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BAD: Social/political activists say globalisation is a bad thing, MNCs run roughshod over local nuances to exploit markets, trample local culture, extract resources and money in a colonial type way, leaving developing countries victimized. (Naomi Klein)

GOOD: Others say that globalisation has lifted millions out of poverty (Jagdish Bhagwati)

THE WORLD IS FLAT: technology is a great equalizer, allowing a start-up in India to compete with an established MNC (Thomas Friedman) THE WORLD IS SPIKY: regions and mega-urban areas mean the world is spiky not flat (Richard Florida, Pankaj Ghemawat)

WORLD SOCIETY / TRANSNATIONAL GOVERNANCE : increasing irrelevance of the nation state

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Quote 1 = ‘world society’ literature argues that a cultural and institutional web of world society is equivalent to a centralized, state-like global power. This stateless, rational, organized and universalist construction speeds diffusion of standardized models. Quote 2 = battlefields of ideas, where powerful institutional forces rather than small gods constitute a transnational culture. The forces are scientisation, marketisation, formal organising, moral rationalization, and reinvented democratization. Results in a transnational culture of soft, voluntary rules adapted to local conditions, through “battlefields” of negotiations. “[Globalised organization]…is not about the evolution of more complex organisational structures…and people playing the part of ordinary ‘men’, with their feet firmly on the ground. Rather [it is] about people playing the roles of small gods as they carry universal visions of rationality and empowered human actorhood in an…increasingly global world.” (Meyer et al.) “The transnational world is [characterised by]….an explosion of rules and [a] profound reordering of the world….We approach regulation as a complex compound of activities bridging the global and the local and taking place at the same time within, between and across national boundaries.” (Djelic & Sahlin-Andersson, 2006:1,3) Examples: Basel II Capital accord, ISO 9000

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Almost hysterical sensibilities in the debate on globalization, but let’s step back and ask a simple question: whether we think globalization is good/bad/inevitable all of the above, how globalized is the world really? Is the world really an apocalypse of globalization? Major themes: growth fever, enormity, statelessness, ubiquity, one-size-fits-all

Some large businesses derive most of their revenues globally: HSBC, Cemex.

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Globalisation has a macro level “grease of commerce” and a micro level “friction of culture”, and somehow as globalists we need to find a way to make sense of this.

This is a good moment to remind ourselves of what multinationals do, because there are some broad lessons to be learned. They play a game of global chess, moving resources around the world, and striking a balance between the need for integration (standardization of products) on one side, and responsive (adaptation to local context). The argument for standardization is convergence of tastes (see Levitt, 1983).

On the other hand, it would seem logical enough to be responsive, but the problem is it is very expensive. There is a great deal of trial and error and organizational learning that goes on. Some firms are better than others at learning from their international experiences and building a global strategy from that learning (Casillas et al., 2010)

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(Figure copied from Ghemawat, 2007)

AAA (aggregation, adaptation, arbitrage) is a tool for global strategy.

Aggregation – standardization, centralization, economies of scale. Same product is offered everywhere, group together development and production processes.

Adaptation – responsive to local context e.g. product is tailored to local needs everywhere – establish a local unit that carries out all the steps of the value chain.

Arbitrage – offshoring, or otherwise optimizing the balance between aggregation and adaptation. Exploit differences between national or regional markets – disperse supply chain globally e.g. call centres in India, factories in China, and retail in Europe or America.

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(Figure adapted from Ghemawat, 2007) For ease of our use and application in this course, the SALE framework reinterprets AAA.

S = STANDARDIZATION (aggregation) – standardization, centralization, economies of scale. Same product is offered everywhere, group together development and production processes.

A = ADAPTATION (adaptation) – responsive to local context e.g. product is tailored to local needs everywhere – establish a local unit that carries out all the steps of the value chain.

LE = LOCATIONAL EFFICIENCY (GLOBAL VALUE CHAIN) (arbitrage) – offshoring, or otherwise optimizing the balance between aggregation and adaptation. Exploit differences between national or regional markets – disperse supply chain globally e.g. call centres in India, factories in China, and retail in Europe or America.

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Extending our practical sense of globalization and how we move around the world, it makes sense to start with the basics of trade as we formulate strategy using the AAA framework. Certain services are incredibly protectionist - lawyers for example. EU membership allows freedom of movement, can set up business and move staff in one country or another. Contrast with Japan or China where you may need to spend several years on the ground just getting to know the regulators. Does NAFTA have the same effect?

Physical vs. Psychological Closeness (Hisrich 2010): similarity in cultural, political, legal, and economic systems, home country versus its foreign outlets. Does psychological closeness actually makes a foreign market the best opportunity for the venture. • The physical and psychological proximity based on reality or perception? Good cultural understanding helps, but results may be invisible • Psychological proximity can make a market easier to enter and can help identify the first foreign market to enter. • Similarities with other entrants in the foreign market exist, since there are common bonds in having made the entry (especially with entrepreneurs).

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Organizational structure issues: • Allocation of responsibilities, HQ vs foreign operations • Nature of the planning, reporting, and control systems in int’l operations. • Appropriate organizational structure for conducting international operations. Operational planning: • The potential degree of standardization - do current products meet the demands of the new market or develop new ones? • Selecting right products, distribution channels, pricing etc. including whether the products are affordable for the market • Banking methods – ease of repatriating profits?

Must decide on marketing, bringing the product to market, pricing. Thus, must address basic wants of the customer - what needs satisfied by company’s products in target markets, benefits to customer. Without proper coordination and controls, customer needs will not be met.

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• At the start, the global strategist may rely on a limited circle of advisors and partners to aid in controlling operations at home for the international markets. • The larger size and complexity of the business makes it more difficult for all decisions to be made back in the home office. At this point the local office becomes more independent and is free to make its own business decisions. • Once this process of decentralization has expanded to several different markets, it becomes very difficult to control and manage as one office might be acting in conflict with another, and information is slow to make it back to the home office. At this point control is brought back to the headquarters and systems and controls are implemented to improve the communication structure and process. • Example of banking - how much control should country head have? (Hisrich, 2010)

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Think about the NetCustomer case and where the potential for change blockers might arise.

What are some examples of change blockers with foreign companies operating in Mexico?

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•  Product in one market may not be suitable in another market with differing cultural norms and behaviors. Or perhaps the packaging and the marketing will have to be altered in order for it to be accepted (in Canada must be English/French). • In some countries, businesspeople have a very direct style (US), while in others, small talk first (MiddleEast). Consensual/collective style takes longer. • East Europeans, Japanese, and Germans are very punctual, whereas flex time in Latin countries, South Asia, SE Asia. • Non-verbal, intercultural (mis) communication, business complications and social embarrassment. HSBC has turned this into an ad campaign

• Never touch Thai on head • 7= bad luck in Kenya, good luck Czech Republic, magic in Benin. 10=bad luck in Korea, 4=death in Japan and China. • In Bulgaria nodding yes means no, • The "okay" sign in US, France=0, Japan=money, Brazil=vulgar

• Proper use of names and titles is often a source of confusion in international business relations. Europeans formal,”Herr Direktor”. US, hi Bob. Indonesia “Pak”. Etc. Mexico? • Gift giving important in Japan, gifts usually exchanged at the first meeting. In sharp contrast, gifts are rarely exchanged in Germany and are usually not appropriate. Indonesian public sector=bribes. When, where to present gifts also important • Business cards- pocket immediately? In Japan, digest thoughtfully. Understanding cultural differences minimizes disruptions (Hisrich, 2010)

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Language - high context vs. low context cultures. Low-context = northern European, words and language express themselves. High-context cultures use body language, facial expressions etc. (Argentina, China, English). Social-structure - English class system. Social hierarchy in Japan/Korea. Education - not just about getting one, but in what? China, Japan and India emphasize math and science much more. In US/Canada aspire more to service rather than creation (law, accounting etc.) Manners and customs - people are idiosyncratic, reflecting thousands of inputs and programming. Hofstede’s cultural dimensions: 1.  Power distance - gap between least and most powerful 2.  Individualism - how decisions are made. Group mentality = unyielding loyalty,

unquestioning. 3.  Masculinity - Middle East, Lat Am? Prime ministers reflect it differently 4.  Uncertainty avoidance - avoidance cultures follow strict rules, don’t openly

accept opinions separate from their own. Conversely, societies with few rules where people have difficulty expressing their emotions

5.  Long-term orientation - emphasize thrift and perseverance, whereas short-term respects tradition, social obligations, and ‘face’.

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