CHAPTER SUMMARY – CHAPTER 4

What’s Your Global Perspective?

 Define parochialism.
 Contrast ethnocentric, polycentric, and geocentric attitudes towards global
business.
 Explain why it’s important for managers to be sensitive to global differences.

Parochialism is viewing the world solely through your own eyes and perspectives and
not recognizing that others have different ways of living and working. An ethnocentric
attitude is the parochialistic belief that the best work approaches and practices are those
of the home country. A polycentric attitude is the view that the managers in the host
country know the best work approaches and practices for running their business. And a
geocentric attitude is a world-oriented view that focuses on using the best approaches and
people from around the globe. (See Exhibit 4-1.) Successful global management requires
managers to be sensitive to global differences in national customs and practices in order
to find which work best and to prevent making costly blunders.
Understanding the Global Environment
 Describe the current status of the European Union.
 Discuss the North American Free Trade Agreement and other regional trade
alliances in Latin America.
 Tell about the Association of Southeast Asian Nations.
 Explain the interdependence that globalization involves.
 Discuss the role of the WTO.

The European Union consists of 25 members with two more countries expected to
join in 2007. Twelve of those countries have adopted the euro, the common currency.
However, the EU is struggling with its plan for a European Union constitution. Despite
this, the EU continues to be a powerful economic force. NAFTA continues to help
Canada, Mexico, and the United States strengthen their global economic power. The
U.S.-CAFTA is relatively new, but will likely play a big role in promoting trade
liberalization between the United States and five Central American countries. The
proposed FTAA has not been signed, as the leaders of the 34 nations it covers have yet to
agree on its implementation. Mercosur (Southern Cone Common Market) will continue to
face serious problems, especially if the FTAA is eventually ratified. ASEAN is a trading
alliance of ten Southeast Asian nations. This region will increasingly be important in the
global economy. As globalization continues and grows in importance, one of the
challenges is the interdependence of countries’ economies. To counteract some of the
risks, the World Trade Organization (WTO) plays an important role in monitoring and
promoting global trade.
Doing Business Globally
 Contrast multinational, multidomestic, global, transnational, and born global
organizations.
 Describe the different ways organizations can go international.
  Define global sourcing, exporting, importing, licensing, and franchising.
 Describe global strategic alliances, joint ventures, and foreign subsidiaries.

A multinational corporation is a term usually used to refer to any and all types of
international companies that maintain operations in multiple countries. A multidomestic
organization is an MNC that decentralizes management and other decisions to the local
country, which reflects the polycentric attitude. A global organization is an MNC that
centralizes management and other decisions in the home country, which reflects the
ethnocentric attitude. A transnational (or borderless) organization, which reflects the
geocentric attitude, is an MNC that has eliminated artificial geographical barriers and
uses best work practices and approaches from wherever. A born global organization is an
organization that has been global from inception.
Global sourcing is purchasing materials or labor from around the world wherever it is
cheapest. Exporting is making products domestically and selling them abroad. Importing
is acquiring products made abroad and selling them domestically. Licensing is usually
used by manufacturing organizations that make or sell another company’s products and
gives that organization the right to use its brand name, technology, or product
specifications. Franchising is similar but is usually used by service organizations that
want to use another company’s name and operating methods. Global strategic alliances
are partnerships between an organization and foreign company partners in which they
share resources and knowledge to develop new products or build production facilities. A
joint venture is a specific type of strategic alliance in which the partners agree to form a
separate, independent organization for some business purpose. A foreign subsidiary is a
direct investment in a foreign country by establishing a separate and independent
production facility or office. (See Exhibit 4-5.)
Managing in a Global Environment
 Explain how the global legal-political and economic environments affect
managers.
 Discuss Hofstede’s five dimensions for assessing country cultures.
 Explain the nine GLOBE dimensions for assessing country cultures.
 Discuss the challenges of doing business globally in today’s world.

The laws and political stability of a country are issues in the global legal-political
environment with which managers must be familiar. Likewise, managers must be aware
of a country’s economic issues such as currency exchange rates, inflation rates, and tax
policies. Geert Hofstede identified five dimensions for assessing a country’s culture
including individualism-collectivism, power distance, uncertainty avoidance,
achievement-nurturing, and long-term/short-term orientation. (See Exhibit 4-7.) The
GLOBE studies identified nine dimensions for assessing country cultures, many of which
are identical to Hofstede’s cultural dimensions. The GLOBE dimensions extended
Hofstede’s work and include assertiveness, future orientation, gender differentiation,
uncertainty avoidance, power distance, individualism/collectivism, in-group collectivism,
performance orientation, and humane orientation. (See Exhibit 4-8.)
The main challenges of doing business globally in today’s world deal with the
openness associated with globalization and the significant cultural differences between
countries.