International Management

2. 6 McGraw-Hill/Irwin Management, 7/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. International Management

3. Learning Objectives • After Studying Chapter 6, you will know: • Why the world economy is becoming more integrated than ever before. • What integration of the global economy means for individual companies and their managers. • The strategies organizations use to compete in the global marketplace. • The various entry modes organizations use to enter overseas markets. • How companies can approach the task of staffing overseas operations. • The skills and knowledge managers need to manage globally. • Why cultural differences across countries influence management.

4. The Global Environment

5. The Global Environment • Europe is integrating economically to form the biggest market in the world • The Euro was adopted as a common currency in 2001 • The EU has 25 members with a population of more than 450 million and a gross domestic product equivalent to the US • The pace of European unification accelerated in 2004 with the addition of countries like Poland and Hungary

6. The Global Environment • Japan dominated world attention toward the end of the last century; today China the rising economic power to watch • China is on its way to becoming the largest producer and consumer • China is the world’s largest consumer of basic resources like steel and cement • China has averaged an economic growth rate of 8% since 1980 • If current rate of expansion continues China will be the world’s largest economy in in the next 10 years

7. The Global Environment

8. The Global Environment • The North American Free Trade Agreement (NAFTA) combined the economies of the US, Canada, and Mexico into the world’s largest trading bloc with more than 390 million consumers and a total output of $10 trillion • Efforts are under way to go beyond NAFTA and create a Free Trade Area of the Americas (FTAA) which would go from Canada to Chie

9. Consequences of a Global Economy • During the last decade the volume of world trade has grown at a faster rate than has the volume of world output • Foreign direct investment (FDI) is playing an ever-increasing role in the global economy as companies of all sizes invest overseas • Imports are penetrating deeper into the world’s largest economies • The growth of world trade, FDI, and imports implies that companies around the globe are finding their home markets under attack from foreign competitors

10. Consequences of a Global Economy

11. Consequences of a Global Economy

12. Consequences of a Global Economy • Opportunities are greater • The environment is more complex • The environment is more competitive • Companies view the world as a single marketplace

13. Consequences of a Global Economy

14. The Role of Outsourcing • Outsourcing occurs when an organization contracts with an outside provider to produce one or more of an organization’s products or services • Off-shoring occurs when the outside provider is located abroad

15. The Role of Outsourcing • Decline in US manufacturing employment is evident – almost 3 million jobs lost from 200 to 2003 • One study estimates that by 2015 more than 3 million US jobs will be sent abroad Should we outsource if the cost is US jobs?

16. The Truth of Outsourcing • There is considerable evidence to suggest that the cause of job decline is not off-shoring but innovation • New technology and processes require fewer workers to produce the same quantity of goods • The steel industry has lost 70% of its workers since 1970 while domestic steel production has not declined • Statistics overlook the fact that job transfers related to off-shoring is a small fraction of the 135 million jobs in the US

17. The Truth of Outsourcing • The controversy to off-shoring overlooks the extent to which jobs are often in-sourced or brought to the US by foreign companies • One study estimated that in-sourcing employees about 5.4 million workers • Job movements are one inevitable result of the effects of globalization • One ‘problem’ that outsourcing causes is wage stagnation in industries where outsourcing and off-shoring is common

18. Making a Decision to Outsource • What is the competitive advantage of the products they offer? • Is the business in its early stages? • Can production savings be achieved locally? • Can the entire supply chain be improved? Distribution of tulips from the Netherlands can be managed by tiny Springhill Greenhouses in Lodi, Ohio.

19. GlobalStrategy • Reasons that managers may need or want a common global strategy • Universal needs • Pressures to reduce costs • Competitors have a global strategy

20. Pressures for Local Responsiveness • There are strong pressures for local responsiveness when: • Consumer tastes and preferences differ significantly among countries • There are differences in traditional practices among countries • There are differences in distribution channels and sales practices • There are economic and political demands imposed by host countries

21. Pressures for Local Responsiveness When you travel, remember that a foreign country is not designed to make you comfortable. It is designed to make its own people comfortable. - Clifton Fadiman

22. Choosing a Global Strategy • International Model is an organizational model that is composed of a company’s overseas subsidiaries and characterized by greater control by the parent company over the research function and local product and marketing strategies • Multinational model is an organizational model that consists of the subsidiaries in each country in which a company does business, with ultimate control exercised by the parent company

23. Choosing a Global Strategy • Global model is an organizational model consisting of a company’s overseas subsidiaries and characterized by centralized decision making and tight control by the parent company over most aspects of worldwide operations; typically adopted by organization that base their global competitive strategy on low-cost • Transnational model is an organizational model characterized by centralization of certain functions in locations that best achieve cost economies and basin other functions in the company’s national subsidiaries to facilitate greater local responsiveness; and fostering of communication among subsidiaries to permit transfer of technological expertise and skills.

24. Choosing a Global Strategy

25. Entry Mode • When considering to begin operations in a foreign country management has five entry modes to consider • Exporting • Licensing • Franchising • Joint Venture • Wholly owned subsidiary

26. Entry Mode

27. Managing Across Borders • When establishing overseas operations the parent company must decide which types of employees to use: • Expatriates are parent company nationals who are sent to work at a foreign subsidiary • Host-country nationals are natives of the country where an overseas subsidiary is located • Third-country nationals are natives of a country other than the home country or the host country of an overseas subsidiary

28. Managing Across Borders

29. Skills of the Global Manager • It is estimated that nearly 15% of all employee transfers are to an international location • There is however a shortage of US managers equipped to run a global business • Failure rate among expatriates has been estimated to range from 20 to 70 percent • The cause for failure overseas generally extends beyond technical capability and includes personal and social issues as well

30. Skills of the Global Manager

31. Skills of the Global Manager • The company can contribute to the success of global managers by: • Structuring assignments clearly • Create clear job objectives • Develop performance measurements based on objectives • Use effective, validated selection and screening criteria • Prepare expatriates and families for assignments • Create a vehicle for ongoing communication with expatriates • Anticipate repatriation to facilitate reentry when they come back home • Consider developing a mentor program that will help monitor and intervene in case of trouble

32. Understanding Cultural Issues • Problems working abroad often stem from our being oblivious to our own cultural conditioning • Ethnocentrism is the tendency to judge others by the standards of one’s group or culture which are seen as superior • Not being aware of our own cultural conditioning can lead to culture shock • Culture shock is the disorientation and stress associated with being in a foreign environment

33. Understanding Cultural Issues • Four dimensions that managers in multinational corporations tend to view cultural differences are: • Power distance – the extent to which a society accepts the fact that power in organizations is distributed unequally • Individualism/collectivism: the extent to which people act on their own or as a part of a group • Uncertainty avoidance:the extent to which people in a society feel threatened by uncertain and ambiguous situations • Masculinity/femininity:the extent to which a society values quantity of life (e.g., accomplishment, money) over quality of life (e.g., compassion, beauty)

34. Understanding Cultural Issues • Meetings: Americans tend to have a fairly specific view of the purpose of meetings and how much time can be wasted. International workers may have different preconceptions about the nature and length of meetings, and managers will want to make sure foreign nationals are comfortable with the American approach. • Work(aholic) schedules:Workers from other countries can work long hours but, in countries with strong labor organizations, often get many more weeks of vacation than American workers. And Europeans in particular may balk at working on weekends. Obviously, matters like these are most helpfully raised and addressed at the beginning of the work assignment. • E-mail:Most of the world has not yet embraced e-mail and voicemail the way U.S. workers have. Most others would prefer to communicate face to face. Particularly when potential language difficulties exist, at the outset managers will probably want to avoid using e-mail for important matters. • Fast-trackers: Although U.S. companies may take a young MBA graduate and put him or her on the fast track to management, most other cultures still see no substitute for the wisdom gained through experience. (This is something U.S. managers working abroad will also want to keep in mind.) More experienced managers are often a better choice for mentoring inpatriates. • Feedback:Everyone likes praise, but the use of excessive positive feedback tends to be less prevalent in other cultures than in the United States, a useful fact for managers when they give foreign nationals their performance reviews.

35. EthicalIssues in International Management • For managers to effectively function in a foreign setting they must understand how culture influences both how they are perceived and how others behave. • Issues of right and wrong get blurred as we move from one culture to another, and actions that may be normal and customary in one setting may be unethical— even illegal—in another.

36. Ethical Issues in International Management • In order to see that ethics programs are enforced these steps have been suggested • Vigorously oversee the corporate ethics and culture. • Ensure the company has articulated its values. • Let business partners know the standards. • Include character, integrity, decision making, and other values information in performance reviews and succession-management processes. Show zero tolerance toward breaches of ethics.

37. Ethical Issues in International Management • Research suggests that regardless of nationality or religion most people embrace a set of five core values • Compassion • Fairness • Honesty • Responsibility • Respect for others

38. Looking Ahead • Chapter 7 Entrepreneurship • Why people become entrepreneurs, and what it takes, personally. • How to assess opportunities to start new companies. • Common causes of success and failure. • Common management challenges. • How to increase your chances of success, including good business planning. • How to foster intrapreneurship and an entrepreneurial orientation in large companies.