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Chapter 06 - International Management
chapter
6
International Management
CHAPTER CONTENTS
Learning Objectives 2
Class Roadmap 4
Bottom Line 12
Social Enterprise 13
Lecturettes 14
Discussion Questions 18
Experiential Exercises 21
Concluding Case 23
Examples 25
Supplemental Features 28
Chapter Video 28
Self-Assessment 32
6-1
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Education.
Chapter 06 - International Management
LEARNING OBJECTIVES
6-2
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Education.
Chapter 06 - International Management
Students have very practical questions about international management - they want to know:
While every industry is different, you can offer students the following advice:
An article in Business Week outlines the skills that programmers need to find a job in the
United States.1 It seems that technical skills aren‘t enough anymore. In order to be success-
ful, programmers also have to show that they can lead and manage teams, think strategically,
and become software architects, not just the implementers of someone else‘s vision.
Most managers today don‘t really have the choice of whether or not to take a business global
- as soon as they post their first corporate website, they are doing global marketing. What
companies do have, however, is a choice about whether or not to target global markets over
domestic ones. James F. Foley has written a book entitled The Global Entrepreneur, which
discusses some of the reasons why companies decide to go global, including:
o accessing markets beyond their domestic territory
o avoiding a changing domestic environment, especially decreasing customer bases
or when selling seasonal items
o lowering costs
o a strategic plan to increase global brand awareness, achieve worldwide distribu-
tion and manufacturing capacity, and exploit extranational economies of scale
and experience effects.2
1
Baker, S. and Kripalani, M. “Software:Will Outsourcing Hurt America‟s Economy?” Business Week, March 1, 2004, Online at
http://www.businessweek.com/magazine/content/04_09/b3872001_mz001.htm
2
Foley, J. The Global Entrepreneur. Dearborn Trade, 1999.
6-3
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Education.
Chapter 06 - International Management
CLASS ROADMAP
Management in Action
How Lenovo Is Becoming a Global Brand
A few years ago, Lenovo was barely known outside China, but today it is ―the first Chinese
global consumer brand,‖ according to the Wall Street Journal. Lenovo is the world‘s largest PC
maker and competes directly with HP in computers and servers.
Selling computers in China‘s huge and fast-growing market gave Lenovo the capital it needed to
expand. After a Western manager stumbled at the head of Lenovo‘s laptop business, the compa-
ny turned to Yang Yuanqing, a former salesperson who had risen through the ranks, and Lenovo
cofounder Liu Chuanzhi. They developed the strategy of selling first in fast-growing markets
(China, India, Russia, and Brazil) and using the revenues to enter countries with established
markets.
Lenovo‘s strategic challenge is whether the products and processes that enable it to meet the
needs of developing economies will translate well to the needs of consumers in other parts of the
world.
LO 1: Discuss what the integration of the global economy means for individual companies and their
managers.
E.G.
Use Example 6.1 – Global environment here
6-4
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Education.
Chapter 06 - International Management
LO 2: Describe how the world economy is becoming more integrated than ever before.
A. European Unification
1. European Union (EU) will allow goods, services, capital, and human resources to
flow freely across national borders.
2. Unification will create a more competitive Europe.
3. The United States must remain vigilant to ensure that a Fortress Europe does not
close itself to U.S. goods and services.
1. Japan dominated world attention toward the end of the last century.
2. China has now surpassed Japan and Mexico, becoming America‘s second largest
trading partner. (Exhibit 6.5)
E.G.
Use Example 6.2 – Global economy consequences here
C. The Americas
1. North American Free Trade Agreement (NAFTA) is an economic pact that com-
bined the economies of the United States, Canada, and Mexico into the world‘s larg-
est trading bloc.
2. Industries that have benefited in the short run include capital-goods suppliers, manu-
facturers of consumer durables, grain producers and distributors, construction equip-
ment manufacturers, the auto industry, as well as the financial industry.
1. Middle East, Africa, and Latin America comprise a major share of the world‘s natural
resources and are among the fastest-growing economies.
6-5
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Education.
Chapter 06 - International Management
1. The international model is designed to help companies exploit their existing core capabilities
to expand into foreign markets.
a. The advantage of this model is that it facilitates the transfer of skills and know-how from
the parent company to subsidiaries around the globe.
b. One disadvantage of the international model is that it does not provide maximum latitude
for responding to local conditions.
2. The multinational model uses subsidiaries in each country in which the company does busi-
ness, and provides a great deal of discretion to those subsidiaries to respond to local condi-
tions.
a. One advantage of allowing local responsiveness is that there is less need for coordination
and direction from corporate headquarters.
b. A major disadvantage of this model is higher manufacturing costs and duplication of ef-
fort.
3. The global model is designed to enable a company to market a standardized product in the
global marketplace and to manufacture that product in a limited number of locations where
the mix of costs and skills is most favorable.
a. Companies that adopt the global model tend to become the low-cost players in any indus-
try.
b. On the downside, because a company pursuing a purely global approach tries to standard-
ize its products and services, it may be less responsive to consumer tastes and demands in
different countries.
6-6
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Education.
Chapter 06 - International Management
E.G.
Use Example 6.3 – Global strategy systems here
Management in Action –
Progress Report
A primary challenge of Lenovo‘s strategy to build outward from China is that selling in a developing
economy requires high efficiency and low prices, while selling high-tech products requires constant inno-
vation, which can be expensive. CEO Yang Yuanqing and vice president Gerry Smith settled on an ap-
proach they believed could accomplish both goals: manufacturing at its own facilities, located in key
markets.
• Where in this example do you see pressures for global integration?
• Where do you see pressures for local responsiveness?
The primary source of pressure for global integration would be the pressure to reduce costs for the devel-
oping markets. Pressures for local responsiveness involve differences in consumer tastes. In developed
economies, consumers are looking for electronic devices that are exciting, not just functional, whereas
low price drives more sales in developing markets.
• Which global strategy (international, multinational, global, or transnational) do you think is most ap-
propriate for Lenovo? Why?
Answers will vary but should reflect an understanding of the four global strategies presented in Figure
Exhibit 6.6. Based on the description in the case, Lenovo seems to be aiming for a transnational strategy
with manufacturing facilities located to enable local responsiveness, while coordination mechanisms keep
the local operations aligned with Lenovo‘s growth strategy.
LO 4: Compare the various entry modes organizations use to enter overseas markets
A. Exporting
B. Licensing
6-7
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Education.
Chapter 06 - International Management
1. An arrangement whereby a licensee in another country buys the rights to manufacture a com-
pany‘s product in its own country for a negotiated fee.
C. Franchising
2. The company sells limited rights to use its brand name to franchisees in return for a lump-
sum payment and a share of the franchisees‘ profits.
E.G.
Use Example 6.4 – Difference between franchising and licensing here
D. Joint ventures
E.G.
Use Example 6.5 – Joint ventures here
6-8
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Education.
Chapter 06 - International Management
E.G.
Use Example 6.6 – Cultural differences here
1. Failure rate is the number of expatriate managers of an overseas operation that come
home early. Failure can be prevented by:
a. structuring assignments clearly
b. creating clear job objectives
c. developing performance measurements based on objectives
d. using effective, validated selection and screening criteria
e. preparing expatriates and families for assignments
f. creating a vehicle for ongoing communication
g. using repatriation to facilitate reentry
h. developing a mentor program that will help in case of trouble (Exhibit 6.11)
6-9
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Education.
Chapter 06 - International Management
E.G.
Use Example 6.7 – Multidimensional perspective here
1. Culture shock is the disorientation and stress associated with being in a foreign envi-
ronment.
According to the results of a survey of working Millennials from six countries, the answer is yes.
PricewaterhouseCoopers asked early career employees the following question: ―Thinking of
working outside your home country, do you agree/disagree that\you need international experi-
ence to further your career?‖ A large majority of Millennial respondents from emerging econo-
mies, Brazil, China and India view international experience as important for their career. In con-
trast, just over half of respondents from the United States and Germany, both developed econo-
mies, think international experience will benefit their careers.
4. When working with foreign nationals, it is important to explain U.S. cultural norms
with regard to:
a. Holding meetings
b. Work schedules
c. E-mail
d. Fast-trackers
e. Feedback
E.G.
Use Example 6.8 – Working with foreign nationals here
6-10
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Education.
Chapter 06 - International Management
2. Ch. 5 identified several steps companies can take to enforce ethical behavior. In a for-
eign context these activities must be carried out with employees in any subsidiary,
franchise, or other company operation.
3. Most people embrace five core values, regardless of religion or nationality:
a. compassion
b. fairness
c. honesty
d. responsibility
e. respect for others
Management in Action –
Onward
Lenovo‘s strategy requires managers who understand local markets and can run efficient manufacturing
operations. Lenovo meets the need with a combination of host-country and third-country nationals. R&D
in China enables the company to innovate with products that will please the developing markets where
Lenovo launches new products. In the United States, CEO Yang Yuanqing is patiently building the
brand‘s reputation over the long run.
• What advantages does Lenovo have from its choice of entry modes?
By selling products manufactured in its own strategically located facilities, Lenovo should experience
scale economies and keep engineering and production aligned with its global strategy. On the downside,
exporting can involve high transportation costs and tariff barriers. But because Lenovo is headquartered
in China and launches products in developing nations, it avoids the disadvantage of manufacturing in
high-cost areas.
• What cultural issues should an American-born manager at Lenovo be prepared to handle?
An American-born manager at Lenovo will be working for a company whose executives are Chinese.
Therefore, this manager will encounter differences in executives‘ history, language, geography, social
conditions, and perhaps race and religion. Conversational practices also differ between China and the
United States. To succeed, the manager should be aware of his or her own cultural norms and practices, as
well as those of Lenovo‘s Chinese leadership.
6-11
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Chapter 06 - International Management
BOTTOM LINE
p. 195: Why might innovation be important for a U.S. company in a global market?
Answers will vary. The previous section gave one hint, however, and that is the higher cost of labor in the
United States relative to many parts of the world. A company operating in the United States may need to
excel in technology, entrepreneurship, and innovation in order to compete with low-cost businesses else-
where.
p. 201: What is one way in which a global strategy can help reduce costs?
A company can enjoy economies of scale from making large quantities of standardized products for sale
in many countries. It can locate production in a few facilities where its costs (including production and
transportation) are optimal.
p. 202: Give an example of a product for which quality standards would apply globally.
Answers will vary. Students should think of widely valued products. The text refers to IBM (computers),
Xerox (office equipment), Kellogg (breakfast cereal), Coca-Cola (soft drinks), and others.
p. 203: What kind of product might experience rapid changes in local demand?
Answers will vary. Logical choices would include products for which weather affects demand, as well as
fashion-driven products such as clothing, which could quickly go in and out of style.
p. 204: Could this model apply to a jewelry company? If so, how? If not, why not?
Students should give a reason for either answer. A jewelry company that specializes in high-end or hand-
crafted jewelry might not want to use this global model, even though it drives down costs, because its
customers don‘t want a standardized product and don‘t mind paying a premium. But a maker of costume
jewelry or jewelry for children might embrace a global model.
p. 205: Does that mean the transnational model is always best? Why or why not?
No. The transnational model is the best strategy if the company faces high pressures for both global inte-
gration and local responsiveness. In some cases, a company is more likely to succeed with a standardized
product or with attention to the particular needs of each individual buyer.
p. 210: How might training an expatriate manager differ from training a local manager?
An expatriate manager is likely to need more training in cultural differences and business practices of the
host country, including the needs and values of local customers. A local manager, especially in countries
where the economy is less developed, may need more training in general management skills and in the
company‘s organizational culture and principles.
6-12
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Education.
Chapter 06 - International Management
SOCIAL ENTERPRISE
1. Of the three recent award-winning start-ups mentioned above, which do you find
most likely to succeed? Why?
Student answers will vary depending on the social entrepreneurship concept they like the
most. There should be a brief analysis on how this related to global management and the
likelihood that the company will succeed in today’s market.
2. The Hult Prize has been awarded to new social enterprises from all over the world.
Why do you think the competition has a global focus?
Social entrepreneurship, like many other facets of business, has become a global endeav-
or. Companies cannot just make a difference in one nation as they need to make a differ-
ence in the entire world based on the interconnectivity of global issues. For example, a
developed nation has certain resources that can help a poorer nation, and social entre-
preneurs need to make these connections.
6-13
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Education.
Chapter 06 - International Management
LECTURETTES
TRADE DEFICIT
1. There are many misunderstood economic statistics, but there is one that clearly stands out as the most
confusing: the trade deficit. No other number is interpreted so differently by professional economists
and the general public. It is thought that America‘s trade deficit exists either because of the skulldug-
gery and unfair trade practices of countries that shut out U.S. products, or because American compa-
nies are failing to compete against their global competitors. In either case, the preferred solution is
often to get tough in trade negotiations for the sake of protecting U.S. jobs.
2. The U.S. trade deficit rose from $56 billion in 1992 to $155 billion in 1997. The economic troubles
in East Asia prompted predictions that producers in those countries would flood U.S. markets with
imports while reducing their purchases of U.S. Exports, which could increase the 1998 trade deficit
by another $50 billion or more. However, as of September 2011, the U.S. trade deficit stood at $43.1
billion. What occurred to close this gap?
1. Part of the confusion about the trade deficit arises because the U.S. Department of Commerce reports
several versions of the trade deficit, and the differences among them can be tens of billions of dollars.
The biggest trade-deficit number, which was revised in June 1998 from $191 billion to $198 billion
for 1997, is calculated by taking America‘s exports of goods and subtracting America‘s imports of
goods. The fact that it is a deficit, rather than a surplus, means that imports of goods are $198 billion
larger than exports.
2. In the modern economy, it is surely too limited to consider goods only. In 1997, only 36 percent of
the U.S. gross domestic product (GDP) were goods, while 55 percent was services. (The rest is struc-
tures and changes in inventories.) Some services are obviously difficult to trade internationally: It‘s
not clear how one ships housecleaning or haircutting services overseas. But many services like fi-
nance, law, expert design, computer programming, and advertising can be and are traded internation-
ally. While the U.S. economy runs trade deficits in goods, it runs substantial and growing surpluses
in service trade.
The goods and services deficit is clearly a better measure of the trade deficit than goods taken alone.
There is no economic justification for arguing that goods like computers should be counted in the
trade statistics, while services like computer programming should not be, or that goods like cars
should be counted in the trade statistics, but the services of car advertising and providing loans to buy
cars should not be.
POPULAR MYTHS
1. Much popular thinking about the trade deficit is based on a few well-known facts about the United
States and Japan. The Japanese economy is more closed to trade than the U.S. economy. In certain
areas, Japanese firms have made considerable inroads into U.S. markets. Japan runs trade surpluses
while the United States has a trade deficit.
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Chapter 06 - International Management
2. If one is to believe that trade deficits occur because of how well U.S. firms match up to foreign com-
petition, then one must believe that the competitiveness of U.S. firms collapsed from 1981 to 1987,
surged back toward equality from 1987 to 1991, and has collapsed again since then. If one is to be-
lieve that trade deficits occur because of unfair trade practices then one must believe the following:
From 1981 to 1987, the rest of the world unfairly blocked U.S. exports; but, from 1987 to 1991, it al-
lowed free trade, only to retreat to gross unfairness during the last six years. Again, there is literally
no evidence that trade laws, whether here or abroad, have changed in the dramatic ways that would be
needed to explain what has actually occurred.
1. We must return to the question of what a trade deficit really is. All the items on the surplus side of
the current account balance—exports of goods and services, investment income received by U.S. in-
vestors who have capital abroad, and unilateral transfers to the United States—involve money flow-
ing from elsewhere into this country. Conversely, all the items on the deficit side of the current ac-
count balance involve money flowing abroad. It would be insufficient, however, simply to stop here.
Something else must be considered.
Money flowing out of the United States is in U.S. dollars; money that is earned by U.S. exporters—
say, when an American-built car is sold in Germany—is not originally received in U.S. dollars but,
instead, in foreign currencies. A U.S. company that earns foreign currency by exporting abroad will
seek to convert that money to U.S. dollars at the prevailing exchange rate, and then use those dollars
to pay off its American-based costs.
2. The U.S. trade balance can be viewed as a matter of comparing the amount of U.S. imports of goods,
services, investment income, and transfers—all paid in U.S. dollars—with the value of U.S. exports
of these items—all paid in the form of various world currencies—at the world‘s prevailing exchange
rates. Again, the trade deficit means that imports are larger, by $155 billion in 1997.
The existence of the $155 billion trade deficit in 1997 reveals that this many U.S. dollars were earned
and not traded for foreign currencies by foreign companies and investors. They apparently remained
in the form of U.S. dollars!
1. In a world without foreign trade, a nation can only consume what it produces. But in a world with
trade, a nation can borrow from abroad, use the money to consume more goods and services than it
currently produces, and promise to repay later. A nation like the United States, which does this, is
running a trade deficit and the amount of the trade deficit measures both the extra goods purchased
from abroad and the inflow of capital from abroad. Conversely, economies like Japan with trade sur-
pluses are producing more than they consume. They are taking the amount that they earn from pro-
ducing more than they consume and investing it abroad.
2. Thus a trade deficit means that a nation is receiving net investment from abroad. Equivalently, a
trade deficit means that a nation is consuming more than it is producing. Again equivalently, a trade
deficit means that a nation is investing more than its domestic savings. A trade surplus would reverse
these statements.3
3
Taylor, Timothy, “Untangling the Trade Deficit,” Public Interest, Winter 99 Issue, 134, p 82
6-15
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Education.
Chapter 06 - International Management
It‘s tough being an aggrieved consumer in Big Business-oriented Japan. Mitsubishi hid consumer com-
plaints in a company locker rather than turning them over to the government. Shareholders are angry
about Mitsubishi‘s cover-up and poor quality control. The company is accused of poor crisis manage-
ment and public relations skills. A new appreciation in Japan for the rights of consumers is the best
things that could come out of the scandal. The philosophy of management should be a commitment to
please their customers, to develop a competitive edge, and improve their market share in the long run.
Management decisions must create customer satisfaction and strive toward the goals and strategies to be
achieved and in the same vain meet stockholder demands. Profits are an important goal; however, the
long run orientation to pursue profits is consistent with the Japanese philosophy of management.
Japanese judiciary believes it must preserve the social-structure and this means protecting big companies,
not the individual. In Japan, companies have little reason to fear litigation; they pay small heed to con-
sumers‘ complaints. Japan has double standards and it is a place where companies can get away with ac-
tions that would never be tolerated in the United States or Europe. Management decisions are built upon
social responsibility and organization politics is an inherent part of the Japanese culture. Japanese firms
operate in the market place in a unique way so they can be competitive and meet industry wide standards
that are acceptable to employers within a given industry.
Consumer complaints have also come from Bridgestone/Firestone, and the company president all but dis-
appeared following allegations from faulty tires. The company has been mum, except for a news confer-
ence to announce the recall. This type of action could be damaging in the long run. This company must
network and meet group performance standards that will be acceptable in the market place. There is a
fine line between creating customer satisfaction and organization politics that exist among the firms with-
in a given industry. Political overtures are an inherent part of the Japanese culture, and have an impact on
the philosophy of management and decisions that are made.
Workers at a uranium reprocessing facility set off a nuclear reaction that caused two deaths and exposed
439 people to radiation. The company was under pressure to cut costs and the government failed to con-
duct adequate inspections. This is a classic illustration of Japanese management and the networking be-
tween the government and firms within this industry.
Milk sold by Snow Brand Milk Products Co., Japan‘s largest dairy failed to notify the public of the prob-
lem for two days after 14,500 people fell ill after drinking the tainted milk. Health authorities declared
Snow Brand products safe for consumption before establishing the cause of the poisoning. A reactive
approach, compared to a proactive style of management, is often exercised in making decisions of a social
responsibility philosophy of management.
One of the reasons it is hard for Japanese consumers to get a hearing is that the Product Liability Law
lacks muscle. Activist lawyers are lobbying for new measures to help the legal profession go after com-
panies. The courts need a United States-style ―discovery‖ system that would force defendants in product-
liability cases to turn over relevant documents, which is not the case now. Japanese companies aren‘t
afraid of the law. In response, consumers are advocating tougher penalties for offenders.
One of the most critical needs in Japan is for judicial reform. Japan suffers from a serious shortage of
both lawyers and judges. The consumer has no one to turn to when problems arise with products. Con-
sumers need to raise their voices if they expect to change the situation. Tougher inspectors and higher
standards could help, but corporations must improve quality—and heed the complaints of the customers
6-16
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Education.
Chapter 06 - International Management
who keep them in business. There is a need to become socially responsive to meet the needs of stake-
holders that are an inherent part of the Japanese culture.4
4
Kunii, Irene, “Stand up and Fight,” Business Week, September 11, 2000, p 54-55.
6-17
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Education.
Chapter 06 - International Management
DISCUSSION QUESTIONS
1. Why is the world economy becoming more integrated? What are the implications of this inte-
gration for international managers?
The global economy has become more integrated than ever before. Half a century of emphasis on free
trade by major industrial countries such as the United States, Great Britain, and Germany has resulted
in a gradual lowering of barriers to the free flow of goods, services, and capital among nation states.
This has enabled both large and small companies to view the world, rather than a single country, as
their marketplace. It has also enabled companies to disperse their manufacturing, marketing, and re-
search facilities to locations around the globe where costs and production conditions are most favora-
ble.
Today‘s managers in developed countries must constantly make decisions about whether and how to
pursue opportunities around the globe. Managers must also consider potential foreign competition
when making even routine strategy decisions.
2. Imagine you were the CEO of a major company. What approach to global competition would
you choose for your firm: international, multinational, global, or transnational? Why?
The approach selected would depend, at least conceptually, on the nature of the company, its goals
and objectives, its strengths and weaknesses, etc. Each of the approaches has advantages and disad-
vantages, and the CEO would need to determine which model was most consistent with the compa-
ny‘s needs.
If the company has strong core capabilities, the international model (involving the establishment of
subsidiaries in foreign countries) is an attractive one. Skills and know-how flow from the parent com-
pany to the subsidiaries, and thus the parent company maintains a high level of control.
The multinational model, by contrast, gives far more autonomy to the local subsidiary that has its own
functional units and is better able to respond to changes in the local market. This is the preferred ap-
proach if local responsiveness is a critical variable and the management of the parent company is not
overly concerned about maintaining tight control of its worldwide operations.
A CEO would choose the global organization model if the company were attempting to market a
standardized set of products globally with manufacturing conducted in a limited number of markets.
Under this approach, only the marketing and service functions are controlled by the subsidiaries.
Selecting the transnational model results in certain functions (such as research) being centralized in
the parent country with other functions concentrated in any country of the world. The main question
being: Where is the most effective location for this function? A CEO would select this model if he or
6-18
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Chapter 06 - International Management
she felt comfortable with having key functions outside the home country and had faith in the compa-
ny‘s personnel‘s ability to effectively coordinate activities and communicate among themselves.
3. Why have franchises been so popular as a method of international expansion in the fast-food
industry? Contrast this with high tech manufacturing where joint ventures and partnerships
have been more popular. What accounts for the differences across industries?
The key to fast food industry is visibility and that means locations. The franchiser has to be able to
promote the product using mass media and this requires as many locations as possible offering identi-
cal products. Franchising is the optimal approach because it allows for rapid expansion in terms of the
number of locations (since the franchisee provides much of the financing). The franchise agreement
requires that the franchisee operate in a specific manner (although as the text points out, maintaining
quality control is not always easy).
By contrast, a high tech manufacturing firm is looking for a limited number of locations where the
emphasis can be placed on quality production. While the manufacturer is highly skilled in the produc-
tion end of the business, it is often not as familiar with the host country‘s competitive conditions, cul-
ture, political system, etc., and thus needs a professional and knowledgeable local partner.
In the case of franchising, the cost associated with one or two franchises failing is not particularly
high. They can be readily replaced. However, the risk associated with establishing a high tech manu-
facturing operation is much greater, and thus the manufacturer is usually looking for both hands-on
control and a long-term relationship, and a partnership or joint venture better provides for this need.
4. What are the pros and cons of using expatriates, host-country nationals, and third-country na-
tions to run overseas operations? If you were expanding your business, what approach would
you use?
There are advantages and disadvantages of each option. Expatriates generally have the advantage of
being familiar with the parent company and how it functions. They have well-established contacts
with top management and are familiar with their approach to business. They are, in effect, an exten-
sion of top management. On the negative side, using expatriates is an expensive approach. They tend
to be paid higher salaries and often have families, which also need to be moved and housed overseas.
Using host-country nationals has an advantage in terms of cost. They are often less expensive, and
they don‘t normally have to be moved. However, their experience with the parent company and its
culture is less extensive, and thus moving a project forward aggressively may require more communi-
cation and involve more hurdles and challenges.
Third-country nationals suffer from the weaknesses of both the expatriates and host country nationals
in that they (a) have to move from one country to another and (b) may not be as familiar with the
management style and culture of the parent company. They do, however, have the advantage of not
being from the host country, and thus may be able to soften the political tensions between the parent
company and the host country.
Which would you use? Students probably will conclude that the decision will depend on the circum-
stances (what critical problems the company faces and how rapidly it wants to move ahead) and its
resources (whom it has available with the necessary skills). If the critical task is that of establishing
the operation, it might use an expatriate. However, if the main problem involves dealing with the lo-
cal labor force, contractors, etc., one might use a host-country national. A third-country national
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Education.
Chapter 06 - International Management
might be the best individual if the company wants to smooth its relationships with the local govern-
ment.
5. If you had entered into a joint venture with a foreign company, but knew that women were not
treated fairly in the culture, would you consider sending a female expatriate to handle the
startup? Why or why not?
This is one of those circumstances where one is ―damned if one does and damned if one doesn‘t.‖
Some students may argue that if the female expatriate has the appropriate skills and experience for the
position, then she certainly should be considered, and that it would be disriminatory not to consider
her. Some may think that all personnel in the company, irrespective of their sex, race, religion, etc.,
should have an equal opportunity when it comes to overseas postings.
The reality, however, is that a female expatriate may find it extremely difficult, if not impossible, to
succeed in business in a country where women are not treated fairly or are expected to play a very
subordinate role. Sending a female to such an environment may not only jeopardize the success of
the project but also harm the individual‘s career. Sending a female in this instance could be construed
as setting her up to fail.
6. What are the biggest cultural obstacles that we must overcome if we are to work effectively in
Mexico? Are there different obstacles in France? Japan?
People in different countries have very different shared values and beliefs. As Geert Hofstede indi-
cated, some societies value the quantity of life (accomplishments, money, etc.) far more than the qual-
ity of life (compassion, beauty, etc.). In some countries, the society believes firmly in collective deci-
sion making, whereas in other countries, tremendous emphasis is placed on individualism.
In Mexico there is a relatively high level of both collectivism and power distance in that they tend to
see power in organizations as being distributed unequally. Rather surprisingly, Japan shows some-
what less emphasis on collectivism (although it is known for this characteristic), and society sees
power more evenly spread in organizations. France, by contrast, is in the southeast quadrant and
places a relatively high emphasis on individualism even though it is somewhat between Mexico and
Japan on the power scale.
More pragmatically, students will probably mention the importance of the siesta in Mexico and, pos-
sibly, the prevalence of bribery. In France, they may mention the cultural anti-Americanism, the love
of wine, the August vacation period, and the importance of the tour de France. In Japan, some of
popularly mentioned cultural characteristics are collective decision-making, the relatively low posi-
tion of women in both society and business, the emphasis on continuing meetings at local geisha
houses, etc. While some of these perceptions may be stereotypical (and not universally valid), they
should be considered when dealing with the local culture.
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Education.
Chapter 06 - International Management
EXPERIENTIAL EXERCISES
Objective
To understand how companies compete in the global marketplace.
Instructions
An effective way to learn how companies respond to the competing pressures to be globally integrated
and locally responsive is to study them in action. Referring back to Exhibit 6.6, search online for exam-
ples of companies that are currently using a global, transnational, international, or multinational organiza-
tional model. Please provide answers to the following questions:
6-21
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Education.
Chapter 06 - International Management
Source: Adapted from R.R. McGrath Jr., Exercises in Management Fundamentals, 1st, p. 177. Copyright
1985.
Assume you are a cross-cultural anthropologist. In this role, please visit multiple public places that are
frequented by one or more ethnic or cultural groups. Observe four to five behaviors that strike you as
unique or different compared to what you consider to be ―normal.‖ After you make your observations,
walk to a quiet location and record what you observed in a notebook or mobile device. Think about why
these behaviors caught your attention in the first place and then analyze them from the perspective of
Hofstede‘s cultural dimensions (individualism, power distance, uncertainty avoidance and masculinity).
Learning Objectives:
1. To help students interpret in a more culturally neutral manner non-verbal communication.
2. To encourage students to understand their own reactions to different cultural behaviors.
3. To reinforce the importance of observation skills in cross-cultural encounters.
Steps:
1. Visit multiple public places where you can observe the behaviors of one or more ethnic or cultur-
al groups. Example include major airports, ethnic associations, foreign consulates, religious enti-
ties, cultural centers, museums, and cultural or affinity groups at universities.
Source: Adapted from L.R. Kohls and J.M., Knight, Cross-cultural journal in Developing Intercultural Awareness:
A Cross-cultural Training Handbook (Yarmouth, Maine: Intercultural Press, 1994), p. 67.
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Education.
Chapter 06 - International Management
CONCLUDING CASE
Case Summary:
Net-Work Docs is a start-up company founded to help business clients create and manage their doc-
uments electronically. Its founders, Nina Jones and Matt Smith, are planning to launch Net-Work
Docs as a global company, serving clients in any country. They assume businesses around the world
need to document policies and procedures, and the software and support will be easy to distribute
online.
However, potential investors have questioned whether a company can operate globally before it has
built a local reputation for good service. The founders believe that by setting up an English-language
website, they will start by serving English-speaking clients whose culture will not be much different
from theirs.
QUESTIONS
1. What are some possible advantages of Net-Work Docs serving a global market?
Suggested Response:
The obvious advantage is a larger pool of potential customers. In addition, Net-Work Docs may find
that some countries‘ markets are only beginning to switch to electronic documents, and in such mar-
kets, the company can establish a good reputation and brand recognition before much competition ar-
rives.
2. How are the founders balancing pressures for global integration and local responsiveness? Is their
global strategy likely to succeed? Why or why not?
Suggested Response:
The founders seem to hope they can succeed by offering businesses worldwide a service designed for
their local market, rather than researching each country‘s business needs. To some extent, needs for
documentation do exist worldwide. However, the founders are likely to find many differences in the
specific requirements and business practices of business customers in other countries. The plan to
minimize differences by creating an English-only website is a risky one. First, English is spoken as a
first language or business language in a wide variety of countries. Second, it is possible to attract non-
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Education.
Chapter 06 - International Management
English-speaking customers who have used translation software to render the website in their own
languages.
Suggested Response:
Relevant skills of a global manager include integrity, insightfulness, commitment, risk taking, and
sensitivity to cultural differences (useful in selling and providing after-sales services). Managers us-
ing feedback, being culturally adventurous and flexible, being open to criticism, and seeking opportu-
nities to learn also would help Net-Work Docs succeed.
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Education.
Chapter 06 - International Management
EXAMPLES
Example 6.1 – Global Environment: In June, 2007, the ―Fast Company‖ magazine did a cover
story on ―China‘s New Creative Class: How a Dynamic, Business-Savvy Generation is Poised to
Redefine Product Design, Architecture, Fashion, and Entertainment.‖ Profiled inside were nine
young Chinese people, all of whom are at the heart of China‘s creative revolution - the founder of
a gallery showcasing China‘s new street culture, a member of the Creative Committee for the
2008 Olympics, the publisher of an art magazine, a furniture and ceramics maker, an actress, ar-
chitects, a DJ, a graphic designer, and a fashion designer. If you read a little more closely, you
begin to realize how truly global all these people are - the fashion designer studied in London, the
architects have offices in Beijing, but are working on a huge project in Toronto, the DJ built his
skills in Japan, the furniture designer is selling her works in Milan, the Olympic Committee
member worked in New York before coming home to Beijing, and the actress, Ziyi Zhang, is an
international star. China is no longer just a manufacturer for Wal-Mart - it is looking to use inno-
vation and creativity to awe the world.5
Example 6.2 – Global economy consequences: Naresh Goyal, the founder and chairman of Jet
Airways, is ready for his airline to take off. Jet Airways is the largest private airline in India. To-
day, Jet Airways is expanding its service worldwide - from India to London, Brussels, New York,
Toronto, Shanghai, and even Johannesburg. Part of the expansion is based on the fact that Indian
expertise is in demand all over the world, and Indians who leave their home country for work in
other countries still want to come back to visit family and friends. Additionally, part of the ex-
pansion is because Jet Airways is having a difficult time competing in its own domestic market,
where several new low-cost carriers have pushed fares unacceptably low.6
Example 6.3 - Global strategy systems: To compete in the global marketplace, GE uses a mul-
tinational system that consists of independent company subsidiaries in other countries and pro-
vides great discretion to those subsidiaries to respond to local conditions. For example, in India,
GE has a stake in GE Capital International Services (GECIS.) GECIS is now an independent
company, and GE owns less than half of it, which allows for even greater local flexibility.7 Other
systems include international (extending current strength into other countries), global (centralized
decision making for a company‘s foreign arms), and transnational organization models (basing
functions of a company in the country that is most favorable).
Example 6.4 – Difference between franchising and licensing: Students often want to know
more about the differences between franchising a business and licensing a business (or a business
opportunity.) According to an article at Entrepreneur.com8, there are four key areas of difference
between the two:
Common Name
Franchise: A franchisee's business is identified by the franchisor's trademark.
5
Chen, Aric. “The Next Cultural Revolution.” Fast Company, June, 2007, Vol. 116, pp. 65-75.
6
The Economist. “Taking Flight.” Sept. 8, 2007, pg. 70.
7
O‟Connell, P. “GE‟s Indian adventure.” Business Week, August 22, 2005. Online at
http://www.businessweek.com/magazine/content/05_34/b3948459.htm
8
Seid, Michael H. and Ainsley, Kay Marie. “Franchisees and licensees - what‟s the difference?” Entrepreneur.com,
http://www.entrepreneur.com/article/0,4621,276740,00.html.
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Education.
Chapter 06 - International Management
Example 6.5 – Joint ventures: CNH Case New Holland is a manufacturer and supplier of agri-
cultural equipment. Owned by Fiat, the Italian automobile manufacturer, CNH is a conglomerate
of some of the biggest names in the agricultural equipment business - International Harvester,
New Holland Machine Company, and Case in the American market, Steyer in the Austrian mar-
ket, and Braud in the French market. Today, CNH continues to create joint ventures with busi-
nesses all across the globe - with the Shanghai Tractor and Internal Combustion Engine Corpora-
tion (STEC), with the BNP Paribas Lease Group in France, with the Kobelco Construction Ma-
chinery Co., Ltd. in Italy - the list goes on and on. CNH has distributorships in 160 countries - it
is truly a global business.9
Example 6.6 – Cultural differences: High costs and difficulties associated with expatriation, to-
gether with the impact of cultural differences are leading some companies to develop local man-
agers in the countries in which they operate. To accomplish this, Enrique Tarelli, Outplace-
ment/Career Management Director for Sociologia de Empresa in Argentina, uses an immersion
process aimed at acquiring a wide range of competencies, such as, knowledge, developing rela-
tionships with people all over the world, the ability to operate at the highest standards, and inter-
acting with culturally different environments.10
Example 6.7 – Multidimensional perspective: When Texas Pacific Group, a private-equity firm
was looking for a new manager to help oversee venture deals, they went global - to Vivek Paul,
the vice chairman of Wipro Ltd., an Indian information-technology and outsourcing company.
Mr. Paul demonstrated multidimensional perspective by leading companies from different busi-
nesses and cultural adaptability by working with countries that are based in different countries.11
Example 6.8 – Working with foreign nationals: Straddlers. Navigators. Learners. These are
the terms the employees at Grupo Gallegos, an advertising agency in Long Beach, CA, use to de-
scribe different sorts of Hispanics in the U.S. Who are they? The Learners are foreign born, and
9
http://www.cnh.com/about/about.asp.
10
Tarelli, Enrique. “How to transfer responsibilities from expatriates to local nationals.” SHRM Information Center. January 2003.
11
Sender, H. “Texas Pacific brings in Paul of Wipro, Ltd.” Wall Street Journal, June 30, 2005.
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Education.
Chapter 06 - International Management
they speak Spanish primarily. On average, they have 3 children, and 65% of them rent their
homes. The Straddlers immigrated to the U.S. at a young age. Most of them are in blue collar or
semi-professional jobs, and while they are bilingual, they still speak mostly Spanish. Navigators
speak primarily English, although they know some Spanish. 78% of them have at least some col-
lege, 60% of them own their own homes, and their average household income is $76,000 a year.
What is interesting is how different the cultures of all of these groups can be, even though most
people would simply lump them together under the title of ―Hispanic.‖. With Learners, most ad-
vertising agencies use what Gallegos refers to as ―abuelita advertising‖ - commercials showing a
mother and grandmother in the kitchen, both talking about how great a particular product is. But
Gallegos recently reached out to Straddlers in a unique way. In an ad for Tecates Beer, a young
man named Basilio puts up with people mispronouncing his name all day, but when he walks into
a bar full of Latinos, they all say his name correctly as they raise their Tecates beers.12
12
Gorney, Cynthia. “How Do You Say „Got Milk” en Español?” The New York Times, Sept. 23, 2007,
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Education.
Chapter 06 - International Management
SUPPLEMENTAL FEATURES
Please see the following additional materials in Connect.
CHAPTER VIDEO
Ch 6 Walmart
Mass Mart is a well-known company in Africa that Walmart has decided to acquire. The compa-
ny has a strong management team and represents an emerging market. Walmart‘s strategy in Af-
rica is to pursue growth city by city rather than country by country. This strategy is beneficial for
allowing Walmart to understand the market. Walmart believes the markets they are currently ex-
ploring, including Africa, represent great opportunities for growth.
Walmart can rely on Mass Mart‘s existing management team and customer base.
Do you see any drawbacks to Walmart’s recent decision to acquire the Mass Mart chain in South
Africa?
Some critics think Walmart‘s growth in Africa will damage Africa‘s home-grown businesses.
Walmart believes that by creating jobs they empower residents to, in turn, purchase products and
continue to grow the economy.
I. Introduction
The internationalization of companies has created the need to become more aware of cultural dif-
ferences in order to successfully conduct business. This scenario depicts a situation where indi-
viduals in a business relationship have incongruent cultural norms and values. Using this vignette
as a springboard to discussing how to manage cultural differences in the global economy would
be valuable for students of Management, Organizational Behavior, or Human Resources.
1. To assess students‘ understanding of different cultural values and their impact on business rela-
tionships.
2. To analyze and evaluate a cross-cultural business meeting.
3. To explore aspects of self-awareness using Johari‘s Window as a model.
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Education.
Chapter 06 - International Management
Overview: Michael Sokolow has just been tasked with handling international clients. He needs
to close a deal with Norio Tokunaka from PopWear that has already been thoroughly worked out
with Sokolow‘s predecessor, Roger Small. Michael is unaware of the need to establish a relation-
ship with Norio before he discusses business. Norio becomes disenchanted and refuses to sign the
deal.
Profile:
Michael Sokolow is the Director of Foreign Sales at Mustang Jeans. After working at
Mustang as a real estate attorney for six years, acquiring property for retail and manufac-
turing, Sokolow moved into sales at an executive level.
Norio Tukunaka has worked at PopWear, a large retail clothing chain for his entire ca-
reer. In his current position as Vice President of Merchandising, Norio is responsible for
expanding the contemporary clothing line, which includes adding new suppliers and
brands for PopWear‘s 36 stores throughout Japan.
Back History: Michael Sokolow has been a sales manager at Mustang Jeans for two years. He
was ―recruited‖ or ―wooed away‖ from a competing company. He was given ―an offer you can‘t
refuse‖, an indication of his stellar reputation. Sokolow is very much a no-nonsense straight-
ahead kind of guy. He is friendly, but not big on small talk. He fits the stereotypical American
businessman in many ways – informal, a little loud, all about money, very direct and forthright.
Michael‘s career has focused in national sales – this is his first foray into international business.
Mustang Jeans is reorganizing to increase efficiency – all managers are now assuming larger ter-
ritories.
Tokunaka has been with PopWear for his entire career. He has been working with American
companies for many years, importing a variety of products. Most of these American companies
are alliances that were formed by Tokunaka‘s superiors, many years before. All of Tokunaka‘s
accounts are pre-existing accounts as opposed to newly created accounts. This year, PopWear is
expanding their contemporary clothing line, which includes adding new suppliers and new
brands.
Tokunaka has been working on a deal with Michael‘s associate for a very long time. Michael has
just taken over this region. The prior associate‘s report indicates that the Tokunaka account is a
done deal, with only logistics and details remaining. Sokolow and Tokunaka are having their first
meeting.
Scene Set-up: Norio arrives at Michael‘s office after arriving from Japan.
The Meeting - Summary: Michael spends less than a minute building rapport with Norio. He
then begins to talk about signing the deal that had been previously worked out with Small. Norio
wants to continue to talk about good Japanese food and seems insulted that Michael doesn‘t like
eel. Michael continues to press for the deal but Norio is very evasive. Michael then gets inter-
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Chapter 06 - International Management
rupted by his assistant notifying him of his next appointment. He apologizes to Norio about the
short amount of time that he has to spend with him. Norio says he‘ll just leave and come back
later in the week.
3 Days Later – Norio comes back and Michael apologizes for the prior meeting. When asked to
sign the deal again, Norio suggests that he‘s been talking to other companies in the past few days
in New York. He doesn‘t commit to the deal and says he‘d enjoy hosting Michael in Japan and
hopes they can maintain their relationship. He leaves before signing the deal to catch a plane.
Afterthoughts – Summary: Michael notes his frustration with the interaction. He acknowledges
that he should have waited for Norio to start talking about the deal first. He understands that the
Japanese businesspeople place a high priority on the relationship but also points out that he didn‘t
have a long time to devote to small talk when it was unclear whether Norio was going to sign the
deal or not.
The References and related Discussion Questions may be found in PowerPoint slides 8-1 to 8-11.
Learning Objective #1: To assess students’ understanding of different cultural values and their impact on
business relationships.
1. How did the differences between Japan‘s and the United States‘ national cultural values affect the
interaction between Norio and Michael? Use the information on PPT 8-3 and 8-4 to support your
answer.
Long-term orientation differences seemed to have a major impact. While Norio is likely to value
a long-term approach to developing and conducting business, Michael‘s relatively shorter-term
approach was insulting to Norio. However, Norio demonstrates less achievement orientation than
Michael in this particular scenario which is somewhat contradictory to Hofstede‘s research. You
may ask students their opinions and alternative explanations for this.
2. Hofstede‘s research on national cultural values has practical implications for business people.
Assume you are Michael and you have to conduct a similar meeting with another client from
Russia. How will you modify your behavior to effectively conduct business with this individual?
Use the information on PPT 8-3 and 8-4 to support your answer.
Student‘s answers will vary. Students should incorporate the fact that Russians tend to have a
short-term orientation, much like Americans, in their answer.
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Chapter 06 - International Management
Michael says ―let‘s get the ball rolling‘ indicating that he‘s trying to pressure Norio into signing
the agreement because it‘s important to the company and he has other business to attend to.
Seems to be a failure, they neither established a firm relationship or accomplished Michael‘s goal of
signing the deal.
1. What information should Michael have possessed before his meeting with Norio?
Michael should have been better prepared by Roger as to what to expect from Norio. He needed
to know the history of the interactions and the best way to proceed and to explain the transition to
Michael.
Even though the deal was almost done, Norio was expecting to now build a relationship with Mi-
chael. He seems to be offended that his contact has been reassigned and is unsure he wants to
move forward.
He misses Roger and that fact he knows Roger likes sushi indicates that they had a gotten
to know each other. He expects to develop a relationship with his business associates and
Michael wants to get right to business.
3. What could Michael have done better in the second meeting to continue the business relationship?
Learn more about the cultural differences at play. He also could have tried to contact Norio earli-
er and ask him to a social event (like the competition did) to begin to build the relationship. He
makes the same mistake in the second meeting by again insisting on signing the deal. His apolo-
gy for the first meeting is appropriate and seems to be well-received but is not enough to woo
back Norio.
4. Norio is indicating [when he says he‘s been meeting with other people]:
A. There‘s competition
B. He enjoyed trip
C. Deal is off
He‘s suggesting that there is competition but Michael doesn‘t seems to grasp that and
makes a flippant comment that he expected Norio would have other meetings while in
New York. Michael doesn‘t take this opportunity to discuss his stay in New York, but
instead tries even harder to have Norio sign the deal.
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Chapter 06 - International Management
It was probably insulting because it insinuated that Norio‘s language ability may have been con-
tributing to the problem. They were misunderstanding each other because there was a lack of
sensitivity to each other‘s cultural norms.
4. Both individuals in this scenario were acting in alignment with their cultural norms and values.
Who should have the primary responsibility for changing their interaction style? When is it ―too
much‖, as Michael suggests in the Afterthoughts, and necessary to refuse to change one‘s busi-
ness style?
This question should generate an interesting discussion among students. Some factors to consider
may be who has more to gain (leverage) in the situation, whose values and norms are relatively
stronger, etc.
Learning Objective #3: To explore aspects of self-awareness using Johari’s Window as a model.
1. Apply the concepts of the Johari Window to this scenario (see PPT 8-10 and 8-11). How do these
concepts help explain what happened in this scenario?
As relationships progress, more information about oneself becomes known to others and to one-
self. Disclosure and feedback flow more freely which enhances a relationship. In this scenario,
Michael was not disclosing at all and did not seem to interpret subtle hints of feedback. This ap-
proach was not consistent with what Norio had come to expect from his interactions with Roger.
6. Michael should [when Norio says ―I‘m sure we‘ll have a good relationship in the fu-
ture‖]:
A. Be angry
B. Be gracious
C. Keep trying
At this point, being angry or continuing to try would not result in positive outcomes. He needs to
be gracious and then reevaluate his approach with Norio.
SELF-ASSESSMENT
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Another random document with
no related content on Scribd:
172. General Rules.
1. If the front is very extended, or if it runs through close or broken
country, it may be broken up into sections of defence.
2. When acting independently the officer commanding will himself
give the signal for the decisive counter-attack. This attack will, as a
rule, be commanded by the officer specially detailed to command the
general reserve.