Transcript Chapter 4
Chapter Four National Differences Facing Operations Prentice Hall, 2002 Chapter 4 Daniels 1 Chapter Objectives To appreciate that companies face vastly different operating environments when they operate abroad To realize the importance of analyzing countries’ political and economic strategies and performance To sense how different political and economic systems affect the conduct of business To recognize how countries’ demographic differences affect business environments To comprehend some of the major cultural differences among countries that impact international business Prentice Hall, 2002 Chapter 4 Daniels 2 Introduction Once a company leaves its home country, it enters a vastly different operating environment Generally, managers operate more easily in countries similar to their homes Three dimensions of countries’ environments to be explored include: • Legal-political • Economic • Human Prentice Hall, 2002 Chapter 4 Daniels 3 Introduction Prentice Hall, 2002 Chapter 4 Daniels 4 Politics and Economics Country analysis: examines the political and economic strategy and performance of the nation state Country analysis involves three steps: • Step 1: identify the strategy, context, and performance of the country Involves looking at goals and policies Context refers to the political, institutional, ideological, physical, and international environments in which a firm does business Performance refers to indicators of economic activity • Step 2: evaluate the performance to explain what is happening in the country at present and why International monetary fund • Step 3: generate scenarios for future performance Forecasting where a country may head in the future is 5 Chapter 4 critical Prentice Hall, 2002 Daniels Politics and Economics Three broad areas of the political environment: • Political system Democratic systems o Involves wide participation by citizens in the decisionmaking process o Can be liberal or conservative but rarely reach extremes such as reactionary or radical Nondemocratic systems – totalitarian systems o A single party, individual, or group of individuals monopolizes political power o Decision making is restricted to a few individuals • Political stability Democratic regimes tend to be relatively more stable than totalitarian regimes Prentice Hall, 2002 Chapter 4 Daniels 6 Politics and Economics • Role of government in business Individualistic governments: believe in minimal intervention Communitarian regimes: there is a focus on prestige, authority, and hierarchy Whether a country is communitarian or individualistic, it can try to bring business activity into line with community needs through three principal methods: o Promotion of marketplace competition Varies from country to country o Regulation of the marketplace May have to do with whether or not a country allows foreign investment to come in and whether or not it promotes foreign trade o Establishing a partnership with business The relationship between government and business varies around the world Prentice Hall, 2002 Chapter 4 Daniels 7 Politics and Economics Prentice Hall, 2002 Chapter 4 Daniels 8 Politics and Economics The Legal Environment • Legal systems differ in terms of their nature: Common law: based on tradition, • • precedent, and usage Civil law: based on a detailed set of written laws Theocratic law: based on religious precepts National laws affect business within a country or business among countries Laws exist that govern cross-border activities Prentice Hall, 2002 Chapter 4 Daniels 9 Politics and Economics The Economic Environment • Traditional factors of production: land, capital, and technology A company conducting business overseas must determine the key factors of production in that country and how it can take advantage of them Network of reliable suppliers • Solid strategy, structure, and rivalry in order for firms to create, • • • organize, and manage effectively Size of demand is typically measured in gross national product (GNP) which is the market value of final goods and services newly produced by domestic factors of production An alternative to GNP is gross domestic product (GDP) which is the value of production that takes place within a nation’s borders without regard to whether production is done by domestic or foreign factors Another measure of market size is GNP or GDP per capita Important because it gives an idea of the wealth and potential purchasing power of individuals in a country • Developing countries or emerging economies Prentice Hall, 2002 Chapter 4 Daniels 10 Politics and Economics Prentice Hall, 2002 Chapter 4 Daniels 11 Politics and Economics General types of national economies: • Market economy: rest on the idea that consumers, by virtue of what they do and do not buy, determine the relationships among price, quantity, supply, and demand • Consumer sovereignty: consumers influence the allocation of resources through their demand for products • • This is the cornerstone of a market economy Centrally planned economy: the government owns and controls all resources Historically these were found in communist countries Mixed economy: virtually all economies have varying degrees of private and public ownership of production factors 12 Chapter 4 Prentice Hall, 2002 Daniels Politics and Economics A good example of the interplay of political and economic forces and their impact on corporate practices is the Asian financial crisis that began in 1997 Two theories for the cause of this crisis: • Too much government influence and control • Bad private sector decisions The Asian financial crisis teaches that: • An economic crisis can occur quickly and affect companies’ • • operations very negatively Economic conditions in one country can impact those of another country To be successful in this global economy, it is important to understand political and economic forces Prentice Hall, 2002 Chapter 4 Daniels 13 People of the World Current estimates suggest there are more than 6.5 billion people living in more than 200 different countries Prentice Hall, 2002 Chapter 4 Daniels 14 People of the World Demography: the statistical analysis of the properties of a particular population Population: helps define a company’s market potential Prentice Hall, 2002 Chapter 4 Daniels 15 People of the World Another way to examine the population of a country is through its age distribution • Can indicate the potential market for youth-oriented versus elderly-oriented products • Indicates how many people may be available in the workforce Population growth: defined as a percent per year of the total population • High-income countries’ population growth is less than 1% • Developing countries’ population growth typically exceeds 1% There are a number of ways to measure the health of a society, which is important in terms of a good workforce as well as a consuming population Prentice Hall, 2002 Chapter 4 Daniels 16 People of the World Culture: influences where businesses decide to open operations, how people are managed, and the products sold • Culture shock: anxiety triggered by the challenge of learning and coping with a new culture Overt cultural differences: the differences immediately noticed when visiting a foreign country or in contact with a foreign visitor • Most nations help businesspeople prepare for overseas business culture There are many subtle cultural differences that are difficult to identify and cope with when dealing with foreign businesspeople Roles and relationships between people in the workplace • Nature of friendships • Concepts of time and space • Approaches to problem solving An understanding of subtle cultural differences often determines success or failure in global business matters Prentice Hall, 2002 Chapter 4 Daniels 17 People of the World A psychological view of culture assumes that culture is made up of specific learned norms within a community that are based on fundamental values • Understanding a particular culture demands one to understand the fundamental values that it endorses Seven principal types of cultural values: • Power distance: describes the relationship between more powerful and less powerful members of a group • Individualism versus collectivism: • Masculinity versus femininity • Uncertainty avoidance: deals with a society’s tolerance for uncertainty and ambiguity • Long-term versus short-term orientation • Monochronic versus polychronic • Idealistic versus pragmatic Prentice Hall, 2002 Chapter 4 Daniels 18 People of the World Communication is a key dimension of culture Overseas endeavors face conversational challenges Document translation presents additional challenges The silent language of business includes nonverbal issues such as color association, sense of appropriate distance, time and status cues, and body language One of the best approaches to managing cultural challenges in global markets is to observe the happenings around you, emulate well-regarded people, and respect the other cultures Prentice Hall, 2002 Chapter 4 Daniels 19