Principles of Management - Management in a Global Environment - Quick Guides

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Study GuidePrinciples of Management–Management in a GlobalEnvironment1. The International EnvironmentManaging a business across national borders is challenging.International managersmust deal withmany differences that do not exist when working only within one country. To be successful, they needtraining, awareness, and constant attention to theforeign environment.In particular, international managers must carefully monitor five major areas:•Political•Legal•Economic•Sociocultural•TechnologicalEach of these can strongly affect how a business operates abroad.1.1The Political EnvironmentThepolitical environmentplays a major role in international business. It can eithersupport orrestrict economic growth and foreign investment, and it can change very quickly.Political risks include:•Sudden changes in government leadership•Unstable governments that lack public support•Citizen groups opposing foreign companies•Local governments that distrust foreign firmsPolitical decisions are oftenunwritten and unpredictable. Governments may impose:•Tariffs(taxes on imports)•Quotas(limits on how much can be imported)•Embargoes(complete bans on trade)

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Study GuideFor example, many countries imposed economic sanctions after Iraq invaded Kuwait in 1990. Politicalunrest, civil wars, or sudden changes in power—such as in parts of Africa, Eastern Europe, or theformer Soviet Union—can disrupt business operations or even force companies to leave a country.Whether they want to or not, businesses operating internationally are oftenaffected by politics.1.2The Legal EnvironmentCountries havevery different legal systems, and U.S. laws do not apply everywhere. While the U.S.government regulates American firms abroad, companies must stillfollow the laws of the hostcountry.Important legal differences include:•Bribery laws: Illegal in the U.S., but sometimes accepted as normal business practiceelsewhere•Copyright and patent protection: Often weaker or poorly enforced in some countriesFor example, China has faced trade sanctions for allowing counterfeit American products. Because ofthese differences, international firms may need to takeextra steps to protect their products andideas.1.3The Economic EnvironmentManagers must closely watch a country’seconomic conditions, including:•Currency values•Inflation•Interest rates•Wages•Taxes•InfrastructureFour key economic factors are especially important:1. Average Income LevelsIf people earn very little, there may beno real marketfor a product—even if it is badly needed.

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Study Guide2. Tax StructuresSome countries tax foreign firms more heavily than local businesses. These costs may be obvious orhidden in fees and regulations.3. Inflation RatesInflation causes prices to rise. While inflation is fairly stable in the U.S., some countries experienceextremely high inflation, which can:•Reduce purchasing power•Increase interest rates•Lower profits•Increase unemployment4. Exchange RatesExchange rates determine how much one currency is worth compared to another. They are influencedby supply and demand, but governments can affect them through inflation or currency devaluation. Asudden drop in currency value can causeserious losses for foreign investors.InfrastructureA country’sinfrastructure—such as roads, ports, power systems, schools, and communicationnetworks—supports economic activity. In less developed countries, weak infrastructure can makedoing business more difficult and costly.1.4The Sociocultural EnvironmentCulture deeply affects how business is done.Misunderstanding cultural normscan lead toconfusion, mistrust, and failed relationships.Examples of cultural differences include:•Management styles•Gender roles•Attitudes toward workFor instance:•In China, harmony is often valued more than daily productivity

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Study Guide•In Morocco, women may lead but often face social pressure•In Pakistan, women are rarely found in management rolesCulture also affectsmotivation:•Americans often value individual achievement and personal rewards•Many Asian cultures emphasize group harmony and collective successLanguage DifferencesLanguage barriers are especially challenging. Words and slogans don’t always translate well, andmistakes can lead to embarrassment or failure. Famous translation errors show how easily meaningscan change. Even subtle language misunderstandings can hurt aproduct’s success.1.5The Technological EnvironmentThetechnological environmentincludes rapid innovations like robotics, computers, and mobiletechnology. Before entering a foreign market, companies must ensure thattechnology is compatiblewith local systems and skills.Many companies form partnerships to:•Share research and development costs•Speed up innovationBusinesses also need access to askilled workforce. For example, many companies operate inMexico because of its capable laborforce. Some Mexican manufacturing plants rival U.S. facilities inquality.1.6Consumer Safety in a Global MarketplaceAs products become more complex,consumer safetybecomes more important. The United Statesspends heavily on research and development and has strict safety regulations.Key U.S. agencies include:•Food and Drug Administration (FDA)–regulates drugs and food safety•Consumer Product Safety Commission (CPSC)–sets safety standards for consumerproductsThese regulations increase costs and slow product launches—but this isnot always the case inother countries, where safety standards may be less strict.

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Study Guide2. Functions of the International ManagerGlobal competition has changed how businesses operate, both at home and abroad. Rapid change,new technologies, shorter product life cycles, and fast communication systems have forced managersto rethink how they lead organizations.Today’s management approach focuses on:•Strong communication systems•High employee involvement•Flexible organizational structures•Ongoing staff development•Clear and understandable control proceduresManagers are also expected to have aclear visionand be able to communicate that visionthroughout the organization.Although international managers perform the samefive basic management functionsas domesticmanagers—planning, organizing, staffing, directing, and controlling—they must adjust these functionsto handlemore variables, cultures, and environments.2.1Planning in International ManagementThe first step in international planning is decidinghow to compete globally. Managers must choosewhether to:•Export products•Enter licensing agreements•Form joint ventures•Operate as a multinational company with facilities in other countriesInternational planning requires close monitoring of the global environment. Managers must watch for:•Political instability•Currency fluctuations•Government regulations and pressures

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