international management mgt 480/680 fall 2005 dr. yvonne stedham

International Management

MGT 480/680

Fall 2005

Dr. Yvonne Stedham

2

Today

Purpose

What do you know?

Syllabus

3

Purpose

What new management/business knowledge could you possibly learn in this class?

Why should we spend effort on that?

Who from country other than the U.S.?

Globalization, Democracy, Free Markets, and the Bottom Line

4

Course Materials

http://equinox.unr.edu/homepage/ystedham/

5

Current Developments

National Public Radio (NPR)

FM 88.7

FM 90.5

The Economist

Wall Street Journal

6

For Next Week

Global Update - Handout

Europe Overall Russia Brazil Answers to questions (Oral Participation)

7

Internships and Student Groups

State of Nevada, Commission on Economic Development Al DiStefano, Director, Global Trade and Investment Tel: (775) 687-4325, Ext. 227 [email protected]

NNDA (Northern Nevada Development Authority) Ron Weisinger: 883-4413 Cell: (775) 848-2221 [email protected]

International Business Student Chapter (IBSC) Josh Cole [email protected] – IB Majors Wednesday Lunch Meetings

Management Internships – Ask me!

NEWTRAC www.newtrac.org

8

What do you know?List the five largest countries based on population.

World Population?What is GDP? What is the GDP/capita in the U.S.?

What is a typical GDP growth rate for the U.S.?Which three countries have the highest

GDP’s/capita?Which countries are culturally most similar to the

U.S, which ones most dissimilar?How many countries are there?

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What do you know?

China 1.3Bill

India 1Bill

U.S. 293Mill

Indonesia 220Mill

Brazil 184Mill

Japan 127Mill

World 6 Bill

GDP/capita: $37,800 U.S ($9,000 Mexico - Population 104 Mill) – Growth rate 3%

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What do you know?

Total number of countries: 191 -193

Vatican and Taiwan

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International ManagementIntroduction

Course Content – Culture, Globalization, U.S. RoleFormat - Syllabus

Personal – Background Sheet – Next ClassFramework of an international organizationGlobalizationReasons for going internationalTypes of international organizations

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Organizations and Organizational Effectiveness

What is an organization?

Why do organizations exist?

When is an organization effective?

Efficiency vs effectiveness?

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Organizations and Organizational Effectiveness

What is an organization? Why do organizations exist? Organizations = People Mission, goals, objectives

When is an organization effective? Distinguish between efficiency and

effectiveness. Distinguish effectiveness measures for the short, intermediate, and long run.

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Measurement of organizational effectiveness

Long run? Intermediate run?Short run?

A contingency approach to management

15

Measurement of organizational effectiveness

Long run: Survival

Intermediate run: Adaptation, Responsiveness

Short run: Productivity, Efficiency

A contingency approach to management (as opposed to “administrative theory” of management)

It’s management’s task to create the best possible fit between the external and internal environments of the organization and must ensure internal consistency between the organization’s elements.

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The Organization

The External Environment

Economy

Social

Environment

Technological Environment

Political Environment

The Internal Environment

People

Processes Structure

Business Strategy

Culture

Effectiveness

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The International Organization


Culture

Multiple Economy

Multiple Social Environment

Technological Environment

Political Environment


People

Processes Structure

Business Strategy

Culture

Effectiveness

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Course Format

Syllabus

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Personal Introductions

Students – hand in background sheets

Name and Major Expected graduation Traveled internationally Speak other language Aspirations

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Effect of December 2004 Tsunami

www.cia.gov

Indonesia Sri

Lanka

Thailand India

Pop

GDP growth

GDP/

Capita

Industry

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Question #1

www.cia.gov

Indonesia Sri

Lanka

Thailand India

Pop 220Mill 18.7Mill 65Mill 1 Bill

GDP growth

4.1% 5.5% 6.7% 8.3%

GDP/

Capita$3,200 $3,700 $7,400 $2,900

Industry

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Question #2

Japan China Brazil US

Pop 127 Mill 1.3Bill 184 Mill 293 Mill

GDP growth

2.7% 9.1% .2% 3.1%

GDP/

Capita$28,200 $5,100 $7,400 $37,800

Industry

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Globalization

Thomas Friedman: The Lexus and the Olive Tree

Globalization is not just an economic fad and it is not just a passing trend. It is an international system that replaced the Cold War System after the fall of the Berlin wall

The World is ten years old (1999)

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Characteristics of the new system

Separation and independence

VS

integration and interdependence

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Free market capitalism

Homogenization of culture – Americanization

Defining technologies: computerization, miniaturization, digitization, satellite communications, fiber optics, the Internet

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Defining measurement: weight (missles)

VS

speed .. Of travel, innovation, communication, commerce

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Defining economists: Karl Marx and Keynes

VS

Schumpeter (capitalism, creative destruction)

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Defining political views:

Friends and enemies

VS

Competitors

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Quiz #1 R 9/8

Deresky Chapter 1: pp 2,3; 20, 21; 29, 30; Chapter 2: pp 36, 42, 47; 56-60

Adler Chapter 1: pp 1-16

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Don’t Forget

Termpaper Sign-ups

Extra Credit

31

IndiaWhere India is making an impact and where it is going next:

SOFTWARE - India is now a major base for developing new applications for

finance,digital applianes, and industrial plants

IT CONSULTING - Companies such as Wipro, Infosys, and Tata are managing U.S. IT networks and reengineering business processes.

CALL CENTERS - Thousands of Indians handle customer service and process insurance claims, loans, bookings and credit-cards bills.CHIP DESIGN - Intel, Texas Instruments, and many U.S. startups use India as an

R&D hub for microprocessors and multimedia chips.FINANCIAL ANALYSIS - Research for Wall Street will surge as U.SL. investment

banks, brokerages, and accounting firms open big officesINDUSTRIAL ENGINEERING - India does vital R&D for GE Medical. GM, engine

maker Cummins, Ford and other manufacturers plan big engineering hubs.

ANALYTICS - U.S. companies are hiring Indian math experts to devise models for risk analysis, consumer behavior, and industrial processes.

DRUG RESEARCH - As U.S. R & D costs soar, India is expected to be a center for biotechnology and clinical testing.

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IndiaWho's Bulking Up: Some of the biggest U.S. players in India

Company Purpose India StaffGE Capital Services Back-Office work 16,000GE's John W Tech Center Product R&D 1,800IBM Global Services IT Services, software 10,000*Oracle Software, Services 6,000EDS IT Services 3,500Texas Instruments Chip Design 900Intel Chip Design 1,700J.P. Morgan Chase Back-Office, Analysis 1,200(*)By 2005 Data:Company reports, Nasscom, Evalueserve

Where India has the edge (in comparison to China):LANGUAGE - English gives India a big edge in IT Services and Back-Office work.CAPITAL MARKETS - Private firms have readier access to funding. China favors state sector.LEGAL SYSTEMS - Contract law and copyright protection are more developed than China.DEMOGRAPHICS - Some 53% of India's population in under age 25, vs. 45% in China.

Future Vision:India produces 3.1 million college graduates a year and is expected to double by 2010. The number of engineering colleges is slated to grow 50%, to nearly 1,600, in four years. If India manages growth well, its huge population could prove an asset. By 2020, 47% of Indians will be between 15 and 59, compared with 35% now.The working age populations of the U.S. and China are projected to shrink.

Although problems of illiteracy, poor infrastructure, and bad government persist, "India's world-class engineering, business, and medical graduates are becoming enmeshed in America's New Economy in ways most of us barely imagine"(Business Week).

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Groups

Why do organizations go international? List at least 3 reasons

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Reasons for becoming international

Profit = Revenue – Cost = (Volume*Price) - Cost

1. A desire for continued growth.

2. Domestic market saturation

3. The potential to now exploit a new technological advantage

4. Preferable suppliers (quality, cost)

5. Labor market (supply, quality, cost)

6. Government involvement/restrictions

7. Reducing distance to customers (cost)

8. Tariff barriers

9. Increased foreign competition in home country

10. Reduce general business risk by diversifying into other countries

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Internationalization

Process by which firms

increase their awareness

of the influence of international activities on their future

and establish

and conduct

transactions with firms from other countries.

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An International Organization

operates in multiple environments, home country and one or more host countries, has foreign sales, and a nationality mix of managers and owners.

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Types of "international" organizations

Multi-domestic organization:

Any organization that exports to/imports from organizations in other countries with primarily domestic production.

Multinational organization:

An organization with operations in different countries but each is viewed as a relatively separate enterprise.

Global or transnational organization:

An enterprise structured so that national boundaries become blurred. The best people are hired irrespective of national origin. Transnational.

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Graphic Representation

Headquarters – Subsidiary Relationship

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Stages Model of Internationalization

Outward looking perspective: activities/issues related to the other countries (e.g., exporting) vs an inward perspective (e.g., importing)

Descriptive

Reflects the commonly observed pattern of increased commitment to international business

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Four stages of internationalizationStage 1:

Indirect/ad hoc exporting - perhaps from unsolicited export orders

Stage 2:

Active exporting and/or licensing

Stage 3:

Active exporting, licensing, and joint equity investments in foreign manufacture

Stage 4:

Full-scale multinational marketing and production

See also: Adler Chapter 1 pages 8 and 9

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The Relationship between Level of Internationalization and Firm Performance

What is the relationship?

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The Relationship between Level of Internationalization and Firm Performance

There is a strong relationship between the degree of internationalization and organizational performance

Degree of internationalization is measured as "sales generated by foreign affiliates" and MNE (multinational enterprise) performance is measured as "profit to sales" or "profit to assets".

Performance is at a max. at a level of internationalization of 60 to 80% and then decreases with continuing internationalization

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An International Organization Definition: operates in multiple environments, home

country and one or more host countries, has foreign sales, and a nationality mix of managers and owners.

Characteristics: 1. centralized ownership 2. common pool of resources 3. global, integrated strategy

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For next time

Read Harry and Sally for next time

Quiz #2: Ch.3 in Deresky: p. 82; 86; 87; 89; 93; 103;

106; 117 Adler Ch1 pp 15-37

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External Environment: Theory – Competitive Advantage

Competitiveness

International Competitiveness

Porter Diamond

The major determinants of national competitive advantage - why some nations succeed and others fail in international competition. Porter's research is based on studying 100 industries in 10 nations.

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PORTER DIAMOND

National Competitive AdvantageWhy a nation achieves success in a

particular industry?Why Japan -- automobile, camerasWhy CH (Switzerland) -- precision

instruments, pharmaceuticalsWhy Germany -- engineering

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Porter Diamond

Four broad attributes of a nation shape the environment in which local firms compete, and these attributes promote or impede the creation of competitive advantage (Diamond of four mutually reinforcing factors)

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Porter Diamond

1. Factor Endowments or Conditions-- Basic, Advanced (Nokia, Ericsson)

2. Demand Conditions -- Quality, Innovativeness

3. Related and Supporting Industries -- Suppliers (U.S. - semiconductor/comp)

4. Firm Strategy, Structure, Rivalry -- Executive background

<=> Domestic environment encourages the development of characteristics that make company internationally competitive

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References for Porter

1. Michael Porter, 1990. The Competitive Advantage of Nations. Free Press

2. M. Grant, 1991. The Competitive Advantage of Nations: An Assessment. Strategic Management Journal, 12, 535-548

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Rugman-Verbeke Model:

1. Firm specific advantages: relative to competitors -- technological experience, salesforce, customer loyalty

2. Country specific advantages: source of advantage lies outside the firm -economic (labor - qual., quan., cost; natural resources); - non-economic (social, cultural); -governmental (property rights, free enterprise)

• Compare to Porter’s model

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Review Types of international organizations

Criterion -- Level of Global Participation International/Multi-Domestic Multinational Transnational/Global

Stages of Development to an International O. Descriptive Model

Effectiveness of Internationalization Relationship between extent of internationalization and

performance

-External Enviro – Theory National Competitive Advantage

• Porter Diamond• Rugman-Verbeke

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External Environment: Theory - Trade Agreements

Why? Protectionism?

Pro /Con

53

Types of Trade Agreements

Trade Area Common tariffs among members -- individual tariffs with

non-members. NAFTA, ASEAN (Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam - 420 Mill)

Customs Union Common tariffs for non-members. ANDEAN (Bolivia,

Ecuador, Peru, Columbia, Venezuela) Common Market

Free flow of goods and labor. Mercosur (Brazil, Paraguay, Uruguay, Argentina, Chile)

Economic Union European Union -- 15 Members; Euro; European

Parliament; Court of Justice Political Union

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External Environment: Current Developments - Overview

Relevant variables: GDP GDP/capita GDP growth and factor endowments; demand conditions

The GDP (gross domestic product):

The value of the final output of goods and services produced by the residents of an economy (World Bank). There are several methods to calculate the GDP. The PPP (purchasing power parity) method reflects the cost of a basket of goods in two countries in their local currencies.

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Balance of payments: measures economic transactions between residents of one country and residents in all other countries; transactions that earn foreign currency are sources of reserves; transactions that consume foreign currency are uses of reserves;

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External Environment: Current Developments - Regions

International Investment

and Trade

Level of International Activities

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International investment and tradeWhat do you know?

Which countries are the main players in Worldwide - Europe Asia - Eastern Europe Latin America - Middle East

Worldwide, the dominant players in the following industries are from which countries Computer – Car – Oil – Minerals – Agriculture – Clothing Transportation

GM (international since the 1920’s) has acquired which foreign automakers?

Describe political and economic issues associated with China

Latin America .. Current opportunities

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Major Regions North America

• United States - which industries most internationally active? Why?

• US-Canada Free Trade Agreement (1989)

• Mexico - wage rate; maquiladora industry (1965)

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Europe delayed differentiation

acquisitions/alliances

EU -15 member countries: Belgium, Britain, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain, Finland, Sweden, Austria PLUS 10 Eastern European countries that joined May 2004

Eureka - European Research Cooperation Agency

EU – The Euro

60

European Union

The European CommissionThe Council of Ministers (counterbalance

to Commission)The European ParliamentThe European Court of Justice

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European Union

What kind of trade agreement? Governance? The European Commission

proposes policies and legislation responsible for the administration of the EU ensures - provisions of the EU treaties+the

decisions of the other institutions are properly implemented

one rep per country(two for the 5 larger countries) represent, protect, further the European interest +

its members do not represent or take orders from their national governments

62

Current Events: Europe

EU - European Commission presses nations to ease barriers to local Web access; only 50% of EU members mandate that customers can choose between suppliers for voice phone calls and data calls; the EC can order governments to do what is necessary to ensure fair competition (formal directive)

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Greater Europe EFTA (European Free Trade Association)....

Austria, Finland, Iceland, Norway, Sweden, Switzerland

64

Eastern Europe Break-up of The Soviet Union

(Dec 1991)

Russia (glasnost, perestroika)

The Ukraine

Czech Republic

Poland

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External Environment

Latin America Middle and South Mexico, Costa Rica, El Salvador, Nicaragua Peru, Columbia, Venezuela Brazil Argentina Chile

66

Asia Japan

• MITI (Ministry of International Trade and Industry)

• keiretsus

• Current economic conditions

China

• GNP growth of 10% (80s)

• low wage rates

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What about Australia?

68

Newly industrialized countries:

The Four Tigers

South Korea, Hong Kong, Singapore, Taiwan

Baby Tigers

Thailand, Malaysia, Indonesia

69

Less developed countries

Large population, high unemployment, inflation, low or negative economic growth, low literacy rate

India, Arab Countries, Africa, Central and South America

70

Major economic regionsNorth America

Europe

Asia

71

External Environment - Economic Superpowers

The Triad - The Golden Triangle• The United States,

• the EU (dominated by Germany),

• Japan

Dominates foreign direct investment and international trade

72

FDI Clusters

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Review

Summarize the current developments in Eastern Europe.

What do you know about China with respect to international management.

What about Japan?What are keiretsus?Give an example of the effect on the

manufacturing process of open trade.

74


Economic Theory – Porter, Trade Agreements Current developments - International trade and

investment Dominant players

• China – Political and economic freedom FDI clusters European Union (WSJ)

• 15 members• 10 new members – Eastern Europe

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National CultureHarry and Sally in Saudi Arabia

• What went wrong? Specific examples!

• Why did things go wrong?

• What were the consequences of these mistakes?

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Harry and Sally in Saudi Arabia• What went wrong? Specific examples!

Sabbath Flights Language - Taxi Coffee – Refusal – Rude Food Role of women Negotiation – Relationship-building

Why did things go wrong?

Lack of preparation – Cultural knowledge

Cultural sensitivity

What were the consequences of these mistakes?

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Culture and International Management

Relevance

Cultural Toughness – Cultural Distance

Cross-cultural literacy

Cost of doing bus in a particular culture

78

Internationalization Decision

Benefits from internationalization into a specific country

Cost associated with internationalization into a specific country

Risk associated with internationalization into a specific country.

Decision = f (benefit-cost-risk tradeoff)

79

Cultural Dimensions

All peoples have common life problems (?) choose different solutions – depends on

cultural/results in culture Six basic dimensions describe the cultural

orientations of societies What is the nature of people? What is a person's relationship to nature? What is a person's relationship to other people? What is the primary mode of activity? What is the conception of space? What is the temporal orientation?

80

Cultural dimensions

Six basic dimensions describe the cultural orientations of societies What is the nature of people? Good/evil/change What is a person's relationship to nature?

• Dominant/harmony -subjugation What is a person's relationship to other people?

• Individualistic/group – hierarchical/lateral What is the primary mode of activity?

• Doing/being What is the conception of space?

• Private/public What is the temporal orientation?

• Future/present/past

81

Characteristics of Culture - Values and Norms -

Social structure

1.Social stratification

2.Class consciousness

3.Class membership is a function of ?

4. Social mobility

82

Religion (2002) www.adherents.com

Minimal level of self-identification

Non-religious 14%

Judaism 14 mill

Christianity 2 bill; 33%

• Protestant work ethic

• Catholic vs Protestant/Lutheran

• Take care of your neighbor and the less fortunate

• 10 commandments

83

Religion (#s from 2002)Islam 1.3 bill; 22%l

• Sunni and Shi’ite – best known branches

• all embracing way of life, governing the totality of a Muslim being;

• prayer five times a day;

• free enterprise/hostile to socialist ideals - earning a legitimate profit through commerce and trade;

• Koran;

• contractual obligations, keeping one's word

• role of women and men

84

Hinduism 900 mill; 15%

• spiritual achievement;

• Nirvana;

• Samsara – birth, death, re-birth;

Buddhism 360 mill; 6%

• Central and Southeast Asia, China, Korea, Japan;

• "life is suffering; misery is everywhere and originates in people's desire for pleasure;

• Noble Eightfold Path: right views, right intention, right speech, right action, right livelihood, right effort, right awareness, right concentration

• Japan – Temples, Shrines (Shinto)

85

Political philosophy Political freedom – dominant political orientation

Economic philosophy Free market – to what extent

Education Importance – Access – Type

Language (verbal/spoken; non-verbal) Communication

86

Ignoring Culture

Religion • Ads for refrigerator, airlines (Middle East)

Language • Baby Food in Africa, • English candy “Zit”, • Finnish product unfreezes car locks “Super

Piss” • Electrolux sucks (Sweden)

87

Measurement of Culture

Geert Hofstede – 1970’s IBM employees 100,000 across 30+ countries Survey – typical work situations Identify systematic differences – Factor Analysis Four independent factors Follow up research: Culture’s consequences

(2001) Culture: Collective programming of the mind

88

Four dimensions of culture

Individualism/Collectivism Individualism exists when people define themselves

as individuals. It implies loosely knit social frameworks in which

people are supposed to take care only of themselves and their immediate families.

Collectivism is characterized by tight social frameworks in which people distinguish between their own groups, "in-groups", (relatives, clans, organizations) and other groups. People expect in-groups to look after their members, protect them, and give security in exchange for members' loyalty.

89

Power distance

Indicates how a society deals with the inequality among people's physical and intellectual capabilities.

A culture with high power distance allows inequality to grow to inequality in power and wealth, one low in power distance aims at removing such inequalities.

Indicates to what extent the unequal distribution of power is accepted.

90

Uncertainty avoidance The extent to which people in a society feel

threatened by ambiguous situations and

the extent to which they try to avoid these situations

by providing greater career stability, establishing more formal rules, and rejecting deviant ideas and behavior.

Lifetime employment is more common in countries with high uncertainty avoidance - the reverse is true for job mobility.

91

Masculinity/Femininity Masculinity is defined as the extent to

which the dominant values of society emphasize assertiveness and acquisition of money and things (materialism).

Femininity is defined as the extent to which the dominant values in society emphasize relationships among people, concern for others, and the overall quality of life.

92

New

Confucian dynamism or

Long-term orientation (1993) Refers to the time perspective in a society for the

gratification of people's needs.

A high CD or long-term oriented society is one which emphasizes thrift and perseverance.

A low CD or short-term oriented society focuses on gratifying needs here and now.

93

Culture

Review• What is culture?

• Why is it relevant?

• What are basic assumptions of culture?

• What are determinants and characteristics of culture?

• How is understanding the dominant religion in a country important to international management?

94

Culture

Review• What is culture? Values and norms; socialization

• Why is it relevant? Cross-cultural literacy; Benefit-Cost-Trade-off

• What are the dimensions of culture? Nature of People, Relationship to Nature, People, Temporal, Space, Mode of activity

• What are determinants and characteristics of culture?

• How is understanding the dominant religion in a country important to international management?

95

Sources for International Research

Hofstede, Geert (1980): Culture’s Consequences

Hofstede, Geert (1991): Cultures and Organizations

Hofstede, Geert (1984): Culture’s Consequences: International Differences in Work-Related Values

Hofstede, Geert and Michael Harris Bond (1984): The Confucius Connection: from cultural roots to economic growth. Organizational Dynamics, 16, 4, 4-21

96

U.S. Japan Germany

Individualism: 91 46 67

Power distance: 40 54 35

Uncertainty

avoidance: 46 92 65

Masculinity: 62 95 66

ST/LT: 29 80 25

97

Applying Hofstede’s Dimensions

Lawyers per 100,000 population U.S. Germany Great Britain Japan Italy France

98

Applying Hofstede’s Dimensions

Lawyers per 100,000 population U.S. 312 Germany 190 Great Britain 134 Japan 106 Italy 81 France 49

99

Laurent’s Research-See Adler

9 Western countries, US, 2 Asian countries More than sixty common work situation (yes/no)

The main reason for hierarchical structure is so that everybody knows who has authority over whom

In order to have efficient work relationships, it is often necessary to bypass hierarchical lines

It is important for a manager to have at hand precise answers to most of the questions that his subordinates may raise about their work

100

Laurent’s Research The main reason for hierarchical structure is so that

everybody knows who has authority over whom US 18% agree, Germany 24% agree, Italy 50% agree France, 45% agree, Japan 52% agree - POW

In order to have efficient work relationships, it is often necessary to bypass hierarchical lines

US 32% disagree, Germany 46% disagree, Italy 75% It is important for a manager to have at hand precise

answers to most of the questions that his subordinates may raise about their work

US 18% agree, Germany 46% agree, Italy 66% agree, Japan 78% agree - UNC

101

Fons Trompenaars

Riding the Waves of Culture (1998; 2nd edition)

Dimensions (see textbook pg 119): Universalistic–Particularistic (Obligation) Neutral-Affective (Emotional Orientation in

Relationships) Specific-Diffuse (Involvement in Relationships) Achievement-Ascription (Legitimization of Power)

102

Cultural Stereotypes

What is a stereotype?Good or Bad?Effect on cross-cultural adaptationExercise

103

Cultural Stereotypes

Good or Bad??Exercise:

Countries: Germany, Italy, Switzerland, UK, France

Jobs: Government, Cooks, Policemen, Engineers, Lovers

Best Case and Worst Case Scenarios

104

Expatriate AssignmentWhy to use expatriates?

Ethnocentric, polycentric, regiocentric, geocentric

Culture ShockKSA RequirementsSelection

KSA assessment

Training Type and rigor of training

Failure Rates

105

International HRM The Expatriate Assignment

Experience of uncertainty Anticipatory and in-country adjustment

Expatriate Selection Relevant KSA’s?

Technical, Managerial Adaptiveness

Measurement SMILE: Speciality; management ability; international

flexibility; language facility; endeavor (Matsushita) Spouse and Family Failure rates

40% on average; lower for European and Japanese Rosalie Tung

106


Failure rates 40% on average; lower for European and Japanese Rosalie Tung: Reasons

• Selection is based on headquarter criteria

• Lack of training, preparation, orientation

• Alienation/lack of support from headquarters

• Inability to adapt to local culture/work enviro

• Problems with spouse,family

• Compensation

• Poor programs fro career support/repatriation

107


Asia Pacific Journal of Human Resource Management – Stedham/Nechita paper – Comparing Theory and Practice of Expatriate Assignments Reduce the number of uncertainties and increase the ability to deal

with uncertainties- Anticipatory and in-country adjustment Selection – Criteria: Ability to adjust. Strategic purpose of the

assignment (coordination, control, info exchange, management development). Similarity of current job. Conflict resolution skills. Methods: Include spouse and family.

Training: Reduce the number of uncertainties and increase skills to cope with uncertainties. Contingency factors: cultural toughness, communication toughness, job toughness. Trg rigor, techniques, duration and content.

Repatriation: Uncertainties .. Continuous contact. External validation.

108


Training Cultural toughness – China, Brazil, India, Japan, Russia,

Mexico, Saudi Arabia, South Korea, France Less than 1/3 of expatriates receive training Pre-departure training, postarrival training, reentry training Culture, language, everyday matters Cross-cultural training to ease the adjustment to the new

environment by reducing “culture shock”: a state of disorientation and anxiety about not knowing how to behave in an unfamiliar culture

109


Training Four stages of culture shock:

Honeymoon Irritation and hostility Gradual adjustment Biculturalism

Training techniques and Rigor of training Area studies Culture assimilators Language training Sensitivity training Field experiences

110


Training – Examples ABB (Asea Brown Bovari) rotates 500 managers

around the world .. Every two to three years PesiCo orientation program for foreign managers

… one year at U.S. bottling division plants Honda of America Japanese language, culture,

lifestyle training .. Tokyo up to 3 years GE engineers and managers must have global

perspective .. Regular language and cross-cultural training

111


Compensation $100,000 manager in U.S. -> $300,000 in London,

$1mill in Tokyo or Stockholm Equity and goodwill Purchasing power and standard of living Tax differentials and tax equalization Balance sheet approach Allowances – Cost of living, housing, education,

home leave, shipping and storageRepatriation

112


You have been assigned as the mentor to an employee, Klaus Schmidt, from Germany who will be working with you in your department for the next three years. His family, wife who is a computer programmer, and two sons (13 and 15 years old), is coming with him.

You are writing to John telling him about what to expect – on the job and in the community. Tell him about some of the cross-cultural conflicts he may run into with his co-workers and how he should handle them. You also want to give advice to each family member.

Groups of four – make a list of relevant issues. Any assumptions?

113

Expatriate Assignment Why expatriates? Culture shock - cross-cultural adaptation Failure of U.S. expats Strategic purpose/involve HRM Selection: Technical skills/Adaptation skills/Family and

Spouse Training: When? Purpose? Type - rigor/methods Repatriation: Communication and Valuation

114



Culture

MultipleEconomy

Multiple SocialEnvironment

TechnologicalEnvironment

PoliticalEnvironment


People

Processes Structure

BusinessStrategy

Culture

Effectiveness

115

Overall Attractiveness of a Country

Trade-off between Benefits

Costs

Risks

116

Overall Attractiveness of a Country

Trade-off between Benefits: market size, wealth (purchasing power), future

wealth, resources (quality and cost)

Costs: legal requirements, availability of resources, infrastructure, level of economic development, free market?

Risks: the likelihood that political, economic, legal forces will cause drastic changes in a country's business environment that adversely affects the profit and other goals of a particular business enterprise.

117


Political Risk

• What is risk?

• What is economic risk?

• What is political risk?

118

Political Risk

Definition

• the likelihood

• that political forces

• will cause drastic changes

• in a country's business environment

• that adversely affect the profit and other goals of a particular business enterprise.

119

Political RiskCharacteristics of countries

with a higher likelihood for political risk:• Social unrest (see below) • Demonstrations• Terrorism

Social Unrest• More than one ethnic nationality• Competing ideologies battle for political

control• High inflation and falling living standards• Strikes

120

Results of Social Unrest:

Change in government and/or policy

Results of Political Change:

Expropriation

Indigenization

121

Risk Assessment

Euromoney Magazine’s Country Risk Ratings

Analytical Indicators: political risk (20%) - measures stability and potential fall

out from instability economic indicators and risk(20%)

Credit Indicators Market Indicators

Political Risk Yearbook

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Political Risk Data - Example Dun & Bradstreet’s Guide to Doing Business

around the World (pages 36 + 37)

Comparative Country Risk Rankings

Overall Ratings: Political Risk, GDP Growth, Per Capita Income, Trade Flow with the US, Monetary Policy, Trade Policy, Protection of Property Rights, Foreign Investment Climate

List countries low/high in political risk

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Political Risk Data - Example

List countries low/high in political risk

Check!!!!

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Risk Management:

Analysis - macro, micro

Management -IntegrativeProtective/Defensive

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Integrative Approach

Become part of the host country’s infrastructure

Good relationship with host government

Produce locally … in-country suppliers

Joint venturesLocal R&DEffective in long-run

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Protective/Defensive Approach

Discourage host government from interfering

As little as possible local manufacturing and R&D

Capital from local banks and outsideDiversify production among several

countries

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Contingency Approach

Overall risk for an international company depends on the polit. risk and characteristics of the firm.

Three primary factors to be considered:

1.Political risk type - Transfer risk/Operational Risk/Ownership risk

2.General investment type -Conglomerate/Vertical/ Horizontal

3. Specific Investment (1=most risky) - Sector (primary=1 /industrial=3/service=2) Technology (science=2/non-science=1) Ownership (wholly=1/partially owned=2)

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Political Risk

Political Risk Insurance - covers the loss of firm’s assets, not the loss of revenue

Overseas Private Investment Corp (OPIC) inability to repatriate profits, expropriation,

nationalization, damage from war, terrorism

Foreign Credit Insurance Association war, revolution, currency inconvertibility, cancellation of

import or export licenses

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Review

Why assessing risk in internationalization decisions?

Define “risk”. What is political risk?Social unrest is an indicator of political risk

- explain.What conditions precede social unrest?What are the consequences of political

risk?Where to get info about political risk?

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A Risky Country:

1. unstable government

2. unstable economy

3. war/revolution/terrorism

4. unfriendly/hostile people

5. unacceptable customs/values/attitudes

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A Risky Company:

1. type of product and/or service offered

2. type of industry

3. structure of ownership

4. level of technology

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Strategic Planning

Strategy – Defined:• The science

• and art

• of conducting military campaign

• on a broad scale.

• A plan or technique for achieving some end.

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Strategic management• set of decisions and

• subsequent actions

• used to formulate and

• implement strategies that will

• optimize the fit between the organization and its environment

• in an effort to achieve organizational effectiveness.

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Strategy and the Firm

Purpose of any business: Provide products or services that are desired by society and, hence, to make a profit

Profit = Revenue - Cost

Profit = Volume * Price - Cost

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Profit: If the price the firm can charge for its output is greater than its costs of producing that output.

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Profit

To do this, a firm must produce a product

that is valued by consumers.

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Value

Thus the firm must engage in value creation.

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Value to Customer

The price that consumers are willing to pay indicates the value/worth of the product to the consumer.

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Strategy

Porter, 1985 - Strategy Model (Distinguish from Porter’s Diamond - National Competitive Advantage)

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Strategy

Firms can increase profit in two ways:

1.adding value to a product so that consumers are willing to pay more for it (improve quality, provide service, customize product to consumer needs)

2. by lowering the costs of value creation (perform value creation activities more economically).

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The firm is a value chain

composed of a series of distinct value creation activities

Value creation activities1.Primary activities

Production and marketing

2. Support activities

Materials management, R&D, Human resource management

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Strategy - Michael Porter

Strategy: The steps a firm takes to ensure that the cost of value creation

are reduced and that value creation activities are

performed in such a way that consumers are willing to pay more for the product than it costs to produce it.

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Strategy and Global Expansion

Performing certain value creation activities may have two benefits for the value chain

1. Lower the cost of value creation

2. Improve the quality of the product - create more value

Perform value creation in “best” location

Firms realize location economies by dispersing particular value creation activities to those locations where they can be performed most efficiently and effectively.

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Location economies and/or experience economies:

Basing each value creation activity that the firm performs

at the location where economic, political, and cultural conditions,

including relative factor costs,

are more conducive to the performance of that activity.

Consider transportation costs (weight-to-value ratio) and trade barriers.

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Firms that expand to international markets will gain greater returns from their distinctive

skills or core competencies.

Core Competencies - Skills within the firm that competitors cannot easily match or imitate.

Examples.

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Constrains on transferring core competencies result from the need for local responsiveness

Need for local responsiveness results from national differences in consumer tastes and preferences, business practices, distribution channels, competitive conditions, and government policies - these constrain the firm's ability to transfer core competencies and realize location economies.

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Strategy of an international organization

concerns identifying and

taking actions that will

reduce the cost of value creation and/or

will add value

by better serving the consumer needs

through transferring core competencies and

realizing location economies taking

into account national differences.

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Strategic Predispositions

Ethnocentric:

strategic decisions are made at headquarters,

key jobs at both domestic and foreign operations

are held by headquarters management personnel (PCN's).

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Polycentric:

the MNC's subsidiaries are

treated as distinct national entities

with extensive decision-making autonomy (HCN's mane the foreign operations).

Geocentric:

tries to worldwide integrate business strategy and decision-making.

Regiocentric:

reflects the geographic structure of the MNC.

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Strategic Predisposition’s

Ethnocentric Polycentric Regiocentric Geocentric

Mission Profitability (viability)

Public acceptance (Legitimacy)

Both Both

Strategy Global Integration

National responsiveness

Regional integration national responsiveness

Global integration and national responsiveness

Culture Home country Host country Regional Global

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Strategic Planning ProcessExternal Scanning and Internal

Scanning (SWOT)Opportunities/Threats

Strengths/WeaknessesVision, Mission, Goals, Objectives,

Strategies

Strategy Implementation

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Three Traditional Strategies (Bartlett/Goshal, 1989)

Multinational Strategy:

focus on cost reduction and product standardization that is marketed worldwide.

International Strategy:

limited local responsiveness, focus on transfer of valuable skills and products where indigenous competitors lack those skills and products.

Multidomestic Strategy:

like international but extensive local responsiveness.

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Pressures for Local Responsiveness

1. Differences in consumer tastes and preferences

2. Differences in infrastructure and traditional practices

3. Differences in distribution channels

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Group Dynamics

Why groups?

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Group Dynamics

Group performance =

Sum of

individual performance PLUS group dynamics

Group dynamics can be positive or negative

Higher quantity and quality of solutions

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Group Dynanmics

Advantages – Benefits Different viewpoints Differences in expertise Differences in training and experience Cultural differences Value differences

Process losses Loafing Intra-group conflict Miscommunication Wrong leader In appropriate role and task assignments Role ambiguity Role conflict Informal, dysfunctional norms

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Group Dynamics Group management

Roles What Who When

Timeline When What Who

Leadership Formal Why Expertise and role

Norms Must be explicit Agreed upon by all Consequences of norm violations

Group Development

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The Internal Environment of an International Organization

CulturePeopleProcessesStructure

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Organizational Culture

What is it?Relevance? Why is it important?Where does it come from?What happens when two companies

merge? Boeing-McDonnel Douglas; GE and Bently NV

What happens when two companies from different countries merge?

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What is organizational culture?• The shared values, beliefs, norms, and patterns of

behavior in an organization.

Schein's Three Layer Model:• Artifacts, Values,Basic Assumptions

Measurement of organizational culture• In the workplace cultural differences are

accounted for by work practices.

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Termpaper evaluation Presentation 1. Evaluated by the seminar leader and the

seminar participants.

2. Max. 100 points total.

3. Criteria: Content (60 points)

Comprehensiveness

Relevance

Effectiveness with respect to generation of understanding

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Format (40 points) Structure of presentation

Appropriate (quantity, quality) presentation methods)

Stimulation of discussion and critical thinking

Written paper 1.Evaluated by seminar leader. Team members evaluate each other -

after presentation.

2. Max. total of 100 points.

3. Criteria:Content comprehensiveness, relevance, logical integration, ANALYSIS

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Dimensions of Organizational Culture

1. Process-----Results oriented

2. Tight------- Loose Control

3. Job---------Employee oriented

4. Parochial----Professional oriented

5. Closed system--Open system

6. Normative----Pragmatic

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Organizational Culture, Processes, and Structure

Structure Communication Decision Making Reward Process Oriented Results Oriented Job Oriented Employee Oriented Parochial Professional Closed System Open System Tight Control Loose Control Normative Pragmatic

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Creating and changing the culture of an organization?

National and Organizational Culture Organizations in Japan, Germany, the U.S. are

likely to have which org. culture characteristics?

The Organizational Culture of a MNC A universal org. culture?

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Internal Environment: Behavior

Individual Behavior P = f (A, M) Motivation defined! Homeostasis --- applied to psychological needs MotivationTheories ---

Applicability across cultures??

Content Theories

Maslow’s Need Hierarchy

Two Factor Theory of Motivation

McClelland Achievement Motivation

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Motivation Theories in the International Context

How applicable are motivation theories proposed by Maslow and Herzberg in the international context?

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Motivation Theories in the International Context

How applicable are motivation theories proposed by Maslow and Herzberg in the international context?

Haire, Ghiselli and Porter’s survey concluded that Maslow’s needs, in particular the upper-level ones, are important at the managerial level

Ronen concluded that need clusters are constant across nationalities and that Maslow’s need hierarchy is confirmed by these clusters. Also, Herzberg’s categories are confirmed by the cross-national need clusters..

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Internal Environment: Behavior

Process Theories Equity Theory of Motivation

Goal - Setting

Expectancy Theory of Motivation

valence

Effort Performance Outcome

expectancy instrumentality

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Motivation and Hofstede

High UNC - job security Low UNC - fast-track, more risky opportunities

Low POW - motivation through teamwork and peers High POW - motivation depends on boss

High IND - motivation through opportunities for individual advancement

Low IND - motivation through appeals to group goals and support

High MASC - comfortable with traditional division of work roles Feminine - looser definition of roles, more flexible

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The Meaning of Work

Tied to economic necessity

What else?

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Work Centrality

Work centrality “the degree of general importance that working has in

the life of an individual at any given point in time.”

Mean work centrality score increases, the more motivated and committed the workers would be.

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The Meaning of Work

Thai: work = ngan; same word as the word for play

Work centrality - relative importance of work

Six functions of work: needed income, interesting & satisfying, contact with others, serve society, keeps one occupied, status and prestige

These may be satisfied through other aspects of life

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Study results

Britain (lowest), Germany, Netherlands, Belgium, USA, Israel, Japan

(page 411)

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The Relative Meaning of Work in Eight Countries(Exhibit 11-1)

8.0

7.75

7.5

7.25

7.0

6.75

6.5

6.25

6.0

Japan (7)

(former) Yugoslavia (5)

Israel (4)USA (3)

Belgium (1)

Netherlands (1)Germany (1)

Britain (0)

7.78

7.30

7.106.94

6.816.69

6.67

6.36

N = 3144

N = 521

N = 893N = 996N = 446

N = 976N = 1276

N = 409

Numbers in parentheses indicate the numberof countries significantly lower (p<0.05) inwork centrality than the country designated

Work ismoreimportantand morecentral inlife

Mean workcentrality score

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Group Behavior Group effectiveness = individual behavior +

Mature group = effective group

Stages of development (F, S, N, P)

Two main characteristics for the analysis of Groups

Leadership and composition

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Leadership Which Hofstede dimensions?

Types of leadership styles:

autocratic, participative, group

authoritarian, democratic, laissez-faire

Theory X, Theory Y

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Research

traits, behaviors, contingency approach

Kouzes and Posner

Across cultures: Haire, Ghiselli, Porter

South-European and Nordic-European --- more autocratic, more Theory X

South-European give a little more autonomy to employees in working out details

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Both support participative leadership practices

Smaller companies participative Japanese Theory Y ---

employees learn from mistakes Germans Theory X ---

autocratic, stop poor performance asap

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Culturally-Contingent Beliefs Regarding Effective Leadership Styles(Selected data)(Exhibit 11-8)

Country N Charisma Team Self- Part. Humane Auton. Protective

Austria 169 6.03 5.74 3.07 6.00 4.93 4.47Brazil 264 6.01 6.17* 3.50 6.06* 4.84 2.27China 160 5.57 5.57 3.80 5.05 5.18 4.07Denmark 327 6.01 5.70 2.82 5.80 4.23 3.79England 168 6.01 5.71 3.04 5.57 4.90 3.92India 231 5.85 5.72 3.78 4.99 5.26 3.85

Japan 197 5.49 5.56 3.61 5.08 4.68 3.67Mexico 327 5.66 5.75 3.86* 4.64 4.71 3.86Russia 301 5.66 5.63 3.69 4.67 4.08 4.63*USA 399 6.12* 5.80 3.16 5.93 5.21* 3.75

Scale 1 to 7 in order of how important those behaviors are considered for effective leadership (7 = highest)

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Culturally-Contingent Beliefs: Effective Leadership Styles

Americans appreciate two kinds of leaders. They seek empowerment from leaders who grant

autonomy and delegate authority to subordinates. They also respect the bold, forceful, confident, and risk-

taking leader, as personified by John Wayne.

The Dutch place emphasis on egalitarianism and are skeptical about the value of leadership. Terms like leader and manager carry a stigma. If a father

is employed as a manager, Dutch children will not admit it to their schoolmates.

Arabs worship their leaders – as long as they are in power!

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Culturally-Contingent Beliefs Regarding Effective Leadership Styles(contd.)

Iranians seek power and strength in their leaders.

Malaysians expect their leaders to behave in a manner that is humble, modest, and dignified.

The French expect their leaders to be “cultivated” – highly educated in the arts and in mathematics.

R. House, et al.

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Group BehaviorGroup Composition --- Multicultural Teams

Impact of cultural diversity on group performance?

group productivity = f(task, resources, process)

actual productivity = potential productivity - losses due to faulty process

actual productivity or =

potential productivity or - losses or

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benefits associated with cultural diversity:

# of alternatives generated;

quality of alternatives;

creativity/divergence;

no groupthink

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Process Losses:

potential for miscommunication increases;

cohesiveness decreases;

negative attitudes (dislike, mistrust);

perceptual problems (stereotyping);

stress

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managing team effectiveness: Multicultural teams have the potential to be the most or the least

effective teams

Group development stages: entry, work, action

Task: innovative or routine

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Manage culturally diverse teams through:

task-related selection

recognition of differences

super-ordinate goals

equal power

mutual respect

feedback

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Communication - Macro - Level

Communication Flows

upward/downward

culture

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Communication: Micro - Level Micro (Interpersonal) Level

Definition: Transmission of meaning through the use of common symbols

Sender -> Message -> ReceiverEncoding Decoding

Interpersonal communication Process encoding message decoding

Communication barriers language perception culture nonverbal communication projected similarity parochialism

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Micro -Level Stereotyping

Explicit vs Implicit Communication

Non-verbal communication Body Language Emblems Illustrators Affect Display Regulators Adaptors Space (proxemics) Touch Voice Dermal Code

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Decision Making in an International Organization

Relevance: Quality of decisions

-> Organizational Effectiveness

Differences across Cultures?

192

DM Process and Culture

1. Setting Objectives

2. Problem Recognition

3. Information Search

4. Alternative Generation

5. Choice

6. Implementation

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International Negotiations

Definition

The process in which at least two partners with different needs and viewpoints try to reach an agreement that is acceptable to all on matters of mutual interest

-> International managers spend more than 50% of their time negotiating

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Recommendations (Fisher and Ury "Getting to Yes"):

1. Separate the people from the problem

2. Focus on interest, not position

3. Insist on objective criteria

4. Invent options for mutual gain

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Apply the following models to summarize and remember the relevant information about the countries we discussed:

Porter Diamond: National competitive advantage

Existence and importance of basic factors? Existence and importance of advanced factors?

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Course Summary

==> Europe? Asia? Latin America? Australia? Specific countries?

Internationalization Strategy: Generalizations?? Purpose of internationalization

Market growth (pop size; income)

Value creation activities (labor cost, exp.)

Benefits = Location economies (transportation cost) Political Risk .... South America? Asia? Europe? Cost … Management - cultural differences ...

religion, education; Hofstede and Trompenaars

==> Generalizations across countries/regions??

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Culture

MultipleEconomy

Multiple SocialEnvironment

TechnologicalEnvironment

PoliticalEnvironment


People

Processes Structure

BusinessStrategy

Culture

Effectiveness

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Managing the International Organization 1.External Environment ... Porter Diamond; Status Quo;

Culture (Hofstede)

2.Strategy ... Value creation activities; Location economies

3.Internal Environment ... Behavior: Individual (Motivation) and Group (Leadership; Multicultural Teams) Processes: Communication -- Macro (communication flow); Micro (communication process); Next -- Nonverbal communication -- Decision Making ; Negotiation; HR Processes (The Expatriate Assignment).

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Market Entry Modes

Exporting - Turnkey Projects - Licensing (mftg)- Franchising

Joint Ventures - Wholly Owned Subsidiaries

Strategic Alliances- refers to cooperative agreements between potential or actual competitors ... formal joint ventures to short-term contractual agreements in which two companies agree to cooperate on a particular task.

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- Examples: Boeing and a consortium of Japanesecompanies to produce the 767 wide-bodiedcommercial jet.

General Electric and Snecma of France to build afamily of low-thrust aircraft engines.

Philips and Siemens to develop newsemiconductor technology.

international management mgt 480/680 fall 2005 dr. yvonne stedham

Documents

organization slide

management slide

syllabus slide

eduhomepageystedham

line slide

taiwan slide

yvonne stedham slide

organization effective