International Management

What is Management
"Management is the art of getting things done through and
with people in formally organized groups."

Harold Koontz gave this definition of management in his book "The Management Theory Jungle".
"Management is a multi-purpose organ that manages
business and manages managers and manages workers
and work."
This definition of management was given by Peter Drucker in his book "The Principles of
Management".

Management 9/e - Chapter 5 2
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Definition - International Management

International Management deals with the maintenance and
development of a multinational operation across national
borders, whose manager has the knowledge and the skills
to manage and handle cross-cultural processes,
stakeholders and environments in a right way.

What is an Organization? What is the task of
Management
A social unit of people, systematically structured and managed to meet a need or to
pursue collective goals on a continuing basis.
All organizations have a management structure that determines relationships between
functions and positions, and subdivides and delegates roles, responsibilities, and authority
to carry out defined tasks.
Organizations are open systems in that they affect and are affected by the environment
beyond their boundaries.

Long run: Survival
Intermediate run: Adaptation, Responsiveness
Short run: Productivity, Efficiency

It is managements task to create the best possible fit between the external and
internal environments of the organization and must ensure internal consistency
between the organizations elements.
The Organization
The External Environment

Economy

Social
Environment

Technological
Environment
Political
Environment

The Internal Environment


People

7 N

Processes^ + Structure
Business
Strategy

N 7
Culture

Effectiveness

The International Organization
The External Environment

CULTURE
Multiple
Economies

Multiple
Societies

Multiple
Technological
Environment
Multiple
Political
Environment

The Internal Environment


People

7 N

Processes^ + Structure
Business
Strategy

N 7
Culture

Effectiveness

Main Areas we are looking at..
What are the international business challenges of
globalization?
What are multinational corporations and what do they
do?
What is culture and how does it relate to global
diversity?
How do management practices transfer across
cultures?
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Reasons for becoming international
1. A desire for continued growth.
2. Domestic market saturation
3. The potential to now exploit a new technological
advantage
4. Preferable suppliers (quality, cost)
5. Labor market (supply, quality, cost)
6. Government involvement/restrictions
7. Reducing distance to customers (cost)
8. Tariff barriers
9. Increased foreign competition in home country
10. Reduce general business risk by diversifying into
other countries

Reasons for becoming international


Profit = Revenue Cost

Profit = (Volume*Price) - Cost



Reasons for becoming international
Profit = Revenue Cost = (Volume*Price) Cost

1. A desire for continued growth. VOLUME
2. Domestic market saturation VOLUME
3. The potential to now exploit a new technological advantage
4. Preferable suppliers (quality, cost) PRICE, COST
5. Labor market (supply, quality, cost) PRICE, COST
6. Government involvement/restrictions COST
7. Reducing distance to customers COST
8. Tariff barriers COST
9. Increased foreign competition in home country VOLUME,
PRICE
10. Reduce general business risk by diversifying into other
countries

International business models
Adam Smith Model

Adam Smith displays trade taking place on the basis of
countries exercising absolute cost advantage over one
another

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Ricardian model
The Ricardian model focuses on comparative advantage, perhaps the most important concept in
international trade theory. In a Ricardian model, countries specialize in producing what they produce
best, and trade occurs due to technological differences between countries. Unlike other models, the
Ricardian framework predicts that countries will fully specialize instead of producing a broad array of
goods.

Also, the Ricardian model does not directly consider factor endowments, such as the relative
amounts of labor and capital within a country. The main merit of Ricardian model is that it assumes
technological differences between countries.Technological gap is easily included in the Ricardian
and Ricardo-Sraffa model.

The Ricardian model makes the following assumptions:
Labor is the only primary input to production (labor is considered to be the ultimate source of value).
Constant Marginal Product of Labor (MPL) (Labor productivity is constant, constant returns to scale,
and simple technology.)
Limited amount of labor in the economy
Labor is perfectly mobile among sectors but not internationally.
Perfect competition (price-takers).

The Ricardian model applies in the short run, so that technology may vary internationally. This
supports the fact that countries follow their comparative advantage and allows for specialization.

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New Trade Theory


New Trade Theory tries to explain practicle elements of trade.

These include the fact that most trade is between countries with
similar factor endowment and productivity levels, and the large
amount of multinational production (i.e. foreign direct investment) that
exists.

New Trade theories are often based on assumptions such as
monopolistic competition and increasing returns to scale. One result
of these theories is the home-market effect, which asserts that, if an
industry tends to cluster in one location because of returns to scale
and if that industry faces high transportation costs, the industry will be
located in the country with most of its demand, in order to minimize
cost.

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Gravity model

The Gravity model of trade presents a more empirical
analysis of trading patterns.

The gravity model, in its basic form, predicts trade based
on the distance between countries and the interaction of
the countries' economic sizes. The model mimics the
Newtonian law of gravity which also considers distance and
physical size between two objects. The model has been
proven to be empirically strong through econometric*
analysis.

(the application of mathematics and statistical methods to economic data)

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Study Question 1: What are the international business challenges of
globalization?

Key concepts in the challenges of globalization:
Global economy
Globalization
International management
Global manager
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Study Question 1: What are the international business challenges of
globalization?

-Global economy
Resource supplies, product markets, and business competition are
worldwide, rather than local
-Globalization
The process of growing interdependence of these components in
the global economy
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Study Question 1: What are the international business challenges of
globalization?

-International management
Management in organizations with business interests in more
than one country
-Global manager
Informed about international developments
Transnational in outlook
Competent in working with multicultural people
Aware of regional developments in a changing world
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An International Organization,

operates in multiple environments,
home country and one or more host countries,
has foreign sales,
and a nationality mix of managers and owners.


Study Question 1: What are the international business challenges of
globalization?

-International businesses
Conduct for-profit transactions of goods and services across
national boundaries
-Reasons why businesses go international:
Profits
Customers
Suppliers
Capital
Labor

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Study Question 1 What are the international business challenges of
globalization?
Market entry strategies involve the sale of goods or
services to foreign markets but do not require
expensive investments.
Types of market entry strategies:
Global sourcing
Exporting
Importing
Licensing agreement
Franchising
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Figure 5.1 Common forms of international businessfrom market
entry to direct investment strategies.
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Study Question 1 What are the international business challenges of
globalization?

Direct investment strategies require major capital
commitments but create rights of ownership and control
over foreign operations.
Types of direct investment strategies:
Joint ventures
Foreign subsidiaries
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Study Question 1 What are the international business challenges of
globalization?

Criteria for choosing a joint venture partner:
Familiarity with your firms major business.
Strong local workforce.
Future expansion possibilities.
Strong local market for partners own products.
Good profit potential.
Sound financial standing.
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Study Question 1 What are the international business challenges of
globalization?
Complications in the global business environment:
Environment is complex, dynamic, and highly competitive.
Global business executives must deal with differences in the
environment of business in different countries.
World Trade Organization resolves trade and tariff disputes
among countries.
Protectionism can complicate global trading relationships.
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Study Question 2: What are multinational corporations and what do they
do?

A multinational corporation (MNC) is a business with
extensive international operations in more than one
foreign country.
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Study Question 2: What are multinational corporations and what do they
do?

Mutual benefits for host country and MNC:
Shared growth opportunities
Shared income opportunities
Shared learning opportunities
Shared development opportunities


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Study Question 2: What are multinational corporations and what do they
do?

Host country complaints about MNCs:
Excessive profits
Domination of local economy
Interference with local government
Hiring the best local talent
Limited technology transfer
Disrespect for local customs

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Figure 5.2 What should go right and what can go wrong in
MNC-host country relationships.
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Study Question 2: What are multinational corporations and what do they
do?

MNC complaints about host countries:
Profit limitations
Overpriced resources
Exploitative rules
Foreign exchange restrictions
Failure to uphold contracts

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Study Question 2: What are multinational corporations and what do they
do?

Ethical issues for MNCs:
Corruption illegal practices that further ones business
interests.
Sweatshops employing workers at low wages for long
hours and in poor working conditions.
Child labor full-time employment of children for work
otherwise done by adults.
Sustainable development meeting current needs without
compromising future needs.
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Study Question 3: What is culture and how does it relate to global
diversity?

Culture
The shared set of beliefs, values, and patterns of behavior
common to a group of people.
Culture shock
Confusion and discomfort a person experiences in an unfamiliar
culture.
Cultural intelligence
The ability to adapt and adjust to new cultures
Ethnocentrism
Tendency to consider ones own culture as superior to others.


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Study Question 3: What is culture and how does it relate to global
diversity?
Stages in adjusting to a new culture:
Confusion
Small victories
The honeymoon
Visitors in the honeymoon stage view the new culture as something exciting and fresh. Differences in culture and
appearance seem fascinating, while similarities stand out as common bonds
Irritation and anger
Reality
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Study Question 3: What is culture and how does it relate to global
diversity?
Popular dimensions of culture:
Language
Low-context cultures and high-context cultures
Interpersonal space
Time orientation
Monochronic cultures and polychronic cultures
Religion
Contracts and agreements
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Management 9/e - Chapter 5 34
The terms monochron and polychron have to do with our time sense: how we perceive and
manage time.

To a polychron, time is continuous, with no particular structure. Polychrons see time as a never-
ending river, flowing from the infinite past, through the present, into the infinite future.
In the workplace, polychrons prefer to keep their time unstructured, changing from one activity
to another as the mood takes them. Although polychrons can meet deadlines, they need to do
so in their own way. A polychron does not want detailed plans imposed upon him, nor does he
want to make his own detailed plans. Polychrons prefer to work as they see fit without a strict
schedule, following their internal mental processes from one minute to the next.
Monochrons see time as being divided into fixed elements that can be organized, quantified and
scheduled.

Monochrons relate to time differently: to them, time is discrete, not continuous. Monochrons
see time as being divided into fixed elements seconds, minutes, hours, days, weeks, and so
on temporal blocks that can be organized, quantified and scheduled. Monochrons love to plan
in detail, making lists, keeping track of their activities, and organizing their time into a daily
routine.
Monochrons prefer to do one thing at a time, working on a task until it is finished, then, and
only then, moving on to the next task. To a monochron, switching back and forth from one
activity to another is not only wasteful and distracting, it is uncomfortable.

Polychrons are different. They love to work on more than one thing at a time. To a polychron,
switching from one activity to another is both stimulating and productive and, hence, the most
desirable way to work.
Study Question 3: What is culture and how does it relate to global
diversity?
Values and national cultures (Hofstede):
Power distance
Uncertainty avoidance
Individualism-collectivism
Masculinity-femininity
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Hofstede's Intercultural Dimensions
Power Distance

This dimension relates to the degree of equality/inequality between people in a particular society.

A country with a high Power Distance score both accepts and perpetuates inequalities between
people. An example of such a society would be one that follows a caste system and in which upward
mobility is very limited.

A low Power Distance indicates that a society does not emphasise differences in people?s status,
power or wealth. Equality is seen as the collective aim of society and upward mobility is common.

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Management 9/e - Chapter 5 37
Individualism

This dimension focuses on the degree to which a society reinforces
individual or collective achievement and interpersonal relationships.

If a country has a high Individualism score, this indicates that
individuality and individual rights are dominant. Individuals in these
societies tend to form relationships with larger numbers of people, but
with the relationships being weak.

A low Individualism score points to a society that is more collectivist in
nature. In such countries the ties between individuals are very strong
and the family is given much more weight. In such societies members
lean towards collective responsibility.
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Uncertainty Avoidance

This dimension concerns the level of acceptance for uncertainty and
ambiguity within a society.

A country with a high Uncertainty Avoidance score will have a low
tolerance towards uncertainty and ambiguity. As a result it is usually a
very rule-orientated society and follows well defined and established
laws, regulations and controls.

A low Uncertainty Avoidance score points to a society that is less
concerned about ambiguity and uncertainty and has more tolerance
towards variety and experimentation. Such a society is less rule-
orientated, readily accepts change and is willing to take risks.
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Masculinity

This dimension pertains to the degree societies reinforce, or do not
reinforce, the traditional masculine work role model of male achievement,
control, and power.

A high Masculinity score indicates that a country experiences a higher
degree of gender differentiation. In such cultures, males tend to dominate
a significant portion of the society and power structure.

A low Masculinity score means a society has a lower level of differentiation
and inequity between genders. In these cultures, females are treated
equally to males in all aspects of the society.
Figure 5.3 How countries compare on Hofstedes dimension of national
culture.
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Study Question 3: What is culture and how does it relate to global
diversity?
Project GLOBE (Global Leadership and Organizational
Behavior Effectiveness)
Researches the leadership, organizational practices, and diversity
among world cultures.
Power distance
Uncertainty avoidance
Gender egalitarianism
Future orientation
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Study Question 3: What is culture and how does it relate to global
diversity?
Project GLOBEs nine dimensions continued

Institutional collectivism
In-group collectivism
Assertiveness
Performance orientation
Humane orientation


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Figure 5.4 Nine cultural dimensions used by Project GLOBE
researchers.
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A large team of international researchers collaborated in Project GLOBE to examine societal cultures using the nine cultural dimensions
shown in the figure. When results from extensive empirical studies were analyzed for 62 countries, they were found to fall into ten culture
clusters. Countries within a cluster share many societal cultural practices; countries tend to differ significantly across clusters in their cultural
practices.
Study Question 3: What is culture and how does it relate to global
diversity?
Understanding cultural differences (Trompenaars):
Relationships with people:
Universalism versus particularism
Individualism versus collectivism
Neutral versus affective
Specific versus diffuse
Achievement versus prescription
Attitudes toward time sequential and synchronic views.
Attitudes toward environment inner-directed and outer-
directed cultures.
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Study Question 4: How do management practices transfer across
cultures?
Comparative management
How management systematically differs among countries
and/or cultures.
Global managers
Need to successfully apply management functions across
international boundaries.
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Study Question 4: How do management practices transfer across
cultures?

Are management theories universal?
U.S. management theories may be ethnocentric.
Participation and individual performance are not emphasized as
much in other cultures.
Not all Japanese management practices can be applied
successfully abroad.
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Study Question 4: How do management practices transfer across
cultures?
Global organizational learning:
Companies can and should learn from each other.
Readiness for global organizational learning varies based on
managerial attitudes.
Ethnocentric attitudes
Polycentric attitudes
Geocentric attitudes
Be alert, open, inquiring, but always cautious.
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