Management, Hitt, Black, Porter, Vahdi Boydaş, Mensur Boydaş

PowerPoint slides by

Susan A. Peterson, Scottsdale Community College

PowerPoint slides by

Susan A. Peterson, Scottsdale Community College

Chapter 3:

International Management and Globalization

Chapter 3:

International Management and Globalization

m a n a g e m e n t 2eH i t t / B l a c k / P o r t e r

m a n a g e m e n t 2eH i t t / B l a c k / P o r t e r

© 2008 Prentice-Hall Business Publishing 2

Learning ObjectivesLearning Objectives

After studying this chapter, you should be able to: Explain what globalization is and how it affects

firms and countries. Identify and differentiate the two major elements of

the global environment. Name and explain the three major dimensions of an

institutional environment Define the term culture and identify four primary

cultural dimensions. Describe the five international market entry

strategies and explain when each should be used.

After studying this chapter, you should be able to: Explain what globalization is and how it affects

firms and countries. Identify and differentiate the two major elements of

the global environment. Name and explain the three major dimensions of an

institutional environment Define the term culture and identify four primary

cultural dimensions. Describe the five international market entry

strategies and explain when each should be used.


Learning ObjectivesLearning Objectives

Explain the three types of international organization focus

Discuss the benefits and challenges of managing across cultures

Describe how to effectively manage multicultural teams

Define the term global mindset and explain its importance for managers

Explain the three types of international organization focus

Discuss the benefits and challenges of managing across cultures

Describe how to effectively manage multicultural teams

Define the term global mindset and explain its importance for managers


GlobalizationGlobalization

Globalization:

Is the flow of goods and services, capital, and knowledge across country borders

Enhances economic interdependence among countries and organizations

Allows both small and large firms from developed and less developed economies to compete

Globalization:

Is the flow of goods and services, capital, and knowledge across country borders

Enhances economic interdependence among countries and organizations

Allows both small and large firms from developed and less developed economies to compete


Country’s Institutional EnvironmentCountry’s Institutional Environment

Institutional environment: the country’s rules, policies, and enforcement processes

Three dimensions:

Economic development dimension

Political-legal dimension

Physical infrastructure dimension

Institutional environment: the country’s rules, policies, and enforcement processes

Three dimensions:

Economic development dimension

Political-legal dimension

Physical infrastructure dimension


Country’s Institutional Environment:Economic DimensionCountry’s Institutional Environment:Economic Dimension

Economies are classified as either:

Developed economies Larger economies with

effective capital markets

Emerging economies Rapidly growing with

underdeveloped capital markets

Developing economies Weak economies with little

capital available for growth

Economies are classified as either:

Developed economies Larger economies with

effective capital markets

Emerging economies Rapidly growing with

underdeveloped capital markets

Developing economies Weak economies with little

capital available for growth


Country’s Institutional Environment:Political-Legal DimensionCountry’s Institutional Environment:Political-Legal Dimension

Includes country’s political risk, regulations, laws, and enforcement

Governments develop laws to govern behavior of citizens and organizations

Some “rules” are excessive and discourage foreign investment

Intellectual property rights

Includes country’s political risk, regulations, laws, and enforcement

Governments develop laws to govern behavior of citizens and organizations

Some “rules” are excessive and discourage foreign investment

Intellectual property rights


Country’s Institutional Environment:Physical Infrastructure DimensionCountry’s Institutional Environment:Physical Infrastructure Dimension

Includes amount and quality of roads and highways, telephone lines, and airports

Poor infrastructure makes it difficult for foreign firms to distribute products

Countries wanting foreign investment must develop infrastructure

Includes amount and quality of roads and highways, telephone lines, and airports

Poor infrastructure makes it difficult for foreign firms to distribute products

Countries wanting foreign investment must develop infrastructure


Country’s Institutional Environment ClustersCountry’s Institutional Environment Clusters

Cluster Description Examples

1 Developing and transitional economies. High in regulatory control and low in political rights.

Brazil, Russia, Nigeria

2 Emerging market countries that are more advanced than Cluster 1 but still need to develop institutional dimensions. Higher on political rights but lowest on monetary policy and second highest on investment restrictions.

China, India, Netherlands, Singapore

3 Second highest regulatory controls but high on political rights. Strong physical infrastructures.

Finland, France, Germany

4 Most developed institutional infrastructure with balanced regulatory controls and political rights and strong economic and physical infrastructure.

Japan, the U.S.

Adapted from Exhibit 3.1


Country’s CultureCountry’s Culture

Culture

Learned set of assumptions, values, and behaviors

Accepted as successful

Passed on to newcomers

Begins when a group of people faces a set of challenges

Evolves and changes with time

Culture

Learned set of assumptions, values, and behaviors

Accepted as successful

Passed on to newcomers

Begins when a group of people faces a set of challenges

Evolves and changes with time


Cultural DimensionsCultural Dimensions

GenderFocus

Individualism/Collectivism

UncertaintyAvoidance

PowerDistance

CulturalDimensions


Cultural Dimensions: Power DistanceCultural Dimensions: Power Distance

Extent to which people accept power and authority differences among people

Extent to which people accept power and authority differences among people

High power distance = people accept power differences

Low power distance = people like to regard themselves as more or less equal

High power distance = people accept power differences

Low power distance = people like to regard themselves as more or less equal

PowerDistance

CulturalDimensions


Cultural Dimensions: Uncertainty AvoidanceCultural Dimensions: Uncertainty Avoidance

Extent to which people can accept uncertainty or ambiguity Extent to which people can accept uncertainty or ambiguity

CulturalDimensions

UncertaintyAvoidance

High uncertainty avoidance = prefer clear norms that govern behavior (i.e., avoid uncertainty)

Low uncertainty avoidance = have fewer rules and are comfortable in ambiguous situations (i.e., can accept uncertainty)

High uncertainty avoidance = prefer clear norms that govern behavior (i.e., avoid uncertainty)

Low uncertainty avoidance = have fewer rules and are comfortable in ambiguous situations (i.e., can accept uncertainty)


Cultural Dimensions: Individualism/CollectivismCultural Dimensions: Individualism/Collectivism

Individualism:

Extent to which people’s identities are self-oriented; people take care of themselves and immediate family

High emotional independence

Emphasize and reward individual achievement

Individualism:

Extent to which people’s identities are self-oriented; people take care of themselves and immediate family

High emotional independence

Emphasize and reward individual achievement

Collectivism:

Extent to which a people’s identities are a function of the group(s) to which they belong (family firm, community, etc.)

Emotional dependence on institutions

Emphasize group membership

Collectivism:

Extent to which a people’s identities are a function of the group(s) to which they belong (family firm, community, etc.)

Emotional dependence on institutions

Emphasize group membership

CulturalDimensions



Cultural Dimensions: Gender FocusCultural Dimensions: Gender Focus

Extent to which people in a country value masculine or feminine traits

Extent to which people in a country value masculine or feminine traits

CulturalDimensions

Masculine = activities leading to success, money, possessions

Feminine = activities showing caring of others and enhancing quality of life

Masculine = activities leading to success, money, possessions

Feminine = activities showing caring of others and enhancing quality of life

GenderFocus


Cultural Values and ScoresCultural Values and Scores

Country Power Distance

(a)

Uncertainty Avoidance

(b)


(c)

Gender Focus

(d)

Brazil 5.33 3.60 3.83 3.31

Canada 4.82 4.58 4.38 3.70

China 5.04 4.94 4.77 3.05

England 5.15 4.65 4.27 3.67

France 5.28 4.43 3.93 3.64

India 5.47 4.15 4.38 2.90


(a) Higher scores indicate higher power distance(b) Higher scores suggest more uncertainty avoidance(c) Higher scores indicate greater collectivism(d) Higher scores suggest greater gender equality; lower scores indicate

male domination


Cultural Values and Scores (cont.)Cultural Values and Scores (cont.)

Country Power Distance

(a)

Uncertainty Avoidance

(b)


(c)

Gender Focus

(d)

Japan 5.11 4.07 5.19 3.19

Mexico 5.22 4.18 4.06 3.64

Netherlands 4.11 4.70 4.46 3.50

Poland 5.10 3.62 4.53 4.02

Russia 5.52 2.88 4.50 4.07

United States 4.88 4.15 4.20 3.34


(a) Higher scores indicate higher power distance(b) Higher scores suggest more uncertainty avoidance(c) Higher scores indicate greater collectivism(d) Higher scores suggest greater gender equality; lower scores indicate

male domination


International Market Entry StrategiesInternational Market Entry Strategies

LicensingLicensing

Strategic AlliancesStrategic Alliances

ExportingExporting

Cross-Border AcquisitionsCross-Border Acquisitions

Wholly-Owned SubsidiariesWholly-Owned Subsidiaries

Less RiskLess Risk

More RiskMore Risk



Advantages:

Low cost

Low risk to licensor

Disadvantages:

Potential trade barriers

Establishment of marketing and distributing systems in foreign market

Transportation costs

Smaller returns

Advantages:

Low cost

Low risk to licensor

Disadvantages:

Potential trade barriers

Establishment of marketing and distributing systems in foreign market

Transportation costs

Smaller returns

ExportingExporting

Manufacturing products in a firm’s home country and shipping them to a foreign market.

Manufacturing products in a firm’s home country and shipping them to a foreign market.



LicensingLicensing

Advantages:

Less capital investment

Least amount of risk

Disadvantages:

Licensor has little control over product and use of brand

Smaller returns

Advantages:

Less capital investment

Least amount of risk

Disadvantages:

Licensor has little control over product and use of brand

Smaller returns

Arrangements that allow alocal firm in the new marketto manufacture and distribute a firm’s product.

Arrangements that allow alocal firm in the new marketto manufacture and distribute a firm’s product.



Strategic AlliancesStrategic Alliances

Advantages:

Share costs and risks between partners

Access to resources not previously available

Learn capabilities from partner

Disadvantages:

Management disagreement

Share profits

New types of alliances:

Outsourcing

Offshoring

Advantages:

Share costs and risks between partners

Access to resources not previously available

Learn capabilities from partner

Disadvantages:

Management disagreement

Share profits

New types of alliances:

Outsourcing

Offshoring

Cooperative arrangements between two firms in which they agree to share resources to accomplish a mutually desirable goal.

Cooperative arrangements between two firms in which they agree to share resources to accomplish a mutually desirable goal.



Cross-Border AcquisitionsCross-Border Acquisitions

Advantages:

Fast way to enter foreign market

Can start operations immediately

Disadvantages:

Can cause controversy in local public

Integrating two previously independent companies can be challenging

Targeted acquisitions may cost a premium

Advantages:

Fast way to enter foreign market

Can start operations immediately

Disadvantages:

Can cause controversy in local public

Integrating two previously independent companies can be challenging

Targeted acquisitions may cost a premium

Acquisitions of local firms made by foreign firms to enter a new international market.

Acquisitions of local firms made by foreign firms to enter a new international market.



Wholly-Owned SubsidiariesWholly-Owned Subsidiaries

Advantages:

Maximum control over operations

Buffer assets from competitors in the market

Disadvantages:

Complex, risky and expensive to launch

Must establish relationships with suppliers, buyers, etc.

Must learn about culture and institutional environment on your own

Advantages:

Maximum control over operations

Buffer assets from competitors in the market

Disadvantages:

Complex, risky and expensive to launch

Must establish relationships with suppliers, buyers, etc.

Must learn about culture and institutional environment on your own

Direct investments to establish a business in a foreign market in which the business is 100% owned and controlled by the focal firm; also called Greenfield Venture.

Direct investments to establish a business in a foreign market in which the business is 100% owned and controlled by the focal firm; also called Greenfield Venture.


Managing International Operations:Global FocusManaging International Operations:Global Focus

Global Focus

Important decisions made at home office

Subsidiaries follow same strategies

Advantage:

Economies of scale

Disadvantage:

No flexibility for subsidiaries to make local market decisions

Global Focus

Important decisions made at home office

Subsidiaries follow same strategies

Advantage:

Economies of scale

Disadvantage:

No flexibility for subsidiaries to make local market decisions

SubsidiaryCountry E

SubsidiaryCountry D

SubsidiaryCountry C

SubsidiaryCountry B

SubsidiaryCountry A

HomeOffice

Centralized to home office


Managing International Operations:Region-Country FocusManaging International Operations:Region-Country Focus

Region-Country Focus

Important decisions made by subsidiaries in local markets

Advantage:

Allows subsidiaries to react quickly to changes in marketplace

Disadvantage:

Expensive; difficult for home office to oversee

Region-Country Focus

Important decisions made by subsidiaries in local markets

Advantage:

Allows subsidiaries to react quickly to changes in marketplace

Disadvantage:

Expensive; difficult for home office to oversee

SubsidiaryCountry E

SubsidiaryCountry D

SubsidiaryCountry C

SubsidiaryCountry B

SubsidiaryCountry A

HomeOffice

Decentralized to subsidiaries


Managing International Operations:Transnational FocusManaging International Operations:Transnational Focus

Transnational Focus

Both home office and subsidiaries make important decisions

Advantages:

Good combination of global efficiency and local responsiveness

Outperforms other approaches

Transnational Focus

Both home office and subsidiaries make important decisions

Advantages:

Good combination of global efficiency and local responsiveness

Outperforms other approaches

SubsidiaryCountry E

SubsidiaryCountry D

SubsidiaryCountry C

SubsidiaryCountry B

SubsidiaryCountry A

HomeOffice

Centralized and decentralized


Low- and High-Context CulturesLow- and High-Context Cultures

Cultural context: degree to which a situation influences behavior or perception of “appropriateness”

Neither high- nor low-context cultures are right or wrong, just different

Cultural context: degree to which a situation influences behavior or perception of “appropriateness”

Neither high- nor low-context cultures are right or wrong, just different

HIGH-CONTEXT

People pay close attention to the situation and its

various elements in assessing appropriate

behavior

HIGH-CONTEXT

People pay close attention to the situation and its

various elements in assessing appropriate

behavior

LOW-CONTEXT

Situation may or may not make a difference in what is considered appropriate behavior

LOW-CONTEXT

Situation may or may not make a difference in what is considered appropriate behavior


Low- and High-Context Cultures ExamplesLow- and High-Context Cultures Examples

HIGH-CONTEXT

AmericanCanadianGermanSwiss

ScandinavianEnglish

HIGH-CONTEXT

AmericanCanadianGermanSwiss

ScandinavianEnglish

LOW-CONTEXT

VietnameseChinese

JapaneseKorean

ArabGreek

LOW-CONTEXT

VietnameseChinese

JapaneseKorean

ArabGreek



Managing Multi-Cultural TeamsManaging Multi-Cultural Teams

Challenges to managing multi-cultural teams:

Dependence on electronic communication (virtual teams)

Basic communication issues

Building trust among team members with different values (swift trust: rapid development of trust in teams about task activities)

Challenges to managing multi-cultural teams:

Dependence on electronic communication (virtual teams)

Basic communication issues

Building trust among team members with different values (swift trust: rapid development of trust in teams about task activities)


Developing a Global Mindset Developing a Global Mindset

Global mindset: cognitive attributes that allow an individual to influence individuals, groups, and organizations from diverse socio-cultural and institutional environments

Global mindset: cognitive attributes that allow an individual to influence individuals, groups, and organizations from diverse socio-cultural and institutional environments


Managing GlobalizationManaging Globalization

Arguments FOR globalization:

Creates a more peaceful society

Promotes interest in local traditions and history

Facilitates development of cultural sensitivity and understanding

Cultural change = gain and creativity

Arguments FOR globalization:

Creates a more peaceful society

Promotes interest in local traditions and history

Facilitates development of cultural sensitivity and understanding

Cultural change = gain and creativity


Managing GlobalizationManaging Globalization

Arguments AGAINST globalization:

Promotes homogeneity of cultures

Encourages one bland, uniformed identity for all cultures

Cultural change = loss and destruction

Arguments AGAINST globalization:

Promotes homogeneity of cultures

Encourages one bland, uniformed identity for all cultures

Cultural change = loss and destruction

X

Education

Management, Hitt, Black, Porter, Vahdi Boydaş, Mensur Boydaş