Introduction: overview of the global business environment
Successful international managers adjust their firms’ policies and practices to take account of national and regional diversities – political, economic, legal, technological and cultural. Knowledge of relevant political and economic environments is essential for international business; so is obedience to national and international laws and regulations, not all of them written. Many local ‘laws’ are unspoken and understood only tacitly but nevertheless carry important messages about expectations of behavior, values and beliefs. Moreover, no business today can succeed without appropriate technology and, more importantly, an imaginative sense of its scope and capabilities.
Finally, no business can operate within its own country, let alone anybody else’s, without strong awareness of the obligations and responsibilities towards all its stakeholders as well as the opportunities that good management can confer. Stakeholders include employees and shareholders, customers and suppliers, and above all, the community at large.
MANAGEMENT CHALLENGE: SOCIAL OBLIGATIONS
Managers in the 21st century are being challenged to operate in an increasingly complex, interdependent and dynamic global environment. Those involved in global business have to adjust their strategies and management styles to those regions of the world in which they want to operate, whether directly or through some form of alliance.
Typical challenges that managers must face involve politics, culture, global competition, terrorism and technology. In addition, the opportunities and risks of the global marketplace increasingly bring with them social and moral obligations associated with operations in a global community.
One such responsibility is to provide opportunities for people from developing economies to share the benefits of internationalization. One example of doing so is through immigration. Leading business bodies, such as the Business Council of Australia and the Australian Industries Group, have issued public calls for a higher immigration intake.
White cited the example of Rod Eddington, who lived in Asia for years as manager of Cathay Pacific, and served as CEO of British Airways between 2000 and 2005. Eddington sees Asian migrants and their descendants 'helping to build the cultural (and economic) bridges with Asia that Australia so desperately needs', if she is 'truly to capture the benefits of Asia's economic growth (although he also sees no reason why Australians of non-Asian background cannot also be accepted in Asia if they make the effort). Leigh Clifford, CEO of resources giant Rio Tinto, also stresses the need for a more vigorous migration program.'
Managers are being challenged to operate in an increasingly complex, interdependent and dynamic global environment. They need to adapt their strategies and styles to suit the particular situations and conditions under which they operate, directly or through some form of alliance. An extreme example is the threat of terrorism, as illustrated in the opening profile. Less critical challenges are from political and cultural differences, and the use, transfer and protection of technology.
Other social issues
It should never be forgotten that the opportunities and risks of the global marketplace increasingly involve social obligations. For example, international drug manufacturers, like all public companies, need to protect shareholder interests and this includes defense of patent rights. However, an extreme stance on such rights should be modified for humanitarian reasons in the face of serious health needs in developing countries. If not, national governments may take matters into their own hands.
In 2005 the Taiwanese government responded to bird flu fears by starting work on its own version of the anti-viral drug, Tamiflu, patented by Swiss pharmaceutical giant Roche. Officials said they could make their version of the drug more quickly – and at a lower cost. The government hopes eventually to get permission from Roche to copy their drug.
Bird flu killed at least 60 people in Asia between December 2003 and October 2005, and scientists fear the lethal H5N1 strain of the virus could combine with human flu or mutate into a form that is easily transmissible between humans, triggering a flu pandemic. Several other countries have asked Roche for the right to make generic copies of Tamiflu, with agreements not to market the drug commercially.
To compete successfully in the international arena, firms must make considerable investments overseas – not only capital investment but also investment in well-trained managers with the skills to handle dynamic and fast-changing factors, including the variable of culture that affects every facet of daily management. Moreover, technological software and the Internet have altered the dynamics of competition and operations.
Global management, then, is the process of developing strategies, designing and operating systems, and working with people around the world to ensure sustained competitive advantage and social responsibility. These management functions are shaped in part by the prevailing conditions and ongoing developments in the world.
THE GLOBAL BUSINESS ENVIRONMENT
Business competitiveness has now evolved to a level of sophistication that many term globalism (though more commonly called globalization) – global competition characterized by networks of international linkages that bind countries, institutions and people in an interdependent global economy.
The invisible engine of global competition is being propelled by the phenomenon of an increasingly borderless world, by technological advancements, and by the rise of developing economies such as China and India. Thus a Swatch wristwatch, for example, designed in Switzerland, assembled in China from parts made in France, is sold in Australia for AS50.
Globalism
Joe Nye, former Dean of Harvard University’s Kennedy School of Government, has outlined what he sees as fundamental differences between globalism and globalization, and describes how both these concepts now shape our world. He suggests that globalism describes the interconnections of the modern world – and patterns that underlie (and explain) them.
In contrast, the term 'globalization’ refers to the increase or decline in the degree of globalism and the dynamism of these changes. Globalism is the underlying basic network. Globalization refers to the dynamic shrinking of distance on a large scale.
An example of what Nye calls ‘thin globalization’ is the old Silk Road that provided economic and cultural links between ancient Europe and Asia. Its direct impact was felt primarily by a small group of consumers along the road. In contrast, the operations of global financial markets today affect people from Pretoria to Penang. Thus, ‘globalization’ is ‘the process by which globalism becomes increasingly thick/intense’.
An increasing ‘thickness’ in globalism means that different relationships of interdependence intersect more deeply in some areas than others. For example, in 1996 the Australian telecommunications giant Telstra reported that 600 000 subscribers had Internet access. In 2006 in Oceania/Australia, 18 364 772 people out of a population of 33 956 977 used the Internet (51.4%), while in Asia, with a population of 3 667 774 066, only 10.3% had access (378 593 457). Thus globalism does not imply universality, nor homogenisation or equity. In fact, it is equally likely to make people more aware of differences.
Nye suggests there are four distinct dimensions of globalism: economic, military, environmental and social. Changes in the various dimensions do not necessarily go together: for instance, economic globalization includes low-wage production in Asia for the benefit of affluent Western markets.
Negative examples of environmental globalization include the accelerating depletion of the stratospheric ozone layer as a result of ozone-depleting chemicals – or the spread of the AIDS virus from central Africa to the rest of the world beginning at the end of the 1970s.
An example of military globalism is the so-called ‘war of terror’ since the disastrous events of September 11, 2001.
The fourth dimension is social and cultural globalism. It involves movements of ideas, information, images and people, who of course carry ideas and information with them. Examples include the evangelism of religions and the diffusion of scientific knowledge.
In the past, social globalism has often followed military and economic globalism. However, in the current era, social and cultural globalization is driven by the Internet, which reduces costs and globalizes communications, making the flow of ideas increasingly independent of other forms of globalization.
Based on the historic evidence, it is to be expected that globalism will be accompanied by continuing uncertainty. There will be ongoing competition between increased complexity and uncertainty on the one hand, and on the other, efforts by governments, market participants and others to comprehend and manage these systems.
Nye quoted the World Trade Organization as reporting that differences in regional output growth rates have narrowed as economic activity has picked up in Western Europe, the Asia-Pacific region and the transition economies. It is clear that world trade is growing and, importantly, is increasingly including the developing nations.
Economic power and shifting opinions, and ideals about politics and religion, are resulting in an increasing backlash against globalism and a rekindling of nationalism. Globalism has been fuelled by capitalism and open markets, most notably by Western companies. Now economic power is shifting to the emerging Asian nations: China and India are catching up fast with the US as engines of world economic growth.
Thus the face of global trade is changing and almost all firms around the world are affected to some extent by globalism. Firms from any country' now compete both at home and abroad, and domestic competitors compete on price by outsourcing resources around the world.
Trade agreements, such as the Australia-United States Free Trade Agreement (AUSFTA) from 1 January 2005, have opened borders for more robust trade, but often, sadly, at the expense of human rights and environmental protections. 'A push is gaining momentum to replace the idea of “free trade” – which generally favors the most powerful nations – with “fair trade", which puts producers in developing nations on a more level playing field.
Global companies are becoming less tied to specific locations. Their operations and allies are spread around the world as they source and coordinate resources and activities in the most suitable areas. Technology enables faster and more flexible interactions and greater efficiencies. It is essential, therefore, for managers to develop a global vision for their firms, to equip them with the skills and tools of international management, including an understanding of what it takes to do business in other countries and to work with people of other cultures.
Another indicator of globalism is that foreign direct investment has grown more than three times faster than the world output of goods. The United States is the largest home for foreign investment, with China the second largest recipient. Henry Tang, Financial Secretary of the I long Kong Special Administrative Region, in a speech to the Asia Society in Melbourne on 25 May 2006, spoke of ways in which Hong Kong and the countries of the Asian region are leveraging their proximity and unique circumstances to benefit from China’s outstanding economic growth. Business opportunities are expanding for foreign investors, including those of Australia, as a result.
Small and medium-sized enterprises
The phenomenon of globalization is not limited to large companies. Small companies are also affected by and, in turn, affect globalism. They play a vital role in contributing to their national economies through employment, new job creation, development of new products and services, and international operations – typically exporting.
The vast majority of businesses in developed economies are small and medium-sized enterprises. For example, in New Zealand 97% of businesses employ 19 or fewer full-time employees; and in Australia by June 2004 there were over a million small businesses. Those with only one operator accounted for 72.6% of all such firms; and the majority of small business operators were involved in one business only (92.5%).
Although many small businesses are affected by globalization only to the extent that they face competing products from abroad, an increasing number of entrepreneurs are being approached by potential offshore customers. Information about the activities of small firms is spread through trade shows, government export initiatives and the growing use of websites for making contact and placing orders online. One example of a very small but successful global business is that of Madeleine Utrillo, of West Ryde, Sydney.