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Course structure. Classes 1-4 Classes 5-9 Class 10 Classes 11-14. International business environment Regional vs. global Triad and IB activities Politics, culture, trade and finance. Firm-specific advantages and firm management Organization Production Marketing International HRM
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Course structure Classes 1-4 Classes 5-9 Class 10 Classes 11-14 International business environment Regional vs. global Triad and IB activities Politics, culture, trade and finance Firm-specific advantages and firm management Organization Production Marketing International HRM Political risk management International financial management Country-specific advantages Locational choice and regional management European Union, North America, Japan, and Emerging Markets
Outline • A brief review of the classifications of global politics and cultures • Case study / In-class Assignment • Enter into the Internet industry in China
Introduction • Over the last few decades there has been a dramatic change in the political systems of many countries. • In particular, there has been a move towards market-driven economies in Eastern Europe and China.
Political ideologies and economics • Political systems • Democracy: A system of government in which the people directly or through their elected officials, decide what is to be done. • Totalitarianism: A system of government in which one individual (dictatorship) or party (one party system, e.g., China) maintains complete control and either refuses to recognize other parties or suppresses them.
Political ideologies and economics (Continued) • Economic systems • Market-driven economy: An economy in which goods and services are allocated on the basis of consumer demand. • Centrally determined economy: An economy in which goods and services are allocated based on a plan formulated by a committee that decided what is to be offered. • Mixed economies: Economic systems characterized by a combination of market-and centrally-driven planning.
Government control of assets • Privatization: The process of selling government assets to private buyers. • Divestiture: A process by which a government or business sells assets. • Contract Management: A process by which an organization (such as the government) transfers operating responsibility of an industry without transferring the legal title and ownership. • Nationalization: A process by which the government takes control of business assets, with or without remuneration of the owner.
Government control of assets • Anthony E. Boardman and Aidan R. Vining (1989) Ownership and performance in competitive environments: A comparison of the performance of private, mixed, and state-owned enterprises. Journal of Law and Economics, 32(1), 1-33. • Economic efficiency: private > SOEs > Mixed • Competitive and developed markets • Accountable and transparent politics • Limited control of key resources • Goal conflicts between private and state • Victor Z. Chen, Jing Li, and Daniel M. Shapiro (2013) Ownership structure and innovation: An emerging market perspective. Asia Pacific Journal of Management, forthcoming. • Innovation: Mixed > private/SOEs • Market failures • Corrupt and bureaucratic politics • Powerful control of key resources (land, finance, etc.) • Goal congruence in innovation
Economic integration • The establishment of transnational rules and regulations that enhance economic trade and cooperation among countries.
Trade creation and diversion • Trade creation: A process in which members of an economic integration group begin to focus their efforts on those goods and services for which they have a comparative advantage and start trading more extensively with each other. • Trade diversion: A process in which members of an economic integration group decreases trade with non-member countries in favor of trade with each other.
Levels of economic integration • Free Trade Area: barriers to trade (such as tariffs) among member countries are removed (e.g. NAFTA). • Customs Union: tariff between member countries are eliminated and a common trade policy toward nonmember countries is established. • Common Market: elimination of trade barriers among member countries, a common external trade policy and mobility of factors of production among member countries.
Levels of economic integration (Continued) • Economic union: A deep form of integration characterized by free movement of goods services, and factors of production among member countries and full integration of economic policies. • Political union: An economic union in which there is full economic integration, unification of economic policies and a single government.
Other examples of economic integration • Andean Community: An economic union that consists of Bolivia, Colombia, Ecuador, and Peru. • Mercosur: A free trade group that consists of Argentina, Brazil, Paraguay and Uruguay. • ASEAN: Founded by Indonesia, Malaysia, the Philippines, Singapore and Thailand (now also including Brunei, Cambodia, Laos, Myanmar, and Vietnam) • FTAA: A free trade agreement of the Americas that has not yet been implemented (34 countries with a plan). • Trans-Pacific Partnership (TPP): An Asia-Pacific regional trade agreement currently being negotiated among the United States and 11 other partners. The United States’ TPP negotiating partners are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.
Language Language is critical to culture because it is the primary means used to transmit information and ideas Knowledge of local language can: permit a clearer understanding of a situation provide access to local people Allows the person to pick up nuances, implied meanings, and other information that is not stated outright
World population percentages in terms of home region, language and religion Sources: www.census.gov; www.adherents.com
Others Values: basic convictions that people have regarding what is right and wrong, good and bad, important and unimportant. Attitude: a persistent tendency to feel and behave in a particular way toward some object. Customs: common or established practices. Manners: behavior regarded as appropriate in a particular society.
Geert Hofstede’s four cultural dimensions Power distance: measures the degree to which less powerful members of organizations and institutions accept the fact that power is not distributed equally. Uncertainty avoidance: measures the extent to which people feel threatened by ambiguous situations and have created institutions and beliefs for minimizing or avoiding those uncertainties.
Individualism vs. collectivism Individualism: the tendency of people to look after themselves and their immediate family only. Collectivism: the tendency of people to belong to groups who look after each other in exchange for loyalty. Geert Hofstede’s four cultural dimensions
Masculinity vs. femininity Masculinity: the degree to which the dominant values of a society are success, money and material goods. Femininity: the degree to which the dominant values of a society are caring for others and the quality of life. Geert Hofstede’s four cultural dimensions
National Culture Corporate Culture • People’s role within company • A company is a system designed to perform functions and tasks in an efficient way. People are hired to fulfill these functions and are paid for the tasks they perform. • A company is a group of people working together. The people have social relations with other people and with the organization. The functioning is dependent on these relations. US Canada Belgium Netherlands Australia Sweden UK Italy Germany Singapore France Japan
National Culture Corporate Culture • (2) The role of companies within society • The only real goal of a company is making a profit • A company, besides making a profit, has a goal of attaining the well-being of various stakeholders, for example, employees, customers, etc. US Australia Canada UK Italy Sweden Netherlands Belgium Germany France Singapore Japan
Influences of culture on international management • Culture influences strategic management in a number of ways: • Work attitudes • for example, work ethics, organization commitment, etc. • Achievement motivation • the desire to accomplish objectives and achieve success. • Time and future • for example: punctuality, decision-making time constraints, time expectations on implementation of plans, etc. • Ethics • standards of conduct and morality. • Professional Ethics: • Follow the more rigorous (if home- and host countries have different degrees of constraints)
Cultural (di)similarity and international business activities
Cultural Diversity in Top Management Team and Firm Performance • Bernhard Nielsen and Sabina Nielsen (2012). Top management team nationality diversity and firm performance: A multilevel study. Strategic Management Journal, 34(3), 373-382.
In-Class Team Assignment -- Facebook In a TV Program “Chinese Police” From Hempel (2012). Facebook’s China problem. Fortune Magazine (September 10, 2012), available online at http://tech.fortune.cnn.com/2012/09/10/facebook-china-problem/.
In-Class Team Assignment -- Facebook • Assuming Facebook were to enter the Chinese market, • 1) What would be the major political and socio-cultural challenges (please list at least 1)? (1%) • 2) What would be the major four forces (interest groups) that need to find a midway to make such entry possible? (4%) In a TV Program “Chinese Police”
Google’s background • Founded by Standard PhD candidates Page and Brin in 1998 • Brin’s family moved from Soviet Union (SU) to the US when he was six; Brin said “his experience of living under a repressive regime with limited political freedom had affected both his own outlook and that of Google” • Page is the son of computer scientists • Using their dorm room and cheap computers, they developed a superior way to search the web, ultimately founding Google Inc in 1998. • After three years of rapid growth and success, they hired Schmidt, a technology veteran, to provide “adult supervision”. • Schmidt’s role was to “reassure Wall Street types that Google was responsibly run in preparation for a stock market listing” that finally took place in 2004.
China’s background - traditions • China’s political and socio-cultural ideologies are deeply influenced by its history of a communist party-led socialism in 1949-1979 and a long tradition of Confucianism. • Greater value on the collective interests of social harmony and stability than on the more individualistic interest of generating social change. • Strict government control of media content, especially films and the Internet. • Starting in 1993, regulations of the Internet and blocking or restriction of some websites (e.g., YouTube, Flickr, Facebook, Wikipedia, etc.)
China’s background - traditions • Two mechanisms to monitor and control Internet content and Chinese users’ access: • The “Great Firewall” (GF) • A host of paid government monitors and citizen volunteers • Two choices for search engines • Establish a server presence in China and agree to self-censorship • Maintain an offshore service and force Chinese users to endure significant delays caused by the GF
China’s background - traditions • More than sixty vague laws • News was required to be “healthy” and “in the public interest” • Audio/video content was not allowed to damage “China’s culture or traditions” • Nothing was permitted to challenge the Communist Party
China’s background – emerging agenda • Promoting economic development had become a high priority in recent years • In the 11th five-year plan (2006-2010), “the market economy system will be further enhanced”, said Ma Kai, then minister of the National Development and Reform Commission.
Google’s second series of negotiation with China for renewal
Google into China (continued) • Revenues in 2009 in China were estimated at a modest $300 million, less than 2% of total revenue, Google’s business was growing rapidly. • By 2009, the Chinese search engine market had growth to about US$1 billion, so did Google’s share in China.
Google into China (continued) • Google.cn without • Gmail or Blogging • “We’re not going to offer some Google products, such as Gmail or Blogger, on Google.cn until we’re comfortable that we can do so in a manner that respects our users’ interests in the privacy of their personal communications.” • In early 2007, starting free Gmail.com accounts to customers in China. • In 2008, began cellular phone business, with plans to launch it in China in 2010. • Manufactured by Samsung and Motorola • Operated by China Unicom, second largest and Chinese state-owned carrier.
Friction with the Chinese government • In March 2010, Eric Schmidt, CEO, was discussing with Larry Page and Sergey Brin, Google founders, on the upcoming renewal of Google’s license for the local Chinese domain Google.cn. • Just three months earlier, Google source code had been stolen and e-mail accounts of Chinese dissidents had been compromised in attacks that appeared to originate from China. • Since 2006, Google had agreed to self-censor search results as a condition of entering the Chinese market. • So far it had resisted, but now its intellectual property had been stolen and its principles and reputation were at risk, Google needed to reevaluate its position on self-censorship in preparation for negotiating the renewal of the Google.cn license with the Chinese government.
Friction with the Chinese government • On Jan 12, 2012, Google posted on its blog that it had been the target of China-based cyberattacks in December 2009 for “accessing the Gmail accounts of Chinese human rights activists.” • Without informing Chinese government, Google announced to stop censoring the results of Google.cn and threatened to discontinue its operations in China. • On Mar 22, 2010, Google announced to redirect Google.cn search requests to its site in Hong Kong, which was not censored. • Immediately after, China Unicom removed Google services packages from its phones.
