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MBA 531Business in Today’s Global
Environment
Overview of Week 6 Textbook Readings: Chapters 16 - 19
Chapter 16
Exporting, Importing, and Countertrade
16-3
Why Export?
Exporting is a way to increase market size and profits lower trade barriers under the WTO and
regional economic agreements such as the EU and NAFTA make it easier than ever
Large firms often proactively seek new export opportunities, but many smaller firms export reactively often intimidated by the complexities of
exporting
16-4
Why Export?
Exporting firms need to identify market opportunities deal with foreign exchange risk navigate import and export financing understand the challenges of doing business
in a foreign market
16-5
What Are the Pitfalls of Exporting?
Common pitfalls include poor market analysis poor understanding of competitive conditions a lack of customization for local markets a poor distribution program poorly executed promotional campaigns problems securing financing a general underestimation of the differences and
expertise required for foreign market penetration an underestimation of the amount of paperwork and
formalities involved
16-6
How Can Firms Improve Export Performance?
Many firms are unaware of export opportunities available
Firms need to collect information Firms can get direct assistance from some
countries and/or use an export management companies both Germany and Japan have developed extensive
institutional structures for promoting exportsJapanese exporters can use knowledge and contacts
of sogo shosha - great trading housesU.S. firms have far fewer resources available
16-7
Where Can U.S. Firms Get Export Information?
The U.S. Department of Commerce the most comprehensive source of export information
for U.S. firms The International Trade Administration and the
United States and Commercial Service Agency “best prospects” lists for firms
The Department of Commerce organizes various trade events to help firms make
foreign contacts and explore export opportunities The Small Business Administration Local and state governments
16-8
What Are Export Management Companies?
Export management companies (EMCs) are export specialists that act as the export marketing department or international department for client firms
Two types of assignments are common:1. EMCs start export operations with the
understanding that the firm will take over after they are established not all EMCs are equal—some do a better job than
others
16-9
What Are Export Management Companies?
2. EMCs start services with the understanding that the EMC will have continuing responsibility for selling the firm’s products but, firms that use EMCs may not develop
their own export capabilities
16-10
How Can Firms Reduce the Risks of Exporting?
To reduce the risks of exporting, firms should hire an EMC or export consultant to identify
opportunities and navigate paperwork and regulations focus on one, or a few markets at first enter a foreign market on a small scale in order to
reduce the costs of any subsequent failures recognize the time and managerial commitment
involved develop a good relationship with local distributors and
customers hire locals to help establish a presence in the market be proactive consider local production
16-11
How Can Firms Overcome the Lack of Trust in Export Financing?
Because trade implies parties from different countries exchanging goods and payment the issue of trust is importantexporters prefer to receive payment prior to shipping
goods, but importers prefer to receive goods prior to making payments
To get around this difference of preference, many international transactions are facilitated by a third party - normally a reputable bank adds an element of trust to the relationship
16-12
How Can Firms Overcome The Lack Of Trust in Export Financing?
The Use of a Third Party
16-13
What Is a Letter of Credit?
A letter of credit is issued by a bank at the request of an importer states the bank will pay a specified sum of
money to a beneficiary, normally the exporter, on presentation of particular, specified documents
main advantage is that both parties are likely to trust a reputable bank even if they do not trust each other
16-14
What Is a Draft?
A draft an order written by an exporter instructing an
importer, or an importer's agent, to pay a specified amount of money at a specified time the instrument normally used in international
commerce for payment also called a bill of exchange
16-15
What Is a Draft?
A sight draft is payable on presentation to the drawee
A time draft allows for a delay in payment normally 30, 60, 90, or 120 days once a time draft has been “accepted” it
becomes a negotiable instrument that can be sold at a discount from its face value
16-16
What Is a Bill of Lading? The bill of lading is issued to the exporter by
the common carrier transporting the merchandise
It serves three purposes 1. It is a receipt - merchandise described on document
has been received by carrier2. It is a contract - carrier is obligated to provide
transportation service in return for a certain charge3. It is a document of title - can be used to obtain
payment or a written promise before the merchandise is released to the importer
16-17
How Does an International Trade Transaction Work?
A Typical International Trade Transaction
16-18
Where Can U.S. Firms Get Export Assistance?
1. Financing aid is available from the Export-Import Bank (Ex-Im Bank) an independent agency of the U.S.
government provides financing aid to facilitate exports,
imports, and the exchange of commodities between the U.S. and other countries
achieves its goals though loan and loan guarantee programs
16-19
Where Can U.S. Firms Get Export Assistance?
2. Export credit insurance is available from the Foreign Credit Insurance Association (FCIA) provides coverage against commercial risks
and political risks protects exporters against the risk that the
importer will default on payment
16-20
What Is Countertrade?
Countertrade - a range of barter-like agreements that facilitate the trade of goods and services for other goods and services when they cannot be traded for money emerged as a means purchasing imports during
the1960s when the USSR and the Communist states of Eastern Europe had nonconvertible currencies
grew in popularity in the 1980s among many developing nations that lacked the foreign exchange reserves required to purchase necessary imports
notable increase after the 1997 Asian financial crisis
16-21
What Are the Forms of Countertrade?
There are five distinct versions of countertrade
1. Barter - a direct exchange of goods and/or services between two parties without a cash transaction the most restrictive countertrade arrangement used primarily for one-time-only deals in
transactions with trading partners who are not creditworthy or trustworthy
16-22
What Are the Forms of Countertrade?
2. Counterpurchase - a reciprocal buying agreement occurs when a firm agrees to purchase a certain
amount of materials back from a country to which a sale is made
3. Offset - similar to counterpurchase - one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale difference is that this party can fulfill the obligation
with any firm in the country to which the sale is being made
16-23
What Are the Forms of Countertrade?
4. A buyback occurs when a firm builds a plant in a country or supplies technology, equipment, training, or other services to the country agrees to take a certain percentage of the
plant’s output as a partial payment for the contract
16-24
What Are the Forms of Countertrade?
5. Switch trading - the use of a specialized third-party trading house in a countertrade arrangement when a firm enters a counterpurchase or offset
agreement with a country, it often ends up with counterpurchase credits which can be used to purchase goods from that country
switch trading occurs when a third-party trading house buys the firm’s counterpurchase credits and sells them to another firm that can better use them
16-25
What Are the Pros of Countertrade?
Countertrade is attractive because it gives a firm a way to finance an export deal
when other means are not available it give a firm a competitive edge over a firm
that is unwilling to enter a countertrade agreement
Countertrade arrangements may be required by the government of a country to which a firm is exporting goods or services
16-26
What Are the Cons of Countertrade?
Countertrade is unattractive because it may involve the exchange of unusable or poor-
quality goods that the firm cannot dispose of profitably it requires the firm to establish an in-house trading
department to handle countertrade deals Countertrade is most attractive to large, diverse
multinational enterprises that can use their worldwide network of contacts to dispose of goods acquired in countertrade deals sogo shosha
Chapter 17
Global Production, Outsourcing, and
Logistics
16-28
What Are the Main Production Issues for Firms?
International firms must answer five interrelated questions
1. Where should production activities be located? 2. What should be the long-term strategic role of foreign
production sites? 3. Should the firm own foreign production activities or
outsource those activities to independent vendors? 4. How should a globally dispersed supply chain be
managed, and what is the role of Internet-based information technology in the management of global logistics?
5. Should the firm manage global logistics itself, or should it outsource the management to enterprises that specialize in this activity?
16-29
How Are Strategy, Production, and Logistics Related?
Production - activities involved in creating a product
Logistics - procurement and physical transmission of material through the supply chain, from suppliers to customers
16-30
How Are Strategy, Production, and Logistics Related?
Questions: How can production and logistics 1. Lower the costs of value creation?
disperse production to the most efficient locations manage the global supply chain efficiently to better
match supply and demand
2. Add value by better serving customer needs? eliminate defective products from the supply chain
and the manufacturing process
16-31
How Can Quality Be Improved?
Most firms use the Six Sigma program - a direct descendant of total quality management (TQM) aims to reduce defects, boost productivity,
eliminate waste, and cut costs throughout the company
in the EU, firms must meet ISO 9000 standards before gaining access to the EU marketplace
Improved quality reduces costs
16-32
How Can Quality Be Improved?
The Relationship Between Quality and Costs
16-33
Where Should Production Be Located?
Firms should locate production so that production and logistics can be locally
responsive production and logistics can respond quickly
to shifts in customer demand Firms should consider
1. Country factors2. Technological factors3. Product factors
16-34
Why Are Country Factors Important?
Manufacturing should be located where economic, political, and cultural conditions are most conducive to the performance of that activity create a global web of activities global concentrations of activities at certain locations
16-35
Why Are Country Factors Important?
Firms should consider the availability of skilled labor and supporting
industries formal and informal trade barriers expectations about future exchange rate changes transportation costs regulations affecting FDI
16-36
Why Are Technological Factors Important?
Firms should consider 1. The level of fixed costs
if fixed costs are high, produce in a single location or a few locations
when fixed costs are low, multiple production plants may be possible allows firms to respond to local demands
16-37
Why Are Technological Factors Important?
2. The minimum efficient scale the level of output at which most plant-level
scale economies are exhausted when minimum efficient scale is high, choose
centralized production in a single location or a limited number of locations
when minimum efficient scale is low, respond to local market demands and hedge against currency risk by operating in multiple locations
16-38
Why Are Technological Factors Important?
3. The flexibility of the technology flexible manufacturing technology or lean
production reduces set up times for complex equipment increases the utilization of individual machines improves quality control
allows firms to produce a wide variety of end products at a relatively low unit cost
– mass customization – flexible machine cells
16-39
What Should a Firm Do?
Production should be concentrated in a few locations when fixed costs are substantial the minimum efficient scale of production is high flexible manufacturing technologies are available
Production in multiple locations makes sense when both fixed costs and the minimum efficient scale of
production are relatively low appropriate flexible manufacturing technologies are
not available
16-40
Why Are Product Factors Important to Location Decisions? Two product factors impact location decisions1. The product's value-to-weight ratio
if the value-to-weight ratio is high, produce the product in a single location and export to other parts of the world
if the value-to-weight ratio is low, there is greater pressure to manufacture the product in multiple locations across the world
2. Whether the product serves universal needs when products serve universal needs, the need for
local responsiveness falls, and concentrating manufacturing in a central location makes sense
16-41
How Are Location, Strategy, and Production Related?
Location, Strategy, and Production
16-42
What Are the Hidden Costs of Foreign Production Locations? There may be hidden costs associated
with foreign production Before making the decision to locate
production in a foreign location firms must consider the potential for high employee turnover poor workmanship poor product quality low productivity
16-43
What Is the Strategic Role of Foreign Factories?
The strategic role of foreign factories and the strategic advantage of a particular location can change over time factories established to take advantage of low cost
labor can evolve into facilities with advanced design capabilities
Improvement in a facility comes from 1. Pressure to lower costs or respond to local markets2. An increase in the availability of advanced factors of
production
16-44
What Is the Strategic Role of Foreign Factories?
Many companies now see foreign factories as globally dispersed centers of excellence supports the development of a transnational
strategy global learning - valuable knowledge can be
found in foreign subsidiaries implies that firms are less likely to switch
production to new locations simply because some underlying variable like wage rates has changed
16-45
Should a Firm Outsource Production?
Question: Should a firm make or buy the component parts to go into its final product?
Make-or-buy decisions are important to firms' manufacturing strategies service firms also face make-or-buy decisions decisions involving international markets are
more complex than those involving domestic markets
16-46
Why Make?
Vertical integration - making component parts in-house
1. Lowers costs if a firm is more efficient at that production activity
than any other enterprise, manufacturing in-house makes sense
2. Facilitates investments in highly specialized assets internal production makes sense when substantial
investments in specialized assets are required
16-47
Why Make?
3. Protects proprietary technology in-house production makes sense when
component parts contain proprietary technology
4. Facilitates the scheduling of adjacent processes planning, coordination, and scheduling of
adjacent processes can be easier with in-house production
16-48
Why Buy?
Buying component parts from independent suppliers
1. Gives the firm greater flexibility important when changes in exchange rates
and trade barriers alter the attractiveness of various supply sources over time
16-49
Why Buy?
2. Helps drive down the firm's cost structure avoids challenges of coordination and control of
additional subunits avoids the lack of incentive associated with internal
suppliers avoids the difficulties with setting appropriate
transfer prices
3. Helps the firm capture orders from international customers can help firms gain orders from suppliers’ countries
16-50
Do Strategic Alliances with Suppliers Make Sense?
Firms can capture the benefits of vertical integration without the associated organizational problems by forming long-term strategic alliances with key suppliers however, these commitments may actually
limit strategic flexibility risk giving away key technological know-how
to a supplier
16-51
How Do Firms Manage the Global Supply Chain?
Logistics encompasses the activities necessary to get materials to a manufacturing facility, through the manufacturing process, and out through a distribution system to the end user
The goal is to manage a global supply chain at the lowest possible
cost and in a way that best serves customer needs establish a competitive advantage through superior
customer service
16-52
What Is the Role of Just-In-Time Inventory?
Just-in-time (JIT) systems economize on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production process
JIT systems generate major cost savings from reduced
warehousing and inventory holding costs can help the firm spot defective parts and take them
out of the manufacturing process But, a JIT system leaves the firm with no buffer
stock of inventory to meet unexpected demand or supply changes
16-53
What Is the Role of Information Technology and the Internet?
Web-based information systems play a crucial role in materials management allow firms to optimize production scheduling according
to when components are expected to arrive Electronic Data Interchange (EDI)
facilitates the tracking of inputs allows the firm to optimize its production schedule lets the firm and its suppliers communicate in real time eliminates the flow of paperwork between the firm and
its suppliers
Chapter 18
Global Marketing and R&D
16-55
What Is the Marketing Mix?
The marketing mix (the choices the firm offers to its targeted market) is comprised of1. Product attributes2. Distribution strategy3. Communication strategy4. Pricing strategy
16-56
Should the Marketing Mix Be Changed for Each Market?
Question: Are markets and brands becoming global? Theodore Levitt argued that world markets
were becoming increasingly similar making it unnecessary to localize the marketing mix
Question: Is Levitt right? Probably not! Levitt’s theory has become a lightening rod in
the debate about globalization
16-57
Should the Marketing Mix Be Changed for Each Market?
The current consensus is that while the world is moving towards global markets, global standardization is not possible because of cultural differences among nations economic differences among nations trade barriers differences in product and technical
standards
16-58
What Is Market Segmentation?
Market segmentation - identifying distinct groups of consumers whose purchasing behavior differs from others in important ways
Markets can be segmented by geography demography sociocultural factors psychological factors
16-59
What Is Market Segmentation?
Two key market segmentation issues1. The differences between countries in the
structure of market segments may have to develop a unique marketing
mix to appeal to a certain segment in a given country
2. The existence of segments that transcend national borders when segments transcend national
borders, a global strategy is possible
16-60
How Do Product Attributes Influence Marketing Strategy? A product is like a bundle of attributes Products sell well when their attributes
match consumer needs if consumer needs were the same
everywhere, a firm could sell the same product worldwide
But, consumer needs depend on1. Culture
tradition, social structure, language, religion, education
16-61
How Do Product Attributes Influence Marketing Strategy?
2. Level of economic development consumers in highly developed countries
tend to demand a lot of extra performance attributes
consumers in less developed nations tend to prefer more basic products
3. Product and technical standards national differences can force firms to
customize the marketing mix
16-62
How Does Distribution Influence Marketing Strategy? Distribution strategy - the means the firm
chooses for delivering the product to the consumer
How a product is delivered depends on the firm’s market entry strategy firms that produce locally can sell directly to the
consumer, to the retailer, or to the wholesaler firms that produce outside the country have the same
options plus the option of selling to an import agent
16-63
How Does Distribution Influence Marketing Strategy?
A Typical Distribution Strategy
16-64
How Do Distribution Systems Differ?
There are four main differences in distribution systems
1. Retail concentration – concentrated or fragmented concentrated retail system, a few retailers supply
most of the market common in developed countries
fragmented retail system there are many retailers, no one of which has a major share of the market common in developing countries
16-65
How Do Distribution Systems Differ?
2. Channel length - the number of intermediaries between the producer and the consumer short channel - when the producer sells
directly to the consumer common with concentrated systems
long channel - when the producer sells through an import agent, a wholesaler, and a retailer common with fragmented retail systems
16-66
How Do Distribution Systems Differ?
3. Channel exclusivity – how difficult it is for outsiders to access Japan's system is a very exclusive system
4. Channel quality - the expertise, competencies, and skills of established retailers in a nation, and their ability to sell and support the products of international businesses good in most developed countries, but variable in
emerging markets and less developed countries firms may have to devote considerable resources to
upgrading channel quality
16-67
Which Distribution Strategy Should a Firm Choose?
The optimal strategy depends on the relative costs and benefits of each alternative
When price is important, a shorter channel is better each intermediary in a channel adds its own markup
to the product When the retail sector is very fragmented, a
long channel can be beneficial economizes on selling costs can offer access to exclusive channels
16-68
Why Is Communication Strategy Important?
Communicating product attributes to prospective customers is a critical element in the marketing mix
How a firm communicates with customers depends partly on the choice of channel
Communication channels available to a firm include direct selling sales promotion direct marketing advertising
16-69
What Are the Barriers to International Communication? The effectiveness of a firm's international
communication can be jeopardized by 1. Cultural barriers - it can be difficult to
communicate messages across cultures a message that means one thing in one
country may mean something quite different in another
firms need to develop cross-cultural literacy, and use local input when developing marketing messages
16-70
What Are the Barriers to International Communication?2. Source and country of origin effects –
source effects occur when the receiver of the message evaluates the message on the basis of status or image of the sender can counter negative source effects by
deemphasizing their foreign origins country of origin effects - the extent to which
the place of manufacturing influences product evaluations
16-71
What Are the Barriers to International Communication?3. Noise levels - the amount of other
messages competing for a potential consumer’s attention in highly developed countries, noise is very
high in developing countries, noise levels tend to
be lower
16-72
How Do Firms Communicate with Customers?
Firms have to choose between two types of communication strategies
1. A push strategy emphasizes personnel selling
2. A pull strategy emphasizes mass media advertising
16-73
Which Is Better – Push or Pull?
The choice between strategies depends on1. Product type and consumer sophistication
a pull strategy works well for firms in consumer goods selling to a large market segment
a push strategy works well for industrial products2. Channel length
a pull strategy works better with longer distribution channels
3. Media availability a pull strategy relies on access to advertising media a push strategy may be better when media is not
easily available
16-74
What Is the Optimal Mix?
In general, a push strategy is better for industrial products and/or complex new products when distribution channels are short when few print or electronic media are available
A pull strategy is better for consumer goods products when distribution channels are long when sufficient print and electronic media are
available to carry the marketing message
16-75
Should a Firm Use Standardized Advertising?
Standardized advertising makes sense when it has significant economic advantages creative talent is scarce and one large effort
to develop a campaign will be more successful than numerous smaller efforts
brand names are global
16-76
Should a Firm Use Standardized Advertising?
Standardized advertising does not make sense when cultural differences among nations are significant advertising regulations limit standardized advertising
Some firms standardize parts of a campaign to capture the benefits of global standardization, but customize others to respond to local cultural and legal environments
16-77
What Pricing Strategy Should Firms Use?
Firms need to consider1. Price discrimination2. Strategic pricing3. Regulations that affect pricing decisions
16-78
What Is Price Discrimination?
Price discrimination - occurs when firms charge consumers in different countries different prices for the same product
For price discrimination to work must be able to keep national markets
separate countries must have different price elasticity
of demand
16-79
What Is Price Discrimination?
Price elasticity of demand – a measure of the responsiveness of demand for a product to changes in price
demand is elastic when a small change in price produces a large change in demand
demand is inelastic when a large change in price produces only a small change in demand
Typically, price elasticity is greater in countries with lower income levels and larger numbers of competitors
16-80
What Is Price Discrimination?Elastic and Inelastic Demand Curves
16-81
What Is Strategic Pricing? Strategic pricing has three aspects 1. Predatory pricing - use profit gained in
one market to support aggressive pricing designed to drive competitors out in another market after competitors have left, the firm will raise
prices and earn higher profits
16-82
What Is Strategic Pricing?2. Multipoint pricing - a firm’s pricing strategy in
one market may have an impact on a rival’s pricing strategy in another market managers should centrally monitor pricing decisions
3. Experience curve pricing - price low worldwide in an attempt to build global sales volume as rapidly as possible, even if this means taking large losses initially firms that are further along the experience curve
have a cost advantage relative to firms further up the curve
16-83
How Do Regulations Influence Pricing?
A firm’s ability to set prices may be limited by1. Antidumping regulations –
dumping occurs when a firm sells a product for a price that is less than the cost of producing it antidumping rules set a floor under export prices
and limit a firm’s ability to pursue strategic pricing
2. Competition policy – most industrialized nations have regulations
designed to promote competition and restrict monopoly practices
can limit the prices that a firm can charge
16-84
How Should Firms Configure the Marketing Mix?
Standardization versus customization is not an all or nothing concept most firms standardize some things and
customize others Firms should consider the costs and
benefits of standardizing and customizing each element of the marketing mix
16-85
Why Is New Product Development Important?
Product innovation should be a strategic priority today, competition is as much about
technological innovation as anything else The pace of technological change is faster than
ever and product life cycles are often very short new innovations can make existing products
obsolete, but at the same time, open the door to a host of new opportunities
Firms need close links between R&D, marketing, and manufacturing
16-86
Where Should R&D Be Located?
New product ideas come from the interactions of scientific research, demand conditions, and competitive conditions
The rate of new product development is greater in countries where more money is spent on basic and applied research
and development demand is strong consumers are affluent competition is intense
16-87
How Can R&D, Marketing, and Production Be Integrated?
Since new product development has a high failure rate, new product development efforts should involve close coordination between R&D, marketing, and production
Integration will ensure that customer needs drive product development new products are designed for ease of manufacture development costs are kept in check time to market is minimized
16-88
Why Are Cross-Functional Teams Important?
Cross-functional integration is facilitated by cross-functional product development teams
Effective cross-functional teams should be led by a heavyweight project manager with status
in the organization include members from all the critical functional areas have members located together establish clear goals develop an effective conflict resolution process
16-89
How Can Firms Build Global R&D Capabilities?
To adequately commercialize new technologies, firms need to integrate R&D and marketing
To successfully commercialize new technologies, firms may need to develop different versions for different countries So, a firm may need R&D centers in North America,
Asia, and Europe that are closely linked by formal and informal integrating mechanisms with marketing operations in each country in their regions, and with the various manufacturing facilities
Chapter 19
Global Human Resource Management
16-91
What Is Human Resource Management?
Human resource management (HRM) - the activities an organization carries out to utilize its human resources effectively
These activities include determining human resource strategy staffing performance evaluation management development compensation labor relations
Firms need to ensure there is a fit between their human resources practices and strategy
16-92
What Is the Strategic Role of HRM in International Firms?
HRM can help the firm reduce the costs of value creation and add value by better serving customer needs more complex in an international business
differences between countries in labor markets, culture, legal systems, economic systems, etc.
16-93
What Is the Strategic Role of HRM in International Firms?
HRM must also determine when to use expatriate managers citizens of one country working abroad
who should be sent on foreign assignments
how they should be compensated how they should be trained how they should be reoriented when they
return home
16-94
What Is the Strategic Role of HRM in International Firms?
The Role of Human Resources in Shaping Organizational Architecture
16-95
What Is a Staffing Policy?
Staffing policy is concerned with the selection of employees who have the skills required to perform a particular job can be a tool for developing an promoting the
firm’s corporate culture the organization’s norms and value
system a strong corporate culture can help the firm
implement its strategy
16-96
What Is a Staffing Policy?
Three main approaches to staffing policy: 1. The ethnocentric approach - fill key
management positions with parent-country nationals
2. The polycentric approach - recruit host-country nationals to manage subsidiaries in their own country, and parent-country nationals for positions at headquarters
3. The geocentric approach - seek the best people, regardless of nationality, for key jobs
16-97
Why Choose an Ethnocentric Staffing Policy?
Firms that pursue an ethnocentric policy believe that there is a lack of qualified individuals in the host
country to fill senior management positions it is the best way to maintain a unified corporate
culture value can be created by transferring core
competencies to a foreign operation via parent country nationals
it makes sense with an international strategy But
it limits advancement opportunities for host country nationals
it can lead to "cultural myopia"
16-98
Why Choose a Polycentric Staffing Policy?
The polycentric approach makes sense for firms pursuing a localization
strategy can minimize cultural myopia may be less expensive to implement than an
ethnocentric policy But
host-country nationals have limited opportunities to gain experience outside their own country and so cannot progress beyond senior positions in their own subsidiaries
a gap can form between host-country managers and parent-country managers
16-99
Why Choose a Geocentric Staffing Policy?
The geocentric approach is consistent with building a strong unifying culture
and informal management network makes sense for firms pursuing a global or
transnational strategy enables the firm to make the best use of its human
resources builds a cadre of international executives who feel at
home working in a number of different cultures But
can be limited by immigration laws is costly to implement
16-100
Which Staffing Policy Is Best?
Comparison of Staffing Approaches
16-101
What Is Expatriate Failure?
Firms using an ethnocentric or geocentric staffing strategy will have expatriate managers
Expatriate failure is the premature return of an expatriate manager to the home country each expatriate failure can cost between $40,000
and $1 million between 16 and 40% of all American expatriates in
developed countries fail and almost 70% of Americans assigned to developing countries fail
16-102
What Is the Rate of Expatriate Failure?
Expatriate Failure Rates
16-103
Why Do Expatriate Managers Fail?
The main reasons for U.S. expatriate failure are the inability of an expatriate's spouse to
adapt the manager’s inability to adjust other family-related reasons the manager’s personal or emotional maturity the manager’s inability to cope with larger
overseas responsibilities
16-104
Why Do Expatriate Managers Fail?
The reason for European expatriate failure is the inability of the manager’s spouse to adjust
The main reasons for Japanese expatriate failure are the inability to cope with larger overseas
responsibility difficulties with the new environment personal or emotional problems a lack of technical competence the inability of spouse to adjust
16-105
How Can Firms Reduce Expatriate Failure?
Firms can reduce expatriate failure through improved selection procedures
Four dimensions that predict expatriate success are 1. Self-orientation - the expatriate's self-esteem, self-
confidence, and mental well-being2. Others-orientation - the ability to interact effectively with
host-country nationals3. Perceptual ability - the ability to understand why people
of other countries behave the way they do4. Cultural toughness – the ability to adjust to the posting
16-106
Why Is a Global Mind-set Important?
A global mind-set may be the fundamental attribute of a global manager cognitive complexity cosmopolitan outlook
A global mind-set is often acquired early in life from a family that is bicultural living in foreign countries learning foreign languages as a regular part of family
life
16-107
What Is Training and Management Development?
After selecting a manager for a position, training and development programs should be implemented
Training focuses upon preparing the manager for a specific job
Management development is concerned with developing the skills of the manager over time gives the manager a skill set and reinforces
organizational culture Historically, most firms focus more on training
than on management development
16-108
Why Is Training Important for Expatriate Managers?
Training can reduce expatriate failure Cultural training - fosters an appreciation for the host
country's culture Language training - an exclusive reliance on English
diminishes an expatriate's ability to interact with host country nationals
Practical training - helps the expatriate and her family ease themselves into day-to-day life in the host country
But, studies show only about 30% of managers sent on one- to five-year expatriate assignments received training before their departure
16-109
What Happens When Expatriates Return Home?
Training and development should include preparing and developing expatriate managers for reentry into their home country organization need good programs for
re-integrating expatriates back into work life within their home country organization
utilizing the knowledge they acquired while abroad
16-110
Why Is Management Development Important to Firm Strategy?
Management development programs increase the overall skill levels of managers through ongoing management education rotations of managers through jobs within the firm to
give them varied experiences Management development can be a strategic
tool to build a strong unifying culture and informal management network support both transnational and global strategy
16-111
How Should Expatriates Be Evaluated?
Evaluating expatriates can be especially complex typically, both host-nation managers and home-office
managers evaluate the performance of expatriate managers
But, both types of managers are subject to unintentional bias home-country managers tend to rely on hard data
when evaluating expatriates Host-country managers can be biased towards their
own frame of reference
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How Can Performance Appraisal Bias Be Reduced?
To reduce bias in performance appraisal more weight should be given to an on-site
manager's appraisal than to an off-site manager's appraisal
a former expatriate who has served in the same location should be involved in the process
home office managers should be consulted before an on-site manager completes a formal termination evaluation
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What Are the Key Issues in Compensating Expatriates?
Two key issues on compensation1. How to adjust compensation to reflect
differences in economic circumstances and compensation practices
2. How to pay expatriate managers
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How Should National Differences in Compensation Be Treated?
Currently, there are substantial differences in executive compensation across countries
Research shows a top U.S. executive made an average of
$525,923 in the 2005-2006 period, compared to $278,697 in Japan, and $158,146 in Taiwan
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How Should National Differences in Compensation Be Treated?
Question: Should pay be equalized across countries?
Many firms have recently moved toward a compensation structure that is based on global standards especially important in firms with a
geocentric staffing policy But, most firms still set pay according to
the prevailing standards in each country
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How Should Expatriates Be Paid?
Most firms use the balance sheet approach equalizes purchasing power across countries
so employees have the same living standard in their foreign posting as at home
and adds a financial incentive to take the position
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How Should Expatriates Be Paid?
A compensation package has five components 1. Base salary - normally in the same range as the
base salary for a similar position in the home country can be paid either in the home currency or in the
local currency2. Foreign service premium - extra pay the
expatriate receives for working outside his country of origin generally offered as an incentive to accept foreign
assignments
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How Should Expatriates Be Paid?
3. Various allowances - hardship, housing, cost-of-living, education
4. Tax differentials - may have to pay income tax to both the home country and the host-country governments no reciprocal tax treaty exists company usually covers extra tax assessments
5. Benefits – many firms provide the same level of medical and pension benefits abroad that employees receive at home
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Why Are International Labor Relations Important?
Question: Can organized labor limit the choices available to an international business?
Labor unions can limit a firm's ability to pursue a transnational or global strategy HRM needs to foster harmony and minimize
conflict between management and organized labor
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What Are the Concerns of Organized Labor?
Organized labor is concerned that 1. Multinationals can counter union bargaining power
by threatening to move production to another country
2. Multinationals will farm out only low-skilled jobs to foreign plants making it easier to switch production locations
3. Multinationals will import employment practices and contractual agreements from their home countries and reduce the influence of unions
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How Does Organized Labor Respond to MNC Power?
Organized labor has responded to the increased bargaining power of multinational corporations by1. Trying to set-up their own international organizations2. Lobbying for national legislation to restrict
multinationals3. Trying to achieve regulation of multinationals through
international organizations such as the United Nations So far, these efforts have had only limited
success
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How Are MNCs Responding to Organized Labor?
Many firms are centralizing labor relations to enhance the bargaining power of the multinational vis-à-vis organized labor in the past, labor relations were usually
decentralized to individual subsidiaries The way in which work is organized within a
plant can be a major source of competitive advantage so it is important for management to have a good relationship with labor
