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Chapter6--InternationalManagement.pptx

Chapter 6

International Management

© 2023 McGraw Hill, LLC. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill, LLC.

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Learning Objectives

6-1 Discuss what integration of the global economy means for companies and their managers.

6-2 Describe how the world economy is becoming more integrated than ever before.

6-3 Define the strategies organizations use to compete in the global marketplace.

6-4 Compare the various entry modes organizations use to enter overseas markets.

6-5 Explain how companies can staff overseas operations.

6-6 Summarize the skills and knowledge managers need to manage globally.

6-7 Identify ways in which cultural differences between countries influence management.

Managing in Today's (Global) Economy

The world’s economic output grew and the volume of exports grew much faster.

Foreign direct investment (F D I) plays a bigger role in the global economy.

Imports penetrate more deeply into the world’s largest economies.

Growth of world trade, F D I, and imports means companies around the globe find their home markets are under attack from foreign competitors.

Increasing prosperity and the lowering of trade barriers helped many nations integrate into a now-global economy. First, even as the world’s economic output grew, the volume of exports grew even (and much) much faster. Second, foreign direct investment (FDI) plays a bigger role in the global economy as companies of all sizes invest overseas. Third, imports penetrate deeper into the world’s largest economies. Finally, the growth of world trade, FDI, and imports implies that companies around the globe are finding their home markets under attack from foreign competitors.

Exhibit 6.1 Top 10 Global Firms

Source: “Global 500,” Fortune, January 31, 2021, http://fortune.com/global500/.

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As Exhibit 6.1 shows, the United States has no monopoly on international business. Of the worlds top ten corporations in the world, eight are based in countries outside the United States. Companies have dispersed their manufacturing, marketing, and research facilities to locations around the globe where cost and skill conditions are most favorable. This trend is so pervasive in industries such as automobiles, aerospace, and electronics that it is increasingly irrelevant to talk about “American products” or “Chinese products” or “German products.”

Outsourcing and Jobs

Outsourcing:

Contracting with an outside provider to produce one or more of an organization’s goods or services.

Offshoring:

Moving work to other countries.

Inshoring:

Moving work from other countries back to the headquarters country.

Insourcing:

Producing in-house one or more of an organization’s goods or services.

Most concerns about offshoring refer to outsourcing because people think that high-paying jobs are being lost to low-cost countries overseas. The decline in manufacturing employment in the United States is evident, and many blame corporate greed and offshoring. However, considerable evidence suggests that the cause of this job decline is not offshoring but innovation. Note that outsourcing and offshoring are often confused by students.

Many American companies are outsourcing and offshoring to save money, utilize external expertise or focus on other core activities.

This photo is from a call center in Hyderabad, India.

Factors to Consider for Offshoring

Managers should not start out with the assumption that it will be cheaper for them to offshore.

What competitive advantage do the products offer?

Is the business in its early stages of life?

Can production savings be achieved locally?

Can the entire supply chain be strengthened?

In deciding whether to offshore, managers should not start out with the assumption that it will be cheaper for them to do so. The slide suggests some factors to take into account when making the offshoring decision.

The Geography of Business

The global economy is more integrated than ever before.

The global economy is dominated by countries in three regions: North America, Western Europe, and Asia.

Other developing countries and regions represent important areas for economic growth.

The World Trade Organization (WTO), formed in 1995, now has 164 member countries responsible for most of the world’s trade.

Exhibit 6.2 Key Aspects of the Global Environment

Environment	Aspects
Economic environment	Foreign investment; growth of developing nations; rising wages in developing nations
Technological environment	Internet, artificial intelligence, augmented reality, and cloud computing
Legal/regulatory environment	Free trade agreements; anticorruption laws
Demographic environment	Aging population in developed nations; growing population worldwide, especially in the developing world
Social environment	Cultural differences; bribery concern
Natural environment	Intensifying demand for resources, including oil, water, and food; growing desire for sustainable products and operations; increasingly endangered species; climate change

Several aspects of the global environment are important for managers to be aware of when making decisions. These include economic, technological, legal, social and environmental differences.

Western Europe

With the departure of Britain, the European Union (E U) had 27 members and a population of more than 446 million.

The EU is still the largest trading block and one of the largest economies in the world.

Brexit is creating some uncertainty short-term.

This slide notes the membership of the European Union and discusses Brexit.

Asia: China and India

China is world’s largest consumer of basic raw materials and the largest exporter of goods into the United States.

Greatest impact as an exporter.

Competitive edge in manufacturing.

India is still developing and has the second largest population in the world.

Provides online support for many companies.

This slide lists the two largest Asian economies.

The Americas

North American Free Trade Agreement (N A F T A):

An economic pact between the United States, Canada, and Mexico.

Currently renegotiated as the U.S.-Mexico-Canada Agreement (U S M C A).

Other agreements between the U.S. and Central and South America:

C A F T A-D R.

Mercosur.

In 2018, the Trump administration renegotiated the trade agreement with the leadership of Canada and Mexico, resulting in the new U.S.–Mexico–Canada Agreement (USMCA). The pact results in trade that totals around $1 trillion annually. The United States had always had a long-standing agreement with Canada, but with the trade agreements Mexico quickly became the United States’ third-largest trading partner.

Other agreements have been established to promote U.S. trade with Central and South America. The Central America–Dominican Republic–United States Free Trade Agreement (CAFTA-DR) includes Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua.

Additional trade agreements have been negotiated on a country-by-country basis with Chile, Peru, Colombia, and Panama. In addition, the countries of South America formed their own trading bloc, called Mercosur, to promote trade within the continent.

Africa and the Middle East

Middle East:

Supplies by far the most oil to the world’s buyers.

Saudi Arabia is the United States’ main supplier of oil from that region.

The United States' dependence on foreign oil has decreased due to increased domestic production.

Africa:

Africa has long been seen only as a place of dire poverty and many unstable political situations.

Progress and growth in the middle class have provided opportunities for businesses.

The main Middle Eastern supplier of U.S. oil imports is Saudi Arabia, with other major suppliers being Canada, Mexico, and Venezuela.

Africa is still plagued by epidemics, draught, political instability, and ongoing wars. But areas of progress and growth in the middle class provided big opportunities for businesses willing to learn the needs of the population and make the effort to navigate the environment. For example, the mobile phone industry leapfrogged the landline phase of communications in Africa.

Exhibit 6.3 Cross-National Organizational Models

SOURCES: C.A. Bartlett, and S. Ghoshal, Managing across Borders: The Transnational Solution. (Boston, MA: Harvard Business School Press, 19 91); A.W. Harzing, “An Empirical Analysis and Extension of the Bartlett and Ghoshal Typology of Multinational Companies,” Journal of International Business Studies 31, no. 1 (2000), pp. 101–20.

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Managers can plot a company’s position on an integration–responsiveness grid, such as that shown in Exhibit 6.3. The vertical axis measures pressures for global integration, and the horizontal axis measures pressures for local responsiveness.

Global Strategy 1

Pressures for Global Integration:

Products that serve universal needs require little adaptation.

Competitive pressures to reduce costs may cause managers to integrate manufacturing globally.

Competitors that engage in global strategic coordination create pressure to integrate globally.

This slide lists three pressures for global integration.

Global Strategy 2

Pressures for Local Responsiveness:

Customer tastes and preferences differ significantly.

Differences in traditional practices among countries.

Economic and political demands of the host-country government.

This slide lists three pressures driving local responsiveness.

Choosing a Global Strategy 1

The International Model:

An organizational model that is composed of a company’s overseas subsidiaries and characterized by greater control by the parent company over local product and marketing strategies than is the case in the multinational model.

The Multinational Model:

An organizational model that consists of the subsidiaries in each country in which a company does business and provides a great deal of discretion to those subsidiaries to respond to local conditions.

This slide lists the international and multinational model definitions.

Choosing a Global Strategy 2

The Global Model:

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 organizations that base their global competitive strategy on cost considerations.

The Transnational Model:

An organizational model characterized by centralizing certain functions in locations that best achieve cost economies; basing other functions in the company’s national subsidiaries to facilitate greater local responsiveness; and fostering communication among subsidiaries to permit transfer of technological expertise and skills.

This slide lists the global and transnational model definitions.

Exhibit 6.4 Comparison of Entry Modes

	Advantages	Disadvantages
Exporting	Scale economies. Consistent with pure global strategy.	No low-cost sites. High transportation costs. Tariff barriers.
Licensing	Lower development costs. Lower political risk.	Loss of control over technology.
Franchising	Lower development costs. Lower political risk.	Loss of control over quality.
Joint Venture	Access to local knowledge. Shared costs and risk may be the only option.	Loss of control over technology and conflict between partners.
Wholly Owned Subsidiary	Maintains control over technology. Maintains control over operations.	High cost. High risk.

When considering global expansion, international managers must decide on the best means of entering an overseas market. The five basic ways to expand overseas are exporting, licensing, franchising, entering into a joint venture with a host-country company, and setting up a wholly owned subsidiary in the host country. Exhibit 6.4 (recreated on this slide) compares the entry modes.

Licensing / Franchising

International licensing:

An arrangement by which a licensee in another country buys the rights to manufacture a company’s product in its own country for a negotiated fee (typically, royalty payments on the number of units sold).

Franchising:

Company sells limited rights to use its brand name to franchisees in return for a lump-sum payment and a share of the franchisee’s profits.

The licensee then puts up most of the capital necessary to get the overseas operation going. The advantage of licensing is that the company need not bear the costs and risks of opening up an overseas market.

In many respects, franchising is similar to licensing. However, whereas licensing is a strategy pursued primarily by manufacturing companies, franchising is used primarily by service companies.

Joint Ventures and Subsidiaries

Joint venture benefits:

Local partner knowledge of the host country.

Sharing of risks with the local partner.

Wholly owned subsidiary benefits:

Reduces the risk of losing control over the technology.

Gives a company tight control over operations in other countries.

Establishing a joint venture with a company in another country has long been a popular means of entering a new market. Joint ventures benefit a company through (1) the local partner’s knowledge of the host country’s competitive conditions, culture, language, political systems, and business systems and (2) the sharing of development costs and/or risks with the local partner.

In many countries, political considerations make joint ventures the only feasible entry mode.

Establishing a wholly owned subsidiary is the most-costly method of serving an overseas market.

Working Overseas

Expatriates:

Parent-company nationals who are sent to work at a foreign subsidiary.

Host-country nationals:

Natives of the country where an overseas subsidiary is located.

Third-country nationals:

Natives of a country other than the home or the host country of an overseas subsidiary.

Inpatriates:

Foreign nationals brought in to work at the parent company.

Refer to Exhibit 6.5 to review expatriate stressors and coping responses and the four types of employees working overseas.

Skills of the Global Manager

It is estimated that 15% of all employee transfers are to international locations.

Failure rate is higher for Americans

Two-thirds of failures may be due to family issues

Both the expatriate and the spouse require:

Flexibility.

Emotional stability.

Empathy for the culture.

Communication skills.

Resourcefulness.

Initiative.

Diplomatic skills.

Coping strategies.

The causes of failure overseas go well beyond technical capability to include personal and social issues. In a recent survey of human resource managers around the globe, two-thirds said the main reason for the failures is family issues, especially dissatisfaction of the employee’s spouse or partner.

Exhibit 6.6 Identifying International Executives 1

End-State Dimensions	Survey Items
Sensitivity to cultural differences.	When working with people from other cultures, works hard to understand their perspective
Business knowledge.	Has a solid understanding of the company’s products and services
Courage to take a stand.	Is willing to take a stand on issues
Brings out the best in people.	Has a special talent for dealing with people
Acts with integrity.	Can be depended on to tell the truth regardless of circumstances
Is insightful.	Is good at identifying the most important part of a complex problem
Is committed to success.	Clearly demonstrates commitment to seeing the organization succeed
Takes risks.	Takes personal as well as business risks

SOURCE: G. M. Spreitzer, M. W. McCall, and J. D. Mahoney, “Early Identification of International Executive Potential,” Journal of Applied Psychology 82, no. 1 (19 97), pp. 6–29. ©1997 by American Psychological Association.

Companies such as Colgate, Johnson & Johnson, Bechtel, Monsanto, and Dow Chemical have worked to identify the skills that predict expatriate success.

Exhibit 6.6 Identifying International Executives 2

Learning-Oriented Dimensions	Survey Items
Uses feedback.	Has changed as a result of feedback
Is culturally adventurous.	Enjoys the challenge of working in countries other than his or her own
Seeks opportunities to learn.	Takes advantage of opportunities to do new things
Is open to criticism.	Does not appear brittle—as if criticism might cause him or her to break
Seeks feedback.	Pursues feedback even when others are reluctant to give it
Is flexible.	Doesn’t get so invested in things that he or she cannot change when something doesn’t work

Exhibit 6.6 concludes on this slide.

Exhibit 6.7 How to Prevent Failed Global Assignments

How to prevent failed global assignments:

Structure assignments clearly: Develop clear reporting relationships and job responsibilities.

Create clear job objectives.

Develop performance measurements based on objectives.

Use effective, validated selection and screening criteria (both personal and technical attributes).

Prepare expatriates and families for assignments (briefings, training, support).

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.

Boeing, SAP, Iberdrola, Hyundai, AT&T, Siemens, and others with large international staffs have extensive training programs to prepare employees for international assignments. Exhibit 6.7 suggests ways to improve their likelihood of success. Other companies, such as Coca-Cola, Motorola, Chevron, and Mattel, extend this training to include employees located in the United States who also deal in international markets. These programs focus on areas such as language, culture, and career development.

Understanding Cultural Issues

Ethnocentrism:

The tendency to judge others by the standards of one’s group or culture, which are seen as superior.

Culture shock:

The disorientation and stress associated with being in a foreign environment.

In this era, when people from all over the globe are collaborating on business issues, it is vital to learn about and respect different cultures.

Without realizing it, some managers may act out of ethnocentrism—a tendency to judge foreign people or groups by the standards of one’s own culture or group and to see one’s own standards as superior.

Such assumptions are one reason people traveling abroad frequently experience culture shock—the disorientation and stress associated with being in a foreign environment. Managers are better able to navigate this transition if they are sensitive to their surroundings, including social norms and customs, and adjust their behavior to such circumstances.

Hofstede’s Cultural Dimensions

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 over quality of life.

Geert Hofstede identified four types of cultural differences between country cultures within a corporation:

Power distance

Individualism/collectivism

Uncertainty avoidance

Masculinity/femininity

Helping Employees Adjust

Whether working in a foreign country or returning to your native country after working in another, good managers should help their employees with differences in . . .

Meetings.

Work schedules.

Electronic communications.

Fast-trackers.

Feedback.

Foreign nationals working in the United States will encounter a number of work-related differences. Alert managers help their employees adjust.

SPOTLIGHT ON . . . Global Email Etiquette

Avoid cultural idioms or slang.

Steer clear of office-specific jargon.

Be careful with humor.

Research the cultures of those you interact with.

What other potential challenges must managers consider to be effective with email?

What benefits do you see to engaging your international clients?

Ethical Challenges in International Management

Actions that are right or wrong in one culture may be acceptable in another.

Global operations must be active in identifying, establishing, and enforcing ethical standards.

Five core values of all people:

Compassion.

Fairness.

Honesty.

Responsibility.

Respect for others.

This slide notes that cultural differences often lead to ethical challenges and lists five core values share by nearly all people.

Management in Action Walmart: A Retail Giant at Home, but Not Always Abroad

Walmart’s operations in Japan focused on buying Seiyu, a Japanese supermarket chain. The purchase would be not only a cultural challenge, but also an operational one: Walmart largely handles frozen, nonperishable foods, but Seiyu sells fresh produce and perishables. Walmart’s American managers were not able to forge ties with local vendors or understand the regional differences in the densely populated country.

What management strategies might avoid the issues Walmart experienced in the Japanese grocery market?

What ethical issues are associated with a firm not fully understanding an international market it ventures into?

Questions:

What management strategies might avoid the issues Walmart experienced in the Japanese grocery market?

Student answers will vary but should discuss cultural dimensions and different global strategies.

What ethical issues are associated with a firm not fully understanding an international market it ventures into?

Student answers will vary but will should discuss cultural dimensions and the five core values.

In Review

Discuss what integration of the global economy means for companies and their managers.

Describe how the world economy is becoming more integrated than ever before.

Define the strategies organizations use to compete in the global marketplace.

Compare the various entry modes organizations use to enter overseas markets.

Explain how companies can staff overseas operations.

Summarize the skills and knowledge managers need to manage globally.

Identify ways in which cultural differences between countries influence management.

This slide may be used to summarize the chapter and solicit questions.

The next chapter in the text will discuss entrepreneurship.

End of Main Content

Because learning changes everything.®

www.mheducation.com

Accessibility Content: Text Alternatives for Images

Exhibit 6.1 Top 10 Global Firms – Text Alternative

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The map of the world shows the top 10 global firms. In the United States number 1 Walmart, 9 Amazon. In Britain number 8 B P. Number 5 is Royal Dutch Shell in the Netherlands and number 7 is Volkswagen in Germany. Number 6 is in Saudi Arabia: Saudi Aramco. In China there are three: number 3 State Grid, number 4 China National Petroleum, and number 2 Sinopec Group. Number 10 is Toyota Motor is in Japan.

Expressed as a list from 10 to 1.

10. Toyota Motor in Japan.

9. Amazon in the United States.

8. B P in Britain.

7. Volkswagen in Germany.

6. Saudi Aramco in Saudi Arabia.

5. Royal Dutch Shell in the Netherlands.

4. China National Petroleum in China.

3. State Grid in China.

2. Sinopec in China.

1. Walmart in the United States.

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Exhibit 6.3 Cross-National Organizational Models – Text Alternative

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Four quadrants depict organizational models.

The Global model views the world as a single market and operations are controlled centrally from the corporate office. It is in the high pressures for global integration and low pressures for local responsiveness quadrant.

The Transnational model has specialized facilities that permit local responsiveness. Complex coordination mechanisms provide global integration It is in the high pressures for global integration and high pressures for local responsiveness quadrant.

The International model uses existing capabilities to expand into foreign markets. It is in the low pressures for global integration and low pressures for local responsiveness quadrant.

The Multinational model consists of several subsidiaries operating as stand-alone business units in multiple countries. It is in the low pressures for global integration and high pressures for local responsiveness quadrant.

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