Organizational Environments and Global Managment

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Organizational Environments and Global Managment

• Ch. 4

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Learning Objectives

• Discuss how changing environments affect
  organizations.
• Understand the components of general and specific
  business environments
• Describe the process that companies use to make
  sense of their changing environments.

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Lets Consider Hasbro

• Toy industry's growth prospects appear to be
  maturing
• Increasing competition from video games,
  children's changing tastes, and consolidation of
  the industry's retail customer base.
• Toy companies are increasingly dependent on
  movies and TV shows for product tie-ins

What are the major external challenges facing
Hasbro?
www.hasbro.com
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Changing Environments
Characteristics ofChanging External Environments
Environmental Change Environmental
Complexity Resource ScarcityUncertainty
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Environmental Change

• Environmental change is the rate at which a
  companys environments change
• stable environments
• dynamic environments
• Punctuated equilibrium theory
• companies cycle through stable and dynamic
  environments

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Punctuated EquilibriumU.S. Airlines
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Environmental Complexity

• Environmental complexity the number of external
  factors in the environment that affect
  organizations
• Simple environments
• have few environmental factors
• Example?
• Complex environments
• have many environmental factors
• Example?

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Resource Scarcity

• Resource scarcity is the degree to which an
  organizations external environmenthas an
  abundance or scarcity of critical organizational
  resources

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Environmental Uncertainty

• Uncertainty is how well managers can understand
  or predict the external changes and trends
  affecting their businesses

More Uncertainty
More Complexity
More Change
Scarcer Resources


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Types of Environmental Factors
Specific factors directly impinge on particular
organization
General factors affect all companies within an
industry
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Specific Environment Factors

• Customers/Distributors
• Competitors
• Suppliers
• Advocacy groups

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Customers
Monitoring customer wants and needs is critical
for business success

• Tastes and demands of current customer groups and
  future trends
• Segmentation of customers
• Examples Business, residential, government,
  global

Who are Hasbros customers?
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Competitors
Who are Hasbros competitors?
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Suppliers

• Organizations that provide firm with input
  resources needed to produce goods and services
• Raw materials
• Financial capital
• People (unions included here)
• Global networks of suppliers

Who are Hasbros suppliers?
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Advocacy Groups

• Groups of concerned citizens who band together to
  try to influence the business practices of
  specific industries, businesses, and professions
• Techniques to try to influence companies
• public communications
• media advocacy
• product boycotts

What advocacy groups would be concerned with
Hasbros operations?
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Components of the General Environment

• Economy
• Technological
• Sociocultural
• Demographic
• Political / Legal
• Global

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Economy

• Growing vs. shrinking economies
• Future economic activity is difficult to predict
• Economic indices
• Examples?
• Effect on Hasbro?

Department of Labor www.dol.gov
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Technological Component
Effect on Hasbro?
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Sociocultural Component

• Sociocultural Components
• Social structure
• Changes in behavior, attitudes, and beliefs
• National cultural issues
• Public opinion
• What socio-cultural factors affect Hasbro?

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Demographic Component

• Population Variables
• Age, gender, racial, ethnic distributions
• Education levels
• Geographical locations of population
• Future changes in these variables
• What demographic factors affect Hasbro?

US Census Bureau www.census.gov
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Political / Legal Component
Managers must be educated about the laws,
regulations, and potential lawsuits that could
affect business

• Legislation
• Regulations
• Court decisions
• Government
• stability
• Effect on Hasbro?

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Some Federal Regulation Agencies
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Global Factors

• What is the impact of global business on the
  United States?
• What are some trade rules, agreements, and
  institutions that govern global business?
• What are the different ways a company can go
  global?
• How does a company decide where to go global?

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What is Global Business?

• The buying and selling of goods and services by
  people from different countries
• Direct investment in businesses
• Importing/exporting goods
• System of rules, agreements, and organizations
  that govern trade

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Direct Foreign Investment

• Common method of investment in global business by
  which a company builds new business or buys
  existing business in a foreign country
• Direct foreign investment worldwide is worth 1
  trillion a year
• Data available from U.S Department of Commerce,
  Bureau of Economic Analysis http//www.bea.gov

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Trades in Goods and Services
(in millions o f dollars)
From Bureau of Economic Analysis
http//www.bea.gov/bea/newsrelarchive/2006/trad010
6.xls
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US Current Account Balance

• Broad measure of US international trade in
• Goods and services
• Receipts and payments of income
• Net unilateral current transfers (such as gifts)
• In 2005, current account deficit increased to
  804.9 billion from 668.1 billion in 2004
• http//www.bea.gov/bea/newsrelarchive/2005/transan
  nual05_fax.pdf

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Are American Companies No Longer Competitive in
the World Market?

• U.S. has a 31 percent share of the global
  high-technology market
• U.S. producers are leading suppliers of high-tech
  products globally
• U.S. companies produce 30 percent of the world
  GNP
• Only 5.3 percent of multinational corporations
  are U.S. based
• Ranking on the Global Competitiveness Index
  http//www.weforum.org/

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What are some trade rules, agreements, and
institutions that govern global business?
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Trade Barriers
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Trade Agreements
CAFTA-DR
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GATT

• GATT made it easier and cheaper for consumers in
  all countries to buy foreign products
• By 2005, average tariffs cut worldwide by 40
  percent
• Tariffs were eliminated in 10 specific industries
• GATT established protections for intellectual
  property

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World Trade Organization (WTO)

• Functions
• Administering WTO trade agreements
• Forum for trade negotiations
• Handling trade disputes
• Monitoring national trade policies
• Technical assistance and training for developing
  countries
• Cooperation with other international organizations

Location Geneva, Switzerland Established 1
January 1995 Created by Uruguay Round
negotiations (1988-1994) Membership 149
countries (as of 11 December 2005) Budget 169
million Swiss francsfor 2005 Secretariat staff
630 Head Pascal Lamy (director-general)
http//www.wto.org
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Maastricht Treaty of Europe

• Originally, 12 (now 25) European countries
• Four other countries have applied
• Transformed these different countries into the
  European Union
• Opened up trade among member nations
• Created the Euro currency

EU at a glance
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NAFTA

• North American Free Trade Agreement between
  Canada, United States, Mexico
• Liberalizes trade among these three nations
• Eliminates most tariffs and barriers

http//www.mac.doc.gov/nafta/
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FTAA

• Free Trade of the Americas
• Proposed agreement to establish a free trade
  zone through out the Western Hemisphere
• Reduce trade barriers to zero
• Standardize financial markets
• Process for handling trade disputes

http//www.ftaa-alca.org
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ASEAN and APEC

• ASEAN (Association of Southeast Nations)
• Brunei Darussalam, Cambodia, Indonesia, Laos,
  Malaysia, Myanmar, Philippines, Singapore,
  Thailand, and Vietnam
• APEC (Asia-Pacific Economic Cooperation)
• Australia, Canada, Chile, China, Hong Kong,
  Japan, Korea, Mexico, New Zealand, Papua New
  Guinea, Peru, Russia, Taiwan, United States, and
  ASEAN members (except Cambodia, Laos, and Myanmar)

http//www.aseansec.org http//www.apecsec.org
.sg
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CAFTA-DR

• The Central American - Dominican Republic Free
  Trade Agreement
• Members Costa Rica, El Salvador, Honduras,
  Guatemala, Nicaragua and the Dominican Republic
• U.S. Congress approved the CAFTA-DR in July 2005
  and the President signed it into law on August 2,
  2005
• It has been approved by the legislatures in El
  Salvador, Guatemala, Honduras, the Dominican
  Republic, and Nicaragua. Approval is pending in
  Costa Rica

• http//www.ita.doc.gov/cafta/index.asp

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What are the different ways a company can go
global?
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Forms for Global Business
GlobalNew Ventures
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Exporting
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Cooperative Contracts
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Strategic Alliances
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Wholly Owned Affiliates (Build or Buy)
Advantages

• Parent company receives all of the profits and
  has complete control

Disadvantages

• Expense of building new operationsor buying
  existing business
• Losses can be immense if the venture fails

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How does a company decide where to go global?

• Examine the business climate
• Think about cross cultural adaptation
• Prepare people for successful international
  assignments

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Finding the Best Business Climate
Access toGrowingMarkets
Location toBuild
MinimalPoliticalRisk
World Bank World Development Indicators
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Growing Markets

• Purchasing Power
• comparison of a standard set of goods and
  services in different countries
• more means greater growth potential
• Degree of Global Competition
• the number and quality of companies already in
  the market

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Choosing an Office/Manufacturing Location

• Quality factors
• work force quality
• company strategy
• Quantity factors
• kind of facility
• tariff and nontariff barriers
• exchange rates
• transportation and labor costs
• capital/financial markets

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Minimizing Political Risk

• Political uncertainty
• risk of major changes in political regimes
• Policy uncertainty
• risk associated with changes in laws and
  government policies directed at businesses

World Banks Governance Indicators
Transparency Internationals Corruption
Perceptions Index
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Becoming Aware of Cultural Differences

• Power distance
• Individualism/collectivism
• Masculinity and femininity
• Uncertainty avoidance
• Short-term/long-term orientation

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Preparing for an International Assignment
Language andCross-Cultural Training
Considerationof Spouse, Family, and Dual-Career
Issues
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Language and Cross-Cultural Training
Documentary Training
Cultural Simulation
Field Experiences
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Spouse, Family, and Dual-Career Issues
Adaptability Screening
Intercultural Training
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Making Sense of Changing Environments
Environmental Scanning
Evaluating External Environments
Interpreting Environmental Factors
Acting on Threats and Opportunities
Understanding the external environment
helps managers make strategic plans for the
firms future