Global Business
Module 3 Global Functional Dynamics
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Course Overview
TWU - MBA 662: R. Ian Angell Oct. 2020 3
Globalization Trends Macro Analysis – PESTLE
Culture – Globe, Hofstede Competitiveness (see side bar)
Competitiveness - Resources & Capabilities - Value Chain - VRIO - Porter’s 5 Forces
Are you aware and competitive?
If yes, how to go global?
Global Strategy (see sidebar)
Functional Details
Digital and Social Strategy
Global Strategy - SPRO - Where to go? Country
assessments. - How to go? Risk,
Structure, Non-Equity, Equity, etc.
Professional Standard – English and Grammar, Logic, Pyramid Structure, SCQA, Hypothesis and best medium for the message.
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3.0 International Functional Considerations •Objective: to understand unique
or highly variable changes in well understood business activities as firms consider international activities
• Module 3 – Global Functional Dynamics. Slides, readings and case studies will help the student understand the specific dynamics and complexities around core business functions in the international marketplace.
• Specific effort will be given to: 1. Marketing; 2. Supply Chain and Logistics 3. Operations and Technical 4. Capital Decisions and Financing; 5. Human Resources; and 6. Investor Relations,
Governance/Board and Sustainability.
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3.0 What are the core and functional activities of the corporation? How do they vary with global growth?
IT Infra Human Resources
Procurement, Logistics & Supply ChainFinance
Raw Materials
R&D / Design
Manufacturing or Production Packaging Market-
ing
Functional Activities
Core Activities
• Corporations have core activities and support activities (typically called functional or support departments). Both change materially as you grow internationally.
• Key questions to be considered – mostly relate to local vs corporate - are: • Marketing – What are the elements which change for local positioning and which are constant for the
brand? • HR – How do we treat our people? One team or multiple teams. Who are the elite, if any? • Technical – balance between maintaining a global standard and adhering to (or enabling) local
standards • Procurement – where is global sourcing going? • Stakeholder Management
Technical Support – HSE, Eng., Quality
DTC
Logistics Retail
Canparts – Proxy for Functional Discussion (CPL/TSX) • CanParts is a listed, Canadian cold weather auto accessories company which
specializes in aftermarket battery warmers, seat warmers, engine warmers, heated windshield wipers, snow removers, etc.
• CanParts has high quality, durable but not inexpensive products. They have trying to break into other “cold climate” markets like Northern China, Russia, the Nordic countries, etc. However, the cost structure of Canadian production is quite high.
• To address this, they looked at manufacturing in China. However, they are concerned about intellectual property protection and the lack of local knowledge for suppliers, etc.
• A Chinese company that manufactures autoparts has proposed a JV to build a new factory in Northern China for sales into Europe, Russia and China.
• The JV and its implications will be a case study across the Functional Considerations module.
TWU - MBA 662: R. Ian Angell Oct. 2020 6
Products may be tangible (goods) or intangible (services, ideas or experiences).
Price is tangible and intangible elements.
Includes perception, exclusivity, etc.
Promotion refers to marketing and communications
Branding and advertising
Positioning and Messaging
How to get the product into the
customers hands? Or Mind?
HOW DOES THE MARKETING MIX?
3.1 Marketing Mix and Segmentation Considerations - Marking Mix – Jerome McCarthy, Harvard, Basic Marketing, 1960
Pr od
uc t
Pric ing Promotions
Place (D ist’n)
Source:Weitz, Barton A; Wensley, Robin (October 16, 2002). Handbook of Marketing. SAGE. pp. 19, 69.
4Ps
Products may be tangible (goods) or intangible (services, ideas or experiences).
HOW DOES THE MARKETING MIX?
3.1 Marketing Mix and Segmentation Considerations
Pr od
uc t
Pric ing Promotions
Place (D ist’n)
• Product design – features, quality
• Product assortment – product range, product mix, product lines
• Branding
• Packaging and labeling
• Services (complimentary service, after-sales service, service level)
• Guarantees and warranties
• Returns
• Managing products through the life-cycle.
TRADITIONAL
• Legalities
• Culture
• Language
• Ability to execute – support, service, returns, warranties, etc.
• Societal Development - Implicit understanding of how the product is to be used
• Product Life Cycle Management – classic view
INTERNATIONA L
CONSIDERATIO NS
Price is tangible and sacrificial elements.
Includes perception, exclusivity, etc.
HOW DOES THE MARKETING MIX?
3.1 Marketing Mix and Segmentation Considerations
Pr od
uc t
Pric ing Promotions
Place (D ist’n)
• Price strategy
• Price tactics
• Price-setting
• Allowances – e.g. rebates for distributors
• Discounts – for customers
• Payment terms – credit, payment methods
TRADITIONAL
• Value in the market
• Competition in the market
• Grey market pricing
• Willingness to pay
INTERNATIONA L
CONSIDERATIO NS
Promotion refers to marketing and communications
Branding and advertising
Positioning and Messaging
HOW DOES THE MARKETING MIX?
3.1 Marketing Mix and Segmentation Considerations
Pr od
uc t
Pric ing Promotions
Place (D ist’n)
• Promotional mix - appropriate balance of advertising, PR, direct marketing and sales promotion
• Message strategy - what is to be communicated
• Channel/ media strategy - how to reach the target audience
• Message Frequency - how often to communicate
TRADITIONAL
• Are the same channels available? Are they used differently in the local market?
• Can the messaging be articulated in the same way? Is it implicitly understood?
• Cost and ability to execute
INTERNATIONA L
CONSIDERATIO NS
Global Marketing Trends – 2022 Deloitte* Purpose—a beacon for growth
• Can you define the greater reason for being? Authentically inclusive marketing
• DEI and ESG objectives cannot be a whitewash Building the intelligent creative engine
• Find the right mix of creative, algorithms and analytics Meeting customers in a cookieless world
• Do you have the customer “inside the tent”? Designing a human-first data experience
• Help customers without being “creepy” Elevating the hybrid experience
• Personalize AI (bots and processes) vs human support Supercharging customer service with AI
• Having the tools is now “table stakes”
* https://www2.deloitte.com/us/en/insights/topics/marketing-and-sales-operations/global-marketing-trends.html
3.1 Pitfalls and Risks of Global Marketing HBR Articles • Most HQs see that
standardization and control are key to global roll-outs
• Yes…but to a point. • Key pitfalls in global
marketing were identified which illustrate a more nuanced approach.
1. Insufficient research • Don’t rely on external data only – test before roll-out • Don’t assume extendability from home or other markets • Covers both product and ,marketing strategies
2. Overstandardization / Adaptation • Standardization offers speed to market, HQ oversight and cost advantages • Present a menu of options allowing localization without eroding core of program • Target specific countries (not regions) and specific segments (as you would at home)
3. Poor Follow-Up • Iniital HQ driven campaigns and systems are often left to languish • Provide ongoing impetus and support (train, support, train) • Let local teams inform iterative process at HQ (roll-out, listen, adapt, roll-out)
4. Narrow Vision • New or Tried and true methodologies need to be balanced with multiple perspectives • Standardization of product may meet various local “benefits” or “pain points”
5. Rigid Implementation • Listen to local concerns and take them onboard • Do not force compliance - blowback and resistance will usually prevail • Consider deployment of various channels depending on level of maturity and “touch” in culture
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* Pitfalls of Global Marketing - Kamran Kashani, HBR Sept. 1989 and The Most Common Mistakes Companies Make with Global Marketing – Nataly Kelly, HBR Sept. 2015
Team 1 - Canparts Marketing Exercise
You are the newly appointed Marketing Manager for the JV. You went to Canada for your MBA so the Canadian company and the Chinese JV partner are excited about having you on the team. The JV has decided to begin marketing from the factory in China before expanding to the other Nordic or North Asian regions. What are the 3P considerations for building this line of products into a strong position in China? What are the social and digital considerations as well?
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3.2 Supply Chain, Distribution and Logistics
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• Distribution historically meant delivery from firm to customer • Goal of “production” was to drive down the cost of supply while hitting quality objectives • Goal of distribution was to deliver end product to the customer(s) • International was only any extension of that with additional costs of freight, storage, etc.
3.2 Distribution to Supply Chain
Variations
• Multiple variations occur every day
• This happens in all types of goods…
• … and in services • Benefits
• Risks
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Supplier Production Distribution Customer
Supplier Distribution Customer
We have to talk about Covid-19
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Or do we?
TWU - MBA 662: R. Ian Angell Feb. 2021 17
• Are things going to return to normal?
• Costs in US and Canada are not reducing…so is re-shoring really work-able?
• https://www.sdcexec.com/sourcing- procurement/article/22289000/the-s mart-cube-reshoring-myth-or-realit y-heres-what-you-need-to-know
How to rethink Supply Chain and Risk? • Supply chain disruptions are now an understood risk • Costs of JIT and related thin supply lines are costing billions and creating shortages, crises and inflation
• So, what do we do to re-think Supply Chain risk post-COVID 1. Rethink offshoring (re-shoring) 2. Reduce single point failure and diversify lines (fully separated) 3. Sharpen perspective on supply and demand – maintain back-up supplies 4. Consider in-house control over areas where, previously, outsource was
standard business practice 5. Have redundancy in warehousing and inventory
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Team 2 - Canparts Distribution Exercise There are two challenges facing Joseph Wang, the newly appointed head of BOTH supply chain and distribution for the JV. 1. For the JV, certain components which are proprietary and / or sophisticated,
will be produced in Canada and sent to the factory in China. 2. The JV does not have its own warehouse system in China and does not yet
have global distribution. It has distribution in the Northern US and Alaska. The local partner of Canparts has a fully fledged distribution structure in China.
What are the options available to Joseph? As key members of Joe’s team, he has asked you to sketch out the options for ensuring constant supply of the Canadian components and to lay out options for the global distribution for the JV including getting product to customers across China.
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3.2 Operations and Technical
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Overview • Technical, Engineering and Operations – often viewed as most “objective” as “one global standard” is simple. Reality less clear.
• Typically involves: • Design, engineering and development of assets • Operations and maintenance including Operations Management Systems • Technology and standards management and technical integrity; and • Health, Safety and Environmental compliance (HSE)
• Local regulations, labour supply and environment, supplier and technology access may limit standardization
3.2 Technical Management Example – HSE Safety Risk Analysis Lifeboat Readiness Management Dilemna
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Challenge: How to resolve a situation where a risk may be acceptable in one country and not in another? Background: • Risk determined by probability/frequency and consequences of an event. Plotted on a color-coded RISK MATRIX. • Frequency can be thought of as terminology like ‘happens every week’, ‘happens every year’, ‘has happened in the
industry’, etc. • Consequences may relate to the seriousness of the injury, fatality, or multiple fatalities. • Accountability. The greater the risk, the more senior the sign-off of a risk. Test • Norway. Drop test of free-fall lifeboat using 25 kg sandbags to simulate the weight of people on board.
The lifeboat roof caved in. Also, examples of multi-fatality failures elsewhere for a variety of reasons. Implications • Industry-wide project to investigate the safety and reliability of all lifeboats on offshore installations in Norway. • One international company participated and found risks to their lifeboats in Upper Right / HIGH zone requiring sign-off
from HQ. • But, if HQ got involved, they may need to review all GLOBAL lifeboats and appropriateness of Norwegian findings. Many
countries do not have the same standards for lowering lifeboats as Norway. • Would accepting the risk create an obligation to review and potentially upgrade lifeboats in other locations? • Once you know about a risk in one area then you are obliged to consider this risk in other relevant areas. There may be
good reasons for a different decision and if the reasons are good then there should be no problem in documenting them. • What is not acceptable is to ignore the risk and sweep it under the carpet.
Source : Mike Pollard, Reflektion, Oct. 2020
3.2 Technical Management Example – HSE Safety Risk Analysis Lifeboat Readiness Management Dilemna
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Challenge: One dilemma that is faced by companies with activities in different countries is how to resolve a situation where a risk may be acceptable in one country and not in another. This is particularly challenging with technical risk where the company may aspire to common standards in all countries.
Background: The assessment and acceptance of risks associated with any operation is a key process in decision making. The risks are often determined by considering the probability of any event and the consequences of this event. The risks are then plotted on a risk matrix that typically uses different colours to distinguish risks. For frequency, some organizations use terminology like ‘happens every week’, ‘happens every year’, ‘has happened in the industry’, etc. Consequences may be related to serious injury, fatality, or multiple fatalities. Normally the greater the risk, the higher up in the organization the person accepting (or not) the risk needs to be. The person accepting (or not) the risk, also takes on the responsibility of ensuring the risk is assessed in other areas he/she has responsibility for.
Test: In 2005 a drop test was carried out on a free-fall lifeboat on a platform in the Norwegian sector of the North Sea. For the test, 25 kg sandbags were placed in the lifeboat seats to simulate the weight of people on board. The lifeboat roof caved in. The incident led to an industry-wide project to investigate the safety and reliability of all lifeboats on offshore installations in Norway. This included both freefall and conventional lowering lifeboats.
Implications: One international company with conventional lifeboats on their installations assessed the risk. The consequence used was 50 fatalities (the lifeboat capacity). The frequency was assessed as ‘has happened before in the industry’. There are several examples of failure of conventional lifeboats in the petroleum industry including the evacuation from the Enchova platform in Brazil in August 1984. 36 people lost their life when the lowering mechanism failed. The company identified modifications to improve the safety and reliability of the lowering mechanism.
The subsequent risk level was higher than what could be accepted by the management locally and should have been transferred to head office for approval. There was resistance to involving head office. One of the concerns was that having been informed of the risk in Norway, head office would be obliged to consider the risk on installations not in Norway and whether the proposed modifications were appropriate for these areas. There are many countries that do not have the same standards for conventional lowering lifeboats as Norway. Would accepting the risk create an obligation to review and potentially upgrade lifeboats in other locations?
Once you know about a risk in one area then you are obliged to consider this risk in other relevant areas. This does not mean that a risk accepted in one area is acceptable in another area. There may be good reasons for a different decision and if the reasons are good then there should be no problem in documenting them. What is not acceptable is to ignore the risk and sweep it under the carpet.
Source : Mike Pollard, Reflektion, Oct. 2020
Team 3 - Canparts Technical Exercise • Set-up a JV factory in China • Building standards in Canada have
higher standards for both building and operations than Chinese standards
• Chinese JV partner is resisting the need to spend the extra money for Canadian standard.
• Chinese JV partner shows numerous factories which work well, are safe and look good to - saving 25% of cost.
• The cost of the factory is est. $100MM
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Exercise • You are the Project Manager • You are told that CanParts wants to make
sure the factory “makes the company proud and show the Chinese partner how good a Canadian business is.
• You understand the desire of the JV partner to reduce costs.
• However, some of the standards in China do give you some concern?
• What do you say to the Canadian bosses? • How do you suggest they resolve this with
the Chinese JV partner?
• Capital Structure and Repatriation
• Capital budgeting must include currency, tax and country risk
• Incentives, bonuses and pay structures need to reflect local realities
3.3 Financing and Capital Investments Traditional Finance • Cost Control • Operating Budgets
• Internal Auditing
• Planning
International Finance
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Best Practice • Internal Capital Market
• Tax • Borrowing costs and Creditors
Rights • Exploit local challenges and
immature financing structures (SPVs)
• Watch aggregate debt • Risk Management
• Natural currency hedges so manage currency globally (debate)
• Balance initiative with risk of rogue activity
• Global Capital Budgeting • Vary investment by market risk
but watch disincentives • (See next page)
Source: The Finance Function in a Global Business, HBR July-August 2008
3.3 Financing and Capital Investments
WACC • WACC
• % of Debt and Cost of Debt • Corporate paper rating
• % of Equity and Cost of Equity • Rf + (Rm-Rf)*Beta • Really think through Beta
• Hybrid Instruments • Equity-like returns for debt • Fixed, senior stability for equity • Royalties, etc.
• Special-purpose Vehicles • Capture inherently lower costs of
financing for a given project • Off-Balance-Sheet Financing
• Real-Estate, Leases, etc.
International Variations • Currency and Capital Risk
• Delta of revenue and costs exposure to foreign currency – What are you selling in and what are your costs in?
• Funding, repatriation of cash and dividends and related risks • Carry trade arbitrage – opportunity and risk.
• E,g,) SGD and Canada Housing
• Degree of Separation • Culture, Legal, Economic, Political, etc.
• Mitigation – ability to lay off the risk • Investment Insurance from governments and Multi-Lateral Agencies • Local partners and local financing • Sequestered funds or direct-to-loan payment structures • Hedging, even if expensive • Higher levels of equity
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3.3 Financing and Capital Investments Additional International Financing and Investment Considerations • Tax
• Rates and Clarity of Rules • Certainty • Enforcement
• Regulatory constraints on capital • Repatriation of cash and dividends • Other investment constraints
• Execution and Projection Risk - Risks which are NOT present in domestic markets • Ability to capitalize on core capabilities • Technical expertise is not importable into country • Patent positions are not protected (previous generation tech.)
• Enforced JV or Minority Structures • Family or Government-Linked Partners
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3.3 Creating A Global Finance Function
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Global Finance Functions ∙ Important for controls, insight, surveillance and innovation ∙ Understand and calibrate global finance capabilities ∙ CPA is a CPA?
∙ Build a globally, rotating finance staff – not just at senior levels ∙ Codify which elements are global and which are localizable ∙ Be strategic – make sure that senior leadership in region has time
and has the role bandwidth to be involved in the business unit strategy Source: The Finance Function in a Global Business, HBR July-August 2008
Team 4 - Canparts Finance Exercise Background – CanParts • CanParts - Canadian auto accessories
- TSX listed • Set-up a JV factory in China • Cost of Debt in Canada - 6% (50%) • Cost of Equity - 12% (50%) • Debt available for factory at Cost of
Debt = 4% for 75% of project plus government guarantee fee of 2% added to loan.
• The Chinese JV will be seen as risky by Canadian investors and bank.
Exercise 1. Calculate the cost of capital for the
Canadian entity. 2. Calculate the blended cost of capital
for the new factory - Canadian company perspective.
3. Look at the impact of the Chinese project on WACC
4. What should the company do? Finance 100% equity into JV or take the Chinese loan?
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3.4 Human Resources – People Management
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Expatriate – Parent Country National (Global Professional)
• “standard bearers” of corporate culture, policies and norms
• Career oriented • Additional Benefits
• Tax equalization • Risk • Cost of living • Spousal support • Education • Travel/Home Leave
• Increasingly rare (viewed as colonial) • Third-country national – expat but not
from HQ • Highest cost • Global firms – mix of cultures • International firms – ethnocentric (HQ
Culture)
Host-Country National - Local Hire
• Majority of roles in ANY country • Increasing emphasis on
development of nationals to reduce expats
• Second-class citizen challenges • Career track
• Secondments • Postings for exposure • Special projects to represent local
matters • Often, better than similar job with
local entity • Lowest cost
Hybrids
• Third-country national – expat but not from HQ
• Expat-”lite” – experiential roles • Accounting firm secondments,
etc. • Extended expat roles • Local family and living
arrangements • Contract positions
• Money without security • Tax and repatriation risk • Immigration risk
• Bridge costing
Team 5 - Canparts HR Exercise Background – CanParts • Need to send five executives to China for,
at least, three years to build and launch factory.
• 3 of the executives have family in school 2 are older and only have spouse but one has a very sickly spouse.
• Local Chinese GM is also being hired as are up to five local managers at a second-tier level - designed to take over from Canadian executives later.
• Canadian executives want/expect premium for going to work on this project.
Exercise • You are the HR manager and team in
Canada. • What do you recommend to the company
in terms of how you pay and reward the Canadian management team?
• How do justify the difference between this and what we pay the Chinese managers?
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3.5 Investor Relations, Governance/Board and Sustainability
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Context – Primary differences from North American standard models • Investor Relations – how do investors behave and how are investors treated?
• Activity of shareholders and varying local matters and Board accountabilities • Governance – where does control vest?
• Chair vs CEO • Control, byzantine structures and negative control and role or families/state
• Sustainability – To what degree are soft issues top-of-agenda? • Health, Safety, Environment • Carbon, Labor Standards, Corruption • Emerging (and Periodic) Global Issues
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MNEs and HOST GOVERMENTS Economic and Developmental Policies • MNEs should consult with governmental authorities and national employers’ and workers’ organizations to ensure that their investments conform to the economic and social development policies of the host country. • MNEs should not adversely disturb the balance-of-payments or currency exchange rates of the countries in which they operate. They should try, in consultation with the government, to resolve balance-of-payments and exchange rate difficulties when possible. • MNEs should cooperate with governmental policies regarding local equity participation. • MNEs should not dominate the capital markets of the countries in which they operate. • MNEs should provide the information necessary for correctly assessing taxes to be paid to host government authorities. • MNEs should not engage in transfer pricing policies that modify the tax base on which their entities are assessed. • MNEs should give preference to local sources for components and raw materials if prices and quality are competitive. • MNEs should reinvest some profits in the countries in which they operate. Laws and Regulations • MNEs are subject to the laws, regulations, and jurisdiction of the countries in which they operate. • MNEs should respect the right of every country to exercise control over its natural resources, and to regulate the activities of entities operating within its territory. • MNEs should use appropriate international dispute settlement mechanisms, including arbitration, to resolve conflicts with the governments of the countries in which they operate. • MNEs should resolve disputes arising from expropriation by host governments under the domestic law of the host country. Political Involvement • MNEs should refrain from improper or illegal involvement in local political activities. • MNEs should not pay bribes or render improper benefits to any public servant. • MNEs should not interfere in intergovernmental relations. Source: Various UN Organisations c/o International Management, Helen Deresky, p. 73-74
Checklist for reasonableness
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MNEs and the Public Technology Transfer • MNEs should cooperate with governmental authorities in assessing the impact of transfers of technology to developing countries and should enhance the technological capacities of developing countries. • MNEs should develop and adapt technologies to the needs and characteristics of the countries in which they operate. • MNEs should conduct research and development activities in developing countries, using local resources and personnel to the greatest extent possible. Environmental Protection • MNEs should respect the laws and regulations concerning environmental protection of the countries in which they operate. • MNEs should cooperate with host governments and with international organizations in the development of national and international environmental protection standards. • MNEs should supply to appropriate host governmental authority's information concerning the environmental impact of the products and processes of their entities. (ICC; UN/CTC) MNEs and Persons Consumer Protection • MNEs should respect the laws and regulations of the countries in which they operate with regard to consumer protection. • MNEs should preserve the safety and health of consumers by disclosure of appropriate information, proper labeling, and accurate advertising. Employment Practices • MNEs should cooperate with host governments’ efforts to create employment opportunities in particular localities. • MNEs should try to increase employment opportunities and standards in the countries in which they operate. • MNEs should give advance notice of plant closures and mitigate the resultant adverse effects. • MNEs should provide standards of employment equal to or better than those of comparable employers in the countries in which they operate. • MNEs should pay, at minimum, basic living wages. • MNEs should maintain the highest standards of safety and health and should provide adequate information about work-related health hazards. Human Rights • MNEs should respect human rights and fundamental freedoms in the countries in which they operate. • MNEs should not discriminate on the basis of race, color, sex, religion, language, social, national and ethnic origin, or political or other opinion. • MNEs should respect the social and cultural objectives, values, and traditions of the countries in which they operate. Source: Various UN Organisations c/o International Management, Helen Deresky, p. 73-74
Checklist for reasonableness
Rio Tinto and Bougainville Copper
1) Bougainville Copper – A War on behalf of a Mining Company https://www.youtube.com/watch?v=nbHdqDXDNv8&ab_channel=JourneymanPictures
2) Australian Aboriginal Sites Destroyed Rio Tinto did not seem to learn… Rio Tinto says sorry for blasting 46,000-year-old Aboriginal site | 7.30 – YouTube
…costing the CEO and Senior Team their jobs. Heads roll at Rio Tinto after miner's decision to destroy ancient Aboriginal sites | ABC News – YouTube
Rio Tinto CEO quits after Aboriginal caves destroyed in mine expansion – YouTube (up to 3:21)
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Team 6 - Canparts IR Exercise Background – CanParts • Chinese partners want to recycle
waste materials - including hazardous - from the plant in Chinese style - 25% to the landfill.
• Landfill is “commercial” part of the City near the plant but legality is unclear
• CanParts Canada wants a transparent waste disposal process.
Exercise • Your team has been brought in to
advise the JV on setting up its sustainability program.
• You understand that recycling and circularity are important to global customers.
• What are the gaps in the China plant approach?
• What do you recommend the JV do about it?
• What do you advise the Canadian partners regarding a “minimum” standard they should accept?
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In Class Presentations - Canparts
Scenario – One of the Board Members of Canparts has asked for a briefing. Each team will be asked to present up to 3 slides and have no more than 10 minutes including questions. • Provide a sense of the issues and challenges Canparts is facing in relation to your area of concern (Situation and Complication)
• Provide the Board member with your key issue and options you are proposing. (Question and options)
• Make a recommendation regarding a path for Canparts to take in relation to this area.
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Optional Slides – Mark Peach Experience
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Mark Peach, Multi-Disciplinary Executive with Shell
• Mark started his career working in a London office but after six months left to gain field experience.
• He started working on oil exploration seismic crews in Libya before moving to Yemen, Kenya, Zambia and Oman.
• In Oman he left the field to support the client’s office where he managed contracts for seismic camp moves and well borehole seismic acquisition before moving into a Health Safety and Environment (HSE) role for the clients exploration department.
• After a short period as the HSE Manager for one of the seismic contractors, he joined Shell in 2006 as a senior operations geophysicist in charge of a seismic crew in Libya.
• On completion of the assignment in Libya he moved to Chengdu as the Exploration Operations HSE Lead for the shale and tight gas project, before taking on the role of Exploration HSE Manager for the Yinggehai offshore drilling campaign.
• From 2016 to 2020 he was promoted to the role of Exploration Regional HSE Manager for APAC based in Kuala Lumpur.
• He and his wife Judith moved back to the UK in December 2020. 38
Who am I
Geologist, geophysicist, and Health Safety and Environmental protection professional. I have worked in both field and management roles. Including venture startups in both Libya and China.
The regions I have worked in are Europe (well the UK) Africa, Asia and the Gulf but not the Americas. My last role was Shell Explorations Regional HSE Manager for APAC based in Malaysia.
I have lived outside my home country for over 34 years. I have been fortunate to have had the opportunity to gain some insights into different cultures thanks mainly to local friends who have guided my path, corrected my errors and put up with my embarrassingly bad pronunciations of their languages.
My wife has shared my travels.
Question
You are the manager of a company conducting drilling projects in China.
You are looking to expand your business into the African, Gulf or European Markets.
You are tendering for projects which will start in 8 months. In your country it would take 3 months to complete the on site work. The client expects completion in 12 months from contract signing.
What are some of the business challenges you need to consider before deciding whether to tender for the projects?
•Country Selection
•Operational standard local / international
•O perational Tim
ings
•Importation timings
•Importation costs •Equipment availability
•Local staff availability
•Effects of weather on schedule
•Equipment selection
•M anpow
er legislation
•Visa process
•Environmental legislation
•Currency – local / international •C
urrency – H ow
to pay staff •Tax R
egim e – local / internation
•C urrency – m
oney transfer•Currency – local funds/tracking
•Impacts of culture
•Impact of time zones
•In country communication
•International com m
unication
E m
ergency response m anagem
ent
C ountry exit strategy
● Environmental / Social / archaeological impacts
•Local permits
● Some Elements to Consider
•Market competitiveness
Unforeseen Influence Reputational Impact
Language barrier
Q: Do you go ahead with the operation and if so what do you need to do to manage the risk?
Case Study – Equipment Standards
Background
Drilling operations planned in Jinqui region of China (Sichuan). Construction of rig pad required excavation and levelling of the site.
Roll over protection was (ROP) requested on all earth moving vehicles & seat belts. However none available as ROP not required under Chinese law or company standards, (although seen as good practice).
Approach Taken – Risk assessment: Most rollovers occur on slopes or due to speed – Mitigations :
- Pads built on level farmlands therefore no slopes - Speed limits defined for all sites - Driver training and awareness - Banksmen to supervise vehicle movements - Developed standards for earthmoving equipment
Q: Do these controls manage the risks? What could impact them?
Bulldozer used in Oman desert operations with ROPs cab
Jinqui farmlands
Conclusion : Standards may not be fully sufficient to manage risk, understand their limitations and what impacts them
Case Study – Standards & Reputation
Background
Evidence supports Libya being one of the early routes for mankind from Africa. It was a major centre for both the Roman and Greek empires with archaeological sites of major importance. Most archaeological studies were along the coastal area. However much of the oil and gas exploration is carried out in the more remote interior desert.
The initial archaeological assessment approved by the government showed little of interest and no special precautions were required. However during early surveys some sites were identified.
Q: You are complying with local & company requirements, do you need to do more and if so why?
Approach Taken - Concern over potential impact. Company wanted to be and be seen as a reputable operator - Developed, with a specialist, a new way of archaeological sensitivity assessment - Engaged with the regulator on the approach seeking their support - Applied methodology to all seismic operations, assessments updated as information became available - Identified over 1000 sites providing new information for archaeological researchers. - Approach impacted costs but demonstrated company commitment - Method promoted by the regulator to other IOC’s
Conclusion : Going beyond minimum requirements can help minimise impacts &improve your company reputation. But maybe at a cost
How can understanding the local culture help or hinder your operation?
Question
Case Study – Cultural Clash Background
In Oman a Chinese seismic contractor, new to the country, won a contract for seismic acquisition. All the senior staff were Chinese. However under Oman labour law all the labourers moved from an old crew to this crew. Most of the Chinese staff were new to desert operations whilst many of the local staff had worked for over 20 years in the Oman seismic business.
Q: How do you see the Arabic culture clashing with the Chinese way of working? Q: How would you manage this?
Considerations – Chinese staff desert experience compared to local staff – Chinese staff international experience – Language barriers – Arabic culture shows respect to elders through “Majilis”. Chinese management unfamiliar with this – Arabic culture has a focus on family above work, work hours fixed – Client culture was Western, good understanding of Arabic but not understanding of Chinese culture
Conclusion : When moving into a new country understanding the culture will help you operate and raise awareness to potential clashes
Case Study – Contractor Management Culture Background
Seismic acquisition in the Libyan desert. The operation was near a massive WWII mine field. A passage had been cleared through the minefield marked by white posts. Access only allowed during daylight. Safe passage included in all route planning meetings. Crew gained approval for each truck movement through the field. However on one occasion they didn’t report departure delay instead reporting the vehicle through the minefield before dusk when in fact it hadn't arrived at the minefield, putting staff at risk.
Approach Taken As part of this incident investigation (classed as a “near miss”)
✔ We engaged with both the crew management and the office management
✔ Sought ways to improve communication between the two parties.
✔ Promoted open honest dialogue between crew, management and the client
✔ Learnt that other clients not interested in engagements, just results
Q: How would you manage this cultural issue?
● The crew management wanted to give a good impression to their office management
● Contractor office management were confrontational when the crew raised problems.
● Site visits & Rep reports gave us an awareness of the poor company “culture”.
Conclusion : Its important to visit the sites of your operations. Reports can only provide so much information and have a bias
Case Study – Impact of Local Culture
Background
In Sichuan the company sought open engagement with staff seeking solutions to problems. Local knowledge can provide local answers. Site visits helped but wanted more consistent approach between companies. However.
- During group sessions staff would not present ideas
- At contractor workshops only the contractor management spoke.
- We were new and wanted to learn but didn’t have access to a wealth of local knowledge
Q: Understanding the Chinese business culture, why did this occur and how could you improve engagement ?
Approach Taken Continued with workshops but – Set separate challenges for each table – Put all managers on one table – Expatriates facilitate workshop – removed expectations of answers
Conclusion : Its good to bring fresh ideas and approach to a project but also critical to harness all your staff experience
Considerations
Importation/Local
Towing vessels
Staff visas
Weather Window
Emergency Response
Case Study – Impact of unforeseen influences
Background
Planning an offshore well in the South China Sea. A jackup rig was selected from an international contractor was. Their rig underwent maintenance work in Malaysia before being towed along the Vietnamese coast to the waters off Hainan.
Conclusion : Unforeseen events can occur. Your schedules and costs need to allow some flexibility
Considerations
Effective Environmental Management
Understanding Potential Environmental impacts
Environmental legislation compliance
Environmental permitting
Environmental emergency response
Case Study – Environmental Legislation Compliance (Permitting)
Background
Planning an exploration well offshore New Zealand. Area was remote but within helicopter range. Operation was promoted by the government. Whilst some public groups were in support of the drilling, others were not.
Environment included engagement with the local indigenous people as well as others potentially impacted by the operation.
Conclusion : An understanding of the local legislation as it applies to you business and its impact on costs and timing is key
Case Study – Cultural Clash
Background
In Oman a Chinese seismic contractor new to the country won a contract for seismic acquisition. All the senior staff were Chinese. However under Oman labour law all the labourers moved from an old crew to this crew. Most of the Chinese staff were new to desert operations whilst many of the local staff had worked for over 20 years in the Oman seismic business.
Q: How do you see the Arabic culture clashing with the Chinese way of working? Q: How would you manage this?
Considerations
– Chinese staff desert experience compared to local staff – Chinese staff international experience – Language barriers – Arabic culture shows respect to elders during “Majilis”. Chinese management unfamiliar with this – Arabic culture has a focus on family above work, work hours fixed
Conclusion : When moving into a new country understanding the culture will help you operate and raise awareness to potential clashes
Case Study – Impact of Local Culture
Background
In Sichuan the company sought open engagement with staff seeking solutions to problems. Local knowledge can provide local answers. Site visits helped but wanted more consistent approach between companies. However.
- During group sessions staff would not present ideas
- At contractor workshops only the contractor management spoke.
- We were new and wanted to learn but didn’t have access to a wealth of local knowledge
Q: Understanding the Chinese business culture, why did this occur and how could you improve engagement ?
Approach Taken Continued with workshops but – Set separate challenges for each table – Put all managers on one table – Expatriates facilitate workshop – removed expectations of answers
Conclusion : Its good to bring fresh ideas and approach to a project but also critical to harness all your staff experience