1 International Management MGT 480/680 - Fall 2007 Dr. Yvonne Stedham

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International Management

MGT 480/680 - Fall 2007

Dr. Yvonne Stedham

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Life, College, Business Degree

It’s all about making GOOD decisionsGood vs not so good decisions

Problem-solving

Quality of decisions depends on Decision-making process – logic, factors, variablesQuality of information used

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University Level Business Education

•Decision-making in specific areas of business

–Finance, Human Resource Management Accounting, Marketing

•Business Research – Philosophy: Love of wisdom - Study of the real but unseen nature and causes of things

• Viewpoint, way of life, values, beliefs

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Wisdom

• Knowledge and

• the ability to use it

• so as to be of value to

oneself and others

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How to become “wise”

Experience – Age

Formal Study – not a goal in itself - requirement

Only worthwhile if such knowledge and wisdom has a positive impact on oneself and others

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Sixteen weeks

Thirty-two classes

Forty hours

More than technical knowledge

Understanding, values, beliefs, philosophy

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• What do you expect to be

covered in this course?

• What do you expect to learn?

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Decision-Making

Good decision?

Information and knowledge and the quality of a decision

“blink” Malcolm Gladwell – the power

of thinking without thinking – the need for exposure and experiences

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Decision-making environment

External factors - external to the organization or the decision-maker

Internal factors – factors representing the internal environment of an organization

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Today

Purpose of this course

What do you know?

Syllabus

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PurposeWhat new management/business knowledge could you possibly learn in this class?

Why should we spend effort on that?

Who from country other than the U.S.?

Globalization, Democracy, Free Markets, and the Bottom Line

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Course Materials

http://www.scsr.nevada.edu/~ystedham/

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Current Developments

National Public Radio (NPR)

FM 88.7

FM 90.5

The Economist

Wall Street Journal

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For September 11

Global Update – Web/Handout

Questions to be handed out in class

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Internships and Student Groups

State of Nevada, Commission on Economic DevelopmentAl DiStefano, Director, Global Trade and InvestmentTel: (775) 687-4325, Ext. [email protected]

International Business Student Chapter (IBSC)

Cody Dean: [email protected]– IB Majors

Management Internships – Ask me!

NEWTRACNevada World Trade Council www.newtrac.org

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What do you know?

List the five largest countries based on population.

What is the world population?

What is “GDP”? What is the GDP/capita in the U.S.? What is a typical GDP growth rate for the U.S.?

Which three countries have the highest GDP/capita?

Which countries are culturally most similar to the U.S, which ones most dissimilar?

How many countries are there in the world?

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What do you know?China 1.3Bill

India 1BillU.S. 301Mill

Indonesia 220MillBrazil 190Mill

Japan 127.5MillWorld 6.6 Bill

GDP/capita: $44,000 U.S ($10,700 Mexico - Population ~109 Mill) – Growth

rate 4.8%

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What do you know?

Total number of countries: 191 -193

Vatican and Taiwan

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Some Data (2006)Japan China Brazil US Worl

d

Population

127.5 Mill

1.3Bill 190 Mill

301 Mill

6.6Bill

GDP growth

2.2% 10.7%

3.7% 3.2% 5.3%

GDP/Capita

$33,100 $7,700

$8,800 $44,800

$10,200

Industry

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Introduction Course •Content – Culture, Globalization, Cost-

Benefits-Risk (Review!)•Format - Syllabus

Personal – Background Sheet

Framework of an international organizationGlobalizationReasons for going internationalTypes of international organizations

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Course Content (Continued) Organizations and Organizational Effectiveness

What is an organization?

Why do organizations exist?

When is an organization effective?

Efficiency vs effectiveness?

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Organizations and Organizational Effectiveness

What is an organization? Why do organizations exist?

Organizations = PeopleMission, goals, objectives

When is an organization effective? Distinguish between efficiency and effectiveness. Distinguish effectiveness measures for the short, intermediate, and long run.

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Measurement of organizational effectiveness

Long run?

Intermediate run?

Short run?

A contingency approach to management

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Measurement of organizational effectiveness

Long run: Survival

Intermediate run: Adaptation, Responsiveness

Short run: Productivity, Efficiency

A contingency approach to management (as opposed to “administrative theory” of management) It is management’s task to create the best possible fit between the external and internal environments of the organization and must ensure internal consistency between the organization’s elements.

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The Organization

The External Environment

Economy

Social

Environment

Technological Environment

Political Environment

The Internal Environment

People

Processes Structure

Business Strategy

Culture

Effectiveness

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The International Organization


CULTURE

Multiple Economies

Multiple

Societies

Multiple Technological Environment

Multiple Political

Environment


People

Processes Structure

Business Strategy

Culture

Effectiveness

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Course Format

SyllabusSept 4 – Questions for Global Market UpdateSept 6 – Quiz #1Sept 11 – Answers to Global Market Update are dueSept 13 – Case #1 due

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Personal Introductions

Students – background sheets

Introduction MajorTraveled internationallySpeak other language

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Quiz #1

DereskyChapter 1Chapter 2

Adler Chapter 1: pp 1-16

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Don’t confuse

APEC

OPEC

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APEC

Asia Pacific Cooperationpremier forum for facilitating economic growth, cooperation, trade and investment in the Asia-Pacific region. It is one of the world's most important regional groupings, encompassing 21 Member Economies who collectively represent over 2.6 billion people and account for approximately half of global GDP and trade. The primary focus of APEC is promoting trade and investment liberalization and business facilitation in the Asia-Pacific region.

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APEC Members Date of Joining

Australia

Brunei Darussalam

Canada

Chile

People's Republic of China

Hong Kong, China

Indonesia

Japan

Republic of Korea

Malaysia

Mexico

New Zealand

Papua New Guinea

Peru

Philippines

Russia

Singapore

Chinese Taipei

Thailand

United States

Viet Nam

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APEC Australia 2007™ Business Summit

The is a significant, invitation-only, annual meeting that provides unparalleled opportunities for strategic engagement and networking with prominent business leaders, international opinion setters, policy makers and leaders of Asia-Pacific Economic Cooperation (APEC) Member Economies. The two-day forum will form part of the APEC meetings hosted by the Australian Government in 2007, which culminate in APEC Leaders Week and the Business Summit in September in Sydney. The Business Summit, formerly the CEO Summit, has been held each year since 1996. It was instituted to enable business leaders to interact with APEC leaders during Leaders Week. The APEC Australia 2007™ Business Summit will play a key role in supporting APEC's work by bringing together a select group of influential business and government leaders with opinion setters and policy makers at a single event to examine some of the key issues facing the region.

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Current Issues

OPEC – Organization of Petroleum Exporting Countries

Eleven members – Algeria, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE, Venezuela (Hugo Chavez)

OPEC’s mission is to coordinate & unify the petroleum policies of Member Countries & ensure the stabilization of oil prices in order to secure an efficient, economic & regular supply of petroleum to consumers, a steady income to producers & a fair return on capital to those investing in the petroleum industry.

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Women World Leaders

G7 (G8) CountriesUS, Canada, Germany, France, Italy, UK, Japan, (Russia)

Never a female leader: US, Italy, JapanFemale leaders: First UK, then France, Canada, GermanyOther countries with female leaders: Finland, Ireland, India, Indonesia, Chile

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ReminderSyllabus – Questions?Termpaper Sign-up/Groups - September 11Global Market Update – September 11Extra Credit – HandoutIBSC Meetings

Potluck Dinner Sept. 13$15 to join IBSC

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Termpaper Sign-UpCountry Students (29 total/ 28

list)

Ireland Alex, Owen, Jim

Germany Cynda, William, Jade

Switzerland Ruth, Dan, Brian

Italy Jessica, Brandon, Luke

Croatia Mike, Jackie, Jennie

Brazil Justin, Mark, Jenifer

Chile Anne, Matt

Argentina Jeff, Jordan, Shannon

Singapore Tony, Tomas

India Michelle, Jenna, Alex

China ??????

Japan ??????

Australia Paul, Jeff, Matt

Jessica??

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Termpaper ListCountry Students Presentati

on Date

Ireland Alex Bybee, Owen Brolsma, Jim McCarthy

Nov. 20

Germany Cynda Velez, William Drewes, Jade Zahreddine

Nov. 27

Switzerland Ruth Bravo, Dan Self, Brian Tyler Nov. 27

Italy Jessica Wilcox, Brandon Zasio, Luke Rippee

Nov 29

Croatia Mike Lambeth, Jackie Kobelnyk, Jennie Yori

Dec. 4

Brazil Justin Triplett, Mark Denninger, Jenifer Martin

Dec. 4

Chile Anne Smith, Matt Stafford Dec. 6

Argentina Jeff Hill, Jordan Lang, Shannon Sevor Dec. 6

Singapore Tony Apodaca, Tomas Hamrik Dec. 11

India Michelle Fox, Jenna Curtis, Alex Chambers

Dec. 11

Australia Paul Young, Jeff Pogue, Matt Levinsky Dec.13

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Globalization

Thomas Friedman

Why change?

Characteristics of the global system

Previous system?

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Globalization

Thomas Friedman

The Lexus and the Olive Tree

The World is Flat

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Globalization

Globalization is not just an economic fad and it is not just a passing trend. It is an international system that replaced the Cold War System after the fall of the Berlin wall

The World is ten years old (1999)

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Characteristics of the new system

Separation and independence VS integration and interdependence

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Free market capitalism

Homogenization of culture – Americanization

Defining technologies: computerization, miniaturization, digitization, satellite communications, fiber optics, the Internet

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Defining measurement: weight (missles)

VS

speed .. Of travel, innovation, communication, commerce

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Defining economists: Karl Marx and Keynes

VS Schumpeter (capitalism, creative

destruction)

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Defining political views: Friends and enemies

VS

Competitors

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September 11Termpaper Sign-up/GroupsGlobal Market Update Extra Credit – HandoutIBSC Meetings

Lunch will be served$15 to join IBSC

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Culture

Multiple Economies

Multiple Social

Environments

Multiple Technological Environments

Multiple Political

Environments


People

Processes Structure

Business Strategy

Culture

Effectiveness

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Groups

Why do organizations go international?

List at least 3 reasons

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Reasons for becoming international

1. A desire for continued growth.

2. Domestic market saturation

3. The potential to now exploit a new technological advantage

4. Preferable suppliers (quality, cost)

5. Labor market (supply, quality, cost)

6. Government involvement/restrictions

7. Reducing distance to customers (cost)

8. Tariff barriers

9. Increased foreign competition in home country

10. Reduce general business risk by diversifying into other countries

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Profit = Revenue – Cost

Profit = (Volume*Price) - Cost

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Profit = Revenue – Cost = (Volume*Price) - Cost

1. A desire for continued growth. VOLUME

2. Domestic market saturation VOLUME

3. The potential to now exploit a new technological advantage

4. Preferable suppliers (quality, cost) PRICE, COST

5. Labor market (supply, quality, cost) PRICE, COST

6. Government involvement/restrictions COST

7. Reducing distance to customers COST

8. Tariff barriers COST

9. Increased foreign competition in home country VOLUME, PRICE

10. Reduce general business risk by diversifying into other countries

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Internationalization

Process by which firms

increase their awareness

of the influence of international activities on their future

and establish

and conduct

transactions with firms from other countries.

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An International Organization

operates in multiple environments,

home country and one or more host countries,

has foreign sales,

and a nationality mix of managers and owners.

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Types of "international" organizations

Multi-domestic organization

Multinational organization

Global or transnational organization

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Multi-domestic organization

Any organization that exports to/imports from organizations in other countries with primarily domestic production.

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Multinational organization

An organization with operations in different countries but each is viewed as a relatively separate enterprise.

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Global or transnational organization

An enterprise structured so that national boundaries become blurred. The best people are hired irrespective of national origin.

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Graphic Representation

Headquarters – Subsidiary Relationship

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Stages Model of Internationalization

Outward looking perspective: activities/issues related to the other countries (e.g., exporting) vs an inward perspective (e.g., importing)

Descriptive

Reflects the commonly observed pattern of increased commitment to international business

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Four stages of internationalization

Stage 1:Indirect/ad hoc exporting - perhaps from

unsolicited export orders

Stage 2:

Active exporting and/or licensing

Stage 3:

Active exporting, licensing, and joint equity investments in foreign manufacture

Stage 4:

Full-scale multinational marketing and productionSee also: Adler Chapter 1 pages 8 and 9

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International Orientation

EthnocentricPolycentricGeocentricRegiocentric

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International Orientation

PCN – Parent Country NationalHCN – Host Country NationalTCN – Third Country National

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The Relationship between Level of Internationalization and Firm Performance

What is the relationship?

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There is a strong relationship between the degree of internationalization and organizational performance

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Degree of internationalization:

"sales generated by foreign affiliates"

MNE (multinational enterprise) performance:

"profit to sales" or "profit to assets".

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Performance is at a max. at a level of internationalization of 60 to 80% and then decreases with continuing internationalization

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Kenya and TanzaniaKenya

34 Mill; 6.7% HIV; 85% literacy; $1,200 GDP/capita; growth 5%; UE 40%

Tanzania37 Mill; 8.8% HIV; 78% literacy; $700 GDP/capita; growth 6%

USA301 Mill; .6% HIV; 95% literacy; $48,600; 3.2%

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Corruption

Transparency International Corruption Perceptions IndexRelevance?Risk and Cost of doing business in a country

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New Internet SourcesIndex of Economic Freedom

www.heritage.org/research/features/index/countries

What is economic freedom? Economic freedom is defined as the absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself. In other words, people are free to work, produce, consume, and invest in the ways they feel are most productive.

How do you measure economic freedom? To measure economic freedom and rate each country, the authors of the Index study 50 independent economic variables. These variables fall into 10 broad categories, or factors, of economic freedom:

Trade policy , Fiscal burden of government, Government intervention in the economy, Monetary policy, Capital flows and foreign investment, Banking and finance, Wages and prices, Property rights, Regulation, Informal market activity.

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New Internet Sources

Emerging markets/ economies in transition

http://ddcn.prowebis.com/

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External Environment Theory – Competitive Advantage

Competitiveness

International Competitiveness

Porter Diamond

The major determinants of national competitive advantage - why some nations succeed and others fail in international competition. Porter's research is based on studying 100 industries in 10 nations.

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PORTER DIAMOND

National Competitive Advantage

Why a nation achieves success in a particular industry?

•Why Japan -- automobile, cameras•Why CH (Switzerland) -- precision instruments, pharmaceuticals

•Why Germany -- engineering

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Porter Diamond

Four broad attributes of a nation

that shape the environment in which local firms compete, and

these attributes promote or impede

the creation of competitive advantage

(Diamond of four mutually reinforcing factors)

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Porter Diamond

1. Factor Endowments or Conditions-- Basic, Advanced (Nokia, Ericsson)

2. Demand Conditions -- Quality, Innovativeness

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Porter Diamond3. Related and Supporting Industries --

Suppliers (U.S. - semiconductor/comp)

4. Firm Strategy, Structure, Rivalry -- Executive background

<=> Domestic environment encourages the development of characteristics that make company internationally competitive

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References for Porter

1. Michael Porter, 1990. The Competitive Advantage of Nations. Free Press

2. M. Grant, 1991. The Competitive Advantage of Nations: An Assessment. Strategic Management Journal, 12, 535-548

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Rugman-Verbeke Model:Firm specific advantages

relative to competitors -- technological experience, salesforce, customer loyalty

Country specific advantages

source of advantage lies outside the firm -economic (labor - qual., quan., cost; natural resources); - non-economic (social, cultural); -governmental (property rights, free enterprise)

Compare to Porter’s model

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Review Types of international organizations

• Criterion -- Level of Global Participation• International/Multi-Domestic• Multinational• Transnational/Global

Stages of Development to an International O.• Descriptive Model

Effectiveness of Internationalization• Relationship between extent of internationalization

and performance

-External Enviro – Theory• National Competitive Advantage

– Porter Diamond– Rugman-Verbeke

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Preparation

Read Harry and Sally for next Tuesday

Quiz #2Ch.3 in Deresky: p. 82; 86; 87; 89; 93; 103; 106; 117Adler Ch1 pp 15-37

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Theory - Trade Agreements

Why?

Protectionism?

Pro /Con

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Types of Trade Agreements

Trade AreaCommon tariffs among members -- individual tariffs with non-members. NAFTA, ASEAN (Brunei, Indonesia, Malaysia, Philippines, Singapore,

Thailand, Vietnam - 420 Mill)

Customs UnionCommon tariffs for non-members. ANDEAN (Bolivia, Ecuador, Peru, Columbia, Venezuela)

Common MarketFree flow of goods and labor. Mercosur (Brazil, Paraguay, Uruguay, Argentina, Chile)

Economic Union Common currency, common overseeing institutionsEuropean Union -- 15 Members; Euro; European Parliament; Court of

Justice

Political Union

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External Environment


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The ISA Global Update

Please answer the following questions using the ISA Global Market Update handout (see website) as well as other internet sources listed on your syllabus. The Global Update report provides a useful overview of current political and economic issues.

1. Which countries have the world’s three largest economies? Compare these countries (make a table) with respect to population size, GDP/capita, GDP growth, corruption perceptions index, economic freedom.

– USA, Japan, Germany (see page 12)

1. Which countries have emerging markets and are likely to be included in the top ten largest economies in the near future?

– Brazil is 10th

– India and Russia

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Data

US Japan Germany

Population

301 Mill 127.5 Mill 82.5 Mill.

GDP growth

3.2% 2.2% 2.7%

GDP/Capita

$44,800 $33,100 $31,900

CPIECF

7.3 (20)82 (4)

7.6 (17)73.6 (18)

8.0 (16)73.5 (19)

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IndiaWhere India is making an impact and where it is going next:

SOFTWARE - India is now a major base for developing new applications for finance, digital appliances, and industrial plants

CALL CENTERS - Thousands of Indians handle customer service and process insurance claims, loans, bookings and credit-cards bills.

CHIP DESIGN - Intel, Texas Instruments, and many U.S. startups use India as an R&D hub for microprocessors and multimedia chips.

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IndiaWhere India is making an impact and where it is going next:

INDUSTRIAL ENGINEERING - India does vital R&D for GE Medical. GM, engine maker Cummins, Ford and other manufacturers plan big engineering hubs.

ANALYTICS - U.S. companies are hiring Indian math experts to devise models for risk analysis, consumer behavior, and industrial processes.

DRUG RESEARCH - As U.S. R & D costs soar, India is expected to be a center for biotechnology and clinical testing.

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India

Where India has the edge (in comparison to China):

LANGUAGE - English gives India a big edge in IT Services and Back-Office work.

CAPITAL MARKETS - Private firms have readier access to funding. China favors state sector

LEGAL SYSTEMS - Contract law and copyright protection are more developed than in China.

DEMOGRAPHICS - Some 53% of India's population in under age 25, vs. 45% in China.

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Russia

GDP growth around 6%No incentives by governmentHigh tax on profits from oilAuthoritarian governmentCorruption - risk

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Russia

Third largest FX reservesHosted/aid to HamasUkraine, GeorgiaGazprom – Europe (25%)Limitations on foreign ownershipCentralization of authorityWeak infrastructure

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The U.S. has recently experienced healthy growth rates. What are the two factors explaining that growth?

• Weak dollar => exports

• Business confidence => investment

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Peru elected a new president in the Fall of 2006. To what extent has his government been successful in this first year? What is Peru’s corruption rating?

• Alan Garcia– Poverty eliminated by 2011– Approval rating

• Natural resources– Copper, silver, gold, petroleum, timber, fish, iron ore,

coal, phosphate, potash, hydropower, natural gas – Economic growth driven by exports of minerals,

textiles, and agricultural products, and by expectations for the Camisea natural gas megaproject and for other promising energy projects.

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Gordon Brown is the UK’s new Prime Minister. The relationship between the UK and the U.S. was excellent under the U.K.’s previous Prime Minster, Tony Blair. What are the expectations for the UK-U.S. relationship?

• Continue close relationship• Brown’s visit to U.S.• Less of a public “display”

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Only some of the 27 EU (European Union) members are also members of the EMU (European Monetary Union). Which countries belong to the EMU? How likely is it that some of the newer EU members, especially the Eastern European countries, will become EMU members soon?

• EMU (13) – France, Germany, Italy, Netherlands, Austria, Greece, Finland, Spain, Belgium, Ireland, Luxembourg, Portugal, Slovenia

• Criteria: Inflation Rate – not more than 1.5% higher than 3 best performing; Government Finance – government deficit and government debt; Exchange rate – 2 consecutive years not devalued; Long-term interest rates

• Eastern European – not likely because of inflation and large public deficit

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The report suggests that oil prices will continue to rise. Why? OPEC (organization of oil exporting countries) has a primary influence on the global supply of oil, and, hence, the oil price. Which countries belong to OPEC?

Increasing U.S. demandConstrained capacity

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Global Market Update Spring 2006

OPEC – organization of petroleum exporting countries

Unify and coordinate members’ petroleum policiesControl world’s oil supplyMonitor and control oil priceLimit competitionAccount for about 40% of world production

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OPEC Countries

Eleven membersAlgeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, Venezuela

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www.cia.gov

Saudi Arabia

Iran Iraq Qatar Kuwait

Pop 26.5 68 26 1 2.5GDP/capita

$12,900 8,100 3,400 26,000 22,100

GDP growth

rate

6.4% 4.8 2.4 8.8 4.5

Progress toward

Democracy

Automatic rule – House

of Saudi, Election

Presidential election – distribution of wealth

Trans-itional

Constitution

Right to vote for women

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External EnvironmentCurrent Developments - Overview

Relevant variables: GDP GDP/capita GDP growth and factor endowments; demand conditions

The GDP (gross domestic product): The value of the final output of goods and services produced by the residents of an economy (World Bank). There are several methods to calculate the GDP. The PPP (purchasing power parity) method reflects the cost of a basket of goods in two countries in their local currencies.

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Balance of payments measures economic transactions between

residents of one country and residents in all other countries;

transactions that earn foreign currency are sources of reserves; transactions that consume foreign currency are uses of reserves;

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International Investment

and Trade

Level of International Activities

102

North America–United States - which industries

most internationally active? Why?

–US-Canada Free Trade Agreement (1989)

–Mexico - wage rate; maquiladora industry (1965)

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Europe•delayed differentiation

•acquisitions/alliances

•EU - 25 members …..

•Eureka - European Research Cooperation Agency

•EU – The Euro

104

European UnionEU (27): Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, Iceland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, UK, France, Germany, Ireland, Greece, Romania (07), Bulgaria (07)

EMU (13): Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Slovenia

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EU – GDP Growth

Italy 1.3% lowGermany 2% (approx) lowFrance 1.5% lowSpain 3% moderateUK 3% (approx) moderate

106

Italy

Textile, clothing, footwearEuroChinaSmall businesses

107

France Unemployment

Three strategiesIncome tax cuts suspendedReward re-employment with Euro 1,000Change labor laws (termination, hours, maternity)

UE Rate10.2%

108

Spain

PrivatizationFiscal policyInvestment in infrastructure and education

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European Union - continued

The European CommissionThe Council of Ministers (counterbalance to Commission)The European ParliamentThe European Court of Justice

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European Union

The European Commission proposes policies and legislation responsible for the administration of the EU ensures - provisions of the EU treaties+the

decisions of the other institutions are properly implemented

one rep per country(two for the 5 larger countries)

represent, protect, further the European interest + its members do not represent or take orders from their national governments

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Greater Europe• EFTA (European Free Trade

Association).... Austria, Finland, Iceland, Norway, Sweden, Switzerland

112

Eastern Europe• Break-up of The Soviet Union

(Dec 1991)

• Russia (glasnost, perestroika)

• The Ukraine

• Czech Republic

• Slovakia

• Poland

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Latin AmericaMiddle and SouthMexico, Costa Rica, El Salvador, NicaraguaPeru, Columbia, VenezuelaBrazilArgentinaChile

114


Asia•Japan

– MITI (Ministry of International Trade and Industry)

– keiretsus

– Current economic conditions

•South Korea - chaebols

•China– GNP growth of 10% (80s)

– low wage rates

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What about Australia?

116


The Four TigersSouth Korea, Hong Kong, Singapore, Taiwan

Baby Tigers

Thailand, Malaysia, Indonesia

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Less developed countries

•Large population, high unemployment, inflation, low or negative economic growth, low literacy rate

•India, African countries, Central and South American countries, Middle East

118

Major economic regions

North America

Europe

Asia

119

Economic Superpowers

The Triad

1.The United States

2.The EU (dominated by Germany),

3.Japan

Dominates foreign direct investment and international

trade

120

•FDI Clusters

121

FDI Clusters

The Four TigersSouth Korea, Hong Kong, Singapore, Taiwan

Baby Tigers

Thailand, Malaysia, Indonesia

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Group Dynamics

Why groups?

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Group Dynamics

Group performance =

Sum of individual performance PLUS group dynamics

Group dynamics can be positive or negative

Higher quantity and quality of solutions

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Group Dynamics

Advantages – Benefits

Different viewpointsDifferences in expertiseDifferences in training and experienceCultural differencesValue differences

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Group Dynamics

Process lossesLoafingIntra-group conflictMiscommunicationWrong leaderIn appropriate role and task assignmentsRole ambiguityRole conflictInformal, dysfunctional norms

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Group DynamicsGroup management

Roles•What – List of tasks•Who – Who is responsible for what based on expertise

•How - Enforcement

Timeline•When – Specific deadlines•What – Effective communication•Who - Commitment

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Group Dynamics

Group managementLeadership •Formal•Why•Expertise and role

Norms•Must be explicit•Agreed upon by all•Consequences of norm violations

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Global Market Update June 20061. The author provides and in-depth

analysis of countries’ vulnerability to external economic shocks. What does he conclude are the most and least vulnerable countries and what are the reasons for his conclusions.Vulnerable: Russia, Turkey, China

Explanation

Low vulnerability: Central, southeastern Europe, Korea, Japan, India, U.S.

Explanation

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Global Market Update June 20062. Japan’s and Korea’s economies have been

quite vulnerable in the past. However, both countries have implemented reforms that should make them more resilient. What were those reforms?Reform of banking systems and monetary policyJapan – no quantitative easing; target interest rates, analysis of riskKorea – banking sector consolidation, foreign owned banksLess gov lending to CHAEBOLS more to SME’s

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Global Market Update June 2006

3. India is one of the BRIC countries and is playing an increasingly important role in the global market. What are some of India’s current challenges discussed in the report?High and rising oil pricesGov’s weak fiscal positionCoalition politics – difficult to implement reforms – friendly to FDIInfrastructureLabor restrictions and resistance to foreign ownership

131

Global Market Update June 2006

5. Brazil, the largest economy in Latin America, has made progress economically under Lula da Silva but is facing serious political challenges. Especially issues related to Bolivia and Venezuela are of concern. Explain?Venezuela - Chavez – regional leader – powerBolivia – Morales – nationalize gas sectorBrazil – 50% of gas from Bolivia - Petrobras

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Global Market Update June 20066. Although Turkey’s economy has

been strong, its desire to join the EU is hindered by some critical issues. Summarize these issues.Cyprus – Greek and Turkish Cypriotes; ports and airportsHuman Rights Record – Kurds in southeast (Sunni Muslims); suppressed minority

133

www.cia.govRussia Brazil Turkey

Population 143 M 188 M 70 M

GDP/capita

$ 11,100 8,400 8,200

Current Gov

PutinRussian

Federation

Da SilvaFederative Republic

Ahmet Sezer

Republic

Currency Ruble Real Lira

Political Stability

Moderate Moderate Moderate

Economic S

Low/Moderate Low/Moderate Moderate

134

International investment and tradeWhat do you know?

Which countries are the main players inWorldwide - EuropeAsia - Eastern EuropeLatin America - Middle East

Worldwide, the dominant players in the following industries are from which countries

Computer – Car – Oil – Minerals – Agriculture – ClothingTransportation

135


EconomicTheory – Porter, Trade AgreementsCurrent developments - International trade and investment• Dominant players

– China – Political and economic freedom

• FDI clusters• European Union (WSJ)

– 15 members– 10 new members – Eastern Europe

136

Review

Summarize the current developments in Eastern Europe.What do you know about China with respect to international management.What about Japan?What are keiretsus?Give an example of the effect on the manufacturing process of open trade.

137


National CultureHarry and Sally in Saudi Arabia

1. What went wrong? Specific examples!

2. Why did things go wrong?

3. What were the consequences of these mistakes?

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External EnvironmentWhat went wrong? Specific examples!

– Sabbath– Flights– Language - Taxi– Coffee – Refusal – Rude– Food– Role of women– Negotiation – Relationship-

building

Why did things go wrong?

Lack of preparation – Cultural knowledge

Cultural sensitivity

139

Culture and International Management

Relevance

•Cultural Toughness – Cultural Distance

•Cross-cultural literacy

•Cost of doing bus in a particular culture

140

Internationalization Decision

Benefits from internationalization into a specific country

Cost associated with internationalization into a specific country

Risk associated with internationalization into a specific country.

Decision = f (benefit-cost-risk tradeoff)

141

Cultural Dimensions

All peoples have common life problems (?)

choose different solutions – results in culture

142

Cultural Dimensions

Six basic dimensions describe the cultural orientations of societies

• What is the nature of people?• What is a person's relationship to nature?• What is a person's relationship to other

people?• What is the primary mode of activity?

• What is the conception of space?• What is the temporal orientation?

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Cultural dimensions


1. What is the nature of people? Good/evil/change

2. What is a person's relationship to nature?Dominant/harmony -subjugation

3. What is a person's relationship to other people?Individualistic/group – hierarchical/lateral

144

Cultural dimensions


4. What is the primary mode of activity?Doing/being

5. What is the conception of space?Private/public

6. What is the temporal orientation?Future/present/past

145

U.S. – EU Sharing Air Passenger Data

Sept 11 – U.S. law within 15 minutes of flight departure.. Name, address, credit card details etc.EU top court, May 2006 – illegal according to EU law – allow until Sept 30, 2006U.S. – fine $6, 000 per passenger; EU – National data protection authorities, legal actionEU – legal vacuum; US – no legal vacuum because “U.S. law is clear that airlines have to provide data about people entering this country”

146

Characteristics of Culture - Values and Norms

1) Social structure

1.Social stratification

2.Class consciousness

3.Class membership is a function of ?

4. Social mobility

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2) Religion (#s from 2002)• www.adherents.com

• Minimal level of self-identification

• Non-religious 14%

• Christianity 2 bill; 33%

– Protestant work ethic

– Catholic vs Protestant/Lutheran

– Take care of your neighbor and the less fortunate

– 10 commandments

148

• Islam 1.3 bill; 22%

– Sunni and Shi’ite – best known branches

– all embracing way of life, governing the totality of a Muslim being;

– prayer five times a day;

– free enterprise/hostile to socialist ideals - earning a legitimate profit through commerce and trade;

– Koran;

– contractual obligations, keeping one's word

– role of women and men

149

•Hinduism 900 mill; 15%

– spiritual achievement;

– Nirvana;

– Samsara – birth, death, re-birth;

•Buddhism 360 mill; 6%

– Central and Southeast Asia, China, Korea, Japan;

– "life is suffering; misery is everywhere and originates in people's desire for pleasure;

– Noble Eightfold Path: right views, right intention, right speech, right action, right livelihood, right effort, right awareness, right concentration

– Japan – Temples, Shrines (Shinto)

150

Characteristics of Culture (Cont’d)

3) Political philosophy

• Political freedom – dominant political orientation

4) Economic philosophy

• Free Market – to what extent

• Economic freedom - www.heritage.org/research/features/index/

5) Education

• Importance

• Access

• Type

6) Language (verbal/spoken; non-verbal) Communication; word equivalency

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Ignoring Culture

•Religion – Ads for refrigerator, airlines (Middle

East)

•Language – Baby Food in Africa, – English candy “Zit”, – Finnish product unfreezes car locks

“Super Piss” – Electrolux sucks (Sweden)

152

The US Culture????

Describe ….

153

The US Culture???????

154

Japan and U.S.1. Purpose of meeting – build relationship and

trust; implementation – business card, present, culturally prepared, respect

2. Noise – M and Crowell: language, history, dolls; Crowell/Moto: bragging, bus cards, wife, dolls =toys

3. Dolls – Trust, relationship, respect, carefully selected

4. Allmack – Crowell – Moto not prepared5. Kubushevsky – distant, polite; trust,

understanding

155

Measurement of Culture

Purpose????Geert Hofstede – 1970’sIBM employees100,000 across 30+ countriesSurvey – typical work situationsIdentify systematic differences – Factor AnalysisFour independent factorsFollow up research: Culture’s consequences (2001)Culture: Collective programming of the mind

156

World BankSource of financial and technical assistance to developing countries around the world. We are not a bank in the common sense. We are made up of two unique development institutions owned by 184 member countries— the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). Each institution plays a different but supportive role in our mission of global poverty reduction and the improvement of living standards. The IBRD focuses on middle income and creditworthy poor countries, while IDA focuses on the poorest countries in the world. Together we provide low-interest loans, interest-free credit and grants to developing countries for education, health, infrastructure, communications and many other purposes

157

World Bank

July 1, 1944 during a conference of 44 countries in Bretton Woods, New Hampshire ANTI-CORRUPTION HOTLINEReport allegations of fraud & corruption in World Bank projects, and staff misconductDepartment of Institutional Integrityhttp://www.web.worldbank.org/

158

Four dimensions of culture

1.Individualism/Collectivism

2.Power Distance3.Uncertainty Avoidance4.Masculinity/Femininity

159

Individualism/Collectivism• Individualism exists when people define

themselves as individuals. It implies loosely knit social frameworks in which people are supposed to take care only of themselves and their immediate families.

• Collectivism is characterized by tight social frameworks in which people distinguish between their own groups, "in-groups", (relatives, clans, organizations) and other groups. People expect in-groups to look after their members, protect them, and give security in exchange for members' loyalty.

160

Power distanceIndicates how a society deals with the inequality among people's physical and intellectual capabilities.

A culture with high power distance allows inequality to grow to inequality in power and wealth, one low in power distance aims at removing such inequalities.

Indicates to what extent the unequal distribution of power is accepted.

161

Uncertainty avoidance The extent to which people in a society feel

threatened by ambiguous situations and the extent to which they try to avoid these

situations by providing greater career stability,

establishing more formal rules, and rejecting deviant ideas and behavior.

Lifetime employment is more common in countries with high uncertainty avoidance - the reverse is true for job mobility.

162

Masculinity/Femininity Masculinity is defined as the extent to

which the dominant values of society emphasize assertiveness and acquisition of money and things (materialism).

Femininity is defined as the extent to which the dominant values in society emphasize relationships among people, concern for others, and the overall quality of life.

163

Confucian dynamism or Long-term orientation (1993)

•Refers to the time perspective in a society for the gratification of people's needs.

•A high CD or long-term oriented society is one which emphasizes thrift and perseverance.

•A low CD or short-term oriented society focuses on gratifying needs here and now.

164

Sources for International ResearchHofstede, Geert (1980): Culture’s Consequences

Hofstede, Geert (1991): Cultures and Organizations

Hofstede, Geert (1984): Culture’s Consequences: International Differences in Work-Related Values

Hofstede, Geert and Michael Harris Bond (1984): The Confucius Connection: from cultural roots to economic growth. Organizational Dynamics, 16, 4, 4-21

165

U.S. Japan GermanyIndividualism: 91 46 67

Power distance: 40 54 35

Uncertainty

avoidance: 46 92 65

Masculinity: 62 95 66

ST/LT: 29 80 25

166

Applying Hofstede’s Dimensions

Lawyers per 100,000 populationU.S.GermanyGreat BritainJapanItalyFrance

167

Applying Hofstede’s Dimensions

Lawyers per 100,000 population (1990s)

U.S. 312Germany 190Great Britain 134Japan 106Italy 81France 49

168

Laurent’s Research-See Adler9 Western countries, US, 2 Asian countriesMore than sixty common work situation (yes/no)

1. The main reason for hierarchical structure is so that everybody knows who has authority over whom

2. In order to have efficient work relationships, it is often necessary to bypass hierarchical lines

3. It is important for a manager to have at hand precise answers to most of the questions that his subordinates may raise about their work

169

Laurent’s Research1. The main reason for hierarchical structure is so

that everybody knows who has authority over whom US 18% agree, Germany 24% agree, Italy 50% agreeFrance 45% agree, Japan 52% agree

2. In order to have efficient work relationships, it is often necessary to bypass hierarchical linesUS 32% disagree, Germany 46% disagree, Italy 75%

3. It is important for a manager to have at hand precise answers to most of the questions that his subordinates may raise about their workUS 18% agree, Germany 46% agree, Italy 66% agree,

Japan 78% agree

170

Fons TrompenaarsRiding the Waves of Culture (1998; 2nd edition)

Dimensions (see textbook):1. Universalistic–Particularistic (Obligation)2. Neutral-Affective (Emotional Orientation

in Relationships)3. Specific-Diffuse (Involvement in

Relationships)4. Achievement-Ascription (Legitimization

of Power)

171

172

173

174

Cultural Stereotypes

What is a stereotype?Good or Bad?Effect on cross-cultural adaptationExercise

175

Cultural Stereotypes

Good or Bad??Exercise:

Countries: Germany, Italy, Switzerland, UK, FranceJobs: Government, Cooks, Policemen, Engineers, LoversBest Case and Worst Case Scenarios

176

Culture

Review– What is culture?

– Why is it relevant?

– What are basic assumptions of culture?

– What are determinants and characteristics of culture?

– How is understanding the dominant religion in a country important to international management?

– Measurement of Culture

– Cultural Stereotypes

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CultureWhat is culture? Values and norms;

socialization

Why is it relevant? Cross-cultural literacy; Benefit-Cost-Trade-off

What are the dimensions of culture? Nature of People, Relationship to Nature, People, Temporal, Space, Mode of activity - ICEBERG

What are characteristics of culture? Social structure, religion, education, economic philosophy, political philosophy, language

How is understanding the dominant religion in a country important to international management? Values are based on dominant religion

178

Overall Attractiveness of a Country

Trade-off between Benefits

Costs

Risks

179

Overall Attractiveness of a Country

Trade-off between Benefits: market size, wealth (purchasing power), future wealth, resources (quality and cost)

Costs: legal requirements, availability of resources, infrastructure, level of economic development, free market?

Risks: the likelihood that political, economic, legal forces will cause drastic changes in a country's business environment that adversely affects the profit and other goals of a particular business enterprise.

180

Political Risk

• What is risk?

• What is economic risk?

• What is political risk?

181

Political Risk

Definition• the likelihood • that political forces • will cause drastic changes • in a country's business environment• that adversely affect the profit and

other goals of a particular business enterprise.

182

Political RiskCharacteristics of countries

with a higher likelihood for political risk:

• Social unrest (see below) • Demonstrations• Terrorism

Social Unrest• More than one ethnic nationality• Competing ideologies battle for political control• High inflation and falling living standards• Strikes

183

Results of Social Unrest:

Change in government and/or policy

Results of Political Change:Expropriation Indigenization

184

Risk Assessment

Euromoney Magazine’s Country Risk Ratings

Analytical Indicators: • political risk (20%) - measures stability and

potential fall out from instability• economic indicators and risk(20%)

Credit IndicatorsMarket Indicators

Political Risk Yearbook

185

Political Risk Data - ExampleDun & Bradstreet’s Guide to Doing Business around

the World (textbook)Comparative Country Risk RankingsOverall Ratings:

• Political Risk, • GDP Growth, Per Capita Income, • Trade Flow with the US, • Monetary Policy, • Trade Policy, • Protection of Property Rights, • Foreign Investment Climate

List countries low/high in political risk

186

Risk Management:

Analysis - macro, micro

Management

•Integrative

•Protective/Defensive

187

Integrative Approach

Become part of the host country’s infrastructure

Good relationship with host government

Produce locally … in-country suppliers

Joint venturesLocal R&DEffective in long-run

188

Protective/Defensive Approach

Discourage host government from interferingAs little as possible local manufacturing and R&DCapital from local banks and outsideDiversify production among several countries

189

Contingency Approach Overall risk for an international company

depends on the polit. risk and characteristics of the firm.

Three primary factors to be considered:

1.Political risk type - Transfer risk/Operational Risk/Ownership risk

2.General investment type -Conglomerate/Vertical/ Horizontal

3. Specific Investment (1=most risky) - Sector (primary=1 /industrial=3/service=2) Technology (science=2/non-science=1) Ownership (wholly=1/partially owned=2)

190

Political Risk

Political Risk Insurance - covers the loss of firm’s assets, not the loss of revenue

Overseas Private Investment Corp (OPIC)• inability to repatriate profits, expropriation,

nationalization, damage from war, terrorism

Foreign Credit Insurance Association• war, revolution, currency inconvertibility,

cancellation of import or export licenses

191

A Risky Country:

1. unstable government

2. unstable economy

3. war/revolution/terrorism

4. unfriendly/hostile people

5. unacceptable customs/values/attitudes

192

A Risky Company:

1. type of product and/or service offered

2. type of industry

3. structure of ownership

4. level of technology

193

Review

Why assessing risk in internationalization decisions? Define “risk”. What is political risk?Social unrest is an indicator of political risk - explain.What conditions precede social unrest?What are the consequences of political risk?Where to get info about political risk?

194

Expatriate Assignment

Why to use expatriates?Ethnocentric, polycentric, regiocentric, geocentric

Culture ShockKSA RequirementsSelection

KSA assessment

TrainingType and rigor of training

Failure Rates

195

The Expatriate Assignment

Experience of uncertaintyAnticipatory and in-country adjustment

Expatriate SelectionRelevant KSA’s?• Technical, Managerial• Adaptiveness

Measurement• SMILE: Speciality; management ability;

international flexibility; language facility; endeavor (Matsushita)

Spouse and FamilyFailure rates• 40% on average; lower for European and

Japanese• Rosalie Tung

196


Failure rates• 40% on average; lower for European and

Japanese• Rosalie Tung: Reasons

– Selection is based on headquarter criteria– Lack of training, preparation, orientation– Alienation/lack of support from headquarters– Inability to adapt to local culture/work enviro– Problems with spouse,family– Compensation– Poor programs fro career support/repatriation

197


Asia Pacific Journal of Human Resource Management – Stedham/Nechita paper – Comparing Theory and Practice of Expatriate Assignments

Reduce the number of uncertainties and increase the ability to deal with uncertainties- Anticipatory and in-country adjustmentSelection – Criteria: Ability to adjust. Strategic purpose of the assignment (coordination, control, info exchange, management development). Similarity of current job. Conflict resolution skills. Methods: Include spouse and family.Training: Reduce the number of uncertainties and increase skills to cope with uncertainties. Contingency factors: cultural toughness, communication toughness, job toughness. Trg rigor, techniques, duration and content.Repatriation: Uncertainties .. Continuous contact. External validation.

198


TrainingCultural toughness – China, Brazil, India, Japan, Russia, Mexico, Saudi Arabia, South Korea, FranceLess than 1/3 of expatriates receive trainingPre-departure training, postarrival training, reentry training Culture, language, everyday mattersCross-cultural training to ease the adjustment to the new environment by reducing “culture shock”: a state of disorientation and anxiety about not knowing how to behave in an unfamiliar culture

199


TrainingFour stages of culture shock:• Honeymoon• Irritation and hostility• Gradual adjustment• Biculturalism

Training techniques and Rigor of training• Area studies• Culture assimilators• Language training• Sensitivity training• Field experiences

200


Training – ExamplesABB (Asea Brown Bovari) rotates 500 managers around the world .. Every two to three yearsPesiCo orientation program for foreign managers … one year at U.S. bottling division plantsHonda of America Japanese language, culture, lifestyle training .. Tokyo up to 3 yearsGE engineers and managers must have global perspective .. Regular language and cross-cultural training

201


Compensation$100,000 manager in U.S. -> $300,000 in London, $1mill in Tokyo or StockholmEquity and goodwillPurchasing power and standard of livingTax differentials and tax equalizationBalance sheet approachAllowances – Cost of living, housing, education, home leave, shipping and storage

Repatriation

202

For next class: The Expatriate AssignmentYou have been assigned as the mentor to an employee, Klaus Schmidt, from Germany who will be working with you in your department for the next three years. His family, wife who is a computer programmer, and two sons (13 and 15 years old), is coming with him.

You are writing to John telling him about what to expect – on the job and in the community. Tell him about some of the cross-cultural conflicts he may run into with his co-workers and how he should handle them. You also want to give advice to each family member.

Groups of four – make a list of relevant issues. Any assumptions?

203

Expatriate AssignmentWhy expatriates?

Culture shock - cross-cultural adaptation

Failure of U.S. expats

Strategic purpose/involve HRM

Selection: Technical skills/Adaptation skills/Family and Spouse

Training: When? Purpose? Type - rigor/methods

Repatriation: Communication and Valuation

204

Recommendations

Purpose: Reduce uncertainty, create realistic expectations, and increase coping skillsUse cultural characteristics Hofstede dimensionsMake recommendations related to work and nonworkReno-specific recommendations

205

RecommendationsCultural characteristics

Social stratification: Money vs education – Religion: Many different, separation of church and state vs Protestant and catholic – Education: Emphasis, access, system – big differences!! – Political and economic philosophy – LanguageProvide recommendations related to work and non-work (husband, wife, children)

Hofstede dimensionsDifferences in uncertainty avoidance and individualismImplications for work and non-work: Decision-making, leadership, role of manager, risk-taking, creativity and innovation; freedom and discretion;

206

Strategic Planning

Strategy – Defined:• The science

• and art

• of conducting military campaign

• on a broad scale.

• A plan or technique for achieving some end.

207

Strategic management

•set of decisions and

•subsequent actions

•used to formulate and

•implement strategies that will

•optimize the fit between the organization and its environment

•in an effort to achieve organizational effectiveness.

208

Strategy and the Firm

Purpose of any business: Provide products or services that are desired by society and, hence, to make a profit

Profit = Revenue - Cost

Profit = Volume * Price - Cost

209

Profit: If the price the firm can charge for its output is greater than its costs of producing that output.

210

Profit

To do this, a firm must produce a product that is valued by consumers.

211

Value

Thus the firm must engage in value creation.

212

Value to Customer

The price that consumers are willing to pay indicates the value/worth of the product to the consumer.

213

Strategy

Porter, 1985 - Strategy Model (Distinguish from Porter’s Diamond - National Competitive Advantage)

214

Strategy

Firms can increase profit in two ways:

1. adding value to a product so that consumers are willing to pay more for it (improve quality, provide service, customize product to consumer needs)

2. by lowering the costs of value creation (perform value creation activities more economically).

215

The firm is a value chain

composed of a series of distinct value creation activities

Value creation activities1. Primary activities

Production and marketing

2. Support activities

Materials management, R&D, Human resource management

216

Strategy - Michael Porter

Strategy: The

•steps a firm takes

•to ensure that the cost of value creation are reduced and

•that value creation activities are performed in such a way that consumers are willing to pay more for the product than it costs to produce it.

217

Strategy and Global ExpansionPerforming certain value creation activities may

have two benefits for the value chain1. Lower the cost of value creation2. Improve the quality of the product - create more

value

Perform value creation in “best” location

Firms realize location economies by dispersing particular value creation activities to those locations where they can be performed most efficiently and effectively.

218

Location economies and/or experience economies:

Basing each value creation activity that the firm performs

at the location where economic, political, and cultural conditions,

including relative factor costs,

are more conducive to the performance of that activity.

Consider transportation costs (weight-to-value ratio) and trade barriers.

219

Strategy and Global Expansion

Firms that expand to international markets will gain greater returns from their

distinctive skills or core competencies.

Core Competencies - Skills within the firm that competitors cannot easily match or imitate.

Examples.

220

Strategy and Global Expansion

Constrains on transferring core competencies result from the need for local responsiveness

Need for local responsiveness results from national differences in consumer tastes and preferences, business practices, distribution channels, competitive conditions, and government policies - these constrain the firm's ability to transfer core competencies and realize location economies.

221

Strategy of an international organization

• concerns identifying and

• taking actions that will

• reduce the cost of value creation and/or

• will add value

• by better serving the consumer needs

• through transferring core competencies and

• realizing location economies taking

• into account national differences.

222

Strategic Predispositions

Ethnocentric:

strategic decisions are made at headquarters,

key jobs at both domestic and foreign operations

are held by headquarters management personnel (PCN's).

223

Polycentric: the MNC's subsidiaries are treated as distinct national entities with extensive decision-making autonomy

(HCN's mane the foreign operations).

Geocentric: tries to worldwide integrate business strategy

and decision-making.

Regiocentric:

reflects the geographic structure of the MNC.

224

Strategic Predisposition’s

Ethnocentric Polycentric Regiocentric Geocentric

Mission Profitability (viability)

Public acceptance (Legitimacy)

Both Both

Strategy Global Integration

National responsiveness

Regional integration national responsiveness

Global integration and national responsiveness

Culture Home country Host country Regional Global

225

Strategic Planning Process

External Scanning and Internal Scanning (SWOT)

Opportunities/Threats Strengths/Weaknesses

Vision, Mission, Goals, Objectives, Strategies

Strategy Implementation

226

Three Traditional Strategies (Bartlett/Goshal, 1989)

Multinational Strategy:

focus on cost reduction and product standardization that is marketed worldwide.

International Strategy:

limited local responsiveness, focus on transfer of valuable skills and products where indigenous competitors lack those skills and products.

Multidomestic Strategy:

like international but extensive local responsiveness.

227

Pressures for Local Responsiveness

1. Differences in consumer tastes and preferences

2. Differences in infrastructure and traditional practices

3. Differences in distribution channels

228

Termpaper PrepIntegration of Course Material

1. The purpose of your paper is to report the cost-benefits-risk associated with internationalizing into “your” country. At this point, what do you know about the cost, benefits, risk associated with “your” country?

2. The first section in your country analysis is an assessment of the external environment to determine cost-benefits-risk. What aspects of the environment will you review? What of the material that we have covered in class will you be using for that assessment?

3. What is the population size of “your” country? What is the GDP/capita?

4. How will you address the cultural aspects of “your” country? Is “your” country culturally tough for Americans?

5. We will now start reviewing the internal environment of an international organization. You will be reporting on the components of the internal environment in businesses in your country and determine the associated cost-benefits-risk. Give examples of the issues that will have to be addressed in this section of the report.

229


2. The first section in your country analysis is an assessment of the external environment to determine cost-benefits-risk. What aspects of the environment will you review? What of the material that we have covered in class will you be using for that assessment?

See syllabus page 11 – land, government, politics, economic structure, culture Trade agreements, Porter’s Diamond, Globalization - democracy, free market system, Political risk – issues, ratings, transparency index, risk management; elections –upcoming or recent; Education – access and type, importance; FDI clusters; the Triad

4. How will you address the cultural aspects of “your” country? Is “your” country culturally tough for Americans?Characteristics – social stratification etc; you could cover education here; language; religion here or earlierHofstede dimensions – discussion

230


5. We will now start reviewing the internal environment of an international organization. You will be reporting on the components of the internal environment in businesses in your country and determine the associated cost-benefits-risk. Give examples of the issues that will have to be addressed in this section of the report. Implications for management and cost/benefits StrategyBehavior – Group and Individual

LeadershipMotivationCompensation

ProcessesCommunicationDecision-makingHR processes

StructureHierarchical versus openFormal versus informal

CultureSee Hofstede material on organizational culture

231

Self-Assessment (Group) for Termpaper and Peer Evaluation

Rubric will be provided to students Completed self-assessment of the paper must be submitted when the termpaper is handed inEach group members evaluated each group memberCompleted form to be submitted with the termpaper

232

Quiz #5

Deresky Chapter 4 – Communication: pg 117 stories and culturegrams.com; 125-127 nonverbal; 127-128 context; 128 Asia; 129-130 Arabs; 136-138 IndiaChapter 5 – Negotiation: pg 149-154 process 5 stages; 161-165 China; 169-171 Decision-making in Japan

Adler – Cross Cultural Misinterpretation: pg 79-91

233

Privatization

http://www.privatizationbarometer.net/

Register but free

Library – ask business librarian for help

234

The Internal Environment of an International Organization

CulturePeopleProcessesStructure

235

Organizational Culture

What is it?Relevance? Why is it important?Where does it come from?What happens when two companies merge? Boeing-McDonnel Douglas; GE and Bently NVWhat happens when two companies from different countries merge?

236

Organizational Culture•What is organizational culture?

– The shared values, beliefs, norms, and patterns of behavior in an organization.

•Schein's Three Layer Model:– Artifacts, Values,Basic Assumptions

•Measurement of organizational culture

– In the workplace cultural differences are accounted for by work practices.

237

Dimensions of Organizational Culture

1. Process ↔ Results oriented

2. Tight ↔ Loose Control

3. Job ↔ Employee oriented

4. Parochial ↔ Professional oriented

5. Closed system ↔ Open system

6. Normative ↔ Pragmatic

238

Organizational Culture, Processes, and Structure

Structure Communication Decision Making Reward

Process OrientedResults OrientedJob OrientedEmployee OrientedParochialProfessionalClosed SystemOpen SystemTight ControlLoose ControlNormativePragmatic

239

Organizational CultureCreating and changing the culture of an organization?

National and Organizational Culture

Organizations in Japan, Germany, the U.S. are likely to have which org. culture characteristics?

The Organizational Culture of a MNC

A universal org. culture?

240

BehaviorIndividual Behavior

P = f (A, M)

Motivation defined!

Homeostasis---applied to psychological needs

MotivationTheories --- Applicability across cultures?? Content Theories

Maslow’s Need Hierarchy Two Factor Theory of Motivation McClelland Achievement Motivation

241

Motivation Theories in the International Context

How applicable are motivation theories proposed by Maslow and Herzberg in the international context?

242

Motivation Theories in the International ContextHaire, Ghiselli and Porter’s survey concluded that Maslow’s needs, in particular the upper-level ones, are important at the managerial level

Ronen concluded that need clusters are constant across nationalities and that Maslow’s need hierarchy is confirmed by these clusters. Also, Herzberg’s categories are confirmed by the cross-national need clusters.

243

Behavior Process Theories

Equity Theory of Motivation Goal - Setting Expectancy Theory of Motivation

valence

Effort Performance Outcome

expectancy instrumentality

244

Motivation and Hofstede

High UNC - job securityLow UNC - fast-track, more risky opportunities

Low POW - motivation through teamwork and peersHigh POW - motivation depends on boss

High IND - motivation through opportunities for individual advancementLow IND - motivation through appeals to group goals and support

High MASC - comfortable with traditional division of work rolesFeminine - looser definition of roles, more flexible

245

Reinforcement Theory

Applicability?Assumptions??Behavior is a function of its consequences

246

The Meaning of Work

Tied to economic necessity

What else?

247

Work Centrality

Work centrality “the degree of general importance that working has in the life of an individual at any given point in time.”

Mean work centrality score increases, the more motivated and committed the workers would be.

248

The Meaning of WorkExample - Thai:

work = ngan; same word as the word for play

Work centrality - relative importance of work

249

The Meaning of Work

Six functions of work: –needed income, – interesting & satisfying, –contact with others, –serve society, –keeps one occupied, –status and prestige

These may be satisfied through other aspects of life

250

Study results

Britain (lowest), Germany, Netherlands, Belgium, USA, Israel, Japan

(page 411)

251

Work Centrality8.0

7.75

7.5

7.25

7.0

6.75

6.5

6.25

6.0

Japan (7)

(former) Yugoslavia (5)

Israel (4)USA (3)

Belgium (1)

Netherlands (1)Germany (1)

Britain (0)

7.78

7.30

7.106.94

6.816.69

6.67

6.36

N = 3144

N = 521

N = 893N = 996N = 446

N = 976N = 1276

N = 409

Numbers in parentheses indicate the numberof countries significantly lower (p<0.05) inwork centrality than the country designated

Work ismoreimportantand morecentral inlife

Mean workcentrality score

252

Group Behavior Group effectiveness = individual

behavior + Mature group = effective group Stages of development (F, S, N, P)

Two main characteristics for the analysis of groups Leadership Composition

253

Leadership

Which Hofstede dimension?

Types of leadership styles: autocratic, participative, group

authoritarian, democratic, laissez-faire

Theory X, Theory Y

254

Leadership Research

Traits, Behaviors, Contingency approach Kouzes and Posner: Challenging the

process, inspiring shared vision, enabling to act, modeling the way, encouraging the heart

Across cultures: Haire, Ghiselli, Porter

South-European and Nordic-European --- more autocratic, more Theory X

South-European give a little more autonomy to employees in working out details

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Smaller companies participative Japanese Theory Y --- employees learn from mistakes

Germans Theory X --- autocratic, stop poor performance asap

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Culturally-Contingent Beliefs Regarding Effective Leadership Styles

Country N Charisma Team Self- Part. Humane Auton. Protective

Austria 169 6.03 5.74 3.07 6.00 4.93 4.47Brazil 264 6.01 6.17* 3.50 6.06* 4.84 2.27China 160 5.57 5.57 3.80 5.05 5.18 4.07Denmark 327 6.01 5.70 2.82 5.80 4.23 3.79England 168 6.01 5.71 3.04 5.57 4.90 3.92India 231 5.85 5.72 3.78 4.99 5.26* 3.85

Japan 197 5.49 5.56 3.61 5.08 4.68 3.67Mexico 327 5.66 5.75 3.86* 4.64 4.71 3.86Russia 301 5.66 5.63 3.69 4.67 4.08 4.63*USA 399 6.12* 5.80 3.16 5.93 5.21 3.75

Scale 1 to 7 in order of how important those behaviors are considered for effective leadership (7 = highest)

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Culturally-Contingent Beliefs - Effective Leadership Style

Americans appreciate two kinds of leaders. They seek empowerment from leaders who grant autonomy and delegate authority to subordinates. They also respect the bold, forceful, confident, and risk-taking leader, as personified by John Wayne.

The Dutch place emphasis on egalitarianism and are skeptical about the value of leadership.

Terms like leader and manager carry a stigma. If a father is employed as a manager, Dutch children will not admit it to their schoolmates.

Arabs worship their leaders – as long as they are in power!

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Culturally-Contingent Beliefs Regarding Effective Leadership Styles(contd.)

Iranians seek power and strength in their leaders.

Malaysians expect their leaders to behave in a manner that is humble, modest, and dignified.

The French expect their leaders to be “cultivated” – highly educated in the arts and in mathematics.

R. House, et al.

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Group Composition --- Multicultural Teams

Impact of cultural diversity on group performance?

group productivity = f(task, resources, process)

actual productivity = potential productivity - losses due to faulty process

actual productivity or =

potential productivity or - losses or

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Benefits associated with cultural diversity:

# of alternatives generated; quality of alternatives; creativity/divergence; no groupthink

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Process Losses: potential for miscommunication increases;

cohesiveness decreases; negative attitudes (dislike, mistrust);

perceptual problems (stereotyping); stress

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Managing team effectiveness:

Multicultural teams have the potential to be the most or the least effective teams

Group development stages: entry, work, action

Task: innovative or routine

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Manage culturally diverse teams through:

task-related selection recognition of differences super-ordinate goals equal power mutual respect feedback

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Communication - Macro - LevelCommunication Flows

upward/downward

formal/informal

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Communication: Micro - LevelMicro (Interpersonal) Level

Definition: Transmission of meaning through the

use of common symbols

Sender -> Message -> Receive(Encoding) (Medium)

(Decoding)

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Communication: Micro - LevelInterpersonal communication Process

encodingmessagedecoding

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Communication: Micro - Level

Communication barrierslanguagePerception - stereotypingculturenonverbal communicationprojected similarityparochialism

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Micro -LevelExplicit vs Implicit CommunicationHigh vs low contextHigh vs low contact

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Micro -Level

Non-verbal communicationBody LanguageEmblemsIllustratorsAffect DisplayRegulators/AdaptorsSpace (proxemics)TouchVoiceDermal Code

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Decision Making in an International Organization

•Relevance: Quality of decisions

Organizational

Effectiveness

Differences across Cultures?

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DM Process and Culture

1. Setting Objectives

2. Problem Recognition

3. Information Search

4. Alternative Generation

5. Choice

6. Implementation

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International Negotiations

Definition:The process in which at least two

partners with different needs and viewpoints try to reach an agreement that is acceptable to all on matters of mutual interest

-> International managers spend more than 50% of their time negotiating

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Recommendations (Fisher and Ury "Getting to Yes"):

1. Separate the people from the problem

2. Focus on interest, not position

3. Insist on objective criteria

4. Invent options for mutual gain

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Apply the following models to summarize and remember the relevant information about the countries we discussed:

Porter Diamond: National competitive advantage

Existence and importance of basic factors? Existence and importance of advanced factors?

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Course Summary1. ==> Europe? Asia? Latin America? Australia?

Specific countries?

2. Internationalization Strategy: Generalizations??

3. Purpose of internationalization1. Market growth (pop size; income)

2. Value creation activities (labor cost, exp.)

4. Benefits = Location economies

(transportation cost)

1. Political Risk .... South America? Asia? Europe?

2. Cost … Management - cultural differences ...1. religion, education; Hofstede and Trompenaars

2. ==> Generalizations across countries/regions??

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Culture

MultipleEconomy

Multiple SocialEnvironment

TechnologicalEnvironment

PoliticalEnvironment


People

Processes Structure

BusinessStrategy

Culture

Effectiveness

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Managing the International Organization• 1.External Environment ... Porter Diamond; Status Quo;

Culture (Hofstede)

• 2.Strategy ... Value creation activities; Location economies

• 3.Internal Environment ... Behavior: Individual (Motivation) and Group (Leadership; Multicultural Teams)

Processes: Communication -- Macro (communication flow); Micro (communication process); Next -- Nonverbal communication -- Decision Making

; Negotiation; HR Processes (The Expatriate Assignment).

Documents

1 International Management MGT 480/680 - Fall 2007 Dr. Yvonne Stedham