Course Notes on Principles of Management

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The Global Environment
In the past, managers have viewed the global sector as closed. Each country or market was assumed to be isolated from others. Firms did not consider global competition, exports.
Today’s environment is very different.
Managers need to view it as an open market.
Organizations buy and sell around the world.
Managers need to learn to compete globally.
Tariff Barriers
A tariff is a barriers to trade.
Tariffs are taxes levied upon imports.
These seek to protect jobs in the home country.
Other countries usually retaliate.
Free trade: in a free trade agreement, each country seeks to specialize in things they make most efficiently. If India is more efficient in making textiles, and the USA in making computer software, then each country should focus on these. Distance & Culture Barriers

The second leading cause of trade barriers.
Distance closed the markets as far as some managers were concerned. Communications could be difficult.
Languages and cultures were different.
During the last 50 years, communications and transportation technology has dramatically improved. Jet aircraft, fiber optics, satellites have provided fast, secure communications and transportation. These have also reduced cultural differences.

Effects on Managers
Declining barriers have opened great opportunities for managers. Managers can not only sell goods and services but also buy resources and components globally. Managers now face a more dynamic and exciting job due to global competition. Free Trade

NAFTA: North American Free Trade Agreement.
Abolishes most tariffs on goods traded between Mexico, Canada and the U.S. Allows unrestricted cross-border flows of resources.
Many U.S. firms have now invested in Mexico.
This is a manufacturing opportunity.
Wage costs are lower in Mexico.
Can serve Mexico with a plant in Mexico and reduce freight.
Managers face new opportunities and threats.
Global Task Environment
Suppliers & Distributors
Managers buy products from global suppliers or make items abroad and supply themselves. Key is to keep quality high and costs low.
Global outsourcing: firms buy inputs from throughout the world. GM might build engines in Mexico, transmissions in Korea, and seats in the U.S. Finished goods become global products.
Distributors: each country often has a unique system of distribution. Managers must identify all the issues.
Customers & Competitors
Formerly distinct national markets are merging into a huge global market. True for both consumer and business goods.
Creates large opportunities.
Still, managers often must customize products to fit the culture. McDonald's sells a local soft drink in Brazil.
Global competitors present new threats.
Increases competition abroad as well as at home.
Forces in the Global General Environment
Political-Legal Forces
Results from diverse and changing nature of each countries’ political system. Representative democracies: such as the U.S., Britain, Canada. Citizens elect leaders who make decisions for electorate.

Usually has a number of safeguards such as freedom of expression, a fair court system, regular elections, and limited terms for officials. Well defined legal system and economic freedom.
Totalitarian regimes: a single political party or person monopolize power in a country. Typically do not recognize or permit opposition.
Most safeguards found in a democracy do not exist.
Examples include Iran, Iraq, and China.
These are difficult to do business with given the lack of economic freedom. Further, human rights issues also cause managers to avoid dealing with these countries. Economic Systems
Free market economy: production of goods and services is in private ownership. Production is dictated by supply and demand.
Command economy: decisions on what to produce, how much, done by the government. Most command economies are moving away from the command economy. Mixed economy: certain economic sectors controlled by private business, others...
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