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Management In Developing Countries

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Small and large companies from developing countries around the world are now investing in the developed world. What literature there is on management interactions between developing and developed countries implicitly assumes that managers from developed countries will be adapting to the environment in developing countries. The reverse may be more and more the reality of the management challenges of the 21st century. At the beginning of the 21st century, there is much discussion of the global nature of the business and the need for management to be aware of the impact of globalization on business.

There is little question that factors such as the relative ease of movement around the globe, innovations in communication and transportation technology, regional and international free trade agreements, international investment, continuing immigration, and so on, all contribute to a sense of the world being a global village. The reality, however, is that when we talk about globalization and international management, we are usually talking about management in the developed countries of the world. These richer countries account for a large majority of global trade and investment. These rich countries also account for most of the world’s Gross Domestic Product (GDP; the richest 20% of the world earn about 85% of the world’s GDP and the poorest 20% only 1%); however, they represent only about 20% of the world’s population. The focus of this research-paper is on management in the other 80% of the world—the developing world. Figure 19.1 shows graphically the growth in the gap between the world’s richest and poorest countries from 1820 to 1997.

The most recent negotiations at the World Trade Organization, the Doha Round, had a “development agenda.” These negotiations reached a stalemate in 2006, partly because the growing power of the developing countries meant that these countries would not accept solutions dictated by their richer counterparts. The focus on the developing countries indicates the interest that the world has in these countries. There are a number of reasons for this. First is simply the fact that they do makeup about 80% of the world. In addition, the gap between the rich and poor countries has been growing, from 3 to 1 in the late 1800s to 75 to 1 in the late 1900s, and this gap worries many people. On a more positive side, the developing world is of interest because it represents a substantial potential market and workforce, and these countries can provide an array of products and services for the rest of the world.

While developing countries are often discussed as a group, as they will be here, in reality, it is difficult, if not impossible, to talk of them as a group because the group is made up of such diverse countries—ranging from very large (e.g., China and India) to very small (e.g., Samoa and St. Lucia); including relatively well-off countries (e.g., Taiwan) and very poor ones (e.g., Haiti); covering a multiplicity of languages, religions, histories, and geographies; and representing all continents. This means that any discussion of these countries as a group must be tempered by a recognition that there will be as many.

Population Growth

Population growth in more developed countries is relatively slow, while population growth in the developing countries, especially Asia and Africa, remains high. The United Nations (UN) estimates show the population in Asia growing to over five billion by 2050. The developing world already makes up about 80% of the world’s population. This percentage will increase in the near term. Of course, at the same time, some of these countries are becoming richer, and by 2050, they may no longer be listed among the developing countries.

Nevertheless, it is clear that the sheer numbers of people likely to be in those countries now classified as developing mean that we cannot afford to continue ignoring them in research on management. At the same time, the poverty of the developing world, combined with the richness of the developed, has resulted in substantial immigration from the poorer to the richer countries. This immigration provides pluses and minuses for each side. Migrants, both legal and illegal, are willing to undertake work that residents often eschew, and they contribute to the economies of their new countries. They send money home to their families and relieve their former countries of the burden of their welfare. Sometimes, however, they are seen as taking jobs from residents in their new homes and contributing to a brain drain that leaves their former countries poorer.

The Reality In Developing Countries

According to a report on the BBC radio in April 2002, a poll of Europeans showed a negative view of developing countries, predominantly focused on poverty and illness. In many ways, this is the reality of developing countries. As defined previously, these are the poorer countries of the world, so they exhibit the effects of being poor. There is a more positive side to the equation, however. For example:

  • per capita incomes have been growing in developing countries, and there is a growing middle class in many of these countries;
  • some developing countries score quite high on the HDI, indicating that they are good places to live; § several developing countries are experiencing high rates of growth (the People’s Republic of China is a good instance);
  • the developing countries represent a very substantial market and source of supply; and
  • concentrations of wealth in developing countries have allowed them to engage in outward international foreign direct investment. Nevertheless, in most developing countries, being relatively poor means that
  • people are concerned with basic needs or, in the better off developing countries, with achieving economic stability;
  • infrastructure is limited—roads, railways, ports, and other physical facilities are nonexistent in some locations and only barely adequate in better off locations;
  • social services are inadequate—education, health care, and social safety nets are minimal if they exist at all; and
  • resources are apparently scarce and their allocation is sometimes based on preferential systems such as individual and family need or influence.

Other differences characterize the developing countries. These include population growth, population dispersion, age distribution, literacy and numeracy levels, and gender roles according to United Nations Publications (1998, 2000, 2005). The following statistics illustrate the situation:

  • Population growth rates have been substantially higher in the developing world (2%) than they have been in the developed world (0.6%). Fertility rates are also higher in the developing world (5 conceptions per woman vs. 1.9 in the developed world).
  • The developing world remains more rural than the developed does (38% in cities vs. 78%). Cities are seen as places of opportunity for people in developing countries, and this results in continuing movements of people to cities that are often overcrowded and underserviced.
  • People in developing countries are substantially younger than those in developed countries are. It is expected that by 2015, 18% of the population in developed countries will be over 65, while only 5% of those in developing countries will be.
  • Life expectancy at birth is estimated at 72 years for the world, 78.6 years for the developed countries, and 70.6 years for the developing (the lowest group is Africa at 59.5 years).
  • On average, people in developed countries have better access to education, and functional literacy and numeracy are normal. Even where developing countries have relatively good educational systems, lower levels of literacy and numeracy are more generally accepted.
  • In most developing countries, gender roles are more pronounced than they are in developed countries. This includes discrimination against women in terms of land ownership, family inheritance, education, and income.

Definitions Of Development

Over time, the terminology used for development has varied. In the mid-1900s, the poorer countries were often referred to as “underdeveloped” or “less developed countries” (LDCs). Sometimes they were referred to as the “third world” (in contrast to the first, rich world and the second, communist world), and sometimes a distinction was drawn between the north (where most rich countries are) and the south (where most poor countries are). Reflecting the level of industrialization that accompanies development, sometimes the richer countries are referred to as industrialized countries. More recently, the terms that have become popular are developed countries, transition economies—the countries of east-central Europe, the Balkans, the Baltics, and the CIS—and emerging markets according to the Economist Intelligence Unit (2007). In this research-paper, developed and developing are used because most readers are likely to be familiar with these terms.

Whatever terminology is used, the developed countries are the richer ones and the developing are the poorer. Of course, within each group, there is a range of GDP per capita and a range of incomes. Especially in the developing countries, the range is large, with some countries being quite well-off and others being very poor (the poorest are often now called the “least developed” to identify their special needs).

Developed nations are those countries of the world considered to be more technologically and economically advanced. In contrast, developing countries are relatively poorer. The specific measure that is usually used for determining a country’s status is income per capita. Using this measure, according to the Economist Intelligence Unit (2007), the developed countries of the world are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Gibraltar, Greece, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, and the United States of America. All others are classified as emerging markets or transition economies.

While income per capita is traditionally used to classify countries as developed or developing, there are limitations to this measure, and it does not capture the quality of life that may be experienced in a particular country. An alternative measure is the Human Development Index (HDI), which incorporates a variety of additional measures such as health care, education, social benefits, and so on. By and large, the countries that score high on per capita income also score high on the HDI and vice versa. Nevertheless, the HDI provides a better sense of what one will experience in a particular country. For example, Barbados, although a developing country, was number 30 on the HDI list.

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