Course Code: MGT-3201

Course Title: International Management

Topic
Class Test-4

Submitted to:
Dr. Sumayya Begum
Associate Professor
Department of Business Administration in Management Studies
Bangladesh University of Professionals

Submitted by:
Ummea Sahera Noumi
ID-18241108
Section: B
Session 2018-2019

Department of Business Administration in Management Studies

Faculty of Business Studies
Bangladesh University of Professionals
Date of Submission: 29, October 2020
 Review Questions from Chapter-8
Question-1. Of the four imperatives discussed in this chapter— economic, political, quality,
and administration— which would be most important to IBM in its efforts to make inroads
in the Pacific Rim market? Would this emphasis be the same as that in the United States,
or would IBM be giving primary attention to one of the other imperatives? Explain.
Answer:
Four imperatives such as economic, political, quality and administration are discussed
below:
We know that there are four imperatives or common approaches to formulate and implementing
strategy. These are:
(1) Focusing on the economic imperative
(2) Addressing the political imperative
3) Emphasizing the quality imperative
(4) Implementing an administrative coordination strategy
These imperative are discussed as bellows:
1. Economic imperative:
Economic imperative employ a worldwide strategy based on cost leadership, differentiation, and
segmentation. MNCs also focus on it. Middle managers are the key to stimulating profit growth
within a company, so expanding economic imperative efforts on an international level is a
necessary tool to learn for today’s new managers. The strategy is also used when the product is
regarded as a generic good and therefore does not have to be sold based on name brand or
support service. A good example is the European PC market. Initially, such well-known
companies as IBM, Apple, and Compaq dominated this market. However, more recently, clone
manufacturers have begun to gain market share. This is because the most influential reasons for
buying a PC have changed. A few years ago, the main reasons were brand name, service, and
support. Today, price has emerged as a major input into the purchasing decision. Customers now
are much more computer literate, and they realize that many PCs offer identical quality
performance. Therefore, it does not pay to purchase a high priced name brand when a lower-
priced clone will do the same things. As a result, the economic imperative dominates the
strategic plans of computer manufacturers. This process has repeated in many industries as those
products become commoditized. Another economic imperative concept that has gained
prominence in recent years is global sourcing, which is proving very useful in formulating and
implementing strategy.
2. Political Imperative:
MNCs using the political imperative approach to strategic planning are country-responsive; their
approach is designed to protect local market niches. The products sold by MNCs often have a
large portion of their value added in the downstream activities of the value chain. Industries such
as insurance and consumer packaged goods are examples of this imperative. The success of the
product or service generally depends heavily on marketing, sales, and service. Typically, these
industries use a country-centered or multi-domestic strategy.

3. Quality imperative
Strategic formulation and implementation utilizing strategies of total quality management to
meet or exceed customers’ expectations and continuously improve products or services. A
quality imperative takes two interdependent paths: (1) a change in attitudes and a raising of
expectation for service quality and (2) the implementation of management practices that are
designed to make quality improvement an ongoing process. Commonly called total quality
management, or simply TQM, the approach takes a wide number of forms, including cross-
training personnel to do the jobs of all members in their work group, process reengineering
designed to help identify and eliminate redundant tasks and wasteful effort, and reward systems
designed to reinforce quality performance. TQM covers the full gamut, from strategy
formulation to implementation. Many MNCs make quality a major part of their overall strategy
because they have learned that this is the way to increase market share and profitability TQM can
be summarized as follows:
1. Quality is operationalized by meeting or exceeding customer expectations. Customers include
not only the buyer or external user of the product or service but also the support personnel both
inside and outside the organization who are associated with the good or service.
2. The quality strategy is formulated at the top management level and is diffused throughout the
organization. From top executives to hourly employees, everyone operates under a TQM strategy
of delivering quality products or services to internal and external customers. Middle managers
will better understand and implement these strategies if they are a part of the process.
3. TQM techniques range from traditional inspection and statistical quality control to cutting-
edge human resource management techniques, such as self-managing teams and empowerment.
4. Administrative coordination
Strategic formulation and implementation in which the MNC makes strategic decisions based on
the merits of the individual situation rather than using a predetermined economically or
politically driven strategy. An administrative coordination approach to formulation and
implementation is one in which the MNC makes strategic decisions based on the merits of the
individual situation rather than using a predetermined economic or political strategy. A good
example is provided by Walmart, which has expanded rapidly into Latin America in recent years.
While many of the ideas that worked well in the North American market served as the basis for
operations in the Southern Hemisphere, the company soon realized that it was doing business in
a market where local tastes were different and competition was strong.
The most important imperative to IBM in its efforts to make inroads in the Pacific Rim
market are:
In efforts to make inroads in the Pacific Rim market IBM is most likely to give main attention to
the economic imperative. In the Pacific Rim market, computers are beginning to be regarded as a
generic good. In years past, customers in this market made a computer purchase decision based
on things such as brand name, service, and support. Today, however, price has emerged as a
major purchasing criterion because people are finding that they do not need to purchase a
particular brand name to receive excellent quality.

The emphasis to be in the United States by IBM as primary:

In the United States as well as the Pacific Rim markets, IBM uses a combined approach to
strategic planning. IBM might use the economic imperative if it has a strong market in a certain
country. If the market needs a calculated response, IBM can use a political or quality strategy.
IBM can use the administrative imperative if rapid flexible decision-making is required to make
a deal. Because of the need to coordinate strategy both globally and regionally, IBM would use
this economic imperative to emphasize in the U.S market as well along with political imperative
because these two imperatives would coordinate well regionally and globally.

Question 3. Some international management experts contend that globalization and

national responsiveness are diametrically opposed forces, and that to accommodate one, a
multinational must relax its efforts in the other. In what way is this an accurate statement?
In what way is it incomplete or inaccurate?
Answer:
Ways of being the statements an accurate statement or an incomplete or inaccurate one:
From my opinion globalization and national responsiveness are not diametrically opposed forces,
and that to accommodate one, a multinational need not to relax its efforts in the other.
We can get the solution considering the Global integration and National responsiveness matrix.
This statement is inaccurate in the sense that a firm can perform the balancing act of
concentrating on both responsiveness simultaneously using transnational strategy. This type of
firm would be in quadrant three of the matrix shown as bellows:
 National Responsiveness
Low High
1. 3.

Global Strategy Transnational Strategy

Global Integration
2. 4.

International Strategy Multi Domestic Strategy

Fig: Global integration and National Responsiveness

1. Global strategy:
Global Strategy is the integrated strategy based primarily on price competition. A good example
of this is Sony, which has standardized many aspects of its operations and marketing over the
years. A few years ago, Sony, along with Hitachi, Panasonic, Philip, and Samsung, among
others, worked to standardize the high-definition optical disc industry under the Blu-ray format.
Sony’s strong distribution network, coupled with its globally popular PlayStation 3 gaming
console, allowed the company to push the use of the Blu-ray format across markets all over the
world. As a result, sales of Blu-ray format discs were able to outpace those of competitor HD-
DVD, giving Sony a major advantage in the high-definition disc industry.

2. International strategy
It is a mixed strategy combining low demand for integration and responsiveness. This situation
can lead to lower needs for centralized quality control and centralized strategic decision making
while eliminating requirements to adapt activities to individual countries. This strategy is
decreasingly employed as most industries and products face one or both pressures for global
integration and local responsiveness. Nonetheless, companies may experience a temporary phase
in this quadrant, but the standards lie in the other three.

3. Transnational strategy:
It is an integrated strategy emphasizing both global integration and local responsiveness. In
quadrant 3, the needs for integration and differentiation are high. There is a strong need for
integration in production along with higher requirements for regional differentiation in
marketing. MNCs trying to simultaneously achieve these objectives often refer to them as
transnational strategy. Quadrant 3 is the most challenging quadrant and the one where successful
MNCs seek to operate. The problem for many MNCs, however, is the cultural challenges
associated with localizing a global focus.
One good example of a transnational company is Monsanto. Monsanto offers a very diverse line
of hybrid seeds to the agricultural industry. Hybrid seeds are genetically modified seeds, which
are sterile and must be purchased at the beginning of each season for the specified crop.
Monsanto’s operations, include finding new ways to differentiate its product to best fit the
surrounding market. The company offers products, which can withstand the various
environments and climates of its global customers, from herbicide and insect resistant strains to
drought tolerance.
4. Multi-domestic strategy
It is a differentiated strategy emphasizing local adaptation. This quadrant is referred to as multi-
domestic strategy. In this case, niche companies adapt products to satisfy the high demands of
differentiation and ignore economies of scale because integration is not very important. An
example of this is Philips, which provides medical equipment to doctors worldwide. As
diagnoses become more complex, Philips has to find new innovative ways to simplify the
machines used by doctors so that they can spend more time with patients. Yet the medical
systems of each country are so different that products must be adapted and adjusted to the
particular medical environment. Philips recently sought out opinions from board members, and
even asked for participation of fashion designers, to better understand different strategic
methods. By using this multidimensional information pool, Philips is moving toward offering
even, more differentiated products.
From the above discussion, we can conclude that transnational strategy can collaborate both
global and local responsiveness. We can say that, at present the statement of international
management experts regarding globalization and national responsiveness of being diametrically
opposed forces is not applicable. Because using transnational strategy we can integrate them
using transnational strategy and to accommodate one, a multinational need not to relax its efforts
in the other.
 Review Questions Chapter -9

1. One of the most common entry strategies for MNCs is the joint venture. Why are so
many companies opting for this strategy? Would a fully owned subsidiary be a better
choice?

Answer:

Reasons for opting joint venture strategy by MNCs:

A joint venture (JV) can be considered a specific type of alliance agreement under which two or
more partners own or control a business. An alliance is any type of cooperative relationship
among two or more different firms. An international joint venture (IJV) is a JV composed of two
or more firms from different countries. Alliances and joint ventures can take a number of
different forms, including cross-marketing arrangements, technology-sharing agreements,
production-contracting deals, and equity agreements. In some instances, two parties may create a
third, independent entity expressly for developing a collaborative relationship outside their core
operations. Just like mergers and acquisitions, alliances and joint ventures can pose substantial
managerial challenges.

There are two types of alliances and joint ventures. These are:
i. Non-equity Venture
ii. Equity Venture

Non-equity Venture:

The nonequity venture is characterized by one group’s merely providing a service for another.
The group providing the service typically is more active than the other is. Examples include a
consulting firm that is hired to provide analysis and evaluation and then make its
recommendations, an engineering or construction firm that contracts to design or build a dam or
Series of apartment complexes in an undeveloped area of a partner’s country, or a mining
Firm that has an agreement to extract a natural resource in the other party’s country.

Equity Venture

The equity joint venture, involves a financial investment by the MNC parties involved. Many
variations of this arrangement adjust the degree of control that each of the parties will have and
the amount of money, technological expertise, and managerial expertise each will contribute to
the JV.
Most MNCs are more interested for keeping control over the venture rather than their share of
the profits. Similarly, local partners feel the same way, which can result in problems.
Nevertheless, alliances and joint ventures have become very popular in recent years because of
the significant operational benefits they offer to both parties. Some of the most commonly cited
advantages include:

1. Improvement of efficiency. The creation of an alliance or JV can help the partners achieve
economies of scale and scope that would be difficult for one firm operating alone to accomplish.
Additionally, the partners can spread the risks among themselves and profit from the synergies
that arise from the complementary resources.

2. Access to knowledge. In alliances and JVs, each partner has access to the knowledge and
skills of the others. So one partner may bring financial and technological resources to the venture
while another brings knowledge of the customer and market channels.

3. Mitigating political factors. A local partner can help deal with political risk factors such as a
hostile government or restrictive legislation.

4. Overcoming collusion or restriction in competition. Alliances and JVs can help partners
overcome the effects of local collusion or limits being put on foreign competition by becoming
part of an “insider” group

Alliances and JVs are proving to be particularly popular as a means for doing business in
emerging-market countries. Alliance and JV partners often complement each other and thus
reduce the risks associated with their operations and enter a foreign market. A good example is
European truck manufacturing and auto component industries. Firms in both groups have found
that the high cost of developing and building their products can be offset through joint ventures.

For the above mentions reasons so many companies opting for this joint venture strategy

A fully owned subsidiary be a better choice or not:

A fully owned subsidiary is a desirable form of ownership when the MNC has total control, and
the firm believes that managerial efficiency will be higher if there are no outside partners.
However, many MNCs are opting for joining ventures because the host countries often feel that
the MNC is trying to gain economic control by setting up local operations but refusing to take in
local partners. They also fear that the MNC will drive out local enterprises. Joint ventures allow
for the sharing of investments and risk by the host country and the MNC.

If the risks included in the business is low then it will be better to form a fully owned
subsidiary as it will enable the company to earn as much as revenue as possible. But in the
riskier business environments, it will be even wiser to form a joint venture where both the
companies can share their joint expertise and also deal with the associated risks.
2. A small manufacturing firm believes there is a market for handheld tools that are
carefully crafted for local markets. After spending two months in Europe, the president of
this firm believes that his company can create a popular line of these tools. What type of
organization structure would be of most value to this firm in its initial efforts to go
international?
Answer:
The organization structure that would be of most value to this firm in its initial efforts to go
international is:

As being a local handheld tool company, to reach out at the international market, the
company should adopt an ‘Initial Division Structure.
Some of the main reasons for those are bellowed:
 Subsidiary:
Many firms make their initial entry into international markets by setting up a subsidiary or
exporting locally produced goods or services. A subsidiary is a typical organizational
arrangement for handling finance-related businesses or other operations that require an on-site
presence from the start.
 Export Arrangement:

Usually, an ‘export arrangement’ is considered one of the first choices for companies in this
structure, enabling the firm to charge a premium price because of the new business
marketplace's lack of competitors. In recent years, many service organizations have begun
exporting their expertise. Examples include architectural services, legal services, advertising,
public relations, accounting, and management consulting. Research and development firms also
fall into this category, exporting products that have been successfully developed and marketed
locally.

 Product line

Export managers also work on product lines. If the company has a narrow product line, the
export manager usually reports directly to the head of marketing, and this department coordinates
international operations. If the firm has a broad product line and intends to export several
different products into the international market, the export manager will head a separate
department and often report directly to the president. These two arrangements work well as long
as the company has little competition and uses international sales only to supplement domestic
efforts.

 Reducing risks
The export arrangement allows the firm to reduce the risk and size of investment in establishing
significant international operations while at the same time testing the size of international
markets.

 Dealing with pressure:

If overseas sales continue to increase, local governments often exert pressure in these growing
markets for setting up on-site manufacturing operations. A good example is the General Motors-
Shanghai Automotive Industry Group (SAIC) joint venture in China mentioned earlier, in which
a large percentage of all parts are made locally. Additionally, many firms find themselves facing
increased competition in the foreign market. Establishing foreign manufacturing subsidiaries can
help the MNC deal with both of these pressures.

 Making Product More Competitive

The overseas plants show the government that the firm wants to be a good local citizen. At the
same time, these plants help the MNC significantly reduce transportation costs, making the
product more competitive. This new structural arrangement often takes a form similar to that
shown in the Figure below. Each foreign subsidiary is responsible for operations within its
geographic area, and the head of the subsidiary reports either to a senior executive.

Now, let us consider the general characteristics of the local manufacturing company. We can
see that because of the simplicity in the organization hierarchy, the country will be easily
able to start their operations abroad and get initial success.

Figure: A proposed figure of the company according to the initial Division Structure