Learning Objectives

3-1. Contrast the classification of businesses in the global village, define ethnocentrism, and describe issues managers encounter through foreign trade.  .

Businesses are classified in three ways. A domes-tic business does business in only one country. An international company is based primarily in one country but transacts business in other countries. A multinational corporation (MNC) owns operations in two or more countries. Ethnocentrism is regarding one’s own ethnic group or culture as superior to others. Foreign trade clearly can increase company profits and increase the standard of living in countries trading even if one country is more efficient at producing the goods. Managers may encounter trade barriers (embargos, quotas, subsidies, or tariffs) that can put them at a disadvantage in the global village, but they may get help to overcome them with the aid of the World Trade Organization (WTO) and trade agreements.

The exchange rate is how much of one country’s currency you get for that of another country. Fluctuations in exchange rates can affect profits at home when conducting foreign trade. When your own currency is strong, it may decrease profits as you get less in exchange, and a weak home currency can increase profits as you get more in exchange.

3-2. Rank the six forms that make a business a global one, in order from lowest to highest cost and risk.

A business can become a global one by participating in (1) global sourcing, hiring others outside the firm to perform work worldwide; (2) importing and exporting, buying and selling products between countries; (3) licensing, in which the licensor agrees to give a licensee the right to make its products or services or use its intellectual property in exchange for a royalty, or franchising, in which the franchisor licenses the entire business to the franchisee for a fee and royalties; (4) contract manufacturing, in which a company has a foreign firm manufacture the products that it sells as its own; (5) forming a strategic alliance, an agreement to share resources that does not necessarily involve creating a new company, or a joint venture, created when two or more firms share ownership of a new company; or (6) making a direct investment, building or buying operating facilities in a foreign country. Global sourcing is the least costly and risky of these activities, and it can be a part of any of the others.

3-3. Discuss diversity and why it is important.

Diversity refers to the variety of people with different group identities within the same workplace. Inclusion is a practice of ensuring that all employees feel they belong as valued members of the organization. Discrimination is illegal because it gives unfair treatment to diversity groups in employment decisions. But promoting diversity and inclusion creates equal opportunities for all employees, so it is the right thing to do. It is also beneficial to business. The global white population is decreasing while the other races are growing at a fast pace, making developing and selling products and services to non-Caucasians critically important to survival and business growth. Diversity and inclusion can have positive effects on financial outcomes, as other races are creative at innovating and selling products and services to the growing diverse population.

3-4. Describe the four major types of diversity groups and practices of managing diversity.

There is diversity in (1) the range of ages and generational difference in the workplace, (2) gender and sexual orientation (LGBT), (3) different races and ethnic groups, (4) people with disabilities that substantially limit one or more major life activities and abilities to excel at some things, (5) people from different religions, and (6) several others including weight, personality, physical attractiveness, and family background, just to list a few. To manage diversity, companies cannot discriminate against any group and should promote equal opportunities for everyone. Practices that promote diversity include (1) diversity training to teach people how to get along better with diverse workers through inclusion, (2) higher-level manager mentors who prepare high-potential people for advancement, and (3) network diversity groups of employees throughout the organization from a diverse group who share information about how to succeed in the company.

3-5. Compare and contrast the Hofstede national culture dimensions with Project GLOBE.

The two are similar because they both measure cultural diversity among countries. Back in the 1970s and 1980s, Hofstede identified five dimensions of diversity (power distance inequality vs. power equality, individuality vs. collectivism, assertiveness vs. nurturing, uncertainty avoidance vs. uncertainty acceptance, and long-term vs. short-term orientation) using employees of one company, IBM, in 40 countries. GLOBE confirmed that Hofstede’s five dimensions are still valid today and extended and expanded his five dimensions into nine (assertiveness, future orientation, gender differences, uncertainty avoidance, power distance, societal collectivism, in-group collectivism, performance orientation, and humane orientation), and the sample includes hundreds of companies from more than 60 countries. GLOBE is also an ongoing study.