Global Environment OF Management: Lesson 8

GLOBAL ENVIRONMENT
OF
MANAGEMENT
LESSON 8
Closed Environment – A set of distinct
national markets and countries that were
isolated physically, economically and
culturally from one another.
Open Environment – An environment in which

Organizations are free to buy goods and
services from, and sell goods and services to,
whichever countries they choose.
Major Contributors to Closed
Environment
– Tariffs barriers - taxes levied upon imports.

– The idea was to protect jobs in the home
country.
– Distance closed the markets as far as some
managers were concerned.
– Communications could be difficult.
– Languages and cultures were different.
Major Contributors to the Global
Change
• Transportation Technology
• Communication Technology
• Concept of Free Trade - each country
seeks to specialize in things they make
most efficiently.
• Cultural Exchange
• Contributions by different trade
agreements and international
Organizations. GATT, NAFTA
Effects on Managers due to Open
Environment
• Declining barriers have opened great
opportunities for managers.
– Managers can not only sell goods and services but
also buy resources and components globally.
• Managers now face a more dynamic and exciting
job due to global competition.
• Managers face new threats.
Global Task Environment
Suppliers
Forces yielding
Competitors Opportunities Distributors
and threats
Customers
Suppliers & Distributors
• Managers buy products from global suppliers or
make items abroad and supply themselves.
– Key is to keep quality high and costs low. McDonalds
• Global outsourcing: firms buy inputs from
throughout the world.
– GM might build engines in Mexico, transmissions in
Korea, and seats in the U.S.
– Finished goods become global products.
• Distributors: each country often has a unique
system of distribution.
– Managers must identify all the issues.
Consumers and Competitors
• Formerly distinct national markets are merging
into a huge global market.
– Creates large opportunities.
• Managers often must customize products to fit

the diverse consumers in different culture.
• Global competitors present new threats.

– Increases competition abroad as well as at home.
Forces in the Global General
Environment
Political &
Legal Systems
Forces yielding Economic

Sociocultural
Opportunities
System system
and threats
Political and Legal Environment
• Results from diverse and changing nature of
each countries’ political system.
• Representative democracies: such as the U.S.,
Britain, Canada.
– Citizens elect leaders who make decisions.
– Usually has a number of facilities such as
freedom of expression, a fair court system,
regular elections etc.
– Well defined legal system and economic
freedom.
Political and Legal Environment
• Totalitarian regimes: a single political party or
person monopolize power in a country.
– Typically do not recognize or permit opposition.

– Most facilities found in a democracy do not exist.
– Examples include Iran, Iraq, and China.
• Difficult to do business with the lack of economic
freedom.
• Human rights issues also cause managers to
avoid dealing with countries- Israel
Economic Systems
• Free market economy: production of goods and
services is in private ownership.
– Production is dictated by supply and demand.
• Command economy: decisions on what to produce,

how much, done by the government.
– Most command economies are moving away from the
command economy.
• Mixed economy: certain economic sectors

controlled by private business, others are
government controlled.
– Bangladesh
Sociocultural Force
• National Culture
• Social Structure
Way to International Expansion
• Importing and Exporting: the least complex method of
expansion.
– Exporting: firm makes products and sells abroad.
– Importing: firm sells products made abroad.
• Licensing: firm allows foreign organization to make and

distribute goods for a fee.
– Helps the home firm since it does not have to set up a
complete production and distribution network.
• Franchising: company sells a foreign organization the

rights to use brand name and know-how in return for
payment and profit percentage.
McDonalds
Way to International Expansion
Strategic Alliances: managers pool resources with a
foreign firm and both organizations share the rewards
and risks.
Allows firm to maintain control which is a problem with

exporting, licensing, and franchising.
Wholly-owned foreign subsidiary: firm invests in

production operations in a foreign country.
Many Japanese auto firms have done this in the U.S.

This is very expensive but can yield high returns.
Thank u…………

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GLOBAL ENVIRONMENT

Open Environment – An environment in which

– Tariffs barriers - taxes levied upon imports.

• Managers often must customize products to fit

• Global competitors present new threats.

Forces yielding Economic

– Typically do not recognize or permit opposition.

• Command economy: decisions on what to produce,

• Mixed economy: certain economic sectors

• Licensing: firm allows foreign organization to make and

• Franchising: company sells a foreign organization the

Allows firm to maintain control which is a problem with

Wholly-owned foreign subsidiary: firm invests in

Many Japanese auto firms have done this in the U.S.

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