comparative management lesson 1

8/8/2019 Comparative Management Lesson 1

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Comparative ManagementComparative Management

BBA 7 Spring 2010Prescribed book:

International ManagementA Cross Cultural Approach

Kamal Fatehi


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Learning ObjectivesLearning Objectives

You will learn to understand about GlobalBusiness Management Practices.

You will learn about International Trade

agreements at a regional and global level. The knowledge ofOperations and Structure

of Multi National Companies will help youto adapt to cross cultural working

conditions and business environment. You will learn to compare and adapt Best

Practices in management within the localbusiness environment.


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Evolution of Global Business ArenaEvolution of Global Business ArenaIntroductionIntroduction

1. Why Firms Internationalize?

I. 1950-1990: US focused on fighting spread ofcommunism spending billions on defense. Objectivewas to prevent the occurrence of 3rd. World War

II. During this time other nations such as Japan andWestern Europe spent more time and capitalresources in developing their economies, resulting ina challenge to grab US market shares.

III. World Trade increased to 5.9% in 1950-1972 and4.9% in 1972-1990

IV. With the increase in World Trade interdependenceamongst nations increased


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Obstacles to International Trade inObstacles to International Trade indeveloping countries.developing countries.

Lack of Administrative Capabilities

Low level of Economic Development

Inability to service foreign debts.


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Changing Profiles of Global BusinessChanging Profiles of Global Business

1. Most countries started moving towards free trade policies and theremoval of trade barriers some countries did not reciprocate buttook advantage of liberal policies of other countries resulting inconflicts and friction between Europe, USA and Japan.

2. This led to Regional Trade agreements such as NAFTA( NorthAmerican Free Trade Agreement) between USA, Canada andMexico, European Integration etc.

3. Some regional trade agreements:

4. EC; European Community: 12 Western Europe countriesincluding Belgium, Denmark, France, Germany, Greece,

Luxemberg, Ireland, Italy, Netherlands, Portugal, Spain, and UK.ASEAN: Association South East Asian nations: Brunei, Indonesia,Malaysia, Philipines, Singaore,


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Changing profiles of Global Business( contd)Changing profiles of Global Business( contd)

3. Attitude of developing countries towards MNCsand FDIs( Foreign Direct Investment ) becamemore positive. Competition to attract foreigninvestment increased. Penalties such as

expropriation were reduced. Taxes andperformance criteria are used for control.

4. Many countries adopted Export orientedStrategies following the success of Japan and

Korea.5. Regional Trade agreements;6. Technological advancements led to the rise in

demand for technology transfer from MNCs.


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Changing profiles of Global Business( contd)Changing profiles of Global Business( contd)

6. More countries are looking at Capital Supportfrom MNCs since local capital was scarce andexpensive.

7. Cross Cultural and nationality mix of CEOs andTechnical executives.

8. Operations and Marketing costs forcedcompanies to go for joint ventures acrossborders.

9. Intra firm transactions ( International Linkages).Products and components manufacturedabroad.


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Reasons for going GlobalReasons for going Global

Theories of International Trade and Foreign

Direct Investment.

Change in Geographic Location. Possession of an Ownership specific

advantage.

Exploitation of Firms internal markets Effect of location advantages on host

countries.


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Follow through ReadingsFollow through Readings

Please go through Part One, StrategicAspects Of International Management,pages 3-22.


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GlobalizationGlobalization

Process of integration among countries around the world

Social

Political

Economic Cultural

Technological

Benefits of growing global trade and investment

Wealth Jobs

Technology

Lower prices


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What Is Global BusinessWhat Is Global Business

This is the buying and selling of goods andservices by people from differentcountries?

Multinational

A corporation that owns businesses in two

or more countries.


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Impact of Global BusinessImpact of Global BusinessDirect Foreign InvestmentDirect Foreign Investment

A method of investment in which a companybuilds a new business or buys an existingbusiness in a foreign country.

Has doubled in the past decade makingworld markets much more competitivethan they used to be.


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GATTGATT

A worldwide trade agreement that willreduce and eliminate tariffs, limitgovernment subsidies, and protectintellectual property.


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Trade Rules & AgreementsTrade Rules & AgreementsTrade BarriersTrade Barriers

A government-imposed regulation thatincreases the cost and restricts thenumber of imported goods.

Tariff

Nontariff barriers Quotas

Voluntary export restraints Subsidies


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How to Go GlobalHow to Go Global

Consistency vs. AdaptationConsistency vs. Adaptation Using the same rules, guidelines, policies,and procedures in each foreign locationvs.

adapting standard procedures todifferences in foreign markets.


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Forms for Global BusinessForms for Global Business

Phase Model of GlobalizationPhase Model of Globalization

Exporting

Cooperative Contract

licensingfranchise

Strategic Alliances

- Joint Ventures

Wholly Owned

Affiliates

Global New

Ventures


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Forms of GlobalizationForms of Globalization

Exporting Selling a domestically produced product to

customers in foreign countries.Franchise By this form of organizing itself globally, in

the last decade McDonalds has doubledits number of overseas stores.


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Forms of GlobalizationForms of Globalization

Joint- venture

A strategic alliance in which two existing

companies collaborate to form a thirdcompany.


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Where to Go Global?Where to Go Global?Growing MarketsGrowing Markets

Purchasing Power

comparison of a standard set of goods andservices in different countries

more means greater growth potential

Degree of Global Competition

the number & quality of companies already in

the market

more means less growth potential


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Where to Go Global?Where to Go Global?Choosing an Office / Manufacturing LocationChoosing an Office / Manufacturing Location

Qualitative factors

work force quality

company strategy


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Where to Go Global?Where to Go Global?Policy UncertaintyPolicy Uncertainty

The risk associated with changes in lawsand government policies that directly affectthe way foreign companies conductbusiness.


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Attractive Global Business ClimateAttractive Global Business Climate

This positions the company for easyaccess to growing markets, is an effectivebut cost-efficient place to build an office ormanufacturing site, and minimizes thepolitical risk to the company?


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National CultureNational Culture

Defined as a set of shared values andbeliefs that affects the perceptions,decisions, and behavior of the people froma particular country.


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Difficulties in AdaptingDifficulties in Adapting

Management PracticesManagement Practices May be adapting the way they run theirbusiness based on outdated and incorrectassumptions about a countrys culture.


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ExpatriateExpatriate

This refers to someone who lives outsideof his or her native country.


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Expatriate TrainingExpatriate Training

Serves the purpose to reduce the uncertaintythat expatriates feel, the misunderstandings thattake place between expatriates and natives, and

the inappropriate behaviors that expatriatesunknowingly commit.

Pre-departure language training

Cross-cultural training

Using a phone Finding a public toilet

Exchanging greetings

Ordering in restaurants


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Field Simulation TrainingField Simulation Training

An opportunity to practice adapting tocultural differences by placing trainees inan ethnic neighborhood for 3-4 hours totalk to residents about cultural differences.


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Adaptability ScreeningAdaptability Screening

This is used to assess how well managersand their families are likely to adjust toforeign cultures.


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Market Value

Billions of U.S. Dollars

Sales

Billions of U.S. Dollars

Top Ten Global MNCsTop Ten Global MNCs

McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.

1. General Electric $328.112. Microsoft 284.433. ExxonMobil 283.614. Pfizer 269.665. Wal-Mart Stores 241.196. Citigroup 239.437. BP 193.058. Aig 191.189. Intel 184.6610.Royal Dutch Shell 174.83

The Top 10 global MNCs Ranked by Market Value, Sales, Profits,

and Share-Price Gain, 2003

1. Wal-Mart Stores 258.682. BP 232.573. ExxonMobil 222.884. Royal Dutch/Shell 201.935. General Motors 183.246. DaimlerChrysler 166.617. Ford Motor 164.208. Toyotal Motor 156.489. Mitsubishi 137.3210.General Electric 134.19


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Top Ten Global MNCsTop Ten Global MNCs


Profits

Billions of U.S. Dollars1. ExxonMobil 20.962. Citigroup 17.853. General Electric 15.004. HSBC Holdings 11.655. Royal Dutch/Shell 11.416. Bodafone Group 11.367. Bank of America 10.818. Toyota Motor 10.519. Microsoft 9.9910.BP 9.54

The Top 10 global MNCs Ranked by Market Value, Sales, Profits,

and Share-Price Gain, 2003

Share-Price Gain1. Mizuho Financial 636%2. Research in Motion 5503. UFJ Holdings 4204. SK 3835. Rakuten 3816. Sumitomo Mitsui Fin. 3317. Elan 3118. Bharti Tele-Ventures 2769. Yahoo! Japan 24110.Mitsui Trust Hldgs. 229

Data: Morgan Stanley Capital International Standard & Poors Compustat

Source: http://images.businessweek.com/mz/0o4/30/0430_62intbg1_a.gif


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GlobalizationGlobalization

Criticisms of globalization

Offshoring of business services jobs to lower-wage countries

Growing trade deficits

Slow wage growth

Environmental and social impacts


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Global and Regional IntegrationGlobal and Regional Integration

World Trade Organization (WTO)

General Agreement on Tariffs and Trade (GATT)

Regional Agreements

North American Free Trade Agreement (NAFTA)

U.S.Central American Free Trade Agreement(CAFTA)

Free Trade Agreement of the Americas (FTAA)

European Union (EU)

Association of Southeast Asian Nations (ASEAN)


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Trends in InternationalTrends in InternationalInvestment and TradeInvestment and Trade

International investments

80 percent from developed countries Foreign direct investment (FDI)

Economic growth potential (esp. Japan, China and Asia ingeneral)

Increase in international trade

Over one-half of world trade is accounted for by

United States European Union

Japan


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Foreign Direct Investment inForeign Direct Investment inthe United Statesthe United States


2002

All Countries 1,340,011 1,268,001

Canada 96,437 105,255Europe 982,062 1,000,532(select countries)

United Kingdom 218,175 230,374Germany 139,620 148,774France 141,400 143,341

South and CentralAmerica 19,198 20,636(select countries)

Mexico 7,483 6,680Brazil 997 663

(in millions of dollars)

2003


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2002

Other Western Hemisphere 50,167 48,921

(select countries)Bermuda 8,088 5,914Netherland Antilles 4,014 4,048UK islands, Caribbean 28,260 28,949

Africa 2,298 2,187Middle East 7,456 7,931(select countries)

Israel 3,699 3,834Kuwait 986 1,155


2003


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2002

Asia and Pacific 183,392 192,539

(select countries)Japan 150,499 159,258

Australia 23,136 Taiwan 2,569 2,708Singapore 650 162Hong Kong 1,879 1,981


2003

Adapted from: Table 1-2: Foreign Direct Investment in the United States, 2002-2004 (in millions of

dollars)


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Foreign Direct Investment byForeign Direct Investment bythe United States Abroadthe United States Abroad


2002

All countries 1,601,414 1,788,911

Canada 170,169 192,409Europe 848,599 963,087(select countries)

United Kingdom 239,219 272,640Germany 67,404 80,163France 42,999 47,914

South and CentralAmerica 131,973 141,449(select countries)

Mexico 55,724 61,526Brazil 27,615 29,915


2003


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2002

Other Western Hemisphere 152,597 162,574

(select countries)Bermuda 80,048 84,609UK islands, Caribbean 49,806 54,507

Africa 16,290 18,960Middle East 14,671 16,942(select countries)

Israel 5,632 6,208Saudi Arabia 3,823 4,217


2003


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2002

Asia and Pacific 267,125 292,490

(selected countries)Japan 65,939 73,435

Australia 34,409 Taiwan 7,608 10,961Singapore 52,449 57,589Hong Kong 41,571 44,323

China 10,499 11,877


2003

Adapted from: Table 1-3: Foreign Direct Investment by the United States Abroad, 2002-2004 (inmillions of dollars)


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Top 10 Trading Partners ofTop 10 Trading Partners ofthe United States, 20033the United States, 20033


Importing U.S. Exporting U. S.Rank Country Exports Rank Country Imports

1 Canada 169,9242 Mexico 97,4123 Japan 52,0044 United Kingdom 33,8285 Germany 28,8326 China 28,368

7 South Korea 24,0738 Netherlands 20,6959 Taiwan 17,44810 France 17,053


1 Canada 221,5952 China 152,4363 Mexico 138,0604 Japan 118,0375 Germany 68,1136 United Kingdom 42,7957 South Korea 37,2298 Taiwan 31,5999 France 29,21910 Ireland 26,747

Adapted from: Table 1-4: Top 10 Trading partners of the United States, 2003 (in millions of dollars).


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Economic PerformanceEconomic Performance

U. S., Canada and Mexico combine for$12 trillion in purchasing power

United States

U.S. firms hold market dominance in manyEuropean markets and are gaining market share inAsia

Foreign MNCs find the U. S. to be a lucrative

market in which to expand

Canada

The largest U.S. trading partner.

Legal and business environment similar to the U.S.

North America


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Mexico

very strong maquiladora industry

foreign manufacturers can send materials to their

Mexican-based plants, process or assemble theproducts, and then ship them back out of Mexicowith only the value added being taxed.

now competitive with Asia for the U.S. market lower-cost labor

proximity to the American market (lower transportationcosts and faster delivery)

Increasingly active in EU and Asian markets

North America


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South American countries haveexperienced difficult economic problems

High inflation

Heavy foreign dept

Major factor in success is intercountry trade

Free market policies among South American

countries Survey of business leaders in S.A. countries finds

that doing business with U.S. is most importantagenda

South America


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Important factors

Privatization of traditionally nationalized industries

Emergence of the EU as an operational economic union

Economic linkages between the EU and newly emergingCentral and Eastern European countries

Foreign MNCs gain foothold in EU by Acquisitions

Alliances

Cooperative R&D efforts

Challenge is to absorb former communist-bloc countries

Europe


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Important factors (Russia, Czech Republic,Hungary, Poland)

Perestroikaeconomic and political restructuring

Dismantling of Russian price controls Privatization

Inflation

Membership in International Monetary Fund (IMF)

Crime

Political uncertainty

Central and Eastern Europe


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Three Eras of the Soviet UnionThree Eras of the Soviet Union


Traditional Russian Red Executive Managers Market-Oriented

Society (Pre-1917) (1917-1987) (1987-present)

Centralization of authorityand responsibility

Collective action

Dual ethical standards(honesty in personalrelationships, deceptionin business relationships)

Centralized leadershipCommunist dominationParty service

Rise of collectiveenterprises

Dual ethical standards(honesty in personalconduct with employees,dishonesty in businessdealings)Use of informal influence toobtain favors

Sharing of power withnumerous stakeholders instate enterprises

Responsibility for privateenterprise success

Effective delegation ofresponsibility to employeesUse of informal influence toobtain favorsBipolar extremes ofcynicism inproblem solving


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Three Eras of the Soviet UnionThree Eras of the Soviet Union


Traditional Russian Red Executive Managers Market-Oriented

Society (Pre-1917) (1917-1987) (1987-present)

Feelings ranging fromhelplessness (only areligious savior will deliverpeople from their plight) tobravado (belief in onesability to outsmart others)

Feelings of helplessnessdue to producing inferiorproducts and bravado inoperating some of theworlds largestorganizations

Use of overpromising toboth clients and businesspartnersA high degree ofachievement motivationregarding quality serviceand products but socialcontempt for success

Source: Adapted from Sheila Puffer, Understanding the Bear: A Portrait of Russian Business Leaders,Academy of

ManagementExecutive, February 1994, pp. 4161. Used with permission.

Adapted from Table 1-5: The Three Eras of the Soviet Union.


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Japan Phenomenal economic success in 1970s and 1980s

Ministry of International Trade and Industry (MITI)

Keiretsus Vertically integrated industries Holdings provide assistance needed in providing goods and

services to end users

Decade long recession in 1990s

Bank loans backed by real estate or projected revenues By 2000, most major banks had billions of dollars inuncollectible loans

International competition has increased

Asia


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China

Annual real economic growth of 10 percentduring the 1980s and early 1990s

More recent growth of 8 percent

Healthy and growing economy

GDP growth of 91 percent in 2003

Attractive to foreign investors despite majorpolitical risk

Product pirating is major problem

Complicated and high-risk venture

Asia


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The Four Tigers

South Korea

Chaebols (large family-held Korean conglomerates)

Affected by declining economies of South east Asiain 1990s)

Hong Kong

Now part of Peoples Republic of China

Uncertainty about role the Chinese governmentintends to play in local governance

Asia


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Singapore

Least hurt by economic downturn of 1990s

Taiwan

Progression from labor-intensive economy to onedominated by technologically sophisticatedindustries (banking, electricity generation, petroleum

refining and computers)

Asia The Four

Tigers


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The Worlds Most CompetitiveThe Worlds Most CompetitiveNations, 2003 RankingNations, 2003 Ranking


United States 1Australia 2Canada 3

Malaysia 4Germany 5Taiwan 6United Kingdom 7France 8

Spain 9Thailand 10

Country Rank

Source: World Competitive Scoreboard, 2004.

Adapted from Table 1-6: The Worlds Most Competitive nations, 2003 Ranking


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The Baby Tigers

Thailand, Malaysia, Indonesia

Large population base

Inexpensive labor

Considerable natural resources

Attractive to outside investors

Southeast Asia


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India

Low per capita GDP

Recent trend of locating software and high value-added

services to this country Attractive to U.S. and British investors (well educated,

English speaking, technologically sophisticated workers)

Middle East and Central Asia

Large oil reserves Highly unstable geopolitical and religious forces

Plagued by continuing economic problems

Developing and Emerging Countries


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Africa

Considerable natural resources

African nations remain very poor and undeveloped

International trade is not a major source of income Populace divided into 3,000 tribes that speak 1,000

languages and dialects

Major political instability

Poverty, starvation, illiteracy, corruption, overcrowdingamong many social problems negatively affectingeconomic sector

Developing and Emerging Countries

comparative management lesson 1

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