International Management

Chapter Six

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Learning Objectives

LO1 Discuss what integration of the global economy means for individual companies and their managers

LO2 Describe how the world economy is becoming more integrated than ever before

LO3 Define the strategies organizations use to compete in the global marketplace

LO4 Compare the various entry modes organizations use to enter overseas markets

LO5 Explain how companies can approach the task of staffing overseas operations

LO6 Summarize the skills and knowledge managers need to manage globally.

LO7 Identify ways in which cultural differences across countries influence management

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Implications of a Flat World

1. Expansion of international trade2. Foreign direct investment (FDI) is playing an

ever-increasing role in the global economy3. Imports are penetrating deeper into the

world’s largest economies4. Companies are finding their home markets

under attack from foreign competitors

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Implications of a Flat World

Opportunities are greaterEnvironment is more complex and

competitive

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The Role of Outsourcing

Outsourcing Contracting with an

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

Offshoring Moving work to

other countries.

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Factors to Consider for Offshoring

What is the competitive advantage of the products they offer?

Is the business in its early stages?Can production savings be achieved locally?Can the entire supply chain be improved?

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The Global Environment

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

Other developing countries and regions represent important areas for economic growth

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Key Issues of the GlobalEnvironment

Table 6.1

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European Unification

Europe is integrating economically to form the biggest market in the world

Certain structural issues within Europe need to be corrected for the EU to function effectively.

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Other Pacts

North American Free Trade Agreement (NAFTA) An economic pact that combined the economies of

the United States, Canada, and Mexico into one of the world’s largest trading blocs

Asia-Pacific Economic Cooperation Pact (APEC) A loose economic affiliation of Southeast Asian Far

Eastern nations. The most prominent members are China, Japan, and Korea

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Organizational Models

Figure 6.5

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Choosing a Global Strategy

International model composed of a company’s overseas subsidiaries and

characterized by greater control by the parent company over the research function and local product and marketing strategies than in the multinational model.

Multinational model consists of the subsidiaries in each country in which

a company does business and provides a great deal of discretion to those subsidiaries to respond to local conditions

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Choosing a Global Strategy

Global model consists of a company’s overseas subsidiaries and

characterized by centralized decision making and tight control by the parent company over most aspects of worldwide operations

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Choosing a Global Strategy

Transnational model characterized by centralizing certain functions in

locations that best achieve cost economies basing other functions in the company’s national

subsidiaries to facilitate greater local responsiveness

fostering communication among subsidiaries to permit transfer of technological expertise and skills.

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Comparison of Entry Modes

Table 6.2

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Exporting

Advantages of exporting:Provides scale economies by avoiding the

costs of manufacturing in other countries Consistent with a pure global strategy

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Licensing

International licensing an arrangement by which a licensee in another

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

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Franchising

Franchising the company sells limited rights to use its brand

name to franchisees in return for a lump-sum payment and a share of the franchisee’s profits.

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Joint Ventures

Joint ventures benefit a company through: the local partner’s knowledge of the host

country’s competitive conditions, culture, language, political systems, and business systems

the sharing of development costs and/or risks with the local partner.

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Managing across Borders

Expatriates Parent-company nationals who

are sent to work at a foreign subsidiary

Host-country nationals Natives of the country where an

overseas subsidiary is located Third-country nationals

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

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Stressors and Coping Responses in the Developmental Stages of Expatriate Executives

Table 6.3

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Skills of the Global Manager

15% of all employee transfers are to international locations

Failure rate ranges from 20%-70%Failure rate

the number of expatriate managers of an overseas operation who come home early

communication is key to reducing the failure rate

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Identifying International ExecutivesTable 6.4

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How to Prevent Failed Global Assignments

Table 6.5

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Understanding Cultural Issues

Ethnocentrism The tendency to

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

Culture shock The disorientation

and stress associated with being in a foreign environment.

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Understanding Cultural Issues

Power distance the extent to which a

society accepts the fact that power in organizations is distributed unequally

Individualism/collectivism the extent to which

people act on their own or as a part of a group.

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Understanding Cultural Issues

Uncertainty avoidance the extent to which

people in a society feel threatened by uncertain and ambiguous situations.

Masculinity/femininity the extent to which a

society values quantity of life over quality of life

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Positions of 40 Countries on the Power Distance and Individualism Scales

Figure 6.6

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Understanding Cultural Issues

Inpatriate A foreign national

brought in to work at the parent company.

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Understanding Cultural Issues

International workers may have different preconceptions about the nature and length of meetings, and managers should make sure foreign nationals are comfortable with the local approach.

Workers from other countries can work long hours but, in countries with strong labor organizations, often get many more weeks of vacation.

Europeans in particular may balk at working on weekends.