INTERNATIONAL ORGANIZATION DESIGN
ARIZONA STATE UNIVERSITY
OMT 440 - INTERNATIONAL BUSINESS
WEEK 4
CHAPTER OBJECTIVES:
After studying this chapter, you are expected to be able to :
a)
Identify the nature of international organization design
b)
Designing a global organization
c)
Identify control functions in international business.
The existence of an organization as an open system cannot be separated from the
challenges of international environmental factors that affect it either directly or indirectly.
Environmental factors affect organizational design, both in the form of internal
environmental factors and external environmental factors of the organization. Internal
environmental factors are factors from within the organization that affect organizational
design and are controllable factors, while external environmental factors are factors that
come from outside the organization that affect organizational design and are uncontrollable
factors.
DEFINITION OF ORGANIZATIONAL DESIGN:
Organizational design (organizational structure) is the overall pattern of structural
components and configurations used to manage the organization as a whole. The right design
for any given organization depends on the company's size, strategy, technology, and the
environment and culture of the country in which it operates.
Companies cannot function properly unless the various structural components are
designed appropriately. Through organizational design, a company does four things. First, it
allocates the resources of the organization. Second, it assigns tasks to its employees. Third, it
informs the employees about the rules and procedures that apply in the company and the
company's expectations of employee performance. Fourth, it collects and transmits
information necessary for problem solving, decision making and effective organizational
control. This last task is especially important for large multinational companies, which have
to manage large amounts of information between the corporate headquarters and the various
subsidiaries and staff spread around the world.
The global design adopted by any company must deal with the need to integrate three types
of knowledge to compete effectively in the international business environment, namely:
a)
Knowledge area. Managers must understand the cultural, commercial, social, and
economic conditions of the host country in each market where the company does
business.
b)
Product knowledge. Managers must understand factors such as technological trends,
demanding customer needs, and competition that affect the company in producing and
selling its products.
c)
Functional knowledge. Managers should have access to colleagues with expertise in
basic business functions such as production, marketing, finance, accounting, human
resource management, and information technology.
FORMS OF GLOBAL ORGANIZATIONAL DESIGN
The five most common forms of global organizational design are product, area,
functional, customer, and matrix. Each form allows the company to emphasize one type of
knowledge, but may also make it more difficult to incorporate these types of knowledge into
the company's decision-making process. Thus, the chosen multinational enterprise design will
reflect the relative importance of the three types of knowledge in the company's operations,
as well as the need for coordination among units, the source of the company's profits, and the
managerial philosophy about its position in the world economy.
Multinational companies usually adopt one of three managerial philosophies that
guide their approach to such functions as organizational design and marketing. The three
approaches used in international organization design are:
a)
Ethnocentric approaches are used by companies that operate internationally in the same
way they do domestically.
b)
The polycentric approach is used by companies that customize their operations for each
foreign market they serve.
c)
The geocentric approach is used by companies that analyze customer needs around the
world and then adopt operating standards for all the markets they serve.
The most common form of organizational design adopted by multinational companies is the
global product design. This design works better when the company has a diverse range of
products or when product lines are sold in different markets, thus making the need for
coordination between product lines less important. If the products are related, the company's
organization takes what is often called an M-shape design; if the products are not related, the
design is called an H-shape.
Design. M stands for multidivisional which are independently operating company
divisions with interconnected activities. H is an abbreviated form of holding such as a
holding company with various business functions that are unrelated/autonomous and have
little dependency.
The five most common forms of global organizational design are global product
design, global area design, global functional design, global customer design, and global
matrix design as outlined below:
a)
Global product design provides several potential competitive advantages. First, since the
division focuses on a single product or group of products, the division managers gain
expertise in all aspects of the product or products which enables them to compete better
globally. Second, global product design facilitates efficiency in production as managers are
free to produce products wherever the production cost is the lowest. It also allows managers
to coordinate production across different facilities, shifting output from plant to plant as
global demand or cost conditions fluctuate. Furthermore, because managers have extensive
product knowledge, they will be better able to incorporate new technologies into their
products and respond quickly and flexibly to technological changes affecting their markets.
Global product design also facilitates global marketing of products. It benefits companies that
are flexible in introducing, promoting, and distributing each product or group of products.
Global product design has the power for managers to think globally. However, global product
design also has the disadvantage that it encourages costly duplication because each product
group has its own organizational design needs such as marketing, finance and information
management, and sometimes even its own physical facilities for production, distribution, and
research and development (R&D). Each product group must develop its own knowledge of
the national and regional cultural, legal and political environments of the various markets in
which the organization operates. Coordination and corporate learning across product groups
also becomes more difficult.
b)
Global area design is most likely to be used by companies whose products are not
easily transferable within regions. This approach is useful for companies with a polycentric or
multidomestic corporate philosophy. The global area design is particularly useful for a
company whose marketing strategy is based on manufacturing efficiency or technological
innovation or whose competitive strength lies in the product's brand name reputation. Area
managers can freely adapt to meet local needs for the company's products and can quickly
respond to local market changes. They can also customize the product mix they offer within
the area specific market. By focusing on the market needs of a region, companies may
sacrifice cost efficiencies that might be gained through global production. Technology
diffusion also slows down as innovations generated in one area of the division will not be
adopted by others. This design may not be suitable for product lines that experience rapid
technological change. The global area design results in duplication of resources as divisions
in each region must have functional specialization, product experts, and production facilities.
This makes coordination in these areas expensive and hinders global product planning.
c)
Global functional design is used by multinational companies that have relatively narrow or
similar product lines. The result is what is often called a U-form of organization, where U
stands for Unity. The company is essentially a single business enterprise and has company-
wide functional operations dedicated to marketing and operations, public affairs, engineering,
finance, human resources and other basic functions. An example is an airline company.
Global functional design offers several advantages. Companies can easily transfer expertise
within their respective functional areas. Managers can control functional operations centrally.
The global functional design focuses attention on the main functions of the company. Despite
the advantages, this design is not appropriate for multiple businesses. The global functional
design is practical only when the company has relatively few products or customers.
Coordination between divisions can be a big problem. There may also be duplication of
power between managers. Because of these issues, the global functional design has limited
applicability. It is used by many companies involved in extracting and processing natural
resources, such as the mining and energy industries, because in their case, the ability to
transfer technical expertise is important. Companies that need to impose uniform standards
on all their operations may also adopt this approach.
d)
Global customer design is useful when the various customer groups targeted by a company
are so diverse as to require completely different marketing approaches. A global customer
design approach allows a company to address the specific needs of each customer segment
and track how well the company is delivering products or services across segments. On the
other hand, global customer design can lead to significant duplication of resources if each
customer group has its own specialist needs and functionalities. Coordination between
different divisions is also difficult as each is concerned with fundamentally different markets.
e)
In global matrix design, a company can form specific product groups consisting of members
from existing functional departments. These product groups can then plan, design, develop,
manufacture, and market the products according to input from their respective functional
areas. In this way, the company can direct the functional and product expertise of each
employee. Once the assigned product development product is completed, the product group
can be disbanded; its members will then move on to new tasks. Other matrix arrangements
are also possible. The advantage of a global matrix design is that it helps bring together the
company's functional, area, and product expertise into teams developing new products or
responding to new challenges in the global marketplace. The global matrix design encourages
organizational flexibility. It allows companies to take advantage of functional, organizational
design, customer and product requirements while minimizing the disadvantages of each
simultaneously. Product development team members can be added according to the changing
needs of the company. The global matrix design also encourages coordination and
communication between managers from different divisions. However, the global matrix
design has the limitation that it is not suitable for a company that has several products and
that operates in a relatively stable market. It often places employees in positions responsible
for more than one manager. As a result, individuals may have divided loyalties between
competitive demands and the pressures of being a manager. The global matrix design creates
a paradox regarding authority. The global matrix design tends to favor compromises, or
decisions based on the relative political influence of the managers involved.
THE CONTROL FUNCTION IN INTERNATIONAL BUSINESS
The control function in international business is the process of monitoring ongoing
performance and making necessary changes to keep the organization moving towards
performance goals. Controlling is different from coordination. Coordination is a function of
the interdependence between divisions and functions of the company. The higher the level of
interdependence between divisions and functions, the more coordination is required between
them. Multinational companies can use one of several strategies to achieve and manage the
desired level of coordination.
The organizational hierarchy itself is one way to manage interdependencies and
encourage coordination. A clear organizational design defines all reporting relationships and
facilitates the direction of coordination because every manager knows what the channels of
communication, decision-making, and so on are. Rules and procedures also facilitate
coordination.
The three levels of control in international business are: strategic, organizational, and
operational as outlined below:
a)
Strategic control is aimed at monitoring how well an international business formulates its
strategy as well as how well it executes that strategy. Strategic control focuses on how
well the company defines and defends its desired strategic decisions firmly and how
effectively the company sets and achieves its strategic goals.
b)
Organizational control focuses on the design of the organization itself. The most
common type of organizational control system is decentralized control centers. Using this
system, companies first identify the fundamental centers of responsibility within the
organization. Strategic business units are often defined as responsibility centers, such as
geographic regions or product groups. Once the control centers are identified, the
company then evaluates each based on how effectively it meets its strategic objectives.
c)
Operational control focuses specifically on operating processes and systems within the
company and its subsidiaries and operating units. Companies may also require an
operations control system for each manufacturing facility, distribution center, and
administrative center.
Control systems in international business are built through four basic steps:
a)
Establishing performance control standards. The first step in establishing an
international business control system is to determine the relevant control standards. The
control standard in this context is the target, or desired level of the company's
performance components. Control standards should be objective and consistent with the
company's objectives.
b)
Establishing actual performance measures. The second step in creating an
international business control system is to develop component measures of performance
that apply to control.
c)
Comparing performance against standards. The third step in establishing an
international business control system is to compare the measured performance obtained
in step 2 against the control standards defined in step one.
d)
Responding to deviations. The fourth and final step in establishing an international
business control system is to respond to deviations observed in step three. One of three
different outcomes when comparing standard performance and actual control: the control
standard has been met, has not been met, or has been exceeded.
There will obviously be differences in specificity, timeframe, and sophistication, but the
measures apply to every region and every level of control.
Due to the complexity of both the international environment and international
corporations, companies rely on a variety of different control techniques. Accounting is a
comprehensive system for collecting, analyzing and communicating data about a company's
financial resources. Accounting procedures are highly regulated and must follow methods
prescribed by the government.
Because of these regulations, investors, government agencies and other stakeholders
in a particular state organization can better compare the financial performance of different
organizations, have a common understanding of the various kinds of meaningful information,
and place reasonable confidence in the accuracy and meaning of such information.
International businesses must develop accounting systems to control and monitor the
performance of the company as a whole and each division, operating unit, or subsidiary.
Policies, standard operating procedures, rules and regulations all help managers carry out the
control function. Performance ratio is a numerical index of performance that a company
wants to maintain. A common performance comparison used by many companies is
inventory turnover.
People in international companies may resist control for a variety of reasons. One
possible reason is overcontrol, where companies try to exert more control over individuals.
By definition, control is regulating and restricting behavior. Most people can accept control
that they consider to be reasonable limits (with boundaries partly determined by cultural
context). However, if attempts to control behavior start to exceed limits, people may resist
and start to fight back.
Organizational design (organizational structure) is the overall pattern of structural
components and configurations used to manage the organization as a whole. The right design
for any given organization depends on the company's size, strategy, technology, and the
environment and culture of the country in which it operates.
The five most common forms of global organization design are product, area,
functional, customer, and matrix. The three approaches used in international organization
design are: ethnocentric approach, polycentric approach, and geocentric approach.
The control function in international business is the process of monitoring ongoing
performance and making necessary changes to keep the organization moving toward
performance goals.
The three levels of control in international business are: strategic, organizational, and
operational.
Control systems in international business are built through four basic steps: (1) setting
performance control standards, (2) establishing measures of actual performance, (3)
comparing performance against standards, and (4) responding to deviations.
PRACTICE QUESTIONS:
1. What is the organizational design/structure of international organizations?
2. Describe the various knowledge that influences the design of international organizations?
3. Describe three approaches used in international organization design?
4. Explain the meaning of global product design, global area design, global functional
design, global customer design, and global matrix design?
5. Describe the stages of international business control?
GROUP DISCUSSION:
International Structure: Cases on The Coca Cola Company
A clear hierarchy of authority exists within the Coca-Cola Company. However, the
chain of command has many layers as the company has offices in over 200 countries
worldwide (Coke, 2011). For example: The UK Division is accountable to the North-West
Europe Regional Division. The North-West Europe Regional Division is, in turn, accountable
to the Europe, Eurasia and Middle-East SBU (Strategic Business Unit). Finally, the 5
regional SBU's, which cover the entire globe, are accountable to Coca-Cola Head Offices in
Atlanta, Georgia (The Times, 2005). Furthermore, an interior organizational structure exists
within the Head Office, the 5 SBU's, the regional divisions and the country divisions (The
Times, 2005).
Such "tall", rigid management structures can often lead to employee frustration and
disgruntlement. The existence of many layers can make staff feel like their opinions are
unimportant and their contribution is insignificant. This can lead to organizational problems
such as absenteeism and high staff turnover, which can, in turn, reduce the efficiency of the
business. According to official company figures, Coca-Cola lost 185,608 days of labor in
2010 (Coke, 2011). While some lost labor is due to legitimately sick employees some
employees may skip work due to a lack of motivation. Furthermore, the same report shows
staff turnover figures were very high in 2010, with some sectors of the company recording
turnover rates of 20%. Due to the sheer size of the company, elements of corporate power are
needed to govern regional offices (Johnson, 1946). I would argue that too much decision
making power lies in the hands of the corporate office of Coca-Cola, while regional offices
lack decision making power in terms of finance, innovation and strategy. One major problem
with centralized organizational structures is that they often ensure that changes within the
organization take longer to be implemented. Often the benefits of centralization are
outweighed by its limiting effect on regional divisions (Campbell, Kunisch and Muller
Stewens, 2011). Campbell also suggests that it can distract and de-motivate regional
workers. Some authors even argue that centralization can lead to a lack of innovation in the
workplace (Johnson, 1946; Nakamura 2003). This could point to the reason why one article
suggests that Coca-Cola has lost its innovative roots and is starting to "lose its fizz" due to a
recent lack of creative flair (2006, "Why Coca-Cola has lost its fizz: Unwillingness to
innovate is blamed for Coke's weakened position in the Cola war", Strategic Direction, Vol.
22 Iss: 1 pp. 19 - 21)
LEADERSHIP AND WORK BEHAVIOR IN INTERNATIONAL BUSINESS:
(Leadership And Work Behavior In International Business)
CHAPTER OBJECTIVES:
After studying this chapter, you are expected to be able to :
a)
Identify the behavioral diversity of employees from different countries in international
business
b)
Understand the leadership of managers in international business from different personality
backgrounds.
c)
Explain the differences in individual behavioral diversity between countries in
international business
The impact of free trade is the opening up of business activities in different countries.
There are no more national borders in international trade (the boderless world), advances in
information and communication technology have supported the creation of international
business quickly. The emergence of international business / international marketing was
initially due to the needs of a country that could not be met by the country itself. But along
with the times and changes in human lifestyles, it has changed the pattern of international
trade into a business in the sense of seeking profits in various parts of the world.
International trade has divided the world's labor, with developed countries producing
industrial products and developing countries supplying raw materials for developed countries'
industries. Other implications of international trade are marked by the development of
multinational companies or MNCs (Multi National Company) in various fields
(manufacturing, transportation, telecommunications, food processing, services, energy, etc.).
Trade globalization is an opportunity in developing business and marketing for
companies that are able to compete, but it will also be a challenge for companies or countries
that do not have high competitiveness. Various MNC companies have expanded their wings
to other countries, in addition to making variations in their products and services and
company management. Global trade requires companies to be able to compete not only on
comparative advantages but must be able to compete in the market prioritizing competitive
advantage. The development of international business that enters across countries is certainly
not as easy as it seems, because many factors need to be considered to start an international
business. This is because international business will involve people across countries who will
certainly vary in their behavioral, cultural and religious patterns.
DIMENSIONS THAT INFLUENCE INDIVIDUAL BEHAVIOR:
Individual behavior is basically influenced by local culture or the environment in
which a person lives. Each country has its own culture so that it affects the personality of the
people of a country, in international business of course various cultures need to be a concern
because it will relate to how to start a business, determine employees and marketing
prospects in the country. In this regard, several things related to individual behavior in
international business are as follows:
Various cultures have shaped the behavior of individuals in socializing, working and
behaving or their personalities that are different from other individuals. Personality is a
fundamental psychological attribute that distinguishes a person from others. Many
psychologists say personality attributes are influenced by heredity (nuture) and environment
(nature). Environmental factors are the most influential factors on a person's personality,
such as the environment where they live or the area where they grew up. In this case,
international managers must know the environmental or cultural differences of a country.
However, it should be noted that individual differences also exist in any cultural group. This
means that culture causes certain behavioral tendencies and individual behavior in any culture
also varies significantly (Griffin and Pustay, 2005).
European countries and the United States have used these personality traits to place
people in job positions. Conscientious- ness and high emotional stability are likely to work
better than people with low emotional stability, Extroversion can be a useful tool to predict
someone to become a marketing manager such as the Chinese who are more communicative
in marketing. Many managers in international business use these personality traits for hiring
in multinational companies.
In domestic firms, managers must understand and contend with a complex set of
behavioral and interpersonal processes. In multicultural companies, managers have the added
challenge of managing people with diverse references and perspectives. International
managers who develop insights dealing with people from different cultural backgrounds will
be positioned far ahead compared to managers who do not develop multi-cultural insights.
The dimensions that influence individual behavior include:
1. Personality is a relatively stable set of psychological attributes that distinguish one person
from another. Both nature and nurture factors determine personality. Nature is the biological
personality attributes that are inherited, while nurture is the personality attributes that are
shaped by the social and cultural environment in which people are raised. In reality, both
biological and environmental factors play an important role in determining personality.
Recently, psychology experts have identified personality traits that are fundamental for
organizations including international businesses that will involve a workforce from different
national, religious and cultural backgrounds. These traits are known as The Big Five
Personality Traits, namely:
a)
Agreeablesness (sociability) shows the nature of how a person gets along well with
others such as being gentle, understanding, cooperative so as to get positive feedback
from their environment.
b)
Conscientiousness will describe a person's personality whether he is a regular person,
organized, has high discipline, is meticulous and responsible in his activities. This
characteristic can also measure whether a person is organized, systematic, responsible for
their work. Or on the contrary undisciplined, careless, and irresponsible towards their
work.
c)
Emotional stability is how a person controls their emotions, people whose emotions are
stable will be calm, balanced, steadfast and feel safe, on the other hand people whose
emotions are unstable will be easily agitated, feel insecure, reactive, and have a
changeable mood.
d)
Extroversion is a person's level of comfort in relating to other people which shows
someone is sociable, communicative, assertive and vice versa there are people who are
not sociable and more introverted.
e)
Openness describes the attitude of how a person accepts other people's opinions, listens
to others and carries out the person's suggestions, the opposite is a selfish attitude that
does not want to listen to other people's opinions. However, there are also various other
characteristics that affect the organization, namely:
f)
Locus of Control is the extent to which people believe that their behavior has a real
effect on what happens to them. People believe that if they work hard they will succeed.
People who fail do so because they lack the ability or motivation. Internal locus of
control is thinking they have control over their lives. External locus of control is thinking
that forces outside their control dictate what happens to them. Or thinking that fate,
chance, luck, or the behavior of others determine what happens to them. Employees who
fail to get promoted attribute their failure to boss motives or just bad luck, rather than to
a lack of skills or poor performance.
g)
Self-efficacy is a person's belief about their ability to perform a task. People with high
self-efficacy believe that they can perform certain tasks well, people with low self-
efficacy tend to doubt their ability to perform the tasks assigned to them.
h)
Authoritarianism is believing that power and status differences are appropriate in social
hierarchical systems such as business organizations. Highly authoritarian people accept
directions or orders from someone with more authority because the other person is the
boss. People who are not highly authoritarian are also more likely to question things,
check disagreements with the boss, and even refuse orders if for some inappropriate
reason. Highly authoritarian managers may be relatively autocratic and demanding, and
highly authoritarian subordinates will tend to accept this behavior. Less authoritarian
managers allow subordinates a greater role in decision-making, and less authoritarian
subordinates will respond positively to this behavior.
i)
Self-esteem is the belief that one is a valuable and worthy individual. A person with high
self-esteem will be more likely to seek higher status jobs, be more confident in his or her
ability to achieve higher levels of performance, and derive greater intrinsic satisfaction
from achievement. Whereas someone with less self-esteem will be more likely to stay in
a lower level job, have less confidence in his or her abilities, and focus more on extrinsic
rewards.
2. Attitudes across cultures are complex attitudes of a person's beliefs and feelings towards
certain ideas, situations, or other people. Attitudes that are important in organizations include
job satisfaction (job satisfaction) or dissatisfaction is an attitude that reflects the individual to
be grateful in the job, and organizational commitment (organizational commitment) which
reflects the identification of individuals and loyalty to the organization.
3. Perception & stress is a series of processes to interpret information about the environment.
Stereotyping is when we make inferences about someone because of one or more
characteristics they share. Stress is a person responding to a strong stimulus (stress). The
absence of stress can lead to lethargy and stagnation. Optimal degrees of stress can result in
motivation and excitement. Too much stress can have negative consequences.
4. Motivation is the overall set of drives that cause people to choose certain behaviors. Values
are what people believe to be important. Needs are what an individual should or wants to
have. Primary needs are things that people need to survive, such as food, water, and shelter.
Secondary needs are needs that are more psychological in nature and learned from the
environment and culture.
Categories of Motivation: (1) need-based models of motivation attempt to identify
specific needs or sets of needs that result in motivated behavior. Need-based models of
motivation as proposed in Maslow's Hierarchy of Needs, McClelland's Learned Needs
Framework, and Herzberg's Two-Factor Theory. (2) Process-based models of motivation
focus more on the conscious thought processes that people use to choose one behavior from
among others. Process-based motivation models such as those proposed in expectancy theory.
(3) The reinforcement model is how people assess the consequences of their behavioral
choices and how those assessments enter into their future choices of behavior. This model
incorporates the role of rewards and punishments in maintaining existing patterns of
behavior.
Abraham Maslow (1943; 1970) suggested that basically all humans have basic needs. He
showed them in 5 pyramid-shaped levels, people start the drive from the lowest level. The
five levels of needs are known as Maslow's Hierarchy of Needs, starting from basic
biological needs to more complex psychological motives; which will only be important after
basic needs are met. Needs at one rank must be at least partially satisfied before needs at the
next rank become important determinants of action. Physiological needs (hunger, thirst, and
so on), security needs (feeling safe and secure, away from danger), love and belonging needs
(affiliating with others, being accepted, belonging), esteem needs (achieving, competing, and
getting support and recognition), and self-actualization needs (cognitive needs: knowing,
understanding, and exploring; aesthetic needs: harmony, order, and beauty; self-actualization
needs: getting self-satisfaction and realizing one's potential).
Mc Clelland (1961) stated that there are three important things that become human
needs, namely: need for achievement (need for achievement), need for affiliation (need for
social relationships / almost the same as Maslow's soscial need), and need for power (drive to
organize).
According to Herzberg (1966), there are two types of factors that encourage a person
to try to achieve satisfaction and stay away from dissatisfaction. He calls them hygiene
factors (extrinsic factors) and motivator factors (intrinsic factors). Hygiene factors motivate a
person to move away from dissatisfaction, including human relations, rewards, environmental
conditions, etc. (extrinsic factors), while motivator factors motivate a person to strive to
achieve satisfaction, which includes achievement, recognition, advancement in life level, etc.
(intrinsic factors).
According to expectancy theory, people are motivated to behave in certain ways to the
extent that they perceive that such behavior will lead to outcomes that they find personally
appealing. Different people have different needs where people may need money, other
recognition, social satisfaction, and prestige. People tend to work towards goals that they
consider important.
In the reinforcement model, behaviors that produce positive outcomes are likely to be
repeated in the same situation in the future. Behaviors that produce negative outcomes will
result in different choices in the same situation in the future. In Muslim cultures, people tend
to believe that the consequences they experience are God's will and not a function of their
own behavior. Thus reinforcement and punishment are likely to have little effect on their
future behavioral decisions.
5. Leadership is the use of influence to shape group or organizational goals, to motivate
behavior toward achieving goals, and to help define group or organizational culture.
Leadership relies less on personal power and focuses more on motivation and
communication. Most leadership models suggest that leaders' appropriate behavior depends
on situational factors.
DECISION-MAKING MODELS:
Decision making is the process of choosing one alternative from a set of alternatives
to promote the decision maker's goals. The normative model of decision making makes
applying logic and rationality in making the best decision. The descriptive model of decision
making behavior limits a manager's ability to always be logical and rational.
The stages in the normative model: problem recognition, identifying alternatives,
evaluating alternatives, selecting the best alternative, implementation, follow-up and
evaluation.
Cultural factors influence the choice of alternatives such as in an individualistic
culture, managers may be prone to choosing alternatives that have the most positive impact
on them personally. In a collectivistic culture, the impact of the total group alternative will
carry more weight. In a power-respecting culture, implementation may be mandated by a
manager at the top of the organization and accepted without question by others.
GROUPS AND TEAMS IN INTERNATIONAL BUSINESS
A group is a collection of people working together to achieve a common goal, while a team is
a specific type of group responsible for working alone. An efficient team role structure is
characterized by: norms reinforce high performance, truly cohesive leadership, informal
support for the achievement of company goals, potential for maximum effectiveness.
The characteristics of a mature team are as follows:
a)
Develop a well-defined role structure. Each member has a role to play in the team,
accepts that part, and makes a valuable contribution.
b)
Establish norms for its members. Norms are standards of behavior, such as how
people should dress, the consequences of being absent, how much each member should
earn, and so on.
c)
Cohesive. Team members identify more and more strongly with the team, and each
member respects, values, and works well with others.
d)
Identify informal leaders of their members. Individuals to whom the team attaches
special status and who can lead and direct the team without formal authority.
The dimensions that influence individual behavior include: personality, attitudes
across cultures, perception and stress. The big five personality traits are: agreeablesness,
conscientiousness, emotional stability, extroversion, and openness. Other influencing traits in
organizations are: locus of control, self-efficacy, authoritarianism, self-esteem.
PRACTICE QUESTIONS
1. Explain the dimensions that influence individual behavior?
2. Describe the big five personality traits?
3. Describe the categories of motivation and the theories/models that support them?
4. Describe the decision-making models?
5. Describe the stages of the normative decision-making model?
6. Describe the cultural factors that influence the choice of alternatives?
7. Explain the difference between a group and a team?
8. Describe the characteristics of a mature team?
GROUP DISCUSSION:
Bill Gates' Leadership Style:
Bill Gates or William Henry Gates III is a multi-billionaire whose name is always at
the top of the list of the richest people in the world. Bill Gates is the man who founded
Microsoft, the largest software company in the world. Anyone of us who has used a desktop
computer must have also utilized his work, yes one of them is the Windows operating system.
Little Bill Gates has shown his intelligence, he studied at a very prestigious school,
Lakeside School, a very famous and modern boys' school. Although Bill Gates is the son of
rich people and has been a millionaire since birth through his grandfather's inheritance
(according to Forbes, he has a net worth of at least 1 million dollars), Bill Gates is not a
complacent child. His parents strongly instilled in him that he must have a unique intelligence
that would later lead him to a better life of success.
At that time, Lakeside School students who were famous for writing computer
programs were Bill Gates, Paul Allen, Ric Weiland, and Kent Evans. The four students were
then banned by the school from using the computer again because they were caught
developing a bug in the computer system. Before the four students were completely banned,
the school told them to find the bug, but instead of finding the bug, Bill Gates went to the
computer headquarters and studied the source code of various programs running on the
system such as FORTRAN, LISP and machine language. From there, Bill Gates' knowledge
of programming languages grew. The following year, a programming company called
Information Sciences, Inc. Heard the expertise of these four friends and hired them to write a
salary payment system program using the COBOL language, in addition to getting royalties,
they were also allowed to use office computers as long as possible.
Founding Microsoft:
In 1974 the MITS Altair 8800 based on the Intel 8080 CPU had just been launched,
from which his idea to establish a software company with Paul Allen as his partner
developed. Bill Gates then contacted MITS and offered a BASIC-based operating system that
could be used as a platform. MITS agreed. This first operating system was named Altair
Basic. And Bill Gates together with Paul Allen named his software company "Micro-soft"
then the conjunction was eventually removed so that until now it has become "Microsoft" and
Bill Gates is its largest private shareholder.
Partnering with IBM:
Bill Gates' expertise with Microsoft in writing programming languages for computers
became widely recognized. In 1980 IBM announced that it needed an operating system for its
PC and he asked Microsoft to make it. Finally Bill Gates made it with the name 86 DOS or
QDOS operating system which was then sent to IBM in the form of PC-DOS.
From that Bill Gates got $50,000 in return. Microsoft also did not apply for the
transfer of its software copyright to IBM. That's how the sale of MS-DOS made Microsoft a
major software player in the computer industry. If the software written by Bill Gates had been
licensed to IBM, perhaps IBM would have made a huge profit and dominated the market and
Microsoft could not be as big as it is today. Bill Gates' brain is truly revolutionary, not only
good at producing simple yet quality programs but also good at selling them.
Bill Gates is famous for being hard on his managers, maybe even "cruel". That's
understandable because he has a double responsibility at Microsoft, besides having to be an
active program writer he also has to think about the company's future strategy so that it can
become a major player and when it has reached the top it must desperately defend it even if
necessary to monopolize it. Often during meetings with his manager he spontaneously cuts
off his manager's presentation and says "That's the stupidest thing I've ever heard," of course
this really hits his manager's feelings. Buill Gates also always asks managers in his company
to deliver presentations in detail until Bill Gates is convinced and approves them.
INTERNATIONAL MARKETING:
(International Marketing)
CHAPTER OBJECTIVES:
After studying this chapter, you are expected to be able to :
a)
Explain the definition of international marketing management
b)
Explain about product policy, price policy, distribution policy, promotion policy
Companies expanding into new markets abroad must deal with different political,
cultural, and legal systems, as well as foreign economic conditions, media advertising and
distribution channels. An international company accustomed to promoting its products on
television will have to change its approach when entering a less developed market where
relatively few people own televisions. Advertising regulations also vary by country.
International marketing managers face two tasks their domestic counterparts do not
face: capture synergies between various national markets and coordinate marketing activities
between those markets. Synergies are important because they provide opportunities for
additional revenue and growth and cross-fertilization. Coordination is important because it
can help lower marketing costs and create a unified marketing effort.
DEFINITION OF INTERNATIONAL MARKETING:
Marketing is the process of planning and executing the conception, pricing, promotion
and distribution of ideas, goods and services to create exchanges that meet individual and
organizational objectives. International marketing is marketing whose operations cross the
boundaries of more than one country. To become an international company (becoming
international), does not just happen but goes through several stages, namely:
a)
No Foreign Marketing. The company is in contact with the international world but not
because of its own initiative or efforts to market to foreign markets. The company's
products enter the international market because of orders from foreign markets, foreign
customers coming to the company, or the efforts of exporters.
b)
Infrequent Foreign Marketing. The company begins to market itself to foreign markets
but only when it has a production surplus. If the domestic market is still able to surrender,
this activity is abandoned. At this stage there is no adjustment of the organization or its
products for the international market.
c)
Regular Foreign Marketing. Producers already have plans to market their products to
foreign markets. Marketed by themselves or through domestic distributors or foreign
distributors. The goal is to expand the domestic market by trying to understand the needs
and wants of the international market.
d)
Global Marketing Operations. In this phase, producers have really been involved with the
international world globally. Activities are not only limited to marketing, but have planned
production operations and organizations competing in the world market.
The marketing activities of an international company are often organized as a
separate, stand-alone function within the company. However, today international marketing
functions influence and are influenced by almost all other organizational activities. These
interconnections make international marketing management a critical component of
international business success. International marketing management ensures that its
international marketing activities encompass its corporate strategy, business strategy, and
functional strategy.
A key challenge for corporate marketing managers is to adopt an international
marketing strategy that supports the company's overall business strategy. Business strategy
can take one of three forms: differentiation, cost leadership or focus. A differentiation
strategy requires marketing managers to develop products as well as pricing, promotion, and
distribution tactics that differentiate the company's products or services over its competitors
in the eyes of customers. Differentiation can be based on quality, fashion, reliability or other
salient characteristics. Assuming differentiation can be effectively communicated to
customers, companies will be able to charge high prices for their products or protect
themselves from price competition from inferior brands.
A company may adopt an international business strategy that emphasizes overall cost
leadership, pursued and achieved through systematically lowering production and
manufacturing costs, lowering selling costs, accepting lower profit margins, reducing the use
of expensive materials and components, or other means. Marketing managers would
concentrate their efforts through advertising promotion of low product prices and would use
distribution channels that allow the company to keep retail prices low, by selling through
discounters rather than through many fashionable boutiques.
A company may adopt a focus strategy. In this case, marketing managers will
concentrate their efforts on specific segments of the consumer market or on specific areas or
regions within a market.
Once an international company decides to enter a particular foreign market, marketing
decisions are made. Specifically, international marketing managers must address four issues:
how to develop the company's products, how to price those products, how to sell those
products, and how to distribute the company's products to customers. These elements are
collectively known as the marketing mix and are referred to as the Four Ps: product, price,
promotion, and place.
INTERNATIONAL MARKETING STANDARDIZATION AND CUSTOMIZATION:
The trade-off between standardization and customization is clear. Standardization
allows companies to achieve and maintain manufacturing, distribution and promotion
efficiencies and simpler, more efficient operations. However, companies may suffer from lost
sales if products fail to meet the unique needs of customers in the market. Customization
allows companies to tailor products to meet the needs of customers in each market, although
companies may sacrifice cost efficiency by doing so. Essentially, standardization focuses on
the cost side of the profit equation; by controlling costs, a company's profits are improved.
Customization focuses on the revenue side of the profit equation; by presenting unique
customer needs in each market, the company is able to charge higher prices and sell more
goods in each market. In practice, most companies avoid the second extreme of the approach.
Many successful companies have adopted a think globally, act locally strategy to gain
economies of scale in the global marketing mix while retaining the ability to meet customer
needs in different national markets.
The degree of standardization or customization to adopt for a company depends on
many factors, including the type of product, cultural differences between the home and host
countries, and citizens, and legal systems. Companies may take one approach to one element
of the marketing mix and another to a second element. Often companies standardize product
design to capture manufacturing economies of scale, but adjust advertising and distribution
channels to meet the needs of specific local markets. A company that tilts toward
standardization assumes consumers around the world are basically similar but then adjusts for
the differences between them.
A company that tends to customization assumes consumers are different but then
tailors the similarities between them.
An international company must also consider organizational structure.
Standardization implies that power and control should be centralized, often at the company's
headquarters, whereas customization suggests that the headquarters should delegate enough
decision power to local managers. International companies often address these organizational
issues by adopting a two-step process: i.e. first, the decision to standardize some elements of
the marketing mix, product design, branding, packaging and product positioning, is made
centrally. Second, then local managers are called upon to critique the global marketing
program and to develop plans for implementing customized elements of the marketing mix,
such as promotion and distribution.
PRODUCT POLICY IN INTERNATIONAL MARKETING:
Critical to a company's ability to compete internationally is its success in developing
products with tangible and intangible features that meet the wants and needs of customers in
diverse national markets. For example, Toyota's success in selling cars in Europe, Asia and
the Americas reflects product-related achievements in designing and producing mechanically
reliable vehicles, offering competitive warranties, building a solid brand name for its
products, providing parts and repair manuals, and financing to dealers and retail customers.
A key product policy decision facing international marketers is the extent to which
their company's products should be standardized in the market or customized within
individual markets. One is the nature of the product, the target customer, the industrial user or
the individual consumer. Although some industrial products are customized and some
consumer products standard, in general industrial products are more likely to be standardized
than consumer products. Host country laws and regulations can also influence the product
policies adopted by international companies. Some countries, for example, have imposed
detailed labeling requirements and health standards on consumer products which companies,
both foreign and domestic, must follow strictly.
International companies must customize packaging and even the products themselves
to meet these consumer protection regulations. International companies often have to adapt
their products to meet the needs of the local market culture. This one particular adaptation is
to change the labeling on the product package into the main language of the host country.
Level of economic development country can influence desired product attributes. Consumers
in wealthier countries often favor products loaded with additional performance features; more
price-sensitive consumers in poorer countries usually opt for a lower-priced version of the
same product. Sometimes companies may have to adjust package size or design to meet local
conditions. One element international companies often like to standardize is the brand name
of the product. A company that does this can reduce packaging, design, and advertising
production costs.
PRICING POLICY IN INTERNATIONAL MARKETING:
Pricing policy directly affects the size of revenue received by the firm. It also serves
as an important strategic weapon by allowing the firm to shape the competitive environment
in which it does business. Domestic and international firms must strive to develop pricing
strategies that will generate operating profits, but the task facing international firms is more
complex than that facing solely domestic firms. To begin with costs, the company doing
business vary on a country basis. Differences in transportation costs and tariffs cause the
price of goods to vary by country. Differences in distribution practices also affect the final
price paid by the end customer. Exchange rate fluctuations can also create pricing issues. If
the host country's currency increases in value, exporters must choose between maintaining
prices in the host country's currency (which makes goods more expensive in the importing
country) and maintaining prices in the home country's currency (which cuts into the profit
margin by lowering the amount of home country money received for each unit sold).
International companies with a geocentric approach to their international marketing
will adopt a standard price policy, where the company charges the same price for its products
and services regardless of where they are sold or the nationality of the customer. Companies
that sell goods that are easily traded and transported often adopt a price of necessity
approach. An international firm that follows an ethnocentric marketing approach will use a
two-tiered pricing policy where the firm sets one price for all domestic sales and a second
price for all international sales. A firm adopting a dual pricing policy generally allocates to
domestic sales all accounting costs related to research and development, administrative
overhead, capital depreciation, and so on. The company can then set uniform foreign sales
prices without having to worry about covering those costs. Dual pricing is often used by
companies domestic firms that are just beginning to internationalize. An international
company that follows a polycentric approach to its international marketing will use a market
price policy. Market pricing is the most complex. The firm utilizes market prices changing
them accordingly on a market-by-market basis to maximize profits in each market.
The two conditions that must be met if a company is to successfully practice market pricing
are:
a)
Companies have to face different demand and/or cost conditions in the countries in which
it sells its products. These conditions are usually met because taxes, tariffs, living
standards, levels of competition, infrastructure costs and availability, and many other
factors vary by country.
b)
Companies should be able to prevent arbitrage. The company sets a policy that market
prices will reveal if customers can buy the company's products in a country with a low
price and sell them profitably in a country with a high price. Due to tariffs, transportation
costs, and other transaction costs, arbitrage is usually not a problem if country price
variations are small. If prices vary by country, however, arbitrage may disrupt the firm's
market pricing strategy. Assuming these conditions are met, the advantages of this
polycentric approach are clear. The firm can set prices higher where the market will
tolerate them and lower when necessary to remain competitive. It can also directly allocate
relevant local costs to local sales within each foreign market, thus enabling corporate
strategists and planners to allocate corporate resources in markets in low-price countries
and sell them profitably better in high-price countries.
Market pricing policies can expose companies to three other risks:
a)
brand name damage,
b)
gray market development for products,
c)
consumer resentment against discriminatory pricing. The company's need to ensure that
the cost of pricing in one market does not damage the brand image it has carefully
cultivated in another market
PROMOTION POLICY IN INTERNATIONAL MARKETING:
Promotion, the third P of the international marketing mix, includes all efforts by an
international company to increase the desire for its products among potential buyers. Since
promotion depends on communicating with audiences in the host country, culture is a
concern in promotion.
For international companies, selling consumer products and services, advertising is
the most important element in the promotional mix. As a company develops its advertising
strategy, it must consider three factors:
a)
the message you want to convey;
b)
media available to convey the message;
c)
the extent to which the company wants to globalize advertising.
At the same time, companies must refer to the relevant cultural, language, and legal
constraints found in various national markets. Advertising messages are the facts or
impressions an advertiser wants to convey to potential customers. The choice of message is
an important reflection of the way the company sees its products and services and the way it
wants them to be seen by customers. Country of origin products often serve as an important
part of the advertising message. The medium is the communication channel used by the
advertiser to convey the message.
The marketing manager of an international company must change the media used to
convey its message from market to market based on availability, legal restrictions, standard
of living, literacy rates, national market uniformity culture, and other factors. The country's
level of economic development can also affect the company's media used. In many less
developed countries, television ownership may be limited and literacy levels low. This
eliminates television, newspapers and magazines as useful advertising media but adds to the
importance of radio. Legal restrictions may also require the use of certain media. Companies
must also decide whether advertising for products or services can be the same everywhere or
must be customized for each local market that serves the company.
The second element of the promotional mix is personal selling, which makes sales
based on personal contact. The use of sales representatives, who call potential customers and
try to sell their company's products or services, is the most common approach to personal
selling. Because of the close relationship between sellers and potential customers, sellers tend
to rely on host-country nationals to serve as their representatives. Companies that hire local
sales representatives can be fairly confident that people understand the local culture, norms,
and customs. Selling in person promotes the product more closely and builds personal contact
with customers. Customers see real people and come to associate personal contact with the
company. Selling in person makes it easier for the company to gain valuable market
information.
Knowledgeable sales representatives are a good source of information that can be
used to develop new products and/or improve existing products for the local market. On the
other hand, personal selling is a relatively high-cost strategy. Each sales representative must
be adequately compensated even though each may reach relatively few customers. An
industrial product sales representative, for example, may need a full day or more to see just
one potential customer. After the sale is closed, the sales representative may still feel the need
to spend more time with the customer to explain how things work and try to generate new
business. Most larger international companies also find it necessary to set up regional sales
offices staffed by sales managers and other support personnel, which adds even more sales-
related costs.
Sales promotion activities are focused on wholesalers and retailers and are designed to
increase the number and commitment of intermediaries working with the company. Sales
promotion activities may be targeted to a narrow range of consumers or offered for a short
period of time before being phased out or replaced by more permanent efforts. The flexible
nature of sales promotions makes them customized marketing campaigns to fit local customs
and circumstances.
The impact of good public relations is difficult to measure, but over time a positive
international company image and reputation will benefit the company in the host country.
Good public relations can also help a company when it has to negotiate with the host country
government for zoning permits or operating licenses or when it encounters a crisis or
unfavorable publicity.
DISTRIBUTION POLICY IN INTERNATIONAL MARKETING:
Distribution is the process of getting products and services from the company into the hands
of customers. An international company faces two important sets of distribution issues:
a)
physically transports its goods and services from where they are created to the various
markets where they are for sale;
b)
choose the means by which the goods in those markets are to be served.
Distribution managers of international companies must address the most obvious issue
of choosing the mode of transportation for the delivery of the company's goods from their
point of origin to their destination. This choice entails a clear trade-off between time and
money. Fast modes of transportation, such as air freight are more expensive than slower
modes. The mode of transportation chosen affects the company's inventory costs and
customer service levels, as well as product damage and packaging requirements. Air freight
scores high on each of these dimensions, while ocean freight has a very low rating. If a
company relies on slow modes, it can maintain inventory levels at the point of sale only by
maintaining higher levels of in-transit inventory. If the company chooses that mode, it will be
difficult to predict when the shipment will actually arrive.
Distribution channels can consist of as many as four basic parts:
a)
the producer who creates the product or service,
b)
wholesalers who buy products and services from manufacturers and then resell them to
retailers,
c)
retailers who buy from wholesalers and then sell to customers,
d)
actually customers, who purchase products or services for final consumption.
One important factor is channel length, the number of stages in the distribution
channel. A company that sells directly to customers, who then pay for the business directly
(bypasses wholesalers and retailers) and therefore has a very short distribution channel. This
approach is called direct sales because the company is dealing directly with end consumers.
A slightly longer distribution channel involves selling to retailers, who then market and sell
the product to customers. This is easiest to do when the retailers in the market are highly
concentrated. When there are relatively few large retailers, selling directly to each one is
easier for the manufacturer; when there are a large number of small retailers, selling to each
one is more complex.
The longest distribution channel involves the use of wholesalers. Wholesalers are
separate businesses that buy from manufacturers and then sell to retailers or, in some cases, to
other wholesalers. The use of wholesalers makes it easier to market in countries with little
retail concentration and also allows companies to maintain smaller sales staff. On the other
hand, profit margins tend to be smaller because there are more businesses involved, each of
which expects to make a profit. Rather than keeping all the profits to themselves, as in the
case of direct sales, a company has to share with wholesalers and retailers.
SUMMARY
Marketing is the process of planning and executing the conception, pricing, promotion
and distribution of ideas, goods and services in order to make exchanges that fulfill individual
and organizational goals. International marketing is marketing whose operations cross the
boundaries of more than one country.
The stages of becoming an international marketing company are: no foreign
marketing, infrequent foreign marketing, regular foreign marketing, global marketing
operations.
International marketing managers must address four issues: how to develop the
company's products, how to price those products, how to sell those products, and how to
distribute the company's products to customers. These elements are collectively known as the
marketing mix and are referred to as the Four Ps: product, price, promotion, and place.
Standardization allows companies to achieve and maintain manufacturing,
distribution and promotion efficiencies and simpler, more efficient operations. However,
companies may suffer lost sales if products fail to meet the unique needs of customers in the
market. Customization allows companies to tailor products to meet the needs of customers in
each market, although companies may sacrifice cost efficiency by doing so.
Standardization focuses on the cost side of the profit equation; by controlling costs,
the company's profits are increased. Customization focuses on the revenue side of the profit
equation; by presenting unique customer needs in each market, the company is able to charge
higher prices and sell more goods in each market.
A key product policy decision facing international marketers is the extent to which
their company's products should be standardized in the market or customized within
individual markets. One of these is the nature of the product, the target customer, the
industrial user or the individual consumer.
An international firm with a geocentric approach to its international marketing will
adopt a standard pricing policy, where the firm charges the same price for its products and
services regardless of where they are sold or the nationality of the customer. An international
company that follows an ethnocentric marketing approach will use a two-tiered pricing policy
where the company sets one price for all domestic sales and a second price for all
international sales. An international company that follows a polycentric approach to its
international marketing will use a market price policy.
Market prices are the most complex. Companies use market pricing to change prices
on a market-by-market basis to maximize profits in each market.
Promotion, the third P of the international marketing mix, includes all efforts by an
international company to increase the desire for its products among potential buyers. Since
promotion depends on communication with audiences in the host country, culture is a
concern in promotion. The international promotion mix includes advertising, personal selling,
sales promotion, and public relations.
Distribution managers of international companies must address the most obvious issue
of selecting the mode of transportation for the delivery of the company's goods from their
point of origin to their destination. Distribution channels can consist of as many as four basic
parts:
a)
the producer who creates the product or service,
b)
wholesalers who buy products and services from manufacturers and then resell them to
retailers,
c)
retailers who buy from wholesalers and then sell to customers,
d)
actual customers, who purchase products or services for final consumption. One important
factor is channel length, the number of stages in the distribution channel.
