BMFP 4512 Chapter-13 International Management

8/14/2019 BMFP 4512 Chapter-13 International Management

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44INTERNATIONAL MANAGEMENTINTERNATIONAL MANAGEMENT

Ir. HaeryIr. Haery SihombingSihombing /IP/IPPensyarah PelawatFakulti Kejuruteraan Pembuatan

Universiti Teknologi Malaysia Melaka

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THE GLOBAL ENVIRONMENTTHE GLOBAL ENVIRONMENTTHE GLOBAL ENVIRONMENT

In the past, managers have viewed theIn the past, managers have viewed theglobal sector as closed.global sector as closed.

Each country or market was assumed to be isolated fromEach country or market was assumed to be isolated from

others.others.Firms did not consider global competition, exports.Firms did not consider global competition, exports.

TodayToday s environment is very different.s environment is very different.Managers need to view it as an open market.Managers need to view it as an open market.

Organizations buy and sell around the world.Organizations buy and sell around the world.Managers need to learn to compete globally.Managers need to learn to compete globally.


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Global Strategies and the

Multinational Corporation

Global Strategies and theGlobal Strategies and theMultinational CorporationMultinational Corporation

Implications of International Competition for IndustryImplications of International Competition for IndustryAnalysisAnalysisAnalyzing Competitive Advantage within an InternationalAnalyzing Competitive Advantage within an InternationalContextContextApplying the FrameworkApplying the Framework

(1) International l(1) International l ocation of productionocation of production(2) Foreign(2) Foreign mm arketarket ee ntryntry strategiesstrategies

Multinational Strategies: Globalization versus NationalMultinational Strategies: Globalization versus NationalDifferentiationDifferentiationStrategy and Organization of the Multinational CorporationStrategy and Organization of the Multinational Corporation

OUTLINE


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The Internationalization Process

The Internationalization Process

International GlobalIndustries Industries

--aerospace --automobiles--military hardware --oil--diamond mining --semiconductors--agriculture --consumer electronics

Domestic Multinational/

Industries Multidomestic--railroads Industries--laundries/dry cleaning --investment banking--hairdressing --hotels--milk --consulting

I n t e r n a t

i o n a l

T r a

d e

I n t e r n a t

i o n a l

T r a

d e

Foreign Direct InvestmentForeign Direct Investment

L O W

L O W

LOWLOW

H I G H

H I G H

HIGHHIGH


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Implications of Internationalizationfor Industry Analysis

Implications of InternationalizationImplications of Internationalizationfor Industry Analysisfor Industry Analysis

INDUSTRY STRUCTUREINDUSTRY STRUCTURELower entry barriers around national marketsLower entry barriers around national marketsIncreased industry rivalryIncreased industry rivalry ------ lower seller concentrationlower seller concentration

------ greater diversity of competitorsgreater diversity of competitors

Increased buyer power: wider choice for dealers & consumersIncreased buyer power: wider choice for dealers & consumers

COMPETITION

Increased intensity of competition

PROFITABILITY

Other things remaining equal, internationalization tends to reduce anindustrys margins & rate of return on capital


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COMPETITIVEADVANTAGE

THE INDUSTRY ENVIRONMENT

Key Success Factors

FIRM RESOURCES& CAPABILITIES

-- Financial resources-- Physical resources-- Technology-- Reputation-- Functional capabilities-- General management

capabilities

THE NATIONAL ENVIRONMENT

-- National resources and capabilities (raw materials;national culture; human resources; transportation,communication, legal infrastructure

-- Domestic market conditions-- Government policies-- Exchange rates-- Related and supporting industries

Competitive Advantage within an InternationalContext: The Basic Framework

Competitive Advantage within an InternationalCompetitive Advantage within an InternationalContext: The Basic FrameworkContext: The Basic Framework


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National Influences onCompetitiveness: The Theory of

Comparative Advantage

National Influences onNational Influences onCompetitiveness: The Theory of Competitiveness: The Theory of

Comparative AdvantageComparative Advantage

A countryA country has ahas a relative efficienrelative efficien cy advantage incy advantage in those productsthose productsthatthat make intensive use of resourcesmake intensive use of resources thatthat are relativelyare relatively

abundant within the country. E.g.abundant within the country. E.g.

Philippines relatively more efficient in the production of Philippines relatively more efficient in the production of footwear, apparel, and assembled electronic products than infootwear, apparel, and assembled electronic products than inthe production of chemicals and automobiles.the production of chemicals and automobiles.

U.S. is relatively more efficient in the production of U.S. is relatively more efficient in the production of

semiconductors and pharmaceuticals than shoes or shirtssemiconductors and pharmaceuticals than shoes or shirts ..

When exchange rates are well-behaved, comparativeadvantage becomes competitive advantage.


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TARIFF BARRIERSTARIFF BARRIERSTARIFF BARRIERS

AA tariff tariff is a barriers to trade.is a barriers to trade.Tariffs are taxes levied upon imports.Tariffs are taxes levied upon imports.These seek to protect jobs in the homeThese seek to protect jobs in the homecountry.country.Other countries usually retaliate.Other countries usually retaliate.

Free trade:Free trade: in a free tradein a free tradeagreement, each country seeks toagreement, each country seeks to

specialize in things they make mostspecialize in things they make mostefficiently.efficiently.

If India is more efficient in making textiles,If India is more efficient in making textiles,and the USA in making computer software,and the USA in making computer software,then each country should focus on these.then each country should focus on these.


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DISTANCE & CULTURE BARIERSDISTANCE & CULTURE BARIERSDISTANCE & CULTURE BARIERS

The second leading cause of trade barriers.The second leading cause of trade barriers.DistanceDistance closed the markets as far as someclosed the markets as far as somemanagers were concerned.managers were concerned.

Communications could be difficult.Communications could be difficult.Languages and cultures were different.Languages and cultures were different.

During the last 50 years, communicationsDuring the last 50 years, communicationsand transportation technology hasand transportation technology hasdramatically improved.dramatically improved.

Jet aircraft, fiber optics, satellites have providedJet aircraft, fiber optics, satellites have providedfast, secure communications and transportation.fast, secure communications and transportation.These have also reduced cultural differences.These have also reduced cultural differences.


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Effects on ManagersEffects on ManagersEffects on Managers

Declining barriersDeclining barriers have opened greathave opened greatopportunities for managers.opportunities for managers.

Managers can not only sell goods and servicesManagers can not only sell goods and services

but also buy resources and componentsbut also buy resources and componentsglobally.globally.Managers now face a more dynamic andManagers now face a more dynamic andexciting job due to global competition.exciting job due to global competition.


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FREE TRADEFREE TRADEFREE TRADE

NAFTA:NAFTA: North American Free TradeNorth American Free TradeAgreement.Agreement.

Abolishes most tariffs Abolishes most tariffs on goods traded betweenon goods traded betweenMexico, Canada and the U.S.Mexico, Canada and the U.S.

Allows unrestricted cross Allows unrestricted cross --border flows of resources.border flows of resources.Many U.S. firms have now invested in Mexico.Many U.S. firms have now invested in Mexico.

This is a manufacturing opportunity.This is a manufacturing opportunity.Wage costs are lower in Mexico.Wage costs are lower in Mexico.

Can serve Mexico with a plant in Mexico and reduceCan serve Mexico with a plant in Mexico and reducefreight.freight.

Managers face new opportunities andManagers face new opportunities andthreats.threats.


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GLOBAL TASK ENVIRONMENTGLOBAL TASK ENVIRONMENTGLOBAL TASK ENVIRONMENT

SuppliersSuppliers

DistributorsDistributors

Customers

CompetitorsCompetitorsForces yieldingForces yieldingOpportunitiesOpportunities

and threatsand threats


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Suppliers & DistributorsSuppliers & DistributorsSuppliers & Distributors

Managers buy products from globalManagers buy products from globalsuppliers or make items abroad and supplysuppliers or make items abroad and supplythemselves.themselves.

Key is to keep quality high and costs low.Key is to keep quality high and costs low.Global outsourcing:Global outsourcing: firms buy inputs fromfirms buy inputs fromthroughout the world.throughout the world.

GM might build engines in Mexico, transmissions inGM might build engines in Mexico, transmissions in

Korea, and seats in the U.S.Korea, and seats in the U.S.Finished goods become global products.Finished goods become global products.

Distributors: Distributors: each country often has aeach country often has aunique system of distribution.unique system of distribution.

Managers must identify all the issues.Managers must identify all the issues.


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Customers & CompetitorsCustomers & CompetitorsCustomers & Competitors

Formerly distinct national markets areFormerly distinct national markets aremerging into a huge global market.merging into a huge global market.

True for both consumer and business goods.True for both consumer and business goods.Creates large opportunities.Creates large opportunities.

Still, managers often must customizeStill, managers often must customizeproducts to fit the culture.products to fit the culture.

McDonald's sells a local soft drink in Brazil.McDonald's sells a local soft drink in Brazil.Global competitors present new threats.Global competitors present new threats.

Increases competition abroad as well as atIncreases competition abroad as well as athome.home.


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Forces in the Global General EnvironmentForces in the Global General EnvironmentForces in the Global General Environment

Political &Legal Systems

Economicsystem

SocioculturalSystem

Forces yieldingForces yielding

OpportunitiesOpportunitiesand threatsand threats


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Political-Legal ForcesPoliticalPolitical -- Legal ForcesLegal Forces

Results from diverse and changing nature of Results from diverse and changing nature of each countrieseach countries political system.political system.Representative democracies: Representative democracies: such as thesuch as theU.S., Britain, Canada.U.S., Britain, Canada.

Citizens elect leaders Citizens elect leaders who make decisions forwho make decisions forelectorate.electorate.Usually has a number of safeguards such asUsually has a number of safeguards such asfreedom of expression, a fair court system,freedom of expression, a fair court system,regular elections, and limited terms for officials.regular elections, and limited terms for officials.Well defined legal system Well defined legal system and economicand economicfreedom.freedom.


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Totalitarian regimes Totalitarian regimes : : a single political partya single political partyor person monopolize power in a country.or person monopolize power in a country.

Typically do not recognize or permit opposition.Typically do not recognize or permit opposition.

Most safeguards found in a democracy do notMost safeguards found in a democracy do notexist.exist.Examples include Iran, Iraq, and China.Examples include Iran, Iraq, and China.

These are difficult to do business with givenThese are difficult to do business with giventhe lack of economic freedom.the lack of economic freedom.Further,Further, human rights issues human rights issues also causealso causemanagers to avoid dealing with thesemanagers to avoid dealing with these

countries.countries.

Political-Legal ForcesPoliticalPolitical -- Legal ForcesLegal Forces


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Economic SystemsEconomic SystemsEconomic Systems

Free market economyFree market economy : : production of goodsproduction of goodsand services is in private ownership.and services is in private ownership.

Production is dictated by supply and demand.Production is dictated by supply and demand.

Command economyCommand economy : : decisions on what todecisions on what toproduce, how much, done by theproduce, how much, done by thegovernment.government.

Most command economies are moving away fromMost command economies are moving away fromthe command economy.the command economy.

Mixed economyMixed economy : : certain economic sectorscertain economic sectorscontrolled by private business, others arecontrolled by private business, others aregovernment controlled.government controlled.

Many mixed countries are moving toward a freeMany mixed countries are moving toward a freeenterprise system.enterprise system.


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Recent TrendsRecent TrendsRecent Trends

Current shift away from totalitarian dictatorsCurrent shift away from totalitarian dictatorstoward democratic regimes.toward democratic regimes.

Very dramatic example seen in the collapse of the Very dramatic example seen in the collapse of the

former Soviet Republic.former Soviet Republic. Also very pronounced in Latin America and Africa. Also very pronounced in Latin America and Africa.

With this shift, has come a strong movementWith this shift, has come a strong movementtoward free market systems.toward free market systems.

This provides great opportunities to businessThis provides great opportunities to businessmanagers on a global level.managers on a global level.Many businesses are investing millions in formerMany businesses are investing millions in formertotalitarian countries to seize these opportunities.totalitarian countries to seize these opportunities.


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Changing Political and EconomicForces

Changing Political and EconomicChanging Political and EconomicForcesForces

Russia1985

Russia1995

Democratic Democratic

PoliticalFreedom

TotalitarianTotalitarianChina1985

China1995

Command Command Market Market Mixed Mixed Economic Freedom

Britain1985

Britain1995

Hungary1985

Hungary1995


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Sociocultural ForcesSocioculturalSociocultural ForcesForces

1.1. National culture:National culture: includes the values,includes the values,norms, knowledge, beliefs, andnorms, knowledge, beliefs, andother practices that unite a country.other practices that unite a country.

2.2. Values:Values: abstract ideas about what aabstract ideas about what asociety believes to be good,society believes to be good,desirable and beautiful.desirable and beautiful.

Provides attitudes for democracy, truth,Provides attitudes for democracy, truth,appropriate roles for men, and women.appropriate roles for men, and women.Usually not static but very slow to change.Usually not static but very slow to change.


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3.3. Norms:Norms: social rules prescribingsocial rules prescribingbehavior in a given situation.behavior in a given situation.

FolkwaysFolkways :: routine social conventionsroutine social conventionsincluding dress codes and manners.including dress codes and manners.MoresMores :: Norms that are central toNorms that are central tofunctioning of society. much morefunctioning of society. much moresignificant that folkways.significant that folkways.More examples include theft, adultery, andMore examples include theft, adultery, andare often enacted into law.are often enacted into law.

Norms vary from country to country.Norms vary from country to country.

Sociocultural ForcesSocioculturalSociocultural ForcesForces


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Individualism

Low Power Distance

Achievement Oriented

Low Uncertainty Avoidance

Short TermOrientation

Collectivism

High Power Distance

Nurturing Oriented

High Uncertainty Avoidance

Long TermOrientation

Hofstedes Model of National CultureHofstedeHofstede ss Model of National CultureModel of National Culture


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2. Power Distance2. Power Distance2. Power Distance

A societyA society s acceptance of differences ins acceptance of differences inthe well being of citizens due tothe well being of citizens due todifferences in heritage, and physical anddifferences in heritage, and physical andintellectual capabilities.intellectual capabilities.

In high power distance societies, the gapIn high power distance societies, the gapbetween rich and poor gets very wide.between rich and poor gets very wide.In low power distance societies, any gap betweenIn low power distance societies, any gap betweenrich and poor is reduced by taxation and welfarerich and poor is reduced by taxation and welfareprograms.programs.

Most western cultures (U.S., Germany, UnitedMost western cultures (U.S., Germany, UnitedKingdom) have relatively low power distance andKingdom) have relatively low power distance andhigh individualism.high individualism.Many economically poor countries such asMany economically poor countries such asPanama, Malaysia have high power distance andPanama, Malaysia have high power distance and

low individualism.low individualism.


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3. Achievement vs Nurture3. Achievement3. Achievement vsvs NurtureNurture

Achievement oriented societiesAchievement oriented societies valuevalueassertiveness, performance, success.assertiveness, performance, success.

The society is resultsThe society is results --oriented.oriented.

NurturingNurturing --orientedoriented value quality of life,value quality of life,personal relationships, service.personal relationships, service.The U. S. and Japan are achievementThe U. S. and Japan are achievement --

oriented while Sweden, Denmark are moreoriented while Sweden, Denmark are morenurturingnurturing --oriented.oriented.


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4. Uncertainty Avoidance4. Uncertainty Avoidance4. Uncertainty Avoidance

Societies and people differ on their Societies and people differ on their willingness to take on risk.willingness to take on risk.Low uncertainty avoidanceLow uncertainty avoidance (U.S., Hong(U.S., HongKong), value diversity, and tolerateKong), value diversity, and toleratedifferences.differences.

Tolerate a wide range of opinions and beliefs.Tolerate a wide range of opinions and beliefs.

High uncertainty avoidanceHigh uncertainty avoidance (Japan and(Japan andFrance) are more rigid and do not tolerateFrance) are more rigid and do not toleratepeople acting differently.people acting differently.

High conformity to norms is expected.High conformity to norms is expected.


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5. Long Term Outlook5. Long Term Outlook5. Long Term Outlook

LongLong -- term outlookterm outlook is based on values of is based on values of saving, and persistence.saving, and persistence.

Taiwan and Hong Kong are cultures that areTaiwan and Hong Kong are cultures that arelonglong --term in outlook.term in outlook.

ShortShort -- term outlookterm outlook seeks theseeks themaintenance of personal stability ormaintenance of personal stability or

happiness right now.happiness right now.France and the U. S. are examples of thisFrance and the U. S. are examples of thisapproach.approach.


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International OptionsInternational OptionsInternational Options

Strategic AlliancesStrategic Alliances : : managers pool resourcesmanagers pool resourceswith a foreign firm and both organizationswith a foreign firm and both organizationsshare the rewards and risks.share the rewards and risks.

Allows firm to maintain control which is a problem with Allows firm to maintain control which is a problem withexporting, licensing, and franchising.exporting, licensing, and franchising.

WhollyWholly --owned foreign subsidiaryowned foreign subsidiary : : firm investsfirm investsin production operations in a foreign country.in production operations in a foreign country.

Many Japanese auto firms have done this in the U.S.Many Japanese auto firms have done this in the U.S.This is very expensive but can yield high returns.This is very expensive but can yield high returns.


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International ExpansionInternational ExpansionInternational Expansion

ImportingExporting

LicensingLicensing

FranchisingFranchisingJoint VenturesJoint VenturesStratStrat . Alliances. Alliances

Wholly-owned For.Subsidiary

Low High Level of Foreign involvement and investment needed by a global organization


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Organization Structure andManagement Systems

Organization Structure andOrganization Structure andManagement SystemsManagement Systems

Evolution of the corporationEvolution of the corporation

Principles of organizational designPrinciples of organizational design

The role of hierarchy: bureaucraticThe role of hierarchy: bureaucratic

control vs. modular integrationcontrol vs. modular integrationAlternative structural formsAlternative structural forms

Management systemsManagement systems

OUTLINE


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Evolution of the Modern CorporationEvolution of the Modern CorporationEvolution of the Modern Corporation

The businessenvironment

Organizationalconsequences

Strategicchanges

Late19th

century

Early19th

century

Early20th

century

Local markets Firms specialized & Small firms.Transport slow focused on local Simple manage-Limited mechanization markets ment structures

Introduction of Geographical and Functional struct-railroads, telegraph vertical expansion ures. Line/staff industrialization separation. Accou-

nting systems

Excess capacity in Product & Development of distribution. Growth multinational multidivisionalof financial institut- diversification corporationions & world trade


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Board of Directors

President Executive Committee

FinancialStaff LegalDepartment GeneralAdvisory Staff GM AcceptanceCorporation

ChevroletDivision

SheridanDivision

Canadian

Division

OldsmobileDivision

GM TruckDivision

GM ExportCompany

CadillacDivision

BuickDivision

Inter-company

PartsDivision

OaklandDivision

SamsonTractor Division

ScrippsBoothCorp.

Source: A.P. Sloan, My Years with General Motors, Orbit Publishing, 1972, p. 57.

General Motors Organization Structure, 1921General MotorsGeneral Motors Organization Structure, 1921Organization Structure, 1921


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The Basic Tasks of OrganizationThe Basic Tasks of OrganizationThe Basic Tasks of Organization

THE ORGANIZATIONAL CHALLENGETHE ORGANIZATIONAL CHALLENGE ::

to design structure & systems that:to design structure & systems that:Permit specializationPermit specializationFacilitate coordination by grouping individuals & linkFacilitate coordination by grouping individuals & linkgroups with systems of communication, decisiongroups with systems of communication, decisionmaking, & controlmaking, & controlCreate incentives to align individual & firm goalsCreate incentives to align individual & firm goals

Achieving high levels of productivity requires SPECIALIZATION

Specialization by individuals necessitates COORDINATION

For coordination to be effective requires COOPERATION

But goals of employees == goals of ownersTHE AGENCY PROBLEM


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Webers Principles of BureaucracyWeber Weber s Principles of Bureaucracys Principles of Bureaucracy

Rational-legal authoritySpecialization of labor

Hierarchical structureCoordination and control through rulesand standard operating procedures

Standardization employment practicesSeparation of jobs and people

Formalization of administrative acts,decisions and rules


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Mechanistic and Organic FormsMechanistic and Organic FormsMechanistic and Organic Forms

FEATUREFEATURE MECHANISTICMECHANISTIC ORGANICORGANIC

Task definitionTask definition Rigid & highly specialized Flexible; lessRigid & highly specialized Flexible; lessspecializedspecialized

CoordinationCoordination Rules & directivesRules & directives Mutual adjustment.lMutual adjustment.l& control& control imposed from the topimposed from the top Cultural controlCultural control

CommunicationCommunication Mainly verticalMainly vertical Horizontal & verticalHorizontal & vertical

CommitmentCommitment To immediate superior To immediate superior To the organization & itsTo the organization & its& loyalty& loyalty goals & valuesgoals & values

EnvironmentalEnvironmental Stable with low techStable with low tech -- Dynamic, ambiguous,Dynamic, ambiguous,contextcontext nological uncertaintynological uncertainty technologicallytechnologically

uncertainuncertain


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Designing the Hierarchy: The Basis for DefiningOrganizational Units and their Relationships

Designing the Hierarchy: The Basis for DefiningOrganizational Units and their Relationships

Units may be defined on the basis of Common Tasks, Products,Geographical Proximity, or Process/Function

Critical issue: Intensity of Coordination Employees with the greatestinterdependence should be grouped into same organizational unit.

Additional criteria: Economies of Scale, Economies of Utilization,Learning, Standardization of Control Systems


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Board of Directors

Presidents Council Corporate Functions

North AmericanOperations

Delphi Automotive Systems

InternationalOperationsGM AcceptanceCorporation

HughesElectronics

Midsize&LuxuryCar Group

SmallCar Group

GMPower TrainGroup

VehicleSales, &MarketingGroup

Development& TechnicalCooperationGroup

GM Europe

Asian &

PacificOperations

Latin American, African, &Middle EastOperation

General Motors Organization Structure, 1997General MotorsGeneral Motors Organization Structure, 1997Organization Structure, 1997


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Corporate Executive OfficeChairman & CEO

Corporate Staff Finance Business R&D Human Legal

Development Resources

GE AircraftEngines

GE Trans-portation

GEIndustrialSystems

GEPlastics

GEAppliances

GESupply

GE Power Systems

GE MedicalSystems

GELighting

GESpecialtyMaterials

NBC GECapital

26 businesses organized into 5 segments:Consumer Mid-market Specialized Specialty EquipmentServices Financing Financing Insurance Management

Service Divisions

General Electrics Organization Structure, 2002General Electrics Organization Structure, 2002


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Overview of the innovation process


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The interaction between developmentactivities and design environment


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The popular view of scienceThe popular view of science


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Conceptual framework of innovation


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Linear models of innovation


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Simultaneous Coupling Model


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Interactive Model of Innovation


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THANK YOUTHANK YOU

Documents

BMFP 4512 Chapter-13 International Management