORTING:
a. Global Sourcing importing from another
country one or more subcomponents of an
organizations products or services.
b. Countertrade occurs when products or
services from one country are traded (rather
than bought and sold for currency for products
or services from another country.
 Licensing and
Franchising
Can help an organization to grow, both
within their home country and
internationally.
Require greater investments than
exporting
 LICENSING an organization in one country that sells
specific resources to an organization in another country.
Patent or Trademark
Technical expertise

FRANCHISING is a special variation of licensing, wherein

the franchisor in one country sells to the franchisee in
another country a complete package required to set up an
organization.
- Trademark and Trade Name - Technology and Machinery
- Products and Services - Management and standard
operating
- Ingredients
Strategic Alliances and Joint
Ventures

A higher level of involvement occurs

when an organization becomes directly
involved in managing productive assets
in another country.
STRATEGIC ALLIANCE managers from
organizations in at least two countries agree to
pool some of their organizations resources and
know-how and share the risks and rewards
for developing a new market or product.

JOINT VENTURE where the partnering

organizations agree to form a separate,
independent jointly owned organization.
Foreign Subsidiaries

An organization can gain greater control

and profits by purchasing the factories
where these components or products
are made.
THE FOUR
DIMENSIONS OF THE
INTERNATIONAL
ENVIRONMENT
a. The Sociocultural Environment

POLYCENTRISM
ETHNOCENTRISM
POLYCENTRISM
It is evident when there is an
assumption that managers in a host
country know the best way to
manage an organization in their
country.
ETHOCENTRISM
It is evident when managers
enter a foreign country with the
belief that their own home
country offers the best way to
manage in a foreign country.
NATIONAL CULTURE The shared values,
beliefs, knowledge and general patterns of
behavior that characterize its citizen.

SELF- REFERENCE CRITERION What people

exhibit when they use the assumptions and
terms of their own culture to try to
understand and relate to people from other
cultures.
HOFSTEDES 5 DIMENSIONS
OF CULTURE
Individualism
Materialism
Time Orientation
Deference to authority
Uncertainty avoidance
1. INDIVIDUALISM
Emphasizes the interests of the
individual over the interests of
the group, and suggests that
people should act in their own
interest.
COLLECTIVISM
Emphasizes the interest of groups
over the self- interests of individual,
and people look out for one
another and demonstrate high
loyalty to the group.
2. MATERIALISM
Places a high value on
material possessions,
financial well-being and
productivity.
QUALITY OF LIFE
Refers to placing high
value on relationships, the
welfare of others, and
social well being.
3. TIME
ORIENTATION
Differentiates between
cultures that have a short-
term versus long-term
orientation.
SHORT TERM ORIENTATION
CULTURE
Pakistan, the Philippines, the United Kingdom,
and United States.
Emphasizes living for the present
Managers should expect members of such
cultures to prefer immediate rewards over
delayed gratification.
LONG TERM ORIENTATION CULTURE
Japan and China
They have greatly concern for the future.
Managers in such countries should
provide member with a long term
organizational vision and make decisions
that respect the future.
4. DEFERENCE TO THE
AUTHORITY
Recognizes that it is
legitimate and desirable to
give formal power to
managers.
HIGH LEVEL OF DEFERENCE TO
AUTHORITY
Managers in these culture are
expected to make decisions, and
lower-level employees will hesitate
to voice disagreement with those
decision.
Ex: Mexico, China and Philippines
 LOW LEVEL OF DEFERENCE
TO AUTHORITY
Everyone may be involved in decision making
not just the manager.
Managers may have relatively little authority
over other members.
In these cultures, it is considered appropriate
to challenge a managers directive
5. UNCERTAINTY
AVOIDANCE
High uncertainty avoidance cultures prefer
predictable rules and regulation over
ambiguity and risk. Ex: Greece and Japan
Low uncertainty avoidance cultures value risk
taking and innovativeness.
Culture with low uncertainty avoidance is likely to
encourage investments in novel research and
developments.
b. THE NATURAL
ENVIRONMENT
Historically looked to international
environment to maximize physical
resources and ability to dispose of
unwanted outputs (e.g. pollution)
c. THE POLITICAL LEGAL
ENVIRONMENT
National laws and
regulations
General trade agreements
Other institutions
 I. NATIONAL REGULATIONS
Tariffs are taxes on Subsidies are direct or
goods or services entering indirect payments made
a country by a government to
Quotas are restrictions domestic firms, which help
on the quantity of certain them to compete better
goods or services that can with goods and services
be imported or exported produced in other
from a country countries.
 II. GENERAL TRADES AND
AGREEMENT
Serves as important mechanism
to manage trade between
countries.
WORLD TRADE
ORGANIZATION (WTO)

organization that urges

countries to lower tariffs and
work toward free trade and
open markets.
 Free trade
an international trade
that are free from national
constraints such as tariffs,
quotas and subsidies.
North American Free Trade
Agreement (NAFTA)

Eliminates numerous tariffs and

trade barriers between the U.S.,
Mexico, and Canada.
European Union (EU)
Coalition of approximately 30 European
countries that encourages trade among
members by reducing tariffs, lowering
barriers, and using a common currency
(the euro)
Association of South-East
Asian Nations (ASEAN)

Trade group of ten nations in one of

the fastest-growing economic
regions in the world.
III. Other institutions
World Bank: owned by almost 200
countries, this organization provides
financial and technical assistance to
reduce poverty in low-income countries.
 d. THE ECONOMIC -
TECHNOLOGICAL ENVIRONMENT

1. Improved our ability to transport jobs, people

and goods around the world.
2. Increased the rate at which knowledge is being
created and disseminate; and
3. Enabled money to be transferred with just a
few clicks on the keyboard.
Flow of jobs
Advanced transportation and
communication has allowed for
factories to be located wherever
labor costs are lowest
Flow of know-how

knowledge and documents

can be transferred quickly all
over the world
Flow of money
technology that eases the flow of money has
been important to Mainstream globalization

International Monetary Fund (IMF):

organization of about 200 member countries
that monitors and assists international
commerce.
PURPOSES OF IMC
1. To promote orderly and stable international
monetary exchange
2. To foster international economic growth and
high levels of employment
3. To provide temporary financial assistance to
countries to help ease their balance of
payments